nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒03‒25
ten papers chosen by
Georg Man

  1. Financial inclusion and macroeconomic stability in emerging and frontier markets By Anh The Vo; Loan Thi-Hong Van; Duc Hong Vo; Michael McAleer
  2. Nonperforming Loans in Asia: Determinants and Macrofinancial Linkages By Rosenkranz, Peter; Lee, Junkyu
  3. The Basel Capital Requirement, Lending Interest Rate, and Aggregate Economic Growth: An Empirical Study of Viet Nam By Minh Phi, Nguyet Thi; Hong Hoang, Hanh Thi; Taghizadeh-Hesary, Farhad; Yoshino, Naoyuki
  4. Effect of Foreign Direct Investment and Economic Growth in Nigeria By Victoria S, Kenny
  6. Shadow Banking and the Great Recession: Evidence from an Estimated DSGE Model By Fève, Patrick; Moura, Alban; Pierrard, Olivier
  7. The real effects of money supply shocks: Evidence from maritime disasters in the Spanish Empire By Adam Brzezinski; Yao Chen; Nuno Palma; Felix Ward
  8. La maturité des Banques Centrales influence-t- elle la croissance économique ? By Joseph Keneck Massil; Sandrine Kablan; Jacques Bikai Landry
  9. Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010) By Engelbert Stockhammer; Giorgos Gouzoulis; Rob Calvert Jump
  10. Harmful Pro-Competitive Effects of Trade in Presence of Credit Market Frictions By Foellmi, Reto; Oechslin, Manuel

