nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒04‒08
seven papers chosen by
Georg Man

  1. The Growth-Finance Nexus in Brazil: Evidence from a New Dataset, 1890-2003 By Nauro Campos; Menelaos Karanasos; Panagiotis Koutroumpis
  2. Financial Reforms and Industrialisation: Evidence from Nigeria By Oludele E. Folarin
  3. Online Appendix to "Financial Frictions, Entry and Growth" By Qiusha Peng
  4. FDI, multinationals and structural change in developing countries By Pineli, Andre; Narula, Rajneesh; Belderbos, Rene
  5. Climate Transition Risk, Climate Sentiments, and Financial Stability in a Stock-Flow Consistent approach By Dunz, Nepomuk; Naqvi, Asjad; Monasterolo, Irene
  6. The Mobile Phone, Information Sharing and Financial Sector Development in Africa: A Quantile Regressions Approach By Simplice A. Asongu; Nicholas M. Odhiambo
  7. Structure of Income Inequality and Household Leverage: Theory and Cross-Country Evidence By Rémi Bazillier; Jérôme Héricourt; Samuel Ligonnière

  1. By: Nauro Campos (Brunel University, London); Menelaos Karanasos (Brunel University, London); Panagiotis Koutroumpis (Queen Mary University of London)
    Abstract: This study revisits the growth-finance nexus using a new econometric approach and unique data set. In particular by employing the smooth transition framework and annual time series data for Brazil from 1890 to 2003, we attempt to address on the one side, what is the relationship between financial development, trade openness, political instability and economic growth and, on the other, how it changes over time. The main finding is that financial development has a mixed positive and negative time-varying impact on economic growth, which signifi cantly depends on jointly estimated trade openness thresholds. Moreover our estimates highlight a positive impact of trade openness on growth but with interesting variation regarding their size and power, whereas the effect of political instability (both formal and informal) on growth is mainly negative. We also find that changes between regimes tend not to be smooth. Finally, our estimates show that in 57% of the years in which financial development has a below the mean effect, we find that trade openness experiences a substantial above the mean change.
    Keywords: Economic growth; financial development; political instability; smooth transition models; trade openness
    JEL: C14 O40 E23 D72
    Date: 2019–03–20
  2. By: Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria)
    Abstract: Nigeria adopted the Structural Adjustment Programme (SAP) in 1986 after the crash in world oil price in the early 1980s. Financial reforms are part of the reforms implemented during the SAP. Since, industrialisation is seen as an engine of growth, we conduct an empirical assessment of the effects of financial sector reforms on industrialisation in Nigeria using an annual time series data over 1981 - 2015. Using an autoregressive distributed lag (ARDL) model, our findings show that financial reforms have a positive and significant impact on industrialisation.
    Keywords: Financial reforms, Financial repression, Industrialisation, ARDL bounds test
    JEL: C32 E44 O14 O55
    Date: 2019–01
  3. By: Qiusha Peng (Fudan University)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2019
  4. By: Pineli, Andre (Henley Business School, University of Reading); Narula, Rajneesh (Henley Business School, University of Reading); Belderbos, Rene (UNU-MERIT, Maastricht University and KU Leuven)
    Abstract: Economic development can be defined as a process in which output growth is accompanied by qualitative changes in the structures of production and employment. Can FDI affect this process? This paper looks for answers in two ways. First, it reviews the extant knowledge about the relationship between MNE activity and economic development in developing countries. Core theoretical and conceptual issues are presented and the key findings of both microeconomic (FDI linkages and spillovers) and macroeconomic (FDI-growth nexus) empirical studies are discussed. The main message of both streams of literature is that FDI has the potential to catalyse development, but actual outcomes are contingent on several factors, such as the absorptive capacity of domestic firms and the level of development of local financial markets. Second, the paper addresses the relationship between FDI and structural change more directly, in a cross-country context, using a two-step estimation approach that is consistent with both theoretical arguments and previous empirical findings which suggest that the FDI-development nexus is highly country-specific. The results confirm such heterogeneity and suggest that the interaction between the sectoral concentration of FDI and the development stage of the country plays a role in determining the development impact of FDI.
