ABSTRACT
There can be little doubt that a strong and direct correlation exists between a country’s per capita income and the financial system it possesses. Wealthy economies generate savings, which are either short term, as in the seasonal or cyclical surpluses of individuals and businesses or long term, as in the need to provide for capital replacement or retirement. Conversely, wealthy economies also generate demands for funds to finance a variety of activities, whether consumer spending on automobiles, homes and holidays; business expansion involving new mines, factories, shops and offices, or the state’s obligation to provide defence, infrastructure and social services. The function of the financial services sector in advanced economies was to match supply and demand of savings and to do so in a way that lenders and borrowers were appropriately rewarded and charged in order to allocate scarce resources as efficiently as possible (Crane et al., 1995: preface, viii). However, if per capita income were the only criterion dictating the development of financial systems in individual countries then it would be expected that a high degree of similarity would exist among advanced economies. Clearly this is not the case. Instead, considerable divergence exists which both needs to be explained and its implications for national economic performance assessed (Merton and Bodie, 1995: 3-4). Even in terms of the relative size of the financial services sector in apparently similar economies, large differences existed. Whereas in the year 2000 the provision of financial services generated 7 percent of national income in Britain, the figure was only 5.5 percent in the United States and 3.5 percent in France (Financial Times, 2 August 2000). A direct correlation between financial services and per capita income would have suggested both rough comparability and a different ordering.
