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Economic Reform and Stabilization in Latin America

By: Michael Connolly; Claudio González-Vega | Book details

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Page 319
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Indeed, all consumption expenditures (whether unforeseen or not) can be viewed as an additional cash-flow constraint for the household firm. The present analysis abstracts from these factors, due to its focus on the forms in which savings are held, rather than the choice between flows of consumption and saving. Furthermore, any concrete analysis would have to treat the relative security of cash, hedges, and financial assets as a determinant of the forms in which savings are held. Also, if d is fixed by government decree, then the high (hence highly variable) inflation rates common in developing countries can cause d - p to be more uncertain than h - p. If household firms are risk-averse, this will depress the demand for financial assets and increase the demand for hedges. See Vogel and Buser ( 1976).
15
Of course in any concrete case the monetarization and intermediation stages of financial development are likely to overlap. Nonetheless, the conceptual distinction between the two stages can be useful in evaluating the benefits and costs of financial policy alternatives (for example, expansion of branch offices of banks into rural areas) in developing countries. See, for example, the classic article by Porter ( 1966).

References

Adams Dale W ( 1978). "Mobilizing Household Savings through Rural Financial Markets." Economic Development and Cultural Change 26 (April): 547-60.

Adams Dale W, and G. I. Nehman ( 1979). "Borrowing Costs and the Demand for Rural Credit." Journal of Development Studies 15 (January): 165-76.

Baumol William J. ( 1952). "The Transactions Demand for Cash: An Inventory Theoretic Approach." Quarterly Journal of Economics 66 (November): 545-56.

Ben-Zion Uri ( 1974). "The Cost of Capital and the Demand for Money by Firms." Journal of Money, Credit and Banking 6 (May): 263-69.

Burkett Paul ( 1984). "Savings Mobilization in the Third World: Theory and Evidence from Peru." Ph.D. Thesis, Syracuse University. (January).

_____ ( 1985). "Interest Rate Restrictions and Deposit Opportunities for Small Savers in Developing Countries: An Analytical View." Unpublished Manuscript, University of Miami.

Claasen Emil-Maria ( 1975). "On the Indirect Productivity of Money." Journal of Political Economy 83 (April): 431-36.

Cuevas Carlos, and Douglas H. Graham ( 1982). "Interest Rate Policies and Borrowing Costs in Rural Financial Markets." Unpublished Manuscript, Dept. of Agricultural Economics, Ohio State University.

Elegalam P. O. ( 1978). "The Queueing Cost of Banking in Lagos." Nigerian Journal of Economic and Social Studies 20 (November): 437-50.

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