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on Financial Development and Growth |
| By: | Tam B. Vu (College of Business and Economics, University of Hawaii at Hilo); Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Ilan Noy (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | We estimate the impact of FDI on growth using sectoral data for FDI inflows to China and Vietnam. Previous empirical studies, using either cross-country growth regressions or firm-level micro-econometric analysis, fail to reach a consensus. Our paper is the first to use sectoral FDI inflow data to evaluate the sector-specific impact of FDI on growth. Our results show that, for the two developing-transition economies we examine, FDI has a statistically-significant positive effect on economic growth operating directly and through its interaction with labor. Intriguingly, we find the effects seem to be very different across economic sectors, with almost all the beneficial impact limited to industrial sector. Other sectors appear to gain very little growth benefit from sector-specific FDI. |
| Date: | 2007–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:200801&r=fdg |
| By: | Nauro F. Campos; Yuko Kinoshita |
| Abstract: | This paper investigates the role of structural reforms -financial reforms, trade liberalization, and privatization- as determinants of FDI inflows based on newly constructed dataset on structural reforms for 19 Latin American and 25 Eastern European countries between 1989 and 2004. Our main finding is a strong empirical relationship from reforms to FDI, in particular, from financial liberalization and privatization. These results are robust to different measures of reforms, split samples, and potential endogeneity and omitted variables biases. |
| Keywords: | Foreign direct investment , Central and Eastern Europe , Latin America , Trade liberalization , Privatization , |
| Date: | 2008–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/26&r=fdg |
| By: | Carlo Brambilla; Giandomenico Piluso |
| Abstract: | Recently a number of studies on banking systems’ procyclicality have been drawn. Such an issue, often developed as a consequence of Basel 2 agreements, is related with credit crunch phenomena and financial stability. Typically, a temporary shock may produce a long term effect following or amplifying fluctuations through finance. For this reason procyclicality may significantly affect capital accumulation and long-term growth. Therefore, verifying and measuring whether a banking system is, or is not, procyclical is relevant in order to understand which effects regulatory schemes and financial architectures can produce on capital formation processes. While studies generally have a short period perspective, this paper analyses business fluctuations and banking cycles in the long run. The Italian financial history could provide useful insights because its evolutionary path experimented two different banking patterns. Universal banking prevailed until the Great Depression, whilst specialised financial institutions emerged afterwards. Economic historians have considered Italian universal banks, up to the early 1930s, a convincing example of procyclical intermediaries. Such hypothesis relies on qualitative research based on case studies, but it has not been verified in quantitative terms, yet. Thus, this paper aims to verify procyclicality of the Italian banking system in the long run applying VAR analysis on a wide set of economic and financial indicators. What emerges is that a certain cycle-smoothing effect is observed during the whole period, in spite of the major institutional shock occurred in the early 1930s (i.e. the new bank law), whilst relevant changes in banks’ asset structures suggest that central bank and government intervention had important impact on banks behaviour and policies |
| Keywords: | credit cycles, business cycles, procyclicality, credit crunch, financial stability, universal banking |
| JEL: | E32 G21 N13 N14 N23 N24 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:523&r=fdg |
| By: | Yves Kuhry; Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg) |
| Keywords: | Financial development, income, aggregate productivity, efficiency. |
| JEL: | C33 O11 O16 O47 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2008-03&r=fdg |
| By: | Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg) |
| Abstract: | Since the preparation of the Single Market program in the 80s, financial integration in Europe has been expected to provide gains in growth by favoring competition and efficiency on financial markets. Our paper aims to check whether financial integration has taken place on the banking markets, by investigating the convergence in banking efficiency for European Union countries. We measure cost efficiency of banks from 10 EU countries between 1994 and 2005 with the stochastic frontier approach. Our work then constitutes the first one to apply tests of β and σ convergence specified for panel data on banking efficiency measures. We provide evidence of cross-country differences in cost efficiency and of an improvement in cost efficiency for all EU countries. Tests of convergence support the view of a process in convergence in cost efficiency between EU countries. Robustness checks with alternative specifications confirm these findings. These results support the view that financial integration has taken place on the EU banking markets in the recent years. |
| Keywords: | Banking, convergence, efficiency, European integration, stochastic frontier approach. |
| JEL: | G21 D21 F36 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2008-07&r=fdg |
| By: | Bichaka Fayissa; Christian Nsiah |
| Abstract: | For more than half a century, there have been heated debates on the sources of economic growth in developing economies. The perceived factors of economic growth have ranged from surplus labor to capital investment and technological change, foreign aid, foreign direct investment, investment in human capital, increasing returns from investment in new ideas and research and development. The positive or negative impacts of the above listed traditional sources of economic growth have been well documented in literature. Other researchers have also considered the importance of institutional factors such as the role of political freedom, political instability, voice and accountability on economic growth and development. Despite the increasing importance of remittances in total international capital flows, however, the direct or indirect relationship between remittances and economic growth has not been adequately studied. This study explores the aggregate impact of remittances on economic growth within the conventional neoclassical growth framework using an unbalanced panel data spanning from1980 to 2004 for 37 African countries. We find that remittances boost growth in countries where the financial systems are less developed by providing an alternative way to finance investment and helping overcome liquidity constraints. |
