nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒11‒05
five papers chosen by
Georg Man

  1. The Inverted-U Relationship Between Credit Access and Productivity Growth By Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
  2. Financial constraints matter : Empirical evidence on borrowing behavior, microfinance and firm productivity By M.A. Boermans; Daan Willebrands
  3. Financialization and Endogenous Technological Change: a Post-Kaleckian Perspective By Parui, Pintu
  4. Macroeconomic Effects of Financial Uncertainty By Dlugoszek, Grzegorz
  5. Regime Changes in the Relationship between Stock Market Return and the Growth Rates of Output and Money Supply in Thailand By Jiranyakul, Komain

  1. By: Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
    Abstract: In this paper, we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-based growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then, we test our theory on a comprehensive French manufacturing firmlevel dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasi-experiment that generated exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: credit constraint, firms, growth, interest rate, productivity.
    JEL: G21 G32 O40 O47
    Date: 2018
  2. By: M.A. Boermans; Daan Willebrands
    Abstract: This paper examines the effect of financial constraints on firm performance using a sample of small business owners who are client at a microfinance institution (MFI). In developing countries, a lack of access to finance is seen as a key obstacle to successful entrepreneurship and economic growth. However, empirical evidence on this is still fragmented and sparse. This study contributes to the literature by applying an alternative measure of financial constraints based on actual lending and borrowing behavior to test how borrowing affects firm productivity. We use survey data of 615 entrepreneurs from Tanzania to analyze the relationship between financial constraints and labour productivity. Using OLS regression and propensity score matching techniques the results show that financial constraints impede labour productivity and are important barriers to successful entrepreneurship. Further tests suggest that financial constraints matter regardless of the measurement method used, thereby comforting researchers in a fragmented field which applies a wide range of financial constraints variables.
    Keywords: Entrepreneurship, credit constraints, access to finance, firmperformance
    Date: 2018
  3. By: Parui, Pintu
    Abstract: In post-Keynesian literature, Hein (2012a) was the first to incorporate financialization as an influential positive determinant of the rate of technological change. However, financialization is more like a two-edged sword which can affect technological progress negatively as well. We capture both the positive as well as the negative effect of financialization on technological progress which encapsulates the possibility of multiple equilibria. In analyzing the long run of the model we endogenize the financialization parameter as well. We then show how two subsystems (technological progress and financialization dynamics) when interact with each other, can produce instability and cycles for the whole system. We show that under certain circumstances, higher speed of diffusion of technological innovation, more regulated financial markets, and higher intra-class competition among firms are desirable for stabilizing the economy. Finally, we provide some policy prescriptions for the same.
    Keywords: Capital accumulation, Distribution, Financialization, Kaleckian model, Technological progress, Andronov–Hopf bifurcation, Saddle-node bifurcations, Limit cycles
    JEL: C62 C69 D33 E12 G01 O16 O41
    Date: 2018–10–05
  4. By: Dlugoszek, Grzegorz
    Abstract: This paper investigates the macroeconomic effects of uncertainty originating in the financial sector. My contribution is twofold. First, I document empirical relevenace of financial uncertainty using SVAR methods. Then, I employ the DSGE framework developed by Gertler and Karadi (2011) to uncover the underlying transmission mechanism. The model generates macroeconomic dynamics that are consistent with the SVAR evidence. In particular, an increase in financial uncertainty raises the risk premium and leads to a decline in output, consumption, investment and hours worked. This outcome arises mainly because of an endogenous tightening of the financial constraint, which in turn triggers the financial accelerator mechanism. Finally, internal habit formation and nominal rigidities act as additional amplification mechanisms for financial uncertainty shocks.
    Keywords: Stochastic Volatility,Financial Frictions,Financial Uncertainty
    JEL: E32 E44 E32 E44 E21
    Date: 2018
  5. By: Jiranyakul, Komain
    Abstract: This paper examines the relationship between stock market return and two main macroeconomic variables (output growth and money growth) in Thailand during 1997Q3 and 2017Q4. The results from Markov switching vector autoregressive model reveal that there is regime switching between the bull market and the bear market. The positive impact of output growth on stock market return is significant in the bear market while the impact of money growth on stock market return is positive and significant in the bull market. This implies that monetary policy is effective only during the bull market period. For the bear market period, measures that stimulate economic growth should be necessary.
    Keywords: stock return, regime changes, economic growth, monetary policy stance
    JEL: E32 E52 G10
    Date: 2018–09

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