nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒09‒03
seven papers chosen by
Georg Man

  1. Banking sector development and economic growth developing countries: A bootstrap panel Granger causality analysis By Khalil Mhadhbi; Chokri Terzi; Ali Bouchrika
  2. Credit, Misallocation and Productivity Growth: A Disaggregated Analysis By Sangeeta Pratap; Carlos Urrutia; Felipe Meza
  3. Online Appendix to ""Financial Development and Long-Run Volatility Trends" By Pengfei Wang; Yi Wen; Zhiwei Xu
  4. Competition, Banking Stability and Growth: Evidence from the dual banking system in OIC countries By Azmi, Wajahat; Ali Abdul Manap, Turkhan
  5. Shifting structure of financial sector in Asia and the Pacific By Sudip Ranjan Basu and Rui Xu from the Macroeconomic Policy and Development Division.
  6. Determinants of Islamic Banking Growth: An Empirical Analysis By Cham, Tamsir
  7. Feedback effect between Volatility of capital flows and financial stability: evidence from Democratic Republic of Congo By Christian Pinshi

  1. By: Khalil Mhadhbi (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Chokri Terzi (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Ali Bouchrika (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The purpose of this paper is to revisit the Granger causal relationship between banking sector development and economic growth for forty developing countries in the period 1970-2012. In order to capture the different aspects of banking sector development, we develop two banking sector development indices and apply the panel bootstrapped approach to Granger causality testing approach properly taking into account cross-sectional dependence and heterogeneity issues. The empirical results show limited support for the supply-leading, demand-following and complementarity hypotheses. Our results also provide evidence as the causal relationship between banking sector development and economic growth exists in twenty five countries.
    Keywords: Slope heterogeneity,Granger causality Bootstrap,Cross-sectional dependency,Banking sector development,Economic growth
    Date: 2017–05–27
  2. By: Sangeeta Pratap (Hunter College and CUNY Graduate Center); Carlos Urrutia (ITAM); Felipe Meza (Instituto Tecnológico Autónomo de Méx)
    Abstract: We study the effect of credit conditions on the allocation of inputs, and their implications for aggregate TFP growth. For this, we build a new dataset for Mexican manufacturing merging real and financial data at the 4-digit industrial sector level. Using a simple misallocation framework, we find that changes in allocative efficiency account for 75 percent of aggregate TFP variability. We then construct a model of firm behavior with working capital constraints and borrowing limits which generate sub-optimal use of inputs, and calibrate it to our data. We find that the model accounts for 56 percent of the observed variability in efficiency. An important conclusion is that sectoral heterogeneity in credit conditions is key in accounting for efficiency gains. Despite overall credit stagnation, better credit and lower interest rates to distorted sectors contributed substantially to the recovery from the 2009 recession, suggesting a plausible mechanism for credit-less recoveries.
    Date: 2017
  3. By: Pengfei Wang (Hong Kong University of Science and Technology); Yi Wen (Federal Reserve Bank of St. Louis); Zhiwei Xu (Shanghai Jiao Tong University)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2017
  4. By: Azmi, Wajahat (International Centre for Education in Islamic Finance (INCEIF); Ali Abdul Manap, Turkhan (The Islamic Research and Teaching Institute (IRTI))
    Abstract: This study tests the proposition that the Islamic banks are more stable and profitable, especially during the crisis period and tests the impact of competition on both the Islamic and conventional banks using array of measures including the recently developed Boone index in OIC countries. The results can be summarized as follows. First, increase in share of Islamic banks assets increases the overall stability of banking sector. Second, Islamic banks are more stable as compare to their conventional peers but the profitability measures shows that the both the banks are same. This finding is in sharp contradiction with the theoretical standing of Islamic banks being more profitable. This may be due to the significant divergence of Islamic banks from the theory as it is supposed to operate on the risk sharing arrangement. Third, competition has similar effects on stability and profitability on both the banks. Fourth, Islamic banks did better in terms of profitability during the crisis as compare to conventional banks. It also suggests that the Islamic banks were more stable during the crisis period. Finally, we provide evidence of complimentary effect of Islamic and conventional banks in influencing the income per capita suggesting that the co-existence of both the banking system is rewarding for the economies.
