The central question addressed in Financial Innovations and the Welfare of Nations is how the transfer of financial innovations from developed to developing economies can nurture the dynamics of emerging capital markets. National capital markets can be positioned along a continuum ranging from embryonic to mature and emerged markets according to a decreasing "national cost of capital" criterion. In the introductory chapter Laurent Jacque argues that newly emerging countries are handicapped by a high cost of capital due to "incomplete" and inefficient financial markets. As capital markets graduate to higher level of "emergedness", their national firms avail themselves of a lower cost of capital that makes them more competitive in the global economy and spurs economic growth. Skillful transfer of financial innovations to emerging markets often encourages the deregulation of the country's financial services sector. This results into new conduits for a more efficient capital allocation process such as commercial paper, securitized consumer finance and other disintermediated modes of financing which out-compete traditional financial intermediaries (mostly commercial banks), reduce households' cost of living and conjointly fuel the dynamics of emerging markets. Our response to the central question of how the transfer of financial innovations can enhance the Wealth of Nations is to show that it reduces the cost of capital while not unduly increasing systemic risk. Part I examines the relationship between financial innovations and systemic risk of the international financial system.
Publisher: Springer-Verlag New York Inc.
Number of pages: 367
Weight: 587 g
Dimensions: 235 x 155 x 20 mm
Edition: Softcover reprint of the original 1st ed. 200
Praise for Financial Innovations and the Welfare of Nations
`In an increasingly connected world financial flows and innovation have taken center stage. For anyone who wants to understand how this new international arrangement affects one's life, business, and nation, this book is a must read.'
Walter B. Wriston, Former CEO, Citigroup
`This is a first-rate conference volume that covers all of the salient dimensions of innovation in modern financial markets. For innovations to contribute to the System in a durable way, they must be perceived as value-adding for both intermediaries and end-users, and the innovative structures must carry acceptable systemic risks. The essays in this collection provide a compelling overview of the innovation process and its impact on the financial dynamics of the global economy.'
Ingo Walter, Charles Simon Chair in Applied Financial Economics and Director, New York University Solomon Center