nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2006‒08‒05
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Regional Evidence on the Finance - Growth Nexus By Andrea Vaona
  2. Monetary Policy Dynamics in Large Oil-Dependent Economies By Wohltmann, Hans-Werner; Winkler, Roland
  3. Finance and growth in a bank-based economy: is it quantity or quality that matters? By Koetter, Michael; Wedow, Michael
  4. Financial intermediaries, markets and growth By Fecht, Falko; Huang, Kevin; Martin, Antoine
  5. The Role of IMF Support in Crisis Prevention By Juan Zalduendo; Uma Ramakrishnan
  6. IMF and Economic Growth: The Effects of Programs, Loans, and Compliance with Conditionality By Dreher, Axel

  1. By: Andrea Vaona
    Abstract: The Finance-Growth Nexus is a classical source of debate among economists. This contribution offers regional evidence on this issue in order to see if it can meet the data within a 140 years old economic union -- Italy -, in the ideal context for its main competitor - New Economic Geography - and in order to avoid pooling between developed and developing countries. The results for this application support the view that finance leads growth, reject its possible endogeneity and shows its robustness even in presence of spatial unobserved heterogeneity by using both cross-section and panel data estimators.
    Keywords: Finance, Growth, Regions, Cross-Section Analysis, Panel Data Analysis
    JEL: O18 O16 C31
    Date: 2006–07
  2. By: Wohltmann, Hans-Werner; Winkler, Roland
    Abstract: The paper analyzes the impacts of anticipated and unanticipated monetary policies on two large open economies that are dependent upon raw materials imports from a small third country. The analysis is based on asymmetric behavior on the supply side of both economies and an endogenous commod- ity pricing equation of Phillips' curve type. It is shown that an increase in the growth rate of domestic money supply is not neutral in the long run but induces contractionary output effects in both economies. The paper also dis- cusses the impacts of monetary policy rules that either reduce the in°ationary or contractionary output effects of commodity price shocks.
    Keywords: Monetary Policy, Oil Price Shocks, International Policy Coordination
    JEL: E63 F42 Q43
    Date: 2005
  3. By: Koetter, Michael; Wedow, Michael
    Abstract: With this paper we seek to contribute to the literature on the relation between finance and growth. We argue that most studies in the field fail to measure the quality of financial intermediation but rather resort to using proxies on the size of nancial systems. Moreover, cross-country comparisons suffer from the disadvantage that systematic differences between markedly different economies may drive the result that finance matters. To circumvent these two problems we examine the importance of the quality of banks' financial intermediation in the regions of one economy only: Germany. To approximate the quality of financial intermediation we use cost effciency estimates derived with stochastic frontier analysis. We find that the quantity of supplied credit is indeed insignificant when a measure of intermediation quality is included. In turn, the efficiency of intermediation is robust, also after excluding banks likely to operate in multiple regions and distinguishing between dierent banking pillars active in Germany.
    Keywords: Finance-growth nexus, financial intermediation, regional growth
    JEL: G21 G28 O4 R11
    Date: 2005
  4. By: Fecht, Falko; Huang, Kevin; Martin, Antoine
    Abstract: We build a model in which financial intermediaries provide insurance to households against a liquidity shock. Households can also invest directly on a financial market if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. This can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. Our model predicts that bank-oriented economies should grow slower than more market-oriented economies, which is consistent with some recent empirical evidence. We show that the mix of intermediaries and market that maximizes welfare under a given level of financial development depends on economic fundamentals. We also show the optimal mix of two structurally very similar economies can be very different.
    Keywords: Financial Intermediaries, Risk Sharing, Finance and Growth, Comparing Financial Systems
    JEL: E44 G10 G20
    Date: 2005
  5. By: Juan Zalduendo; Uma Ramakrishnan
    Abstract: This paper examines the role of IMF-supported programs in crisis prevention; specifically, whether, conditional on an episode of intense market pressures, IMF financial support helps prevent a capital account crisis from developing and, if so, through what channels. In doing so, the paper distinguishes between the seal of approval inherent in IMF support and its financing, evaluates the interaction of IMF support with economic policies, and assesses whether IMF financing has a different impact on the likelihood of a crisis than other forms of liquidity. The main result is that IMF financing helps prevent crises through the liquidity provided (i.e., money matters). However, since the effect holds even after controlling for (gross) foreign exchange reserves, stronger policies and the seal of approval under an IMFsupported program must also play a role. Finally, the results suggest that IMF financing as a crisis prevention tool is most effective for an intermediate range of economic fundamentals.
    Keywords: Fund-supported adjustment programs , Balance of payments assistance , Crisis prevention , Capital account , Financial crisis ,
    Date: 2006–03–31
  6. By: Dreher, Axel
    Abstract: In theory, the IMF could influence economic growth via several channels, among them advice to policy makers, money disbursed under its programs, and its conditionality. This paper tries to disentangle those effects empirically. Using panel data for 98 countries over the period 1970-2000 it analyzes whether IMF involvement influences economic growth in program countries. Consistent with the results of previous studies, it is shown that IMF programs reduce growth rates when their endogeneity is accounted for. There is only weak evidence that compliance with conditionality mitigates this negative effect. IMF loans have no statistically significant impact.
    Keywords: IMF programs, growth, compliance, conditionality
    JEL: F33 F34 O57
    Date: 2005

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