| Keywords: | Workers’ Remittances, Economic Growth, Panel Data, Fixed-Effects, Random-Effects,Arellano-Bond, Quantile Regression |
| JEL: | E21 F21 G22 J61 O16 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:mts:wpaper:200802&r=fdg |
| By: | Vladimir Klyuev |
| Abstract: | This paper documents the extent of financial linkages between Canada and the United States and explores the impact of changes in U.S. financial conditions on financial conditions and real economic activity in Canada. It shows that close to a quarter of financing by Canadian corporations is raised south of the border. Empirical analysis using structural vector autoregressions establishes that a tightening in U.S. financial conditions has significant implications for real activity in Canada. For example, a percentage point increase in the 3- month T-bill rate, other things being equal, leads to a decline of slightly more than one percentage point in Canada's real GDP growth after 3 quarters. That decline can be decomposed into three channels: the direct financial channel, where the slowdown is attributed to a rising cost of funds for Canadian companies raising capital in the United States; the indirect financial channel, where growth is hampered as financial conditions in Canada tighten in response to a tightening in the United States; and the trade channel, which goes through a slowing in the U.S. economy, and correspondently lower demand for Canadian exports. As would be expected from the high degree of reliance on U.S. financing, the direct financial channel proves dominant in the short term. |
| Keywords: | Trade , Canada , United States , Economic conditions , Capital markets , |
| Date: | 2008–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/23&r=fdg |
| By: | Shekhar Aiyar; Ummul Ruthbah |
| Abstract: | This paper examines the macroeconomic usage of aid using panel data for a broad sample of aid-recipients. By definition an increase in aid must go toward a reduction in the current account balance (absorbed aid), an increase in capital outflows, or reserve accumulation. It is found that short-run absorption is typically very low, with much aid exiting through the capital account. Moreover, aid spending, defined in terms of the increase in government fiscal expenditures as a result of aid, is significantly greater than aid absorption, implying that aid systematically leads to an injection of domestic liquidity in recipient economies. The evidence here may help illuminate the rather weak link between aid and growth found in the literature. It reinforces the case for greater coordination between fiscal and monetary authorities in response to aid inflows. |
| Keywords: | Development assistance , Government expenditures , Consumption , Investment , Current account balances , |
| Date: | 2008–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/34&r=fdg |
| By: | Olomola Philip Akanni |
| Abstract: | This study analyses the effect of oil rents on economic growth in oil exporting African countries. It also attempts to provide both theoretical and empirical analysis of the channels of transmission of resource curse of natural resources on growth in these countries. It adopts a panel data regression analysis for the period 1970 to 2000 for 47 oil exporting countries including Africa, and 13 non-oil exporting countries. The major findings are that there was evidence of resource curse in oil exporting countries, including oil exporting African countries, exchange rate and the Dutch disease syndrome do not explain the resource curse in these countries, including Africa, the absence of democracy in oil exporting countries hinders economic growth, and the despicable state of institutions in oil exporting countries encourage grabbing of public resources and oil rents through rent seeking hence retarding economic growth. The basic conclusion from this study is that for oil exporting African countries, as for other oil exporting countries, oil rents have failed to promote growth. |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_170&r=fdg |
| By: | Martin Cihák; Heiko Hesse |
| Abstract: | The relative financial strength of Islamic banks is assessed empirically based on evidence covering individual Islamic and commercial banks in 18 banking systems with a substantial presence of Islamic banking. We find that (i) small Islamic banks tend to be financially stronger than small commercial banks; (ii) large commercial banks tend to be financially stronger than large Islamic banks; and (iii) small Islamic banks tend to be financially stronger than large Islamic banks, which may reflect challenges of credit risk management in large Islamic banks. We also find that the market share of Islamic banks does not have a significant impact on the financial strength of other banks. |
| Keywords: | Islamic banking , Financial stability , |
| Date: | 2008–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/16&r=fdg |
| By: | Oscar Bajo-Rubio (Universidad de Castilla-La Mancha and Instituto de Estudios Fiscales); Carmen Díaz-Mora (Universidad de Castilla-La Mancha); Carmen Díaz-Roldán (Universidad de Castilla-La Mancha) |
| Abstract: | The massive increase in foreign direct investment (FDI) inflows following the Spanish integration with the now European Union (EU) in 1986, has been one of the most important features shaping the behaviour of the Spanish economy in the last twenty years. In this paper we will try to assess the impact of FDI on regional economic growth following Spain’s entry into the EU, using data for the 17 Spanish regions. The results support the important role played by FDI in promoting productivity growth, for those regions that received higher FDI inflows over the period analyzed. |
| Keywords: | Economic growth, Foreign direct investment, Regions |
| JEL: | F21 O40 R58 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:aee:wpaper:0708&r=fdg |