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on Financial Development and Growth |
| By: | Pranab Kumar Das (Reserve Bank of India Professor of Industrial Economics, Centre for Studies in Social Sciences, Calcutta(CSSSC).); Bhaswati Ganguli (Department of Statistics, University of Calcutta); Sugata Marjit (Centre for Studies in Social Sciences, Calcutta(CSSSC).); Sugata Sen Roy (Department of Statistics, University of Calcutta) |
| Abstract: | The paper critically inquires the ‘finance-growth-inequality’ nexus based on an econometric analysis of the IHDS Survey data for two rounds – 2005-06 and 2011-12. The study attempts to assess the co-evolution of finance-growth-inequality in an intertemporal framework. At the household level asset is still the most important determinant of bank loans inspite of several policy measures aimed at financial inclusion. However, the probability of receiving a bank loan increases if any member of the household is active participant of the local level government or caste association. The most important finding of the paper pertains to the econometric result that the household asset grows at the same rate independent of the source of loans - banks or informal moneylenders though the level effect (intercept) is higher if the loan is obtained from banks or lower if the household lives below poverty line. The same observation is also confirmed for per capita income of the households. The phenomenon is explained in a theoretical model of intertemporal choice of entrepreneur-investor to show that if there are both formal and informal sources of borrowing with a constraint on the formal sector borrowing and no constraint on the latter, then growth rates of asset and income are determined by the informal sector interest rate. This result can be generalised for any number of sources of borrowing. This questions the conventional wisdom regarding the policy aimed at financial inclusion. Inequality of income increases independent of the source of borrowing, though the households living below poverty line are worse off in general. If the major source of borrowing is bank for the business and industry then inequality increases more for the above poverty line households than if the major source is moneylenders or the households belong to the below poverty line category. Moneylenders as the source of borrowing is not as regressive as is believed. So the whole issue of financial inclusion needs a review in the light of the findings of the paper. |
| Keywords: | Financial development, Financial Inclusion Growth, Inequality, Bank, India, IHDS, Logit Model |
| JEL: | C35 E5 G21 O11 |
| Date: | 2018–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:593&r=fdg |
| By: | Jaccard, Ivan |
| Abstract: | This paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks. In a model that is capable of matching asset pricing moments, a short-lived shock that destroys a small fraction of the economy’s stock of pledgeable collateral generates a persistent recession, a stock market crash, and a flight-to-safety effect. This novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks. JEL Classification: E32, E44, G10 |
| Keywords: | equity premium, Great Recession, liquidity constraints |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182150&r=fdg |
| By: | Fabiano Schivardi; Enrico Sette; Guido Tabellini |
| Abstract: | Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks were less likely to cut credit to non-viable firms. (ii) Credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non viable firms. (iii) Nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, and so were the effects on TFP dispersion. This goes against previous infl uential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocationvwas modest. |
| Keywords: | Bank capitalization, zombie lending, capital misallocation |
| JEL: | D23 E24 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1753&r=fdg |
| By: | Zandile Zezethu (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | Much emphasis has been placed on attracting FDI into Burkina Faso as a catalyst for improved economic growth within the economy. Against the lack of empirical evidence evaluating this claim, we use data collected from 1970 to 2017 to investigate the FDI-growth nexus for the country using the ARDL bounds cointegration analysis. Our empirical model is derived from endogenous growth theoretical framework in which FDI may have direct or spillover effects on economic growth via improved human capital development as well technological developments reflected in urbanization and improved export growth. Our findings fail to establish any direct or indirect effects of FDI on economic growth except for FDI’s positive interaction with export-oriented growth, albeit being constrained to the short-run. Therefore, in summing up our recommendations, political reforms and the building of stronger economic ties with the international community in order to raise investor confidence, which has been historically problematic, should be at the top of the agenda for policymakers in Burkina Faso. |
| Keywords: | Per capita GDP, Convergence, unit root tests, nonlinearities, structural breaks, BRICS Emerging economies |
| JEL: | C13 C32 C51 F21 O40 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1823&r=fdg |
| By: | Agarwal, Isha (Asian Development Bank Institute); Duttagupta, Rupa (Asian Development Bank Institute); Presbitero, Andrea F. (Asian Development Bank Institute) |
| Abstract: | We study the role of the bank-lending channel in propagating fluctuations in commodity prices to credit aggregates and economic activity in developing countries. We use data on more than 1,600 banks from 78 developing countries to analyze the transmission of changes in international commodity prices to domestic bank lending. Identification relies on a bank specific time-varying measure of bank sensitivity to changes in commodity prices, based on daily data on bank stock prices. We find that a fall in commodity prices reduces bank lending, although this effect is confined to low-income countries and driven by commodity price busts. Banks with relatively lower deposits and poor asset quality transmit commodity price changes to lending more aggressively, supporting the hypothesis that the overall credit response to commodity prices works also through the credit supply channel. Our results also show that there is no significant difference in the behavior of foreign and domestic banks in the transmission process, reflecting the regional footprint of foreign banks in developing countries. |
| Keywords: | bank lending; commodity prices; macrofinancial linkages; developing countries |
| JEL: | F30 F34 G21 Q02 |
| Date: | 2018–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0807&r=fdg |