nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒01‒21
ten papers chosen by
Georg Man

  1. Financial Markets, Industry Dynamics, and Growth By Maurizio Iacopetta; Raoul Minetti; Pietro Peretto
  2. Financial Development and Poverty Reduction: A Study of Middle-Income Countries By Nasreddine Kaidi; Sami Mensi
  3. IMF-Supported Programs and Income Convergence in Low-Income Countries By Tejesh Pradhan; Ali J Al-Sadiq
  4. Capital Destruction and Economic Growth: The Effects of Sherman's March, 1850-1920 By James J. Feigenbaum; James Lee; Filippo Mezzanotti
  5. Unconventional monetary policy and productivity: Evidence on the risk-seeking channel from US corporate bond markets By Silvia Albrizio; Marina Conesa; Dennis Dlugosch; Christina Timiliotis
  6. Financial frictions, cyclical fluctuations, and the growth potential of new firms By Christoph Albert; Andrea Caggese
  7. Why are credit booms sometimes sweet and sometimes sour? By Vítor Castro; Rodrigo Martins
  8. China’s High Savings: Drivers, Prospects, and Policies By Longmei Zhang; Ray Brooks; Ding Ding; Haiyan Ding; Jing Lu; Rui Mano
  9. Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage By Christian Keuschnigg; Michael Kogler
  10. The Rise and Fall of Family Firms in the Process of Development By Maria Rosaria Carillo; Vincenzo Lombardo; Alberto Zazzaro

