nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒04‒22
eleven papers chosen by
Georg Man

  1. FDI, banking crisis and growth: direct and spill over effects By Brahim Gaies; Khaled Guesmi; Stéphane Goutte
  2. The Limits of Lending? Banks and Technology Adoption across Russia By Bircan, Cagatay; de Haas, Ralph
  3. Collateral booms and information depletion By Asriyan, Vladimir; Laeven, Luc; Martin, Alberto
  4. Does International Financial Integration Increase the Standard of Living in Africa? A Frontier Approach By Gilles Dufrénot; Kimiko Sugimoto
  5. The benefits and costs of adjusting bank capitalisation: evidence from euro area countries By Budnik, Katarzyna; Affinito, Massimiliano; Barbic, Gaia; Ben Hadj, Saiffedine; Chretien, Edouard; Dewachter, Hans; Gonzalez, Clara Isabel; Hu, Jenny; Jantunen, Lauri; Jimborean, Ramona; Manninen, Otso; Martinho, Ricardo; Mencía, Javier; Mousarri, Elena; Naruševičius, Laurynas; Nicoletti, Giulio; O’Grady, Michael; Ozsahin, Selcuk; Pereira, Ana Regina; Rivera-Rozo, Jairo; Trikoupis, Constantinos; Venditti, Fabrizio; Velasco, Sofia
  6. Assessing Macroeconomic Tail Risk By Loria, Francesca; Matthes, Christian; Zhang, Donghai
  7. Understanding the average impact of microcredit expansions: a Bayesian hierarchical analysis of seven randomized experiments By Meager, Rachael
  8. The Effects of Foreign Direct Investment on Regional Innovation Capacity in China By Paul J.J. Welfens; Tian Xiong
  9. Time-Varying Casual Nexuses Between Remittances and Financial Development in Some MENA Countries By Ilham Haouas; Naceur Kheraief; Arusha Cooray; Syed Jawad Hussain Shahzad
  10. The mobile phone,information sharing and financial sector development in Africa: A quantile regressions approach By Asongu, Simplice A; Odhiambo, Nicholas M
  11. How Does the Strength of Monetary Policy Transmission Depend on Real Economic Activity? By Horacio Sapriza; Judit Temesvary