    Keywords: Competition; Boone Index; Stability; Islamic Banks; OIC Countries
    JEL: D40 G21 Z12
    Date: 2017–06–23
  5. By: Sudip Ranjan Basu and Rui Xu from the Macroeconomic Policy and Development Division. (United Nations Economic and Social Commission for Asia and the Pacific)
    Abstract: The 2030 Agenda for Sustainable Development was adopted by the 193 member States at the United Nations headquarters in September 2015, New York. The new development agenda aims to turn the policy focus of countries to sustain inclusive economic growth, energize investment for social justice, and prioritize efforts towards environmental sustainability. This global development process received additional boost due to the adoption of a new financing for development framework which was adopted at the Third International Conference on Financing for Development in July 2015, Addis Ababa. The financing agenda is comprised of a comprehensive set of policy actions with over a hundred concrete measures that are aligned with outcomes of the sustainable development goals. In this context, the policymakers are encouraged to prioritize structural reform measures and financial sector deepening strategies to mobilize domestic public resources, leverage domestic and international private financing, and explore the potential of international public financing that is expected to create a long-term sustainable financing for productive investment sectors.
  6. By: Cham, Tamsir (The Islamic Research and Teaching Institute (IRTI))
    Abstract: This paper examined the determinants of growth rate in Islamic banking using annual time series data. We apply several econometrics methods including Generalized Linear Model (GLM) and survey based indicators. We use the World Bank Enterprise Survey data to supplement our answers. Our results support the view that high oil prices, stable domestic prices, higher educated populace and greater presence of capital resources have positive effects on growth in Islamic banking. Our findings revealed that instability adversely affect Islamic banking growth. We found no clear conclusion on the impact of economic growth, greater presence of Muslim population and presence of sharia in the legal system of the country on Islamic banking growth. The major constraints impeding Islamic banking growth include regulations, tax rates, and skilled labor force. The findings call for urgent policy measures in the medium and longterm, which includes price stability, regional stability, tax reform, revamp the education system and increase sensitization of Islamic finance. Secondary school education should be encouraged to address skilled labor force. Women participation in the labor force needs to be encouraged in order to enhance greater sensitization.
    Keywords: Islamic Banking; Growth; Generalized Linear Model; World Bank Enterprise Survey
    JEL: F40 G21 G29
    Date: 2017–07–01
  7. By: Christian Pinshi
    Abstract: Financial system being the place of metting capital flows (equality between saving and investment), a volatility of capital flows can destroy the robustness and good working of financial system, it means subvert financial stability. The same a weak financial system, few regulated and bad manage can exacerbate volatility of capital flows and finely undermine financial stability. The present study provides evidence on feedback effect between volatility of capital flows and financial stability in Democratic republic of Congo (DRC), and estimate the contributions of macroeconomic and macroprudential policies in the attenuation volatility of capital flows effects on financial stability and in the prevention of instability financial. Assessment dynamic regression model a la Feldstein-Horioka we showed that financial system is widely supplied and financed by internationals capital flows. This implicate Congolese economy is financially mobile, that can be dangerous for financial stability. The study dynamic econometric of financial system's absolute size, we stipulate financial system has a systemic weight on real economy. Hence a shock of financial system could have devastating effects on Congolese economy. We estimate a vector autoregressive (VAR) model for prove the bilateral causality and impacts of macroeconomic and macroprudential policies. With regard to results, it proved on the one there is a feedback effect between volatility of capital flows and financial stability, on the other hand macroeconomic and macroprudential policies can't attenuate volatility of capital flows and prevent instability financial. It prove macroprudential approach is given a better result than monetary policy. The implementation of framework macroprudential by Central Bank of Congo will be beneficial in the realization of financial stability and attenuation volatility of capital flows.Keywords: Volatility of capital flows, financial stability, macroeconomic and macroprudential policies
    Date: 2017–08

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