  1. By: Maurizio Iacopetta (OFCE - OFCE - Sciences Po); Raoul Minetti; Pietro Peretto
    Abstract: This paper introduces corporate governance frictions into a growth model with endogenous market structure. Managers engage in corporate resource diversion and empire building. Shareholders discipline managers with incentive compensation contracts. A reform that mitigates corporate governance frictions boosts firms' entry and,
    Date: 2018
  2. By: Nasreddine Kaidi (ESCT Business School); Sami Mensi
    Abstract: This paper examines the impact of financial development on poverty in middle-income countries. To that end, we made recourse to several estimation techniques over a study period stretching from 1980 to 2014. The results indicate that development of the banking system does not necessarily improve the poor’s conditions. However, development of the stock market does. Through a sensitivity analysis, we concluded that our banking index is sensitive to the use of the poverty index, while our stock market index is sensitive to the choice of the middle-income vs. high income studied countries.
    Date: 2018–09–05
  3. By: Tejesh Pradhan; Ali J Al-Sadiq
    Abstract: Continuing the empirical debate on the effects of IMF-supported programs on participating countries’ macroeconomic performance, we focus on the issue of whether these programs accelerate conditional ß-convergence among low-income countries (LICs). We use an unbalanced panel dataset for 85 LICs over the period 1986-2015 and employ two different econometric methods to address the selection bias problem. Our empirical results suggest that the rate of conditional income per capita convergence is faster among LICs with extended IMF support than that in countries without support or with intermittent support.
    Date: 2018–12–13
  4. By: James J. Feigenbaum; James Lee; Filippo Mezzanotti
    Abstract: Using General William Sherman’s 1864–65 military march through Georgia, South Carolina, and North Carolina during the American Civil War, this paper studies the effect of capital destruction on medium and long-run local economic activity, and the role of financial markets in the recovery process. We match an 1865 US War Department map of Sherman’s march to county-level demographic, agricultural, and manufacturing data from the 1850-1920 US Censuses. We show that the capital destruction induced by the March led to a large contraction in agricultural investment, farming asset prices, and manufacturing activity. Elements of the decline in agriculture persisted through 1920. Using information on local banks and access to credit, we argue that the underdevelopment of financial markets played a role in weakening the recovery.
    JEL: N21 N41 N51
    Date: 2018–12
  5. By: Silvia Albrizio; Marina Conesa; Dennis Dlugosch; Christina Timiliotis
    Abstract: We examine the relationship between lax monetary policy, access to high-yield bond markets and productivity in the US between 2008 and 2016. Using monetary policy surprises, obtained from changes in interest rates futures in narrow windows around FOMC announcements, we isolate the increased access to high-yield bond markets relative to investment-grade bond markets that is due to unconventional monetary policy (UMP). We find that through the risk-taking channel, UMP has increased investors’ appetite for high-yield US corporate bonds, thereby increasing access to high-yield bond markets for firms with a higher risk profile. Since the relationship between credit ratings and firm-level productivity is U-shaped, the aggregate effect on productivity is a priori unclear. Turning to the real economy, we thus analyse whether this additional access to finance had an effect on aggregate productivity by altering the reallocation of resources across firms. Our results show that unconventional monetary policy induced less investment in tangible capital by high-productive firms. However, before drawing conclusions on the net effects of UMP on aggregate productivity, we discuss a number of issues that this paper could not deal with due to data limitations, including prominently whether this apparent misallocation may have been offset by a shift in the composition of investments towards more intangible investment.
    Keywords: bond markets, capital reallocation, productivity, Unconventional monetary policy, United States
    JEL: F23 D22 O33 D24 E52 G21 G32 G33 J63 O16 O47
    Date: 2019–01–14
  6. By: Christoph Albert; Andrea Caggese
    Abstract: We develop a model in which entrepreneurs choose between startup types with heterogeneous short- and long-run growth potential, and we generate testable predictions on the differential effects of financial factors and cyclical fluctuations on these startups. Using a multi-country entrepreneurship survey, we find that, consistent with the model, higher borrowing costs during financial crises negatively affect high-growth startups considerably more than low-growth startups, especially during severe downturns. Our results, supported by additional tests using sector-level financial frictions indicators, uncover a new channel that is potentially important to explain slow recoveries after financial crises.
    Keywords: Financial crisis, entrepreneurship
    JEL: E20 E32 D22 J23 M13
    Date: 2018–12
  7. By: Vítor Castro (Loughborough University and NIPE); Rodrigo Martins (University of Coimbra and CeBER)
    Abstract: This paper investigates the commonalities and differences between benign credit booms and those that end up in banking crises by employing a Multinomial and a Sequential Logit model over a panel of industrial and developing countries. Some economic, political and institutional factors are found to play an important role in understanding the credit booms dynamics. In particular, this study shows that the quantity and price of credit, liquidity in the economy, economic growth, openness of the economy, government orientation, political stability and Central Bank independence are relevant to explain not only the occurrence of credit booms but also – and most importantly – whether they end up in a systemic banking crisis or not. While a better economic environment and Central Bank independence are essential for both industrial and developing countries to avoid credit booms from going badly, political factors seem to exert a stronger influence in developing countries.
    Keywords: Credit booms; Multinomial Logit; Sequential Logit; Government Ideology; Central Bank Independence.
    JEL: C25 D72 E32 E51
    Date: 2018–12
  8. By: Longmei Zhang; Ray Brooks; Ding Ding; Haiyan Ding; Jing Lu; Rui Mano
    Abstract: China’s high national savings rate—one of the highest in the world—is at the heart of its external/internal imbalances. High savings finance elevated investment when held domestically, or lead to large external imbalances when they flow abroad. Today, high savings mostly emanate from the household sector, resulting from demographic changes induced by the one-child policy and the transformation of the social safety net and job security that occured during the transition from planned to market economy. Housing reform and rising income inequality also contribute to higher savings. Moving forward, demographic changes will put downward pressure on savings. Policy efforts in strengthening the social safety net and reducing income inequality are also needed to reduce savings further and boost consumption.
    Keywords: Asia and Pacific;China, People's Republic of;China; Savings; Demographic Changes; Social Safety Net; Inequality; Housing; Projections, China, Savings, Demographic Changes, Social Safety Net, Inequality; Housing, Projections, , General, Demographic Trends and Forecasts, Social Security and Public Pensions
    Date: 2018–12–11
  9. By: Christian Keuschnigg; Michael Kogler
    Abstract: Trade and innovation cause structural change. Productive factors must flow from declining to growing industries. Banks play a major role in cutting credit to non-viable firms in downsizing sectors and in providing new credit to finance investment in expanding, innovative sectors. Structural parameters of a country’s banking system thus influence comparative advantage and trade, and can magnify the gains from trade liberalization. The analysis shows how insolvency laws, minimum capital standards, and cost of bank equity determine credit reallocation, sectoral expansion and trade patterns.
    Keywords: capital reallocation, banking, trade, comparative advantage
    JEL: F10 G21 G28
    Date: 2018
  10. By: Maria Rosaria Carillo (University of Naples Parthenope); Vincenzo Lombardo (University of Naples Parthenope); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR)
    Abstract: This paper explores the causes and the consequences of the evolution of family firms in the growth process. The theory suggests that in early stages of development, valuable family specific human capital stimulated the productivity of family firms and the development process. However, in light of the rise in the importance of managerial talents for firms' productivity in later stages, family firms generated a misallocation of managerial talents, curbing productivity and economic growth. Evidence supports the dual impact of family firms in the development process and the role of socio-cultural characteristics in observed variations in the productivity of family firms.
    Keywords: Family firms, economic development and growth, culture and social structure, allocation of talents, industrialization
    JEL: D2 J62 L26 O14 O33 O4 Z1
    Date: 2019–01

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