nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒05‒14
three papers chosen by
Georg Man

  1. Empirical Reassessment of Bank-based Financial Development and Economic Growth in Hong Kong By Ho, Sin-Yu; Njindan Iyke, Bernard
  2. Formal Saving in Developing Economies: Barriers, Interventions, and Effects By Sonia Di Giannatale; María José Roa
  3. Capital Requirements, Risk-Taking and Welfare in a Growing Economy By Pierre-Richard Agénor; Luiz A. Pereira da Silva

  1. By: Ho, Sin-Yu; Njindan Iyke, Bernard
    Abstract: This paper reassesses the nexus between bank-based financial development and economic growth in Hong Kong during the period 1990 – 2014. That is, it tests whether Hong Kong follows a supply-leading or a demand-following hypothesis. Empirically, economists have generally disagreed on the nexus between bank-based financial development and economic growth. Hong Kong is a typical economy which has experienced both bank-based financial expansion and economic expansion in the last three decades. It therefore serves as a quintessence for testing this overarching debate. Using the Toda-Yamamoto test for causality and two indicators of bank-based financial development – in order to report robust results – the paper finds Hong Kong to follow the supply-leading hypothesis. This implies that the banking sector is vital in driving economic growth in Hong Kong during the study period. Policymakers in this economy will only enhance economic growth further by targeting and ensuring efficient performance of bank-based financial institutions.
    Keywords: Bank-based Financial Development; Economic Growth; Causality; Hong Kong
    JEL: C32 E44 G21
    Date: 2017
  2. By: Sonia Di Giannatale; María José Roa
    Abstract: This paper discusses the determinants of and the barriers to formal saving both from the theoretical point of view and based on empirical evidence from various associated interventions and their possible effects at the micro and macroeconomic levels. It presents a comprehensive review of the literature based on a detailed classification of the barriers associated with supply-side factors related to access to financial products and demand-side barriers, related to the use, and frequency of use, of these products. Traditionally, the financial development literature has focused on the barriers associated with the supply of financial services that derive from high information and transaction costs. Recently published literature, however, shows how demand-side barriers, such as lack of trust, the influence of social networks, and certain cognitive biases, among other factors, might be equally important in explaining low or non-existent levels of saving. The paper concludes that such a classification and analysis of the barriers to financial inclusion leads to a deeper understanding of the question of financial inclusion and the actions that need to be taken to address it.
    Keywords: Formal Saving, Financial Services, Savings Account, Economic Growth, Macroeconomics, Financial Stability, Household Saving, household saving, formal saving, financial services
    JEL: O17 G21 D91 D14 D13 C93
    Date: 2016–12
  3. By: Pierre-Richard Agénor; Luiz A. Pereira da Silva
    Abstract: The effects of capital requirements on risk-taking and welfare are studied in a stochastic overlapping generations model of endogenous growth with banking, limited liability, and government guarantees. Capital producers face a choice between a safe technology and a risky (but socially inefficient) technology, and bank risk-taking is endogenous. Setting the capital adequacy ratio above a structural threshold can eliminate the equilibrium with risky loans (and thus inefficient risk-taking), but numerical simulations show that this may entail a welfare loss. In addition, the optimal ratio may be too high in practice and may concomitantly require a broadening of the perimeter of regulation and a strengthening of financial supervision to prevent disintermediation and distortions in financial markets.
    Keywords: Capital Requirements, Bank risk-taking, Investment, Financial Stability, Economic Growth, Capital Goods, Financial Regulation, Financial Intermediaries, Financial Markets, risky investments, financial regulation, financial stability
    JEL: O41 G28 E44
    Date: 2017–03

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