    Keywords: foreign direct investment, multinational enterprises, developing countries, economic development, structural change
    JEL: D62 F23 L16 O11 O14 O19 O24
    Date: 2019–02–14
  5. By: Dunz, Nepomuk; Naqvi, Asjad; Monasterolo, Irene
    Abstract: It is increasingly recognized that banks might not be pricing adequately climate risks in the value of their loans contracts. This represents a barrier to scale up the green investments needed to align the economy to sustainability and to preserve financial stability. To overcome this barrier, climate-aligned policies, such as a revision of the microprudential banking framework (for example a Green Supporting Factor (GSF )), and the introduction of stable green fiscal policies (for example a Carbon Tax (CT )), have been advocated. However, understanding the conditions under which a GSF or a CT could represent an opportunity for scaling up green investments, while preventing trade-offs on risk for financial stability, is still insufficient. We contribute to fill this knowledge gap threefold. First, we analyse the risk transmission channels from climate-aligned policies, a GSF and a CT, to the credit market and the real economy via loans contracts. Second, we assess the reinforcing feedbacks leading to cascading macro-financial shocks. Third, we consider how banks could react to the policies, i.e., their climate sentiments. In this regard, we embed for the first- time banks climate sentiments, modelled as a non-linear adaptive forecasting function into a Stock-Flow Consistent model that represents agents and sectors of the real economy and the credit market as a network of interconnected balance sheets. Our results suggest that the GSF is not sufficient to effectively scale up green investments via a change in lending conditions to green firms. In contrast, the CT could shift the bank's loans and the green/brown firms' investments towards the green sector. Nevertheless, it could imply short-term negative transition effects on GDP growth and financial stability, according to how the policy is implemented. Finally, our results show that bank's anticipation of a climate-aligned policy, through stronger climate sentiments, could smooth the risk for financial stability and foster green investments. Thus, our results contribute to understand the conditions for the onset and the mitigation of climate-related financial risks and opportunities.
    Keywords: climate sentiments, climate risk, green supporting factor, carbon tax, financial stability, Stock-Flow Consistent modelling
    Date: 2019–03
  6. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study investigates linkages between the mobile phone, information sharing offices (ISO) and financial sector development in 53 African countries for the period 2004-2011. ISO are private credit bureaus and public credit registries. The empirical evidence is based on contemporary and non-contemporary quantile regressions. Two main hypotheses are tested: mobile phones complement ISO to enhance the formal financial sector (Hypothesis 1) and mobile phones complement ISO to reduce the informal financial sector (Hypothesis 2). The hypotheses are largely confirmed. This research adds to the existing body of literature by engaging hitherto unexplored dimensions of financial sector development and investigating the role of mobile phones in information sharing for financial sector development.
    Keywords: Information sharing; Banking sector development; Africa
    JEL: G20 G29 L96 O40 O55
    Date: 2019–01
  7. By: Rémi Bazillier (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 - Université Panthéon-Sorbonne); Jérôme Héricourt (LEM - Lille - Economie et Management - CNRS - Centre National de la Recherche Scientifique - UCL - Université catholique de Lille - Université de Lille, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Samuel Ligonnière (LEM - Lille - Economie et Management - CNRS - Centre National de la Recherche Scientifique - UCL - Université catholique de Lille - Université de Lille, ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay)
    Abstract: How does income inequality and its structure affect credit? We extend the theoretical framework by Kumhof et al. (2015) to distinguish between upper, middle and low-income classes, and show that most of the positive impact of inequality on credit predicted by Kumhof et al. (2015) should be driven by the share of total output owned by the middle classes. Consistently, this impact should weaken in countries where financial markets are insufficiently developed. These theoretical predictions are empirically confirmed by a study based on a 41-country dataset over the period 1970-2014, where exogenous variations of inequality are identified with a new instrument variable, the total number of ILO conventions signed at the country-level.
    Keywords: Credit,Finance,Income Inequality,Inequality structure
    Date: 2019–02

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