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on Financial Development and Growth |
| By: | Stephen G. Cecchetti; Enisse Kharroubi |
| Abstract: | We examine the negative relationship between the rate of growth in credit and the rate of growth in output per worker. Using a panel of 20 countries over 25 years, we establish that there is a robust correlation: the higher the growth rate of credit, the lower the growth rate of output per worker. We then proceed to build a model in which this relationship arises from the fact that investment projects that are more risky have a higher return. As their borrowing grows more quickly over time, entrepreneurs turn to safer, hence lower return projects, thereby reducing aggregate productivity growth. We take this theoretical prediction to industry-level data and find that credit growth disproportionately harms output per worker growth in industries that have either less tangible assets or are more R&D intensive. |
| JEL: | D92 E22 E44 O4 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25079&r=fdg |
| By: | Pierre-Richard Agénor; Leonardo Gambacorta; Enisse Kharroubi; Enisse Kharroubi |
| Abstract: | This paper studies the effects of prudential regulation, financial development, and financial openness on economic growth. Using both existing models and a new OLG framework with banking and prudential regulation in the form of capital requirements, the first part presents an analytical review of the various channels through which prudential regulation can affect growth. The second part provides a reduced-form empirical analysis, based on panel regressions for a sample of 64 advanced and developing economies. The results show that growth may be promoted by prudential policies whose goal is to mitigate financial risks to the economy. At the same time, financial openness tends to reduce the growth benefits of these policies, possibly because of either greater opportunities to borrow abroad or increased scope for cross-border leakages in regulation. |
| Keywords: | economic growth, prudential regulation, financial development, financial openness |
| JEL: | E44 G28 O41 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:752&r=fdg |
| By: | Pranab Kumar Das; Bhaswati Ganguli; Sugata Marjit; Sugata Sen Roy |
| 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 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:18/08&r=fdg |
| By: | Lise Clain-Chamosset-Yvrard (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Thomas Seegmuller (Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE) |
| Abstract: | In this paper, we are interested in the interplay between real estate bubble, aggregate capital accumulation and taxation in an overlapping generations economy with altruistic households. We consider a three-period overlapping generations model with three key elements: altruism, portfolio choice, and financial market imperfections. Households realise different investment decisions in terms of asset at different periods of life, face a binding borrowing constraint and leave bequests to their children. We show that altruism plays a key role on the existence of a productive real estate bubble, i.e. a bubble in real estate raising physical capital stock and aggregate output. The key mechanism relies on the fact that a real estate bubble raises income of retired households. Because of higher bequests, there children are able to invest more in productive capital. Introducing fiscal policy, we show that raising real estate taxation dampens capital accumulation. |
| Keywords: | Bubble, Altruism, Real estate, Credit, Overlapping generations |
| JEL: | E22 E44 G11 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1820&r=fdg |
| By: | Escobar, Octavio; Mühlen, Henning |
| Abstract: | Foreign direct investment (FDI) flows to Mexico are substantial and play an important role in the Mexican economy since the mid-1990s. These investments reflect the activities of multinational firms that shape to some extent the economic landscape and sectoral structure in this host country. We illustrate that there is considerable variation in the amounts of FDI and structural change within the country and across time. Based on this, the paper's main purpose is to analyze whether there is a significant impact of FDI on structural change. We conduct an empirical analysis covering the period 2006-2016. We use the fixed-effects estimator where the unit of observation is a Mexican state for which we calculate structural change from the reallocation of labor between sectors. The results suggest that (if any) there is a positive effect from FDI on growth-enhancing structural change. This effect depends critically on the lag structure of FDI. Moreover, there is some evidence that the positive effect (i) arises from FDI flows in the industry sector and (ii) is present for medium- and low-skilled labor reallocation. |
| Keywords: | FDI,structural change,labor reallocation,Mexico,multinational firms,economic development |
| JEL: | F21 L16 O10 O54 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hohdps:222018&r=fdg |
| By: | Cristian Camilo Amézquita Bravo; Diego Mauricio Gómez Barrera |
| Abstract: | En este documento se realiza un análisis de la inversión extranjera directa (IED) en Colombia durante las últimas tres décadas. Se presenta el comportamiento general de la IED y se afirma su importancia como principal fuente de financiación para el crecimiento y desarrollo económico del país. Este trabajo descubre que Colombia en los últimos treinta años ha tenido un flujo de IED positivo, en el cual, el sector servicios ha sido el principal impulsor sectorial desde la apertura económica. Otros determinantes importantes de la IED en Colombia son la inflación, la tasa de cambio, el nivel de apertura, el tamaño de mercado, los impuestos y el mercado laboral. |
| Keywords: | inversión extranjera directa, balanza de pagos, determinantes de la IED, inversión privada. |
| JEL: | F20 F21 F22 |
| Date: | 2018–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:col:000176:016807&r=fdg |
| By: | Jolaoso, Enoch; Asirvatham, Jebaraj |
| Keywords: | Financial Economics, International Development |
| Date: | 2018–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea18:266705&r=fdg |
| By: | Shee, Apurba; Pervez, Shadayen; Turvey, Calum G. |
| Keywords: | International Development, Ag Finance and Farm Management, Production Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274224&r=fdg |
| By: | Yao, Becatien H.; Shanoyan, Aleksan |
| Keywords: | International Development, Ag Finance and Farm Management, Productivity Analysis and Emerging Technologies |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274225&r=fdg |
| By: | Baborska, Renata; Hernandez-Hernandez, Emilio; Magrini, Emiliano; Morales-Opazo, Cristian |
| Abstract: | The paper analyses the impact of using single, combinations and the range of three different formal financial services – savings, credit and payments – on the personal food security experience in rural areas across 88 low-and middle-income countries. It takes advantage of Global Findex database and Food Insecurity Experience Scale (FIES) – both included in the 2014-round of Gallup World Poll that collects data at individual-level and comparable worldwide. Our outcome variable of interest is the individual’s probability of experiencing food insecurity related to difficulties in access to food and which we measure through FIES. Econometrically, we employ different matching techniques: entropy balancing, matching on propensity scores and fully interacting linear matching in order to assess the consistency of estimated impacts. The results indicate mixed food security effects depending on the type of service used. Use of savings accounts significantly decreases, use of credit significantly increases and use of formal payment services has no effect on the individual’s probability of experiencing food insecurity. Our findings are consistent with the view that the specific features rather than the range of services offered by formal financial sector is determinative in the final food security experience, especially when they can be assigned to positive income effects. |
| Keywords: | Financial inclusion, experience-based food insecurity scale, rural populations, low-and middle-income countries, impact, entropy balancing |
| JEL: | O12 Q18 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89249&r=fdg |
| By: | KELLER, Wolfgang; SHIUE, Carol H.; WANG, Xin |
| Abstract: | This paper evaluates an approach to shed light on capital markets using grain prices, since stored grain incurs interest costs as part of the storage costs. Though this storage cost approach has been applied in McCloskey and Nash (1984) and has potentially wide applicability in situations where interest rate data is not available, this paper provides the first analysis of how well the storage cost approach captures actual capital market developments. Using matched data on bank interest rates and grain prices for early 19th century U.S. regions, we find that the storage cost approach is useful for quantifying the performance of capital markets. While the estimation of region- and year-specific interest rates can be challenging, the approach grain price approach accurately reflects differences in capital market development. Furthermore, the approach is robust to employing time series filtering techniques as well as dealing with unavailable information on harvest times, outliers, and a range of other factors. |
| Keywords: | Capital market integration, Financial economic development, U.S. economic history |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-74&r=fdg |