[Paper Review] Financial Deepening and Economic Growth in Select Emerging Markets with Currency Board Systems: Theory and Evidence

Yujuan Qiu|arXiv (Cornell University)|Jun 1, 2024

Global Financial Crisis and Policies7 citations

TL;DR

The paper examines indicators of financial development in countries with currency board systems and explores the link between financial deepening and growth, highlighting Hong Kong as a key case and discussing implications after the 2008–09 crisis.

ABSTRACT

This paper investigates some indicators of financial development in select countries with currency board systems and raises some questions about the connection between financial development and growth in currency board systems. Most of those cases are long past episodes of what we would now call emerging markets. However, the paper also looks at Hong Kong, the currency board system that is one of the world's largest and most advanced financial markets. The global financial crisis of 2008 09 created doubts about the efficiency of financial markets in advanced economies, including in Hong Kong, and unsettled the previous consensus that a large financial sector would be more stable than a smaller one.

Motivation & Objective

• Assess indicators of financial development in currency board system economies.
• Investigate the relationship between financial deepening and economic growth under currency board regimes.
• Discuss stability and efficiency of financial markets in advanced and emerging contexts within currency boards.
• Highlight Hong Kong as a leading example and consider lessons from crisis periods.

Proposed method

• Review and synthesize indicators of financial development in currency board economies.
• Theorize about channels linking financial deepening to growth under currency boards.
• Examine Hong Kong as a leading case and relate findings to crisis-period evidence.

Experimental results

Research questions

• RQ1 What is the connection between financial deepening and economic growth in currency board systems?
• RQ2 How do currency board arrangements influence the efficiency and stability of financial markets in both emerging and advanced contexts?
• RQ3 What lessons does Hong Kong provide for the relationship between financial development and growth under currency board regimes?

Key findings

• The paper analyzes indicators of financial development in select currency board economies.
• It raises questions about the linkage between financial development and growth in currency board contexts.
• Hong Kong is discussed as a major example of a highly developed financial market within a currency board system.
• The 2008–09 global financial crisis is used to reassess assumptions about the stability of large financial sectors under currency boards.