Establishing the Independence of Contract-Intensive Money
and "Financial Depth" as Separate Concepts
The independence of CIM and M2/GDP from each other is clearly established in the factor analysis, the results of which are shown in Table 3.6. The factor analysis uses the same variables shown in the correlation matrix in Table 3.7. The variable representing institutional credibility defines a totally separate dimension from the one defining financial depth. Equally important, the factor analysis suggests that while institutional formality and financial depth may be associated with economic performance, they are in fact totally distinct phenomena.
That contract-intensive money and M2/GDP represent two entirely different concepts is evident from the correlation matrix presented in Table 3.7. The correlation between CIM and M2/GDP is very low, .019, suggesting that the amount of shared variance between these two variables is only 13.8 percent. In fact, its association with all the variables in Table 3.7 is weak at best; whereas the associations between many of these variables and CIM is obviously much stronger. In particular, CIM is much more strongly related to indicators of economic performance -- the growth in nominal GDP and GDP per capita, gross domestic investment and GDP per capita -- than is M2/GDP.
|δ GDP per Cap.||0.469||0.013||-0.147||0.759|
|GDI as % GDP||0.725||0.224||0.034||0.423|
|GDP per Capita||0.187||0.594||-0.006||0.612|
|Notes: See Table 3.7 for variable definitions.|