Economics
College of Humanities and Social Sciences

Three Essays on Finance and Entrepreneurship in the Developing World

Scott Burns

Major Professor: Lawrence H White, PhD, Department of Economics

Committee Members: Peter J. Boettke, Christopher J. Coyne

Mason Hall, #D135
April 27, 2017, 03:45 PM to 05:15 PM

Abstract:

My dissertation is composed of three chapters on the relationship between finance and economic development. Economists have long debate what role – if any – financial systems play in fostering economic growth and development. Today, most economists agree that financial development plays a critical role in the economic development process. Over the past few decades, the debate has shifted to examining why financial markets seem to play such a fundamental role in the development process. In the first chapter of my dissertation, I show that many of the explanations that have been put forward over the past few decades in the financial development and endogenous growth literature for why financial development spurs economic development were anticipated by scholars in the Austrian school of economics. In particular, I argue that their emphasis on the heterogeneity of capital, the importance of private “capitalist-entrepreneurs” in allocating savings to their highest productive use, and the dangers of government planning and control over the financial sector play an absolutely essential role in understanding why finance matters and what policies ought to be implemented in order to promote financial and hence economic development.

The second chapter of my dissertation examines the history of various policy approaches to achieving financial development in the developing world. Most policymakers agree that inclusive and well-developed financial systems play a critical role in alleviating poverty and promoting sustained economic development. In recent years, the question has centered on what policies are best suited to bring about this desirable end. This chapter breaks the approaches that have been used to combat this issue into three categories: state-led, nonprofit-led, and market-led. Using Sub-Saharan Africa (SSA) as an illustrative case study in all three of these approaches, I show that the promising advances in inclusive financial development that have been achieved over the past decade or so in SSA have come from countries that have embraced the market-led approach. I conclude that policymakers that wish to bring about sustainable financial development should therefore adopt this market-led approach by removing repressive financial regulations and barriers to entry in the financial sector in order to allow entrepreneurs and nontraditional financial service providers to enter the market.

In the third and final chapter of my dissertation, I use the mobile money revolution in Sub-Saharan Africa as an illustrative case study to show that the greatest examples of financial development in modern times have come from countries that have taken a bottom-up, or market-oriented, approach. This approach has succeeded because it gives entrepreneurs the ability to utilize their knowledge of their local economy to discover innovative ways to access financially excluded segments of the population in a what no state development planning agency – no matter how good its intentions – could possibly emulate. Comparing the success and failures of mobile money across SSA, I argue that the key predictor of whether a country will reap the benefits of these transformative innovations is whether its government embraces a laissez-faire, or “enabling,” regulatory approach that encourages entrepreneurship and experimentation.

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