nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒06‒24
seven papers chosen by
Georg Man

  1. Synergizing Ventures By Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
  2. The Impact of Trade Openness, Foreign Direct Investment and Domestic Investment on Economic Growth: New Evidence from Asian Developing Countries By Bakari, Sayef; Sofien, Tiba
  3. Nonlinearity between the Shadow Economy and Level of Development By Wu, Dong Frank; Schneider, Friedrich
  4. Domestic Amplifiers of External Shocks: Growth Accelerations and Reversals in Emerging Market and Developing Economies By Bertrand Gruss; Malhar S Nabar; Marcos Poplawski Ribeiro
  5. Do asset purchase programmes shape industry dynamics? Evidence from the ECB's SMP on plant entries and exits By Antoni, Manfred; Koetter, Michael; Müller, Steffen; Sondershaus, Talina
  6. Distressed banks, distorted decisions? By Anderson, Gareth; Riley, Rebecca; Young, Garry
  7. The long-run and short-run effects of foreign direct investment on financial development in African countries By Njangang, Henri; Luc, Nembot Ndeffo; Nawo, Larissa

  1. By: Ufuk Akcigit (University of Chicago); Emin Dinlersoz (Bureau of the Census); Jeremy Greenwood (University of Pennsylvania); Veronika Penciakova (Federal Reserve Bank of Atlanta)
    Abstract: Venture capital and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and patenting levels than non-VC-backed ones. Venture capitalists increase a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
    Keywords: assortative matching, endogenous growth, IPO, management, mergers and acquisitions, research and development, selection effects, startups, synergies, taxation, treatment effects, venture capital
    Date: 2019–06
  2. By: Bakari, Sayef; Sofien, Tiba
    Abstract: The objective of this paper is to examine the impact of openness, foreign investment inflows, and domestic investment on economic growth for the case of 24 Asian economies over the time span 2002-2017 through the use of the fixed and random effect models. Our empirical results pointed out that domestic investment positively influences economic growth. However, we found that foreign direct investment and exports are negatively affecting the growth path. Also, the population, imports, and final consumption expenditure have no real impact on economic growth. Due to the importance of the positive externalities linked to the trade openness and foreign direct investments inflow, in terms of technology transfer bias, financial capacities, human expertise, large markets size, and spillover effect added to the domestic capacities and the national investment, the pace of the phenomenal economic performance of the Asian economies is very well justified.
    Keywords: Trade openness, FDI, Domestic Investment, Economic Growth.
    JEL: E22 F14 F15 O16 O47 O53
    Date: 2019–01
  3. By: Wu, Dong Frank (International Monetary Fund); Schneider, Friedrich (University of Linz)
    Abstract: This paper is the first attempt to directly explore the long-run nonlinearity of the shadow economy. Using a dataset of 158 countries over the period from 1996 to 2015, our results reveal a robust U-shaped relationship between the shadow economy size and GDP per capita. Our results imply that the shadow economy tends to increase when economic development surpasses a given threshold or at least does not disappear with economic growth. Our findings suggest that special attention should be given to the country's level of development when designing policies to tackle issues related to the shadow economy.
    Keywords: shadow economy, level of development, nonlinearity, GDP per capita
    JEL: E26 H26 O17 O43 I25
    Date: 2019–05
  4. By: Bertrand Gruss; Malhar S Nabar; Marcos Poplawski Ribeiro
    Abstract: External conditions have been found to influence the tendency of emerging market and developing economies to experience episodes of growth accelerations and reversals. In this paper we study the role of domestic policies and other structural attributes in amplifying or mitigating the effect that shifts in external conditions have on growth patterns in emerging market and developing economies over the past five decades. We find that these economies can enhance the growth impulse from external conditions by strengthening their institutional frameworks and adopting a policy mix that protects trade integration; permits exchange rate flexibility; and ensures that vulnerabilities stemming from high current account deficits and external debt, as well as high public debt, are contained.
    Date: 2019–06–17
  5. By: Antoni, Manfred; Koetter, Michael; Müller, Steffen; Sondershaus, Talina
    Abstract: Asset purchase programmes (APPs) may insulate banks from having to terminate relationships with unproductive customers. Using administrative plant and bank data, we test whether APPs impinge on industry dynamics in terms of plant entry and exit. Plants in Germany connected to banks with access to an APP are approximately 20% less likely to exit. In particular, unproductive plants connected to weak banks with APP access are less likely to close. Aggregate entry and exit rates in regional markets with high APP exposures are also lower. Thus, APPs seem to subdue Schumpeterian cleansing mechanisms, which may hamper factor reallocation and aggregate productivity growth.
    Keywords: plant exit,factor reallocation,asset purchase programmes
    JEL: E58 G21 G28 G33
    Date: 2019
  6. By: Anderson, Gareth; Riley, Rebecca; Young, Garry
    Abstract: Exploiting differences in pre-crisis business banking relationships, we present evidence to suggest that restricted credit availability following the 2008 financial crisis increased the rate of business failure in the United Kingdom. But rather than "cleansing the economy by accelerating the exit of the least productive businesses, we find that tighter credit conditions resulted in some businesses failing despite being more productive than their surviving competitors. We also find evidence that distressed banks protected highly leveraged, low productivity businesses from failure.
    JEL: D24 G21 G30 L10
    Date: 2019–04–05
  7. By: Njangang, Henri; Luc, Nembot Ndeffo; Nawo, Larissa
    Abstract: This paper contributes to the understanding of the other neglected effects of foreign direct investment by analysing how foreign direct investment affects financial development in the short-run and long-run for a panel of 49 African countries over the period 1990-2016. The empirical evidence is based on Pooled Mean Group (PMG) approach. With three panels differentiated by income level, the following findings are established: first, while there is a positive and significant long-run relationship between foreign direct investment and financial development in Africa, in the short-run the effect of foreign direct investment on financial development is negative. Second, the effect of foreign direct investment is positive and significant in the long-run in the three sub-samples. However, in the short-run, the effect of foreign direct investment is negative and significant in lower-income countries and non-significant in lower-middle-income and upper-middle-income countries. Overall we find a strong evidence supporting the view that foreign direct investment promotes financial development in African countries in the long-run.
    Keywords: Foreign direct investment, financial development, Pooled Mean Group, Africa
    JEL: F23 O16 O55
    Date: 2019–06–07

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