nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒02‒05
five papers chosen by
Georg Man

  1. Short-Run Pain, Long-Run Gain: The Conditional Welfare Gains from International Financial Integration By Raouf Boucekkine; Giorgio Fabbri; Patrick A. Pintus
  2. Regional Economic Growth in Turkey: The Effects of Physical, Social and Financial Infrastructure Investments By Hulya Saygili; K. Azim Ozdemir
  3. The Impact of the Global Financial Crisis on the Economic Development in the Eurasian Region. By Ketenci, Natalya
  4. The Response of Banking Sector Development to Financial and Trade Openness in the presence of Global Financial Crisis in Africa By Onanuga, Olaronke; Onanuga, Abayomi
  5. Financial Intermediation, Capital Accumulation and Crisis Recovery By Gersbach, Hans; Rochet, Jean-Charles; Scheffel, Martin

  1. By: Raouf Boucekkine (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille); Giorgio Fabbri (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne); Patrick A. Pintus (DGEI-DEMFI-POMONE – Banque de France)
    Abstract: This paper aims at clarifying the analytical conditions under which financial globalization originates welfare gains in a simple endogenous growth setting. We focus on an open-economy AK model in which the capital-deepening effect of financial globalization boosts growth in a in permanent but entails an entry cost in order to access international credit markets. We show that constrained borrowing triggers substantial welfare gains, even at small levels of international financial integration, provided that the autarkic growth rate is larger than the world interest rate. Such conditional welfare benefits boosted by stronger growth - long-run gain - arise in our preferred model without investment commitment and they range, relative to autarky, from about 2% in middle-income countries to about 13% in OECD-type countries under international financial integration. Sizeable benefits emerge despite the fact that consumption initially falls - short-run pain - which is however shown not to dwarf positive growth changes.
    Keywords: Endogenous Growth,Welfare Gains,Collateral-Constrained Borrowing,International Financial Integration,Growth Breaks
    Date: 2017
  2. By: Hulya Saygili; K. Azim Ozdemir
    Abstract: This paper explores the roles different categories of infrastructure investment play in promoting economic growth across regions in Turkey. Two different approaches, namely partial least square structural equation modeling (PLS-SEM) and heteroskedastic panels corrected standard errors (HPC-SE) are used to compute regional physical, social and financial infrastructural indices and their impacts on income. Overall, the results reveal that differences in infrastructural endowments across Turkish regions explain a significant portion of regional disparity in per capita income. While financial infrastructure has a positive direct effect only, physical and social infrastructures contribute both directly and indirectly. We suggest that policy makers focus primarily on investing in physical infrastructure in order to mitigate the regional income disparity. Secondly, improving education, health and housing facilities as well as financial activities would contribute further diminishing income disparity across regions.
    Keywords: Infrastructure investment, Economic growth, Regional analysis, Turkey
    JEL: C3 H54 O18 O47
    Date: 2017
  3. By: Ketenci, Natalya
    Abstract: This study presents an empirical analysis of the impact of the global financial crisis on the economic development of the Eurasian region. The region covers fifteen states of the former Soviet Union: Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan. Emerging economies of estimated countries are highly attractive for foreign investors, who stimulate economic growth in the region. This paper particularly investigates the relationship between economic growth and international capital flows in the Eurasian region before and after the global financial crisis. Panel estimations using annual data for the period 1990-2014 are made applying the Generalized Method of Moments estimation technique for the dynamic panel data, developed by Hansen (1982). Empirical results reveal that the main determinant of the regions’ economic development is FDI inflow. This study finds evidence that after the global financial crisis, economic growth in the region becomes more responsive to capital flows compared to the pre-crisis period.
    Keywords: Economic growth, capital flows, generalized method of moments (GMM), Eurasia, dynamic panel data.
    JEL: F43
    Date: 2017
  4. By: Onanuga, Olaronke; Onanuga, Abayomi
    Abstract: Africa’s financial system is strongly bank-based and so this paper investigate whether economic growth, financial openness and trade openness contribute to the development of the banking sector in the presence and absence of global financial crisis. The results from PMG/ARDL suggest that banking sector develops independently of economic growth in lower-middle and high income countries while it develops as demand for finance increases in low and uppermiddle income countries in Africa. Being cautious of global financial crisis, trade openness is found to be more effective in high and lower-middle income countries, financial openness is more effective in low income countries and neither is more effective in upper-middle income countries. It is also discovered that, in the long run, global financial crisis generally reduce banking sector development in Africa but not in high income countries however the banking sectors of lower-middle and low income countries suffer the most from such crisis.
    Keywords: Financial Openness, Trade Openness, Banking Sector Development, Global Financial Crisis, Africa, Income group
    JEL: F01 F21 G01 G21
    Date: 2016–05–30
  5. By: Gersbach, Hans; Rochet, Jean-Charles; Scheffel, Martin
    Abstract: This paper integrates banks into a two-sector neoclassical growth model to account for the fact that a fraction of firms relies on banks to finance their investments. There are four major contributions to the literature: First, although banks’ leverage amplifies shocks, the endogenous response of leverage to shocks is an automatic stabilizer that improves the resilience of the economy. In particular, financial and labor market institutions are essential factors that determine the strength of this automatic stabilization. Second, there is a mix of publicly financed bank re-capitalization, dividend payout restrictions, and consumption taxes that stimulates a Pareto-improving rapid build-up of bank equity and accelerates economic recovery after a slump in the banking sector. Third, the model replicates typical patterns of financing over the business cycle: procyclical bank leverage, procyclical bank lending, and countercyclical bond financing. Fourth, the framework preserves its analytical tractability wherefore it can serve as a macro-banking module that can be easily integrated into more complex economic environments.
    Keywords: Financial intermediation; capital accumulation; banking crisis; macroeconomic shocks; business cycles; bust-boom cycles; managing recoveries
    JEL: E21 E32 G21 G28
    Date: 2018–01

This nep-fdg issue is ©2018 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.