nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒07‒16
six papers chosen by
Georg Man

  1. Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa By Enowbi Batuo; Simplice Asongu
  2. The FDI-growth nexus in South Africa: A re-examination using quantile regression approach By Khobai, Hlalefang; Hamman, Nicolene; Mkhombo, Thando; Mkaha, Simba; Matolweni, Nomahlubi; Phiri, Andrew
  3. Credit Market Development and Firm Innovation: Evidence from the People’s Republic of China By Shang, Hua; Song, Quanyun; Wu, Yu
  4. The Impacts of Financial Development, Urbanization, and Globalization on Income Inequality: A Regression-based Decomposition Approach By Lee, Wai Choi; Cheong, Tsun Se; Wu, Yanrui
  5. Information Asymmetry and Conditional Financial Sector Development By Simplice Asongu; Jacinta C. Nwachukwu
  6. Structural Changes and Growth Regime By Tommaso Ciarli; Andre Lorentz; Marco Valente; Maria Savona

  1. By: Enowbi Batuo (University of Westminster, UK); Simplice Asongu (Yaoundé, Cameroon)
    Abstract: In the aftermath of the 2008 global financial crisis, the implications of financial liberalisation for stability and economic growth has come under increased scrutiny. One strand of literature posits a positive relationship between financial liberalisation and economic growth and development. However, others emphasise the link between financial liberalisation is intrinsically associated with financial instability which may be harmful to economic growth and development. This study assesses linkages between financial instability, financial liberalisation, financial development and economic growth in 41 African countries for the period 1985-2010. The results suggest that financial development and financial liberalisation have positive effects on financial instability. The findings also reveal that economic growth reduces financial instability and the magnitude of reduction is higher in the pre-liberalisation period compared to post-liberalisation period.
    Keywords: Economic Growth , Financial Development, Financial instability and Africa
    JEL: O16 O47 G23 O55
    Date: 2017–01
  2. By: Khobai, Hlalefang; Hamman, Nicolene; Mkhombo, Thando; Mkaha, Simba; Matolweni, Nomahlubi; Phiri, Andrew
    Abstract: This study sought to contribute to the growing empirical literature by investigating the effects of FDI on per capita GDP growth for South Africa using time series data collected between 1970 and 2016. In differing from a majority of previous studies we use quantile regressions which investigates the effects of FDI on economic growth at different distributional quantiles. Puzzling enough, our empirical results show that FDI has a negative influence on welfare at extremely low quantiles whereas at other levels this effect turns insignificant. Contrary, the effects of domestic investment on welfare is positive and significant at all levels. Collectively, these result have important implications for policymakers in South Africa.
    Keywords: FDI; Economic growth; Quantile regression; Global financial crisis; South Africa.
    JEL: C21 C31 E22 F43 O40
    Date: 2017–07–12
  3. By: Shang, Hua (Asian Development Bank Institute); Song, Quanyun (Asian Development Bank Institute); Wu, Yu (Asian Development Bank Institute)
    Abstract: From the perspective of credit allocation, this paper analyzes the effects of credit market development on the innovative capacities of industrial firms in the People’s Republic of China. Using a large dataset of industrial firms in 31 provinces in the People’s Republic of China, we find that credit market development enhances firms’ product innovation incentives and outcomes. We further show that firms’ credit constraints and firms’ performances are two channels through which credit market development affects innovative capacities of firms. Our results are neither driven by the increase in the quantity of credit, nor by the increase in the number of firms in a province. The results are robust to different samples, different estimation methods, and alternative measures of credit market development.
    Keywords: credit market development; credit allocation; firm innovation; product innovation; innovation incentives; innovation outcomes
    JEL: G15 O31 R11
    Date: 2017–01–27
  4. By: Lee, Wai Choi (Asian Development Bank Institute); Cheong, Tsun Se (Asian Development Bank Institute); Wu, Yanrui (Asian Development Bank Institute)
    Abstract: This paper aims to study the impacts of financial development, urbanization, and globalization on income inequality in the People’s Republic of China. It applies the regression-based inequality decomposition approach on a panel dataset, which is aggregated from a unique database of financial development so as to quantify the relative contributions of these three factors, along with other variables such as physical capital and human capital, to income inequality. The findings suggest that financial development, urbanization, and globalization exert a positive impact on income. However, the contributions of urbanization, foreign investment, physical capital, and human capital to regional inequality are positive. Moreover, it is found that financial development is crucial for promoting inclusive growth, since it can stimulate economic growth and is found to be an equalizing factor of inequality.
    Keywords: regression-based methods; inequality decomposition; financial development; urbanization; globalization
    JEL: C43 F43 O16 R11
    Date: 2017–01–27
  5. By: Simplice Asongu (Yaoundé/Cameroun); Jacinta C. Nwachukwu (Coventry University, UK)
    Abstract: Purpose- The purpose of this study is to examine the role of reducing information asymmetry (IA) on conditional financial sector development in 53 African countries for the period 2004-2011. Design/methodology/approach- The empirical evidence is based on contemporary and non-contemporary quantile regressions. Instruments for reducing IA include pubic credit registries (PCRs) and private credit bureaus (PCBs). Hitherto unexplored dimensions of financial sector development are employed, namely: financial sector dynamics of formalization, informalization, semi-formalization and non-formalization. Findings- The following findings are established. First, the positive (negative) effect of information sharing offices (ISO) on formal (informal) financial development is consistent with theory. Second, ISOs consistently increase: (i) formal financial development, with the incidence of PCRs higher in terms of magnitude and (ii) financial sector formalization, with the impact of PCBs higher for the most part. Third, only PCBs significantly decrease informal financial development and both ISOs decrease financial sector informalization. Policy implications are discussed. Originality/value- The study assesses the effect of reducing information asymmetry on financial development when existing levels of it matter because current studies based on mean values of financial development provide blanket policy implications which are unlikely to be effective unless they are contingent on prevailing levels of financial development and tailored differently across countries with high, intermediate and low initial levels of financial development.
    Keywords: Information sharing; Banking development; Africa
    JEL: G20 G29 L96 O40 O55
    Date: 2017–05
  6. By: Tommaso Ciarli; Andre Lorentz; Marco Valente; Maria Savona
    Abstract: We study the relation between income distribution and growth mediated by structural changes on the demand and supply side. Using results from a multi-sector growth model we compare two growth regimes which differ in three aspects: labour relations, competition, and consumption patterns. Regime one, similar to Fordism, is assumed to be relatively less unequal, more competitive, and with more homogeneous consumers than regime two, similar to post-Fordism. We analyse the parameters that define the two regimes to study the role of exogenous institutional features and endogenous structural features of the economy on output growth, income distribution, and their relation. We find that regime one exhibits significantly lower inequality, higher output and productivity, and lower unemployment than regime two. Both institutional and structural features explain these difference. Most prominent among the first group are wage differences, accompanied by capital income, and the distribution of bonuses to top managers. The concentration of production magnifies the effect of wage differences on income distribution and output growth, suggesting the relevance of the norms of competition. Among structural determinants, particularly relevant are firm organisation and the structure of demand. The way in which final demand distributes across sectors influences competition and overall market concentration. Particularly relevant is the demand of the least wealthy classes. We also show how institutional and structural determinants are tightly linked. Based on this link we conclude by discussing a number of policy implications emerging from our model.
    Keywords: Structural change; income distribution; competition; consumption behaviour; technological change.
    JEL: O41 L16 C63 O14
    Date: 2017

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