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Financial regulation in low-income countries: balancing inclusive growth with financial stability

In the wake of the global financial crisis, many developed  and developing country governments are prioritising stability at the individual financial institutions and systemic level by  strengthening financial regulation. Even though the latter is important to make financial systems more robust, its contribution to inclusive growth might be insufficient, especially in poor countries. This DFID-ESRC Growth Research Programme (DEGRP) research project aims to explore how the financial system should be regulated and structured to achieve the twin goals of inclusive growth and financial stability, with a focus on African low-income countries.

The research will be structured in two phases. First, a survey of the theoretical and empirical literature on the relationships between domestic financial structures and financial regulation, domestic and external financial regulations, and their implications for inclusive growth and stability will be carried out. In the second phase, econometric analysis on trade-offs between growth and stability when tightening financial regulation will be conducted. This will be complemented by in-depth country case studies by senior African researchers and focused policy analysis. Close interaction between researchers and senior policy-makers will be a feature of the project.

Isabella Massa, Ricardo Gottschalk, Stephen Spratt

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