nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒02‒18
eleven papers chosen by
Georg Man

  1. Remittances, Finance and Industrialisation in Africa By Uchenna R. Efobi; Simplice A. Asongu; Chinelo Okafor; Vanessa Tchamyou; Belmondo Tanankem
  2. Financial constraints of innovative firms and sectoral growth By Ch.-M. CHEVALIER
  3. IDE chinois et croissance économique des pays d'Afrique sub-saharienne : méthode PIM et régression quantile des données en panel By Fred EKA
  4. Economic effects of inward foreign direct investment in Vietnamese provinces By Taguchi, Hiroyuki
  5. File-URL: Capital shares and the intergenerational consequences of international financial integration By Sara Eugeni
  6. Determinants of International Consumption Risk Sharing in Developing Countries By Gardberg, Malin
  7. Asset Prices and Corporate Responses to Bank of Japan ETF Purchases By Ben Charoenwong; Randall Morck; Yupana Wiwattanakantang
  8. Net External Position, Financial Development, and Banking Crisis By Aytul Ganioglu
  9. SMEs’ financing: Divergence across Euro area countries? By S. ROUX; F. SAVIGNAC
  10. Finance and Wealth Inequality By Iftekhar Hasan; Roman Horvath; Jan Mares
  11. The Financial Instability Hypothesis Applied to the 2007 Financial Crisis. By Lim, Chen

  1. By: Uchenna R. Efobi (Covenant University, Ota, Ogun State, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Chinelo Okafor (Covenant University, Ota, Ogun State, Nigeria); Vanessa Tchamyou (University of Antwerp, Antwerp, Belgium); Belmondo Tanankem (MINEPAT, Cameroon)
    Abstract: The paper assesses how remittances directly and indirectly affect industrialisation using a panel of 49 African countries for the period 1980-2014. The indirect impact is assessed through financial development channels. The empirical evidence is based on three interactive and non-interactive simultaneity-robust estimation techniques, namely: (i) Instrumental Fixed Effects (FE) to control for the unobserved heterogeneity; (ii) Generalised Method of Moments (GMM) to control for persistence in industrialisation and (iii) Instrumental Quantile Regressions (QR) to account for initial levels of industrialisation. The non-interactive specification elucidates direct effects of remittances on industrialisation whereas interactive specifications explain indirect impacts. The findings broadly show that for certain initial levels of industrialisation, remittances can drive industrialisation through the financial development mechanism. Policy implications are discussed.
    Keywords: Africa; Diaspora; Financial development; Industrialisation; Remittances
    JEL: F24 F43 G20 O55
    Date: 2019–01
  2. By: Ch.-M. CHEVALIER (Insee)
    Abstract: Innovation policies can consist in measures aimed at directly alleviating financial constraints of innovative firms, beyond more traditional fiscal incentives to foster private R&D spendings. To explore the interaction between innovation and financial constraints at the sector level, and evaluate stylized policy scenarios, this paper brings together two analytical frameworks from the endogenous growth and corporate finance literatures. Within this dynamic model, firms innovate and compete for products through destructive creation and accumulate internal funds in relation to financial hindrances occurring when they enter, develop or exit. Including notably asymmetric information between investors and managers of firms with respect to uncertain cash flows, this model is first consistent with the fact that firms tend to spend more on R&D when their internal funds are higher. It then allows for experi­ments addressing growth and overall liquidity holdings for various sectoral contexts. In this specific framework, easing access to initial funding, as fiscal incentives, can have substantial effects. More­over, while a stylized high-tech sector is asso­ciated with higher growth and overall liqui­dity holdings, both variables depend to a large extent on many sectoral characteristics, such as R&D efficiency, entry costs, and cash flow mean and volatility.
