nep-cis New Economics Papers
on Confederation of Independent States
Issue of 2012‒03‒21
three papers chosen by
Koen Schoors
Ghent University

  1. Financial literacy and the financial crisis By Klapper, Leora; Lusardi, Annamaria; Panos, Georgios A.
  2. Resource curse: new evidence on the role of institutions By Sarmidi, Tamat; Siong Hook, Law; Jafari , Yaghoob
  3. Inclusive Growth, Institutions, and the Underground Economy By Sonali Jain-Chandra; Adil Mohommad; Anoop Singh

  1. By: Klapper, Leora; Lusardi, Annamaria; Panos, Georgios A.
    Abstract: The ability of consumers to make informed financial decisions improves their chances of having sound personal finance. This paper uses a panel dataset from Russia, where consumer loans grew at an astounding rate -- from about US$10 billion in 2003 to over US$170 billion in 2008 -- to examine the importance of financial literacy and its relationship with behavior. The survey asked questions on financial literacy, consumer borrowing (formal and informal), and spending behavior. The paper studies the consequences of greater financial literacy on the use of financial products and financial planning. Even though consumer borrowing rose rapidly in Russia, only 41 percent of the survey respondents understood how interest compounding worked and only 46 percent could answer a simple question about inflation. Financial literacy is positively related to participation in financial markets and negatively related to the use of informal sources of borrowing. Individuals with higher rates of financial literacy are significantly more likely to report having more unspent income at the end of the month and higher spending capacity. The relationship between financial literacy and the availability of unspent income is more evident during the financial crisis, suggesting that better financial literacy may better equip individuals to deal with macroeconomic shocks.
    Keywords: Financial Literacy,Access to Finance,Access&Equity in Basic Education,Education For All,Debt Markets
    Date: 2012–02–01
  2. By: Sarmidi, Tamat; Siong Hook, Law; Jafari , Yaghoob
    Abstract: This paper attempts to provide a probable answer to a longstanding resource curse puzzle; i.e., why resource-rich nations grow at a slower rate compared to less fortunate ones. Using an innovative threshold estimation technique, the empirical results reveal that there is a threshold effect in the natural resources – economic growth relationship. We find that the impact of natural resources is meaningful to economic growth only after a certain threshold point of institutional quality has been attained. The results also shed light on the fact that the nations that have low institutional quality depend heavily on natural resources while countries with high quality institutions are relatively less dependent on natural resources to generate growth.
    Keywords: Economic development; Natural resource curse; Institutions
    JEL: O11 Q32 O13
    Date: 2012–02
  3. By: Sonali Jain-Chandra; Adil Mohommad; Anoop Singh
    Abstract: Worldwide protests against the perceived lack of economic opportunity and failure of governance have refocused attention on the need for inclusive growth and strong institutions. In developing countries, large informal economies limit state capacity to deliver governance and strong institutions, which in turn discourages participation in and expansion of the formal economy. This paper analyzes the determinants of the underground economy, with particular emphasis on the role of institutions and the rule of law. We find that when businesses are faced with onerous regulation, inconsistent enforcement and corruption, they have an incentive to hide their activities in the underground economy. Empirical analysis suggests that institutions are a more important determinant of the size of the underground economy than tax rates.
    Keywords: Developing countries , Economic growth , Financial sector , Fund role , Governance , Shadow economy ,
    Date: 2012–02–09

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