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Myths of the West : lessons from developed countries for development finance

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  • Mayer, Colin

Abstract

Over the years, World Bank missions recommended establishing development finance companies (DFCs) to provide long term financing for worthwile ( primarily industrial ) projects. The author reviews the DFCs performance and states that in general, it has been disappointing. Few are self supporting; a third are in serious difficulty, and by 1983 half of the banks had arrears on a quarter of their loans. By the early 1980s, the Bank's wisdom in establishing DFCs was being questioned. From the recent experience of a group of developed countries, the author concludes that : 1) an efficient banking system is central to the promotion of economic growth, 2) the performance of financial markets is not necessarily furthered by artificially lengthening the maturity of bank lending, 3) economic growth is not promoted through the financing of projects, 4) corporate organization, not project activity, is what distinguishes developed from developing countries. Economic growth relies on the structure and quality of financial institutions., and 5) financial assistance is only part of what is needed to create an appropriate institutional structure. Monitoring and rewarding individuals may often be more pertinent.

Suggested Citation

  • Mayer, Colin, 1989. "Myths of the West : lessons from developed countries for development finance," Policy Research Working Paper Series 301, The World Bank.
    • Handle: RePEc:wbk:wbrwps:301
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    References listed on IDEAS

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    Cited by:

    1. Demirguc-Kunt, Asli, 1992. "Developing country capital structures and emerging stock markets," Policy Research Working Paper Series 933, The World Bank.
    2. Feldman, Robert A & Kumar, Manmohan S, 1995. "Emerging Equity Markets: Growth, Benefits, and Policy Concerns," The World Bank Research Observer, World Bank, vol. 10(2), pages 181-200, August.
    3. Joseph E. Stiglitz, 1991. "Government, Financial Markets, and Economic Development," NBER Working Papers 3669, National Bureau of Economic Research, Inc.
    4. Caprio, Gerard, Jr & Demirguc-Kunt, Asli, 1998. "The Role of Long-Term Finance: Theory and Evidence," The World Bank Research Observer, World Bank, vol. 13(2), pages 171-189, August.
    5. Ajit Singh, 1999. "Should Africa promote stock market capitalism?," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 343-365.
    6. Arby, Muhammad Farooq & Younus, Sayera & Tobgye, Sonam & Dema, Phurpa & Das, Praggya & Shafwath, Aminath & Bhatta, Siddha Raj & Raza, Bilal & Perera, W.S Navin, 2021. "The use of Unconventional Monetary Policy Instruments by South Asian Central Banks," MPRA Paper 119287, University Library of Munich, Germany, revised 01 Apr 2023.
    7. Govori, Fadil, 2014. "The development of capital market and its impact on providing alternative sources of business financing: Empirical analysis," MPRA Paper 58189, University Library of Munich, Germany.
    8. Donald Lien & Melody Lo & Jinlan Ni, 2012. "Selective Asymmetric Capital Financing Behavior: Preference Towards Equity Financing," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-29.
    9. Ajit Singh, 1998. "Financial liberalisation, stockmarkets and economic development," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 8(1), pages 165-182.
    10. Tesar, Linda L., 1995. "Evaluating the gains from international risksharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 95-143, June.
    11. Blommstein, Hans J. & Spencer, Michael G., 1996. "Sound finance and the wealth of nations," The North American Journal of Economics and Finance, Elsevier, vol. 7(2), pages 115-124.
    12. Shirai, Sayuri, 2004. "Testing the Three Roles of Equity Markets in Developing Countries: The Case of China," World Development, Elsevier, vol. 32(9), pages 1467-1486, September.

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