nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒02‒12
three papers chosen by
Georg Man

  1. The productivity puzzle and misallocation: an Italian perspective By Calligaris, Sara; Del Gatto, Massimo; Hassan, Fadi; Ottaviano, Gianmarco I. P.; Schivardi, Fabiano
  2. What finance for what investment? Survey-based evidence for European companies By Ferrando, Annalisa; Preuss, Carsten
  3. A search for Theory of Financial Market Failure in Lower Income Countries (LICs) and implication for Financial Exclusion. By Agyekum, Francis; Locke, Stuart; Hewa-Wellalage, Nirosha

  1. By: Calligaris, Sara; Del Gatto, Massimo; Hassan, Fadi; Ottaviano, Gianmarco I. P.; Schivardi, Fabiano
    Abstract: Productivity has recently slowed down in many economies around the world. A crucial challenge in understanding what lies behind this “productivity puzzle” is the still short time span for which data can be analysed. An exception is Italy where productivity growth started to stagnate 25 years ago. Italy therefore offers an interesting case to investigate in search of broader lessons that may hold beyond local specific cities. We find that resource misallocation has played a sizeable role in slowing down Italian productivity growth. If misallocation had remained at its 1995 level, in 2013 Italy's aggregate productivity would have been 18% higher than its actual level. Misallocation has mainly risen within sectors than between them, increasing more in sectors where the world technological frontier has expanded faster. Relative specialization in those sectors explains the patterns of misallocation across geographical areas and firm size classes. The broader message is that an important part of the explanation of the productivity puzzle may lie in the rising difficulty of reallocating resources between firms in sectors where technology is changing faster rather than between sectors with different speeds of technological change
    Keywords: misallocation; TFP; productivity puzzle; Italy
    JEL: D24 O11 O47
    Date: 2017–12–01
  2. By: Ferrando, Annalisa; Preuss, Carsten
    Abstract: We examine the link between corporate financing and investment decisions of European firms by using a novel firm-level survey of the European Investment Bank (EIBIS). The survey provides rich quantitative information of a wide range of financing sources and tangible and intangible investment types for a representative sample of EU28 firms in 2016. We provide new evidence and contribute to previous research in the following ways: first we consider the heterogeneous effect of internal and external finance on different tangible and intangible investment types. Second, our analysis focuses on a broad spectrum of nonfinancial corporations across size classes from different countries. By using a multinomial fractional response model to estimate the finance-investment link, we find that SMEs and large enterprises show a different financing behaviour for their investment activity. The results suggest that SMEs' tangible asset investment is positively related to the use of bank finance, whereas internal finance is preferred for intangible asset investments.
    Keywords: tangible and intangible investment,internal and external finance,R&D investment,SME finance,multivariate fractional response model
    JEL: D22 E22 G32 L25
    Date: 2018
  3. By: Agyekum, Francis; Locke, Stuart; Hewa-Wellalage, Nirosha
    Abstract: We demonstrate in this paper using transdisciplinary approach that the same theory of information asymmetry that explains the raison d’être of financial intermediaries also explains why financial exclusion exists. This paper synthesises some elements of theories of finance and economics in developing a theoretical framework towards the understanding of why financial exclusion exists, and appears to be widespread in lower-income countries (LICs). The paradigm emphasises that financial market frictions that generate information asymmetry, risk and transaction cost associated with lending, contribute significantly to why exclusion occurs. The role fiscal deficit financing that crowds-out the private sector completely plays towards exclusion is also emphasised. The model predicts that excessive fiscal borrowing, market imperfection that allows ‘arbitrage value’ to be exploited, and excessive taxation, tend to widen the financial exclusion gap for the private agent. In contrast, growth in income and private investments tend to reduce the exclusion gap, hence, inclusion stimulating. The policy direction is curved towards choices that will minimise the tendencies and prevalence of financial exclusion in economies, especially the developing world.
    Keywords: Financial Exclusion, LICs, Information Asymmetry, arbitrage value, crowding-out effect, QAT
    JEL: D82 E44 G21 G28
    Date: 2016–12–12

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