Financial Development in Asia

‘Financial development’ is a relatively modern concept in economics. Its origins go back to the early 1950s when the American economist, Raymond Goldsmith, published a series of monumental statistical studies designed to measure the evolution of financial structure in the course of economic development. But the modern idea of financial development, as a process and as a strategy, is due to two books, both published in 1973: Financial Deepening in Economic Development by E.S. Shaw, and Money and Capital in Economic Development by R.I. McKinnon. They have given rise to a large literature on what has become almost a new branch of economics and have transformed thinking about the role of money, banks and other financial institutions in economic development, and about the policies most likely to enhance this role. The first part of this article outlines what is meant by the process and strategy of financial development; the second part gives some illustrations of the issues drawn from recent Asian experience.