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Financing development

Financing development. Anastasia Kartasheva Georgia State University.

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Financing development

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  1. Financing development Anastasia Kartasheva Georgia State University

  2. Inefficient credit markets and a sheer lack of wealth make limited liability constraints more binding in developing countries. It is important to stress this point because many of the problems in regulation and competition policy result from difficulties in borrowing and attracting foreign capital. J.-J. Laffont

  3. Access to finance matters for growth • Infrastructure • Attracting foreign investments • Access to information technology • Ability of the South to benefit from the knowledge of the North • Private sector development • Microfinance

  4. How to promote infrastructure development? • Foreign investments in infrastructure • 75% in terms of equity • 80% in terms of project costs (mostly debt) • Advantages • access to capital in countries with underdeveloped financial markets • access to technology and managerial expertise • ex. airports: 100% foreign equity • Active government policy is essential • Stability: credibility, enforcement, no favoritism • Risk sharing

  5. How to facilitate access to information technology? • IT revolution has spurred great hopes that developing countries can benefit from all information public goods available in the developed world • Information goods are public goods with a possibility of exclusion • Private cost of access to public goods • Access to internet requires • access to local communications • availability of computes • usage cost depend on education level  access may be limited by financial constraints

  6. How to relax credit constraints for private sector development? • Lending to the poor may be a challenge for traditional banking sector • No collateral • Group lending may facilitate access to finance due to peer monitoring • Neighbors can impose powerful non-financial sanctions at low cost • Adverse selection • Moral hazard

  7. Financing development: Avenues for further research • Infrastructure finance • how government policy can reduce investors risks? • Capital structure of infrastructure projects • Exchange rate risks • Development of national financial markets • foreign participation in banking sector • microfinance for the poor

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