In turn, the use of institutional and market data confronts one with hard choices as to whether and how to separate or aggregate the data. In particular, the question arises of whether the claims on the private sector by non-bank financial intermediaries, such as finance and leasing companies or institutional investors, are sufficiently close substitutes to those of banks that they can simply be added.<sup>9</sup> A related question is whether data across different types of institutional investors should be aggregated or considered separately. The fact that pension funds, insurance companies, and investment funds all contribute to storing and managing long term savings, with their relative importance largely reflecting different regulatory and institutional settings across the world, would argue in favor of aggregation. On the other hand, however, mutual funds assets are usually of shorter maturities and rotate more than those of contractual savings institutions, which tend to buy and hold. Ultimately, these are empirical issues that should be resolved based on the data, i.e., on whether aggregating the data provides a more stable and predictable construct than considering individual components separately.

Within each channel (institution or market) of financial intermediation, one would also ideally wish to differentiate according to the most relevant “qualities” of financial development, such as size, reach, efficiency (or liquidity), and soundness. _Size_ can be measured in terms of deposits, credit or total assets.<sup>10</sup> _Reach_ refers to the availability of services across geographic areas and income segments. _Efficiency_ , as measured by spreads, refers to the efficient use of resources in intermediation. _Liquidity_ is a closely related dimension that is particularly important to assess market development. _Soundness_ refers to the sustainability of financial services, institutions and markets and their resilience to exogenous shocks. While soundness is of course an essential feature of sustainable development, much work has already been invested in developing a battery of financial soundness indicators (FSIs). This paper will therefore restrict itself to the three other dimensions of developmental performance, on which much less has been written.<sup>11</sup> Finally, criteria are needed to select the most meaningful indicator for each potential channel of intermediation and quality of development. A key feature of the core set is that it should be _parsimonious and information-efficient_ . We will use the following five selection criteria:

1. Where available, any empirical evidence of _direct linkages between a particular FDI and final welfare_ . For example, the fact that private credit to GDP performs best in predicting growth provides an important prior in favor of including this indicator in the core set.<sup>12</sup>

> 9 Institutional investors (pension funds, insurance companies, investment funds) should in principle constitute a category on their own, both because the contracts they provide are substantially different from those provided by banks (in particular, they are generally of a much longer term nature and often contingent contracts) and because they do not invest their resources on a borrower by borrower basis but do it instead in the market or by placing the funds with banks and bank-like institutions.

> 10 Notice that size is not necessarily synonymous of quality and diversity. Some countries could have relatively large financial systems but with limited services while others could be smaller but offer a more sophisticated and complete array of services.

> 11 On FSIs, see IMF (2007).

> 12 The finance and growth literature has relied mostly on financial sector indicators with longer time series. Specifically, Beck, Levine and Loayza (2000) show a robust link between financial sector development and

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