nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒11‒19
six papers chosen by
Georg Man

  1. Financial Crisis, banking sector performance and economic growth in the European Union By Cândida Ferreira
  2. Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa By Batuo, Enowbi; Mlambo, Kupukile; Asongu, Simplice
  3. Mobile banking usage, quality of growth, inequality and poverty in developing countries By Simplice Asongu; Nicholas Odhiambo
  4. Firm R&D and Financial Analysis: How Do They Interact? By Goldman, Jim; Peress, Joël
  5. Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe By Dan Andrews; Filippos Petroulakis
  6. Human Capital Misallocation, TFP, and Redistributive Policies By Debasis Bandyopadhyay; Ian King; Xueli Tang

  1. By: Cândida Ferreira
    Abstract: This paper uses static and dynamic panel estimates in a sample including all 28 European Union countries during the last decade and provides empirical evidence on the important role that well-functioning EU banking institutions can play in promoting economic growth.The banking sector performance is proxied by the evolution of some relevant financial ratios and economic growth is represented by the annual Gross Domestic Product growth rate. In order to analyse the possible differences arising after the outbreak of the recent international financial crisis, the estimations consider two panels: one for the time period 1998–2012 and another for the subinterval 2007–2012. The results obtained allow us to draw conclusions not only on the importance of the variation of the different operational, capital, liquidity and assets quality financial ratios to economic growth but also on some differences evidenced in the two considered panels, reflecting the consequences of the recent financial crisis and the correspondent reactions of the European banking institutions.
    Keywords: ank performance, economic growth, European Union, financial crisis, panel estimates
    JEL: F30 F40 G20 G30 O40
    Date: 2017–10
  2. By: Batuo, Enowbi; Mlambo, Kupukile; Asongu, Simplice
    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: G23 O16 O47 O55
    Date: 2017–01
  3. By: Simplice Asongu (Yaoundé/Cameroun); Nicholas Odhiambo (Pretoria, South Africa)
    Abstract: The transition from Millennium Development Goals to Sustainable Development Goals has substantially shifted the policy debate from development to inclusive development. Using interactive quantile regressions, we examine the correlations between mobile banking and inclusive development (quality of growth, inequality and poverty) among individuals in 93 developing countries for the year 2011. Mobile banking entails: ‘mobile used to pay bills’ and ‘mobile used to receive/send money’. The findings broadly show that increasing mobile banking dynamics to certain thresholds would increase (decrease) quality of growth (inequality) in quantiles at the high-end of inclusive development distributions for the most part. The study is original in that it explores the relationship between mobile banking and inclusive development using three measurements of inclusive development, namely: quality of growth, inequality and poverty. As a main policy implication, encouraging mobile banking applications would play a substantial role in responding to the challenges of immiserizing growth, inequality and poverty in developing countries.
    Keywords: Mobile banking; Quality of growth; Poverty; Inequality; Developing countries
    JEL: G20 O40 I10 I20 I32
    Date: 2017–01
  4. By: Goldman, Jim; Peress, Joël
    Abstract: Entrepreneurs undertake more R&D when financiers are better informed about their projects because they expect to receive more funding for successful projects. Conversely, financiers learn more about projects when entrepreneurs perform more R&D because then the opportunity cost of mis-investing is higher. Thus R&D and financial analysis are mutually reinforcing. Evidence based on two quasi-natural experiments supports this interaction. Quantitatively, investors' learning accounts for over a quarter of the total effect of a policy designed to stimulate R&D. A calibration suggests that the interaction's contribution to income growth represents a third of the total contributions of learning and R&D.
    Keywords: capital allocation; Financial Development; growth; Innovation; learning; technological progress
    JEL: G20 O31 O4
    Date: 2017–11
  5. By: Dan Andrews (OECD); Filippos Petroulakis (OECD)
    Abstract: This paper explores the connection between “zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation could be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe.
    Keywords: Credit Constraints, Factor Reallocation, Productivity, Zombie Firms
    JEL: D24 G21 L25 O47
    Date: 2017–11–20
  6. By: Debasis Bandyopadhyay (Faculty of Business and Economics, University of Auckland); Ian King (School of Economics, The University of Queensland); Xueli Tang (Deakin University)
    Abstract: We analyse the impact of income inequality and redistribution on the misallocation of resources and TFP, in economies with financial market imperfections. We calibrate a model based on Benaboui's (2002) model of human capital, but with the addition of physical capital. In the absence of a credit market TFP losses due to misallocation can be signifcant and are comparable in size to those found in Hsieh and Klenow (2009). However, redistributive policies aimed at reducing these TFP losses have only small positive effects on TFP but large negative e§ects on per capita output.
    Keywords: heterogeneous agents, misallocation, TFP, redistribution
    JEL: E13 E25 E62 O11 O47
    Date: 2017–11–08

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