[skip to content]

Department of Economics

Financial systems and economic development

Course Code:
15PECC036
Unit value:
0.4
Taught in:
Term 1
Term 1

The objective of this course is to develop students’ understanding of the main economic relationships that arise between the financial sector and the ‘real economy’ in the course of economic development. The course has the following two aims: 

  1. The first is critically to discuss theoretical models explaining the special role of domestic finance in a capitalist economy. The focus of analysis will be on financial intermediation. Mainstream neoclassical views based on information-theoretic analysis will be contrasted with political economy views stressing the particular character of industrial, merchant, money-dealing, and interest-bearing capital. 
  2. The second, is to analyse the two-way relationship between the domestic financial system and the ‘real economy’. To achieve this aim we will focus on the political economy of credit and examine the layering of the financial system. We will then examine the importance of broader social relations (trust, confidence, power) in the operations of financial institutions and markets. We will also discuss microfinance and its role in economic development. 

Finally, we will briefly consider international finance, partly through historical analysis of international financial flows in the twentieth century.

Objectives and learning outcomes of the course

The objective of this course is to develop students’ understanding of the relationship between the financial sector and the ‘real economy’ in the course of economic development. To achieve this objective it is necessary to have good command of the relevant literature and a high level of technical proficiency. In this light, the course has the following two aims.

  1. The first aim is critically to discuss theoretical models that explain the special role of domestic finance in a capitalist economy. The focus of analysis is on financial intermediation. Specifically, mainstream neoclassical models based on information-theoretic analysis are extensively discussed. These models are subsequently contrasted with theoretical views that draw on the political economy of finance. By the end of the course students should have the ability to analyse and discuss the processes of information-gathering and evaluation by the financial sector. They should also be able to develop formal models as well as applying them in econometric work. Finally, students should be able to identify the social and institutional underpinnings of financial activity.
  2. The second aim - following from the first - is to analyse the two-way relationship between the domestic financial system and the ‘real economy’ in the course of economic development. To achieve this aim the course focuses on the political economy of bank-based and market-based finance, the layering of the financial system, and the role of broader social relations (trust, confidence, power) in the operations of financial institutions and markets. Empirical and historical context is provided by discussing the significance of international capital flows for development, the contribution of remittances to poverty reduction, and the political economy of securitisation and financial crisis. By the end of the course students should be able to assemble data and synthesise theoretical insights that are relevant to the political economy of finance and development.

Method of assessment

Assessment weighting: Exam 70% / Coursework 30% (1 essay). All coursework is resubmittable.

Suggested reading

Please contact course convenor.