nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒04‒23
eight papers chosen by
Georg Man

  1. Financial Development in Sub-Saharan Africa; Promoting Inclusive and Sustainable Growth By Montfort Mlachila; Ahmat Jidoud; Monique Newiak; Bozena Radzewicz-Bak; Misa Takebe
  2. The Effect of Financial Structure on Economic Growth: The Case of Kenya By Naomi Mathenge; Eftychia Nikolaidou
  3. Firm Financing Choices and Productivity in Sub Saharan Africa: Evidence from Firm Level Data By Naomi Mathenge; Eftychia Nikolaidou
  5. Financial reforms and credit growth in Nigeria: Empirical insights from ARDL and ECM techniques By Adeleye, Ngozi; Osabuohien, Evans; Bowale, Ebenezer; Matthew, Oluwatoyin; Oduntan, Emmanuel
  6. Do Financial Frictions Explain Chinese Firms’ Saving and Misallocation? By Yan Bai; Dan Lu; Xu Tian
  7. Understanding the Macro-Financial Effects of Household Debt: A Global Perspective By Adrian Alter; Alan Xiaochen Feng; Nico Valckx
  8. The Gambia; Selected Issues By International Monetary Fund

  1. By: Montfort Mlachila; Ahmat Jidoud; Monique Newiak; Bozena Radzewicz-Bak; Misa Takebe
    Abstract: Financial Development in Sub-Saharan Africa
    Date: 2016–09–14
  2. By: Naomi Mathenge (School of Economics, University of Cape Town); Eftychia Nikolaidou (School of Economics, University of Cape Town)
    Abstract: his study examines the effect of financial structure on economic growth in Kenya. Kenya is an interesting case study, as it has experienced a number of financial innovations and has a relatively well-developed financial system, but still faces low levels of economic development. The study employs the Autoregressive Distributed Lag approach to cointegration, and considers the independent role of banks and of stock markets, along with the role of financial structure. The results show that the financial structure is not significant in influencing growth in Kenya. Stock market development is, however, found to have a significantly positive effect on the country’s economic growth. This is possibly because Kenya was one of the first SSA countries to develop an alternative investment market aimed at small and young firms. The role of banking sector development has a negative effect. This finding can be partly explained by the large proportion of non-performing loans accumulated by Kenyan banks in the 1980’s and the 1990’s, along with a weak legal and regulatory framework.
    Date: 2018
  3. By: Naomi Mathenge (School of Economics, University of Cape Town); Eftychia Nikolaidou (School of Economics, University of Cape Town)
    Abstract: This study examines the effect of firm financing choices on firm performance. Firm performance is measured by firm productivity, specifically, the Total Factor Productivity (TFP) of a firm. The study uses firm level data from the World Bank Enterprise Survey (WBES) to investigate the effect of different financing options on the productivity of SSA firms. Using data for the period 2005 - 2013 from 26 countries, the study employs a linear Cobb-Douglas production function to estimate total factor productivity (TFP.) It then uses both parametric and non-parametric methods to analyse the effect of financing options on TFP. The results indicate that firms that rely on bank debt rather than other forms of financing (e.g. internal finance, informal finance, private and public equity) are, on average, more productive. This can be partly attributed to the monitoring activities of banks and the threat of bankruptcy faced by firms.
    Date: 2018
    Date: 2018
  5. By: Adeleye, Ngozi; Osabuohien, Evans; Bowale, Ebenezer; Matthew, Oluwatoyin; Oduntan, Emmanuel
    Abstract: In the last 37 years Nigeria has undergone several stages of financial reforms with different impacts on the economy. Hence, this paper empirically analyses the impact of financial reforms on credit growth in Nigeria using annual data from 1980 to 2016. The research work hinges on the theoretical underpinning of the McKinnon-Shaw hypothesis on the relevance of financial reforms in a lagging economy. Analysing the data with autoregressive distributed lag (ARDL) error correction representation and bounds testing techniques, we notably find evidence to this hypothesis and state that at higher real interest rate there is increased financial intermediation evidenced by credit growth. Other findings are that in the long-run, financial system deposits, inflation rate and per capita GDP are strong asymmetrical predictors of credit growth and real interest rate (the financial reform indicator) while the short-run relationships are indicator-specific. We further show that a long-run cointegration relationship exists between domestic credit and other covariates and likewise between the real interest rate and its regressors.
    Keywords: autoregressive distributed lag; bounds testing, cointegration, credit growth, financial reform, interest rate
    JEL: E43 E44 G18 G19
    Date: 2017
  6. By: Yan Bai; Dan Lu; Xu Tian
    Abstract: We use firm-level data to identify financial frictions in China and explore the extent to which they can explain firms' saving and capital misallocation. We first document the features of the data in terms of firm dynamics and debt financing. State-owned firms have higher leverage and pay much lower interest rates than non-SOEs. Among privately owned firms, smaller firms have lower leverage, face higher interest rates, and operate with a higher marginal product of capital. We then develop a heterogeneous-firm model with two types of financial frictions, default risk, and a fixed cost of issuing loans. Our model generates endogenous borrowing constraints as banks consider the firm's productivity, asset, and debt when providing a loan. Using evidence on the firm size distribution and financing patterns, we estimate the model and find it can explain aggregate firms' saving and investment and around 50 percent of the dispersion in the marginal product of capital within private firms, which translates into a TFP loss as high as 12%.
    JEL: E2 G3
    Date: 2018–03
  7. By: Adrian Alter; Alan Xiaochen Feng; Nico Valckx
    Abstract: We confirm the negative relationship between household debt and future GDP growth documented in Mian, Sufi, and Verner (2017) for a wider set of countries over the period 1950–2016. Three mutually reinforcing mechanisms help explain this relationship. First, debt overhang impairs household consumption when negative shocks hit. Second, increases in household debt heighten the probability of future banking crises, which significantly disrupts financial intermediation. Third, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. In addition, several institutional factors such as flexible exchange rates, higher financial development and inclusion are found to mitigate this impact. Finally, the tradeoff between financial inclusion and stability nuances downside risks to growth.
    Date: 2018–04–06
  8. By: International Monetary Fund
    Abstract: Selected Issues
    Date: 2018–04–04

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