MICROCAPITAL BRIEF: Consortium on Financial Systems and Poverty (CFSP) Researchers Posit Weak Financial Sectors in Developing Countries Encourage Microenterprises at Expense of Economic Growth

In a recent paper, “Finance and Development: A Tale of Two Sectors,” published in the academic journal American Economic Review, researchers affiliated with the US-based nonprofit Consortium on Financial Systems and Poverty (CFSP), conclude that poor access to financing opportunities in developing countries makes it harder for entrepreneurs to start large-scale businesses like manufacturing [1]. On the other hand, self-financed small-scale services, such as retail shops, are easier for an individual to set up. Consequently, developing economies “end up with too many entrepreneurs and too many small establishments in the traditional service industries” that eventually slows economic growth. For the full paper, which is authored by US-based researchers Francisco J Buera, Joseph Kaboski and Yongseok Shin, you may visit http://www.artsci.wustl.edu/~yshin/public/taleoftwosectors.pdf

By Nisha Koul, Research Associate

About Consortium on Financial Systems and Poverty (CFSP): The Consortium on Financial Systems and Poverty (CFSP), a private nonprofit organization of economists, aims to “improve the lives of the world’s poor and to reduce poverty through helping to identify, define and develop more efficient financial systems.” CFSP is based at University of Chicago which is located in the US state of Illinois.

Sources and Additional Resources:

[1] Press release submitted by CFSP to MicroCapital September 2011.

Research Paper, “Finance and Development: A Tale of Two Sectors,” by Francisco J Buera, Joseph Kaboski and Yongseok Shin, http://www.artsci.wustl.edu/~yshin/public/taleoftwosectors.pdf

MicroCapital.org story, March 22, 2011, “MICROCAPITAL BRIEF: Book by Massachusetts Institute of Technology (MIT) Economist Robert M Townsend, “Financial Systems in Developing Economies”, Uses Thailand As Case Study for Analyzing Finance Policies,” https://www.microcapital.org/microcapital-brief-book-by-massachusetts-institute-of-technology-mit-economist-robert-m-townsend-financial-systems-in-developing-economies-uses-thailand-as-case-study-for-analyzing-finance-po/

MicroCapital.org story, March 2, 2011, “SPECIAL FEATURE: An Interview with Chris Urdy on Agricultural Microinsurance in Ghana from the Consortium on Financial Systems and Poverty,” https://www.microcapital.org/special-feature-an-interview-with-chris-urdy-on-agricultural-microinsurance-in-ghana-from-the-consortium-on-financial-systems-and-poverty/

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