title: Financial development, growth strategies and structural transformation
Creators: name: Kromtit, Matthew
Publisher: name: University of Glasgow
Year: 2022

description: Strategizing economic growth and development in developing countries remains a daunting task for several years. Developing countries for long suffer from the many characteristics of underdevelopment. These range from slow economic growth to high levels of unemployment and poverty, increased population explosion with little or no corresponding increase in productive capabilities. For decades too, the economic literature has shown that several private and public sector-led strategies have failed to guarantee long term economic progress especially in developing countries. Whether mainstream or heterodox, what constitute appropriate growth strategies for developing countries is complex and highly debatable. This thesis therefore generally seeks to ignite better understanding of the strategies for growth and their determinants as well as to renew the debate on the essentials for strategizing growth in developing countries. The thesis attempts to provide some evidence on this general objective by investigating three specific topics in three empirical chapters. This is in addition to introductory and concluding chapters. Chapter one motivates the thesis and specifies the objectives particular to each empirical chapter. Chapter two focuses on providing evidence on the role of financial development in determining whether developing countries follow or defy their comparative advantage. This area has been largely ignored in the literature on finance and development. Using dynamic panel data spanning across 132 developing countries and two-step system generalized method of moments (GMM), the results of this chapter mainly show that financial development in terms of the depth of banking sector tends to lead to comparative advantage – following (CAF) growth strategy but it tends to lead to comparative advantage – defying (CAD) in terms of financial efficiency. Based on these findings, chapter three introduces the analysis of financial and trade liberalization, interventionists policies and economic diversification in resource-rich developing countries. The empirical evidence reported in this chapter suggest that though liberal and interventionists policies matter in promoting economic diversification – in terms of enhancing manufacturing, the interaction of these policies with regulation could lead to an expanding services sector at the expense of manufacturing in resource-rich countries. Chapter four explores whether global value chains (GVCs) – related trade and conventional trade play a role in the structural transformation of resource-rich and non-resource-rich developing countries. The results show that the share of domestic value added in gross GVC-related exports and conventional trade have the tendency to aggravate employment and value addition respectively in the agricultural sector of Non-Resource-Rich Countries (NRRCs). In Resource Rich Countries (RRCs), the findings show that conventional trade have negative and significant impact on value-added in manufacturing while the share of foreign value added in gross GVC-related trade reports positive and significant impact on share of labour employment in services but not on the value added in the sub-sector. Thus, the findings of the thesis tend to have implications for what constitute an appropriate development strategy in developing countries. Overall, the findings imply that all hope is not lost in developing countries. Given their factor endowments, developing countries could harness them with the appropriate combination of interventionists and liberal policies as well as the right mix of domestic and foreign value addition in promoting economic diversification and structural transformation. It remains however, a challenge for these countries to draw a line between what constitutes effective strategies or policies thereby leaving room for further research as suggested in chapter five of the thesis.