  1. By: Brahim Gaies (IPAG Business School); Khaled Guesmi (IPAG Business School); Stéphane Goutte (LED - Université Paris 8)
    Abstract: This study suggests a new decomposition of the effect of Foreign Direct Investment (FDI) on long-term growth in developing countries. It reveals that FDI not only have a positive direct effect on growth, but also increase the latter by reducing the recessionary effect resulting from a banking crisis. Even more, they reduce its occurrence. JEL: F65, F36, G01, G15
    Keywords: growth,FDI,system GMM,panel logit model
    Date: 2019–04–07
  2. By: Bircan, Cagatay; de Haas, Ralph
    Abstract: We exploit historically-determined variation in local credit markets to identify the impact of bank lending on firm innovation across Russia. We find that deeper credit markets increase firms' use of bank credit, their adoption of new products and technologies, and productivity growth. This relationship is more pronounced in industries further from the technological frontier; more exposed to import competition; and that export more. These impacts are also stronger for firms near historical R&D centers or railways, and in regions with supportive institutions. Consistent with these results, credit markets contribute to economic growth in such regions.
    Keywords: credit constraints; Firm innovation; institutions; Russia; Technological change
    JEL: D22 G21 O12 O31
    Date: 2019–04
  3. By: Asriyan, Vladimir; Laeven, Luc; Martin, Alberto
    Abstract: We develop a new theory of information production during credit booms. In our model, entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources towards private consumption. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values raise investment and economic activity, but they also raise collateralization at the expense of screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), the economy accumulates physical capital but depletes information about investment projects. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing investment projects, which takes time to rebuild. We provide new empirical evidence using US firm-level data in support of the model's main mechanism. JEL Classification: E32, E44, G01, D80
    Keywords: collateral, credit booms, crises, information production, misallocation
    Date: 2019–04
  4. By: Gilles Dufrénot (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Kimiko Sugimoto (Hirao School of Management - Konan University)
    Abstract: We investigate whether a higher financial integration with the rest of the world can help the African countries reduce their production inefficiency and/or push up their efficient frontier of production. We use two alternative empirical approaches based, respectively, on a stochastic frontier analysis and quantile regressions. We provide evidence of heterogeneous situations across countries and time. This paper proposes a new approach for defining, at the aggregate level, a link between financial openness and production efficiency. We show that one size does not fit all: international financial integration can increase or decrease African countries' standard of living.
    Keywords: African countries,financial openness,stochastic frontier,quantile regression
    Date: 2019–04
  5. By: Budnik, Katarzyna; Affinito, Massimiliano; Barbic, Gaia; Ben Hadj, Saiffedine; Chretien, Edouard; Dewachter, Hans; Gonzalez, Clara Isabel; Hu, Jenny; Jantunen, Lauri; Jimborean, Ramona; Manninen, Otso; Martinho, Ricardo; Mencía, Javier; Mousarri, Elena; Naruševičius, Laurynas; Nicoletti, Giulio; O’Grady, Michael; Ozsahin, Selcuk; Pereira, Ana Regina; Rivera-Rozo, Jairo; Trikoupis, Constantinos; Venditti, Fabrizio; Velasco, Sofia
    Abstract: The paper proposes a framework for assessing the impact of system-wide and bank-level capital buffers. The assessment rests on a factor-augmented vector autoregression (FAVAR) model that relates individual bank adjustments to macroeconomic dynamics. We estimate FAVAR models individually for eleven euro area economies and identify structural shocks, which allow us to diagnose key vulnerabilities of national banking systems and estimate short-run economic costs of increasing banks’ capitalisation. On this basis, we run a fully-fledged cost-benefit assessment of an increase in capital buffers. The benefits are related to an increase in bank resilience to adverse shocks. Higher capitalisation allows banks to withstand negative shocks and moderates the reduction of credit to the real economy that ensues in adverse circumstances. The costs relate to transitory credit and output losses that are assessed both on an aggregate and bank level. An increase in capital ratios is shown to have a sharply different impact on credit and economic activity depending on the way banks adjust, i.e. via changes in assets or equity. JEL Classification: E51, G21, G28
    Keywords: banking system resilience, capital regulation, cost-benefit analysis, FAVAR
    Date: 2019–04
  6. By: Loria, Francesca (Federal Reserve Board); Matthes, Christian (Federal Reserve Bank of Richmond); Zhang, Donghai (University of Bonn)
    Abstract: What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections (Jordà, 2005) to assess how this measure of risk moves in response to economic shocks to the level of technology, monetary policy, and financial conditions. Furthermore, by studying various percentiles jointly, we study how the overall economic outlook—as characterized by the entire forecast distribution of GDP growth—shifts in response to shocks. We find that contractionary shocks disproportionately increase downside risk, independently of what shock we look at.
    Keywords: macroeconomic risk; shocks; local projections
    JEL: C21 C53 E17 E37
    Date: 2019–04–19
  7. By: Meager, Rachael
    Abstract: Despite evidence from multiple randomized evaluations of micro- credit, questions about external validity have impeded consensus on the results. I jointly estimate the average effect and the heterogeneity in effects across seven studies using Bayesian hierarchical models. I find the impact on household business and consumption variables is unlikely to be transformative and may be negligible. I find reasonable external validity: true heterogeneity in effects is moderate, and approximately 60 percent of observed heterogeneity is sampling variation. Households with previous business experience have larger but more heterogeneous effects. Economic features of microcredit interventions predict variation in effects better than studies’ evaluation protocols.
    JEL: D14 G21 I38 O12 O16 P34 P36
    Date: 2019–01–01
  8. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Tian Xiong (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Foreign direct investment (FDI) has been widely considered as an essential channel contributing to a host countries’ innovation development through knowledge and skill spillover effects. In recent years, China has become the second biggest FDI recipient in the world and continues to promote its domestic innovation ability. Here, the question of how FDI affect the growth of regional innovation in China is posed. By applying an alternative knowledge production function (KPF), we investigate the effects of FDI on the development of self-innovation capacities in 31 Chinese provinces using a fixed-effects specification panel data analysis covering the period from 2000 to 2015. Our findings on the contribution of FDI to the growth of different kinds of patent applications in different regions are mixed. Significant results were mainly found for invention patents in the eastern region. Concluding, we suggest potential policy implementations.
    Keywords: Regional Innovation Capacity, Patent, Foreign Direct Investment, China
    JEL: O33 O34 F21 R11
    Date: 2018–06
  9. By: Ilham Haouas (Abu Dhabi University); Naceur Kheraief; Arusha Cooray; Syed Jawad Hussain Shahzad
    Abstract: This paper examines the causality between remittances (REMs) and financial sector development (FD) in MENA countries. We seek to fill a gap in the extant literature by exploring the inward REMs-financial development nexus across the MENA region via the bootstrap rolling Granger non-causality approach. To identify the changes in the interplay among variables, we apply a series of time-varying rolling window tests based on annual-frequency data from 1980 to 2015. Our findings reveal that any shock (demand, supply, or policy-induced) will have permanent long-run effects on selected indicators. The analysis also point out episodes of directional predictability from FD to REM inflows. However, the results evidenced significant windows of directional predictability from inward REMs to financial development.
    Date: 2019
  10. By: Asongu, Simplice A; Odhiambo, Nicholas M
    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
    Date: 2019–04
  11. By: Horacio Sapriza; Judit Temesvary
    Abstract: We study the relationship between the strength of the bank credit channel (BCC) of monetary policy and real GDP growth in the United States using quarterly commercial bank level data between 1986 and 2008. We find that the BCC was significantly stronger during periods of low economic growth. Monetary policy is more effective through this channel in spurring economic activity during periods of low growth, rather than in cooling the economy when growth is high. Furthermore, we find that the BCC operated through a broader range of loan categories and banks than previously documented, underscoring this channel’s economic relevance.
    Keywords: Bank balance sheet ; Bank lending channel ; GDP growth ; Monetary policy transmission
    JEL: E3 E5 G2
    Date: 2019–04–08

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