    Keywords: endogenous growth, liquidity management, product innovation, firm distribution, dynamic contracts
    JEL: C61 D21 E22 G32 L11 O31
    Date: 2018
  3. By: Fred EKA
    Abstract: Cet article explore l’incidence des flux d’investissement chinois sur le taux de croissance de 49 pays d’ASS sur la période allant de 2003 à 2016. Nous allons mettre en exergue les propriétés d’un estimateur de régressions quantiles sur données de panel. La stratégie d’estimation consiste à construire le stock de capital à travers la méthode de l’inventaire perpétuel (PIM). L’estimateur quantile présente l’avantage d’être robuste en cas de valeurs abbérantes et/ou erreurs dispersées car il pénalise moins les écarts. Nous allons appliquer la stratégie d’estimation appropriée (I. Canay, 2011) afin de neutraliser le problème économétrique de « paramètres incidents ». À travers le constat du différentiel positif entre les coefficients d’intérêt des deux modèles, nos résultats confirment un impact positif des investissements chinois sur le PIB par tête en ASS qui demeure limité.
    Keywords: IDE chinois, PIB par tête, Afrique sub-saharienne, données de panel, méthode PIM, régression quantile, estimateur en deux étapes, paramètres incidents
    Date: 2019–02
  4. By: Taguchi, Hiroyuki
    Abstract: This article examines the effect of FDI on economic growth and domestic investment with a focus on Vietnamese provinces by conducting the Granger causality and impulse response tests under a vector auto-regression (VAR) estimation using panel data. The major research questions in this study are twofold: whether the inward FDI causes economic growth or economic growth induces the FDI, and whether the inward FDI crowds in or crowds out domestic investment. Since this study targets Vietnamese provinces, it explores reginal differences in the FDI effect by dividing Vietnamese provinces according to FDI-value intensity. The VAR estimation results showed two clear contrasts on FDI effects between the FDI-intensive region and the FDI-less-intensive one. One contrast was that FDI causes economic growth in the FDI-intensive region, whereas economic growth induces FDI in the FDI-less-intensive region. Another contrast was that FDI crowds in domestic investment in the FDI-intensive region, whereas FDI crowds out domestic investment in the FDI-less-intensive region. These contrasts suggest the existence of FDI’s agglomeration effects.
    Keywords: Inward foreign direct investment (FDI), Economic growth, Domestic investment, Crowd-in or -out effects, Vietnamese provinces, Vector auto-regression estimation, Granger causality and Impulse responses
    JEL: F21 O47 O53
    Date: 2019–02
  5. By: Sara Eugeni (Durham University Business School)
    Abstract: We revisit the welfare consequences of international financial integration (IFI) in a two-country OLG model where countries differ in the capital share of national income. We establish four main results: (i) the country with the highest capital share is the net recipient of capital flows as its output per effective units of labour is lower in autarky (i.e. developing economy), consistently with empirical evidence; (ii) on aggregate, IFI brings a 10% increase in consumption for the developing economy; (iii) IFI has uneven effects across generations: the first generation in the developing (developed) economy incurs a welfare loss (gain), while the remaining generations gain (lose) from IFI; (iv) labour (capital) should be taxed in the developing (developed) country to ensure that IFI is Pareto superior to financial autarky.
    Date: 2018–08
  6. By: Gardberg, Malin (Research Institute of Industrial Economics (IFN))
    Abstract: Complete financial markets allow countries to share their consumption risks internationally, thereby creating welfare gains through lower volatility of aggregate consumption. This paper empirically looks at international consumption risk sharing and its determinants in a panel of 120 countries from 1970 to 2014. Contrary to some previous studies, I show that financial liberalization and financial integration has a significantly positive impact on international consumption risk sharing in poorer developing countries, whereas in emerging market countries only capital account openness has an impact. Moreover, there is some evidence that high income inequality or a high share of low income individuals reduces consumption smoothing in less developed countries. Lack of financial reforms, a lower degree of financial integration and higher inequality can thus partly explain why the degree of risk sharing is lower in developing countries than in advanced economies.
