nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒11‒05
four papers chosen by
Georg Man

  1. Capital Misallocation and Financial Development: A Sector-Level Analysis By Daniela Marconi; Christian Upper
  2. Who Gains from Better Access to Credit? Credit Reform and Reallocation of Resources By Jens Matthias Arnold; Lisandra Flach
  3. On the Determinants of output Co-movements in the CEMAC Zone:Examining the Role of Trade, Policy Channel, Economic Structure and Common Factors By Etoundi Atenga, Eric Martial
  4. Follow the Money: Does the Financial Sector Intermediate Natural Resource Windfalls? By Thorsten Beck; Steven Poelhekke

  1. By: Daniela Marconi (Bank of Italy); Christian Upper (Bank for International Settlements)
    Abstract: This study investigates how financial development affects capital allocation across industries in a panel of countries at different stages of development (China, India, Mexico, Korea, Japan and the US) over the period 1980-2014. Following the approach proposed by Chari et al (2007) and Aoki (2012), we compute wedges for capital and labour inputs for 26 industrial sectors in the six countries and add them up to economy-wide measures of capital and labour misallocation. We find that more developed financial systems allocate capital investment more efficiently than less developed ones. If financial development is low, faster capital accumulation is associated with a worsening of allocative efficiency. This effect reverses for higher levels of financial development. Sectors with high R&D expenditures or high capital investment benefit most from financial development. These effects are not only statistically significant, they are also large in economic terms.
    Keywords: factor allocation, total factor productivity, financial development.
    JEL: E22 E23 O16 O47
    Date: 2017–10
  2. By: Jens Matthias Arnold; Lisandra Flach
    Abstract: Brazil's 2005 bankruptcy law reform strengthened creditor protection, resulting in a substantial acceleration of credit expansion and business investment growth. In this paper, we go beyond average effects and examine to what extent the pro-creditor reform affected the allocation of resources across firms. We find evidence that the reform was particularly effective in alleviating credit constraints for high productivity firms. After the reform, better access to credit allowed these firms to thrive on the expense of others. Our results suggest that better access to credit can improve the allocation of resources across firms, thus raising aggregate productivity.
    Keywords: TFP, credit constraint, credit reform, heterogeneous firms
    JEL: G33 O16 F12
    Date: 2017
  3. By: Etoundi Atenga, Eric Martial
    Abstract: This paper aims to examine the forces driving co-movements in the CEMAC. For that purpose, a two-step methodology is employed. First, a DCC-GARCH is used to assess correlations between member states. Second, panel models are employed to examine whether and the extent to which trade, policies, economic structure and common factors determine output growth correlations. Results from the DCC-GARCH model suggest that spikes of co-movements appear during high volatility oil prices episodes namely the 1998 oil crisis, the 2008 financial crisis and the recent 2014 collapse. Panel regressions suggest that trade has negative effects on output co-movements. The differential fiscal policy displays strong and significant positive effects on output correlations while the role of the single monetary policy is not robust across models. The degree of specialization has negative effects while the financial development increase co-movements. The landlocked situation of Chad and Central Africa reduces their co-movements with other member states. Results also reveal non-linearities in the effects of trade linkages which are non-significant when the country is landlocked. As a policy implication, national governments may limit the cyclical behaviour of their fiscal policy in order to in increase co-movements in the region.
    Keywords: output co-movements, trade integration, common shocks, fiscal and monetary policy, GMM dynamic panel, specialization, Monsoon effects, random effects.
    JEL: E32
    Date: 2017–10–20
  4. By: Thorsten Beck; Steven Poelhekke
    Abstract: The need to absorb windfalls gains and manage them appropriately has been discussed extensively by academics and policy makers alike. We explore the role of the financial sector in intermediating these windfalls. Controlling for the level of financial development, inflation, GDP growth and country fixed-effects, we find a relative decline in financial sector deposits in countries that experience an unexpected natural resource windfall as measured by shocks to exogenous world prices. Moreover, we find a similar relative decline in lending, which is mostly due to the decrease in deposits. The smaller role for the financial sector in intermediating resource booms is accompanied by a stronger role of governments in channeling resources into the economy, mostly through higher government consumption.
    Keywords: natural resources, financial development, banking
    JEL: E20 F41 G20 O10 Q32 Q33
    Date: 2017

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