nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2006‒10‒14
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Banking sector openness and economic growth By Bayraktar, Nihal; Wang, Yan
  2. Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks By Szilárd Benk; Max Gillman; Michal Kejak
  3. The impact of bank and non-bank financial institutions on local economic growth in China By Cheng,Xiaoqiang; Degryse,Hans
  4. Economic growth and currency crisis: A real exchange rate entropic approach By Matesanz Gómez, David; Ortega, Guillermo J.
  5. Bank efficiency, ownership, and market structure : why are interest spreads so high in Uganda ? By Beck, Thorsten; Hesse, Heiko

  1. By: Bayraktar, Nihal; Wang, Yan
    Abstract: Banking sector openness may directly affect growth by improving the access to financial services and indirectly by improving the efficiency of financial intermediaries, both of which reduce the cost of financing, and in turn, stimulate capital accumulation and economic growth. The objective of the paper is to empirically reinvestigate these direct and indirect links using a more advanced econometric technique (GMM dynamic panel estimators). An illustrative model is presented to link financial market development with investment. The empirical results confirm the presence of direct and indirect links, and thus provide support for countries planning to open their banking sector for international competition.
    Keywords: Banks & Banking Reform,Economic Theory & Research,Financial Intermediation,Pro-Poor Growth and Inequality,Financial Crisis Management & Restructuring
    Date: 2006–10–01
  2. By: Szilárd Benk; Max Gillman; Michal Kejak
    Abstract: The explanation of velocity has been based in substitution and income effects, since Keynes’s (1923) interest rate explanation and Friedman’s (1956) application of the permanent income hypothesis to money demand. Modern real business cycle theory relies on a goods productivity shocks to mimic the data’s procyclic velocity feature, as in Friedman’s explanation, while finding money shocks unimportant and not integrating financial innovation explanations. This paper sets the model within endogenous growth and adds credit shocks. It models velocity more closely, with significant roles for money shocks and credit shocks, along with the goods productivity shocks. Endogenous growth is key to the construction of the money and credit shocks since they have similar effects on velocity, through substitution effects from changes in the nominal interest rate and in the cost of financial intermediation, but opposite effects upon growth, through permanent income effects that are absent with exogenous growth.
    Keywords: Velocity, business cycle, credit shocks, endogenous growth.
    JEL: E13 E32 E44
    Date: 2006–09
  3. By: Cheng,Xiaoqiang; Degryse,Hans (Tilburg University, Center for Economic Research)
    Abstract: This paper provides evidence on the relationship between finance and growth in a fast growing country, such as China. Employing data of 27 Chinese provinces over the period 1995-2003, we study whether the financial development of two different types of institutions - banks and non-bank financial institutions - have a (significantly different) impact on local economic growth. Our findings indicate that only banking development shows a statistically significant and economically relevant impact on local economic growth.
    Keywords: growth;financial development;Chinese provinces;banks
    JEL: E44 G21
    Date: 2006
  4. By: Matesanz Gómez, David; Ortega, Guillermo J.
    Abstract: We propose a country classification of economic growth currency crisis consequences based on the entropic analysis of the real exchange rate. We show that this ranking is highly correlated with the annual minimum rate of growth, a proxy used to quantify real currency crisis effects.
    Keywords: currency crises; entropy; growth effects of currency crises
    JEL: C82 F40 F31
    Date: 2005
  5. By: Beck, Thorsten; Hesse, Heiko
    Abstract: Using a unique bank-level data set on the Ugandan banking system during 1999-2005, the authors explore the factors behind consistently high interest rate spreads and margins. While foreign banks charge lower interest rate spreads, they do not find a robust and economically significant relationship between privatization, foreign bank entry, market structure, and banking efficiency. Similarly, macroeconomic variables can explain little of the over-time variation in bank spreads. Bank-level characteristics, on the other hand, such as bank size, operating costs, and composition of loan portfolio explain a large proportion of cross-bank, cross-time variation in spreads and margins. However, time-invariant bank-level fixed effects explain the largest part of bank variation in spreads and margins. Further, the authors find tentative evidence that banks targeting the low end of the market incur higher costs and therefore higher margins.
    Keywords: Banks & Banking Reform,Economic Theory & Research,Investment and Investment Climate,Financial Crisis Management & Restructuring,Financial Intermediation
    Date: 2006–10–01

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