  1. By: Anh The Vo (Business and Economics Research Group. Ho Chi Minh City Open University. Vietnam.); Loan Thi-Hong Van (Business and Economics Research Group. Ho Chi Minh City Open University. Vietnam.); Duc Hong Vo (Business and Economics Research Group. Ho Chi Minh City Open University. Vietnam.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)
    Abstract: Financial inclusion, being considered as a key enabler to reducing poverty and boosting prosperity in emerging and frontier markets such as Vietnam, is the process in which individuals and small businesses are provided with an access to useful and affordable financial products and services. The extant literature on the empirical evidence regarding the contribution of financial inclusion to macroeconomic stability is mixed. This paper investigates the linkages between financial inclusion and macroeconomic stability, which has not yet been thoroughly examined in the literature, for 22 emerging and frontier economies from 2008 to 2015, with particular focus on a potential optimal level. Using the panel threshold estimation technique, the empirical findings show that financial inclusion, as approximated by the growth rate in the number of bank branches over 100,000 account holders, is found to enhance financial stability under a certain threshold. Financial inclusion is also found to be of benefit to maintaining stable inflation and output growth. Policy implications are also discussed on the basis of the important empirical findings.
    Keywords: Financial inclusion; Macroeconomic stability; Panel threshold; Emerging and frontier markets.
    JEL: C62 O16 P45
  2. By: Rosenkranz, Peter (Asian Development Bank); Lee, Junkyu (Asian Development Bank)
    Abstract: The recent rise of nonperforming loans (NPLs) in some Asian economies calls for close analysis of the determinants, the potential macrofinancial feedback effects, and the implications for financial stability in the region. Using a dynamic panel model, we assess the determinants of the evolution of bankspecific NPLs in Asia and find that macroeconomic conditions and bank-specific factors—such as rapid credit growth and excessive bank lending—contribute to the buildup of NPLs. Further, a panel vector autoregression analysis of macrofinancial implications of NPLs in emerging Asia offers significant evidence for the feedback effects of NPLs on the real economy and financial variables. Impulse response functions demonstrate that a rising NPL ratio decreases gross domestic product growth and credit supply and increases unemployment rate. Our findings underline the importance of considering policy options to swiftly and effectively manage and respond to a buildup of NPLs. The national and regional mechanisms underlying NPL resolution are important for safeguarding financial stability in an increasingly interconnected global financial system.
    Keywords: dynamic panel model; emerging Asia; financial stability; macrofinancial feedback effects; nonperforming loans; panel vector autoregression model
    JEL: C32 C33 E44 G21 O16
    Date: 2019–03–14
  3. By: Minh Phi, Nguyet Thi (Asian Development Bank Institute); Hong Hoang, Hanh Thi (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute)
    Abstract: In recent years, the Vietnamese economy has shown signs of financial distress, and especially small banks have experienced serious liquidity and solvency problems. Based on the new policy of the State Bank of Vietnam, in order to ensure safe and effective banking operations, the Basel II accord will be widely applied to the whole banking system by 2018. This paper investigates the effects of the Basel II capital requirement implementation in Viet Nam on the bank lending rate and national output. The paper provides a theoretical framework as well as empirical model by developing a Vector Error Correction Model (VECM) over the period 2018 to 2016 by employing three groups of indicators (macroeconomics, banking, and monetary). The main finding of the paper is that at the bank level, a tightening of regulatory capital requirements does not induce a higher lending rate in the long run. Also, changes in micro-prudential capital requirements on banks have statistically significant spillovers on the GDP growth rate in the short term; yet, their effects significantly lessen over a longer period.
    Keywords: Basel II; regulatory capital requirements; bank capital; lending rate; aggregate growth
    JEL: G21 G28
    Date: 2019–01–18
  4. By: Victoria S, Kenny
    Abstract: This study examined the influence of foreign direct investment and exchange rate on economic growth in Nigeria from 1971 to 2013. The study employed trend lines and percentage to analysis the influence of both FDI and exchange rate on the economic growth of the country. From the analysis, this study found that exchange rate exerts most influence on economic growth than FDI in Nigeria.
    Keywords: Foreign direct investment, exchange rate and growth
    JEL: E00
    Date: 2019–03–20
  5. By: NTANGA NTITA, Jean de Dieu; KAZADI NTITA, François; NTITA NTITA, Jean
    Abstract: The objective of this paper is to analyze the effect of foreign direct investments on economic growth in the Democratic Republic of Congo (DRC) over the period 1980-2016. To achieve this objective, we used the ARDL approach. The results indicate a negative effect of foreign direct investments on the economic growth of the Democratic Republic of Congo in the short and long term.
    Keywords: Foreign direct investment, economic growth, ARDL, DRC.
    JEL: C32 E02 F43 O55
    Date: 2019
  6. By: Fève, Patrick; Moura, Alban; Pierrard, Olivier
    Abstract: We argue that shocks to credit supply by shadow and retail banks were key to understanding the behavior of the US economy during the Great Recession and the Slow Recovery. We base this result on an estimated DSGE model featuring a rich representation of credit flows. Our model selects the two banking shocks as the most important drivers of the crisis because they account simultaneously for the fall in real activity, the decline in credit intermediation, and the rise in lending-borrowing spreads. On the other hand, in contrast with the existing literature,our results assign only a moderate role to productivity and investment efficiency shocks.
    Keywords: Shadow Banking; Great Recession; Slow Recovery; estimated DSGE models.
    JEL: C32 E32
    Date: 2019–03
  7. By: Adam Brzezinski; Yao Chen; Nuno Palma; Felix Ward
    Date: 2019
  8. By: Joseph Keneck Massil; Sandrine Kablan; Jacques Bikai Landry
    Date: 2019
  9. By: Engelbert Stockhammer; Giorgos Gouzoulis (King’s College London); Rob Calvert Jump
    Abstract: Minsky (1975) proposed a theory of endogenous cycles that results from the interaction of real and financial variables. Minsky’s work has inspired a growing body of literature on theoretical business cycle models, but relatively little work has been done in the empirical field. In particular, while interest in financial cycles has risen significantly after the 2007-8 financial crash, and recent empirical studies have explored the impact of debt on aggregate demand or its effect on the probability of financial crises, the literature does not test for endogenous cycle mechanisms. In contrast, the present paper investigates econometrically whether or not business cycles are driven by corporate debt and/or by mortgage debt. We estimate simple vector autoregressive moving average (VARMA) models, using historical macroeconomic data for the USA (1889-2015) and the UK (1882-2010). We find robust evidence of endogenous corporate debt-driven cycles for the USA, weak evidence of mortgage debt-driven cycles in the USA and no evidence of corporate or mortgage debt-driven cycles for the UK.
    Keywords: Minsky cycles, corporate debt, mortgage debt, business cycles, historical data
    JEL: E22 G01
    Date: 2019–03
  10. By: Foellmi, Reto; Oechslin, Manuel
    Abstract: We explore the consequences of international trade in an economy that encompasses technology choice and an endogenous distribution of mark-ups due to credit market frictions. We show that in such an environment a gradual opening of trade may – but not necessarily must – have a negative impact on productivity and overall output. The reason is that the procompetitive effects of trade reduce mark-ups and hence make access to credit more difficult for smaller firms. As a result, smaller firms – while not driven out of the market – may be forced to switch to less productive technologies.
    Keywords: International trade, credit market frictions, productivity, polarization
    JEL: O11 F13 O16
    Date: 2019–02

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