1. Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt, E. Feyen, and R. Levine Norman Loayza June 2011

2. The contribution In previous study, – financial structure NOT relevant for growth … for the average country

3. The contribution In previous study, – financial structure is NOT relevant for growth … for the average country In this study, – financial structure IS related with “economic activity” BUT differently for different levels of GDP per capita – financial structure GAP does matter, even controlling for banking and stock market

4. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development

5. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development 2. Economic development pushes the rise of banks and stock markets … at different rates for different levels of development

6. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development 2. Economic development pushes the rise of banks and stock markets … at different rates for different levels of development Both are sensible… yet “sensitivity” analysis denotes causation in the first sense

7. Comment 2: Financial Structure Gap The gap is estimated using OECD countries

8. Comment 2: Financial Structure Gap The gap is estimated using OECD countries It is only natural, then, that the regression fit of the financial structure ratio be better for richer countries

10. Comment 2: Financial Structure Gap The gap is estimated using OECD countries It is only natural, then, that the fit of the financial structure ratio be better for richer countries Then, by construction, the FS gap is linked to GDP per capita

11. Comment 2: Financial Structure Gap The gap is estimated using OECD countries It is only natural, then, that the fit of the financial structure ratio be better for richer countries Then, by construction, the FS gap is linked to GDP per capita Need to use criteria other than income for choosing the sample to derive optimal financial structure

12. Question 1 Why not growth? – “Economic activity” in the paper is represented by GDP per capita levels – In previous work, it had been the growth rate of GDP per capita – When using conditioning set, GDP per capita in 1980 is used as regressor. Still…

13. Question 2 In the quantile regressions, why including only one regressor? – Both Private credit and Stock market value in the (first set of ) quantile regressions for GDP per capita

14. Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt, E. Feyen, and R. Levine Norman Loayza June 2011