nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒07‒30
seven papers chosen by
Georg Man

  1. Financial market evolution in Africa: Is it demand-following or supply-leading? By Odhiambo, Nicholas M.; Nyasha, Shiella; Zerihun, Mulatu F.; Tipoy, Christian
  2. Inequality, Finance, and Growth By Matías Braun; Francisco Parro; Patricio Valenzuela
  3. Lending standards and output growth By Kirti, Divya
  4. Long-Term Finance and Investment with Frictional Asset Markets By Kozlowski, Julian
  5. Does Central Bank’s maturity matter for economic growth? By Joseph Massil; Sandrine Kablan; Jacques Landry
  6. Systemic Crisis and Growth Revisited: Has the Global Financial Crisis Marked a New Era? By Sven Steinkamp; Frank Westermann
  7. Cooperatives vs Traditional Banks: The impact of Interbank Market Exclusion By Raphael Bergoeing; Facundo Piguillem

  1. By: Odhiambo, Nicholas M.; Nyasha, Shiella; Zerihun, Mulatu F.; Tipoy, Christian
    Abstract: In this paper, we examine the dynamic causal relationship between financial development and economic growth in French- and English-speaking African countries during the period 1990-2014 ??? using a trivariate panel Granger-causality model. The study uses three proxies of financial development, namely: liquid liabilities (FD1), deposit money bank assets (FD2), and bank deposits (FD3) to examine this linkage. Our results show that the causality between financial development and economic growth differs significantly between English-speaking countries and French-speaking countries. When FD1 and FD3 are used as proxies for financial development, a demand-following response is found to predominate in both French- and English-speaking countries. However, when FD2 is used as a proxy, the study found a unidirectional causal flow from financial development to economic growth to prevail in French-speaking African countries, but failed to find any causal relationship between financial development and economic growth in English-speaking countries in either direction.
    Keywords: Financial Development; Economic Growth; French-Speaking African Countries; English-Speaking African Countries; Panel Granger-Causality
    Date: 2018
  2. By: Matías Braun; Francisco Parro; Patricio Valenzuela
    Abstract: This paper investigates the relationship between income inequality, financial development and economic growth from both a theoretical and an empirical perspective. This paper introduces a simple model in which the effect of inequality on growth depends on the degree of development of the domestic financial market. The model predicts that greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems. Using a panel dataset that covers a large number of countries over the past four decades, this paper shows empirical evidence that is consistent with the main prediction of the model. The model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality; we also provide evidence for this through value surveys. Overall, this paper's major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit. JEL Classification: D3; E6; P1; O4; I2. Key words: Keywords: Financial development; growth; inequality; income distribution; private credit.
    Date: 2017
  3. By: Kirti, Divya
    Abstract: While some credit booms are followed by economic underperformance, many are not. Can lending standards help separate good credit booms from bad credit booms contemporaneously? To observe lending standards internationally, I use information from primary debt capital markets. I construct the high-yield (HY) share of bond issuance for a panel of 38 countries. The HY share is procyclical, suggesting that lending standards in bond markets are extrapolative. Credit booms with deteriorating lending standards (rising HY share) are followed by lower GDP growth in the subsequent three to four years. Such booms deserve attention from policy makers. JEL Classification: E32, E44, G12
    Keywords: behavioral finance, credit cycles, lending standards, risky debt share
    Date: 2018–07
  4. By: Kozlowski, Julian (Federal Reserve Bank of St. Louis)
    Abstract: This paper develops a theory of investment and maturity choices and studies its implications for the macroeconomy. The novel ingredient is an explicit secondary market with trading frictions which leads to a liquidity spread which increases with maturity and generates an upward sloping yield curve. As a result, trading frictions induce firms to borrow and invest at shorter horizons than in a frictionless benchmark. Economies with more severe frictions exhibit a steeper yield curve which further affects maturity and investment choices of rms. A model calibrated to match cross-country moments suggests that reductions in trading frictions-a new channel of financial development-can promote economic development. A policy intervention with government-backed financial intermediaries in the secondary market can improve liquidity and reduce the cost of long-term finance which promotes investment in longer-term projects and generates substantial welfare gains.
    Keywords: Debt maturity; Over-the-counter market; Liquidity; Secondary markets
    JEL: E44 G30 O16
    Date: 2017–12–29
  5. By: Joseph Massil; Sandrine Kablan (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12); Jacques Landry
    Date: 2018–07–03
  6. By: Sven Steinkamp (Institute of Empirical Economic Research, Osnabrueck University, D-49069 Osnabrueck, Germany); Frank Westermann (Institute of Empirical Economic Research, Osnabrueck University, D-49069 Osnabrueck, Germany)
    Abstract: Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result anymore when updating the sample by one decade that includes the Global Financial Crisis, 2007/8. We analyze the time-varying nature of this relationship in rolling regressions and an historical dataset. In the subset of countries with enforceability problems, we find that the link between occasional crisis, measured by the negative skewness of credit growth, and per-capita output growth still remains intact.
    Keywords: Long-Term Growth; Systemic Crisis; Financial Liberalization
    JEL: F34 O43 G01
    Date: 2018–05–29
  7. By: Raphael Bergoeing; Facundo Piguillem
    Abstract: In this paper, we analyze the desirability of allowing cooperative banks to participate in the interbank market in Chile. We find that it is desirable, as long as the quality of the cooperative’s governance is not too deficient relative to traditional commercial banks. On the one side, when cooperative banks do participate in the interbank market, both, the probability of financial crisis and the volatility of GDP, raise; but on the other, because the cooperative’s inclusion generates large efficiency gains in the financial sector, GDP and aggregate welfare substantially increase. We conclude that there is no policy reason to exclude cooperatives from the Chilean interbank market. Key words:
    Date: 2018

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