    Keywords: International consumption risk sharing; Financial liberalization; Financial integration; Inequality; Panel data
    JEL: C23 E02 E21 E44 G15
    Date: 2019–01–31
  7. By: Ben Charoenwong; Randall Morck; Yupana Wiwattanakantang
    Abstract: Since 2010, the Bank of Japan (BOJ) has purchased stocks to boost domestic firms’ valuations to increase GDP growth. The stock return elasticity with respect to BOJ purchases relative to the previous month’s market cap is around 2 and increases across longer horizons. Over one quarter, BOJ share purchases worth 1% of assets correspond to an increase of 1% in share valuation and a .27% increase in assets. Consistent with elevated valuations letting firms “cash out,” BOJ share purchases predict equity issuances and fewer stock buybacks. However, less than 9% of increased assets reflect net tangible capital investments, whereas cash and short-term investments account for over 50%. This unconventional monetary stimulus thus boosts share prices but is largely not transmitted into real investment growth.
    JEL: E52 E58 G31 G32
    Date: 2019–02
  8. By: Aytul Ganioglu
    Abstract: Does the external position of a country that is conditioned on financial development impact the likelihood of a systemic banking crisis? We address this question using data from 149 developing and advanced countries from 1970 to 2011, as well as a variety of statistical tools. Our findings are twofold. First, we find that the net external position of a country significantly affects its likelihood of a systemic crisis depending on the level of financial development. Conditional on low to moderate financial development, countries can lower the risk of banking crises significantly by maintaining a net foreign creditor status. Second, we find that the level of financial development raises a country’s crisis risk significantly while its impact depends on the net asset position. This indicates a potential amplification effect in which countries with more developed and complex financial systems that are also debtor countries have a higher potential of incurring a systemic banking crisis.
    Keywords: Banking crisis, Net external position, Financial development, Probit
    JEL: E44 F34 G15 H63
    Date: 2018
  9. By: S. ROUX (Insee, Crest et Ined); F. SAVIGNAC (Banque de France)
    Abstract: This paper studies the divergence/convergence process of European countries as regard the financing behavior of small and medium sized enterprises. Using a firm level and country representative survey, we construct country-time indicators of SMEs’ use of three external financing sources: bank loans, credit line/overdraft and trade credit. These indicators account for composition effects and demand effects. We find substantial differences between countries in the SMEs’ use of the three financing sources. In particular, the cross-country differences related to SMEs’ use of bank loans have significantly increased over the period 2010-2014. This divergence is not related to a global increase in the volatility of this use between countries. Instead, it has been driven by a sharper increase (resp decrease) in the countries where SMEs’ use was initially higher (resp. lower). Finally, we investigate whether SMEs’ uses of financing sources are correlated at the country level with various macroeconomic and banking structure indicators. The results suggest that indicators about banking concentration are good candidates to explain the cross-country divergence of SMEs’ use of bank loans.
    Keywords: credit constraints, bank financing, trade credit, institutional factors
    JEL: G31 G01 D22 C35
    Date: 2018
  10. By: Iftekhar Hasan (Fordham University; Bank of Finland); Roman Horvath (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Jan Mares (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: Using a global sample, this paper investigates the determinants of wealth inequality capturing various economic, financial, political, institutional, and geographical indicators. Using instrumental variable Bayesian model averaging, it reveals that only a handful of indicators robustly matter and finance plays a key role. It reports that while financial depth increases wealth inequality, efficiency and access to finance reduce inequality. In addition, redistribution and education are associated with lower inequality whereas wars and openness to international trade contribute to greater wealth inequality.
    Keywords: Wealth inequality, finance, Bayesian model averaging
    JEL: D31 E21
    Date: 2018–12
  11. By: Lim, Chen
    Abstract: The serious dysfunctions observed in the financial markets following the collapse of the mortgage market in the United States have given new life to the ideas of Hyman Minsky,a post-Keynesian economist. Indeed, there are many who believe that thanks to his work, the current financial crisis could have been anticipated. The key mechanism that drives an economy to a crisis is the accumulation of debt during the boom period. The economy becomes more and more fragile. Financial innovations and deregulation in a context of globalization are responsible for this situation. This is an important point of his analysis. This is one of the aspects of the "financial instability hypothesis" (FIH). The other aspect is that during periods of growth, banks and other financial intermediaries try to convince investors to buy debts through sophisticated financial innovations. The role major of financial intermediaries in the crisis process is thus highlighted. Finally, it is possible to show that the current crisis is an application of the Minsky model.
    Keywords: Financial crisis
    JEL: G01
    Date: 2018–11–01

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