nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒07‒08
seven papers chosen by
Georg Man

  1. R&D FINANCING AND GROWTH By Luca Spinesi; Mario Tirelli
  2. Le développement de la finance islamique entre la tendance et la durabilité dans la région MENA : Application sur les données de panel By Mtiraoui, Abderraouf; Lassoued, Mongi; Hassen Khémiri, Hend
  3. Savings and capital formation in India. By Patnaik, Ila; Pandey, Radhika
  4. The Impact of Domestic and Foreign Direct Investment on Economic Growth: Fresh Evidence from Tunisia By Bouchoucha, Najeh; Bakari, Sayef
  5. 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
  6. Back to the real economy: the effects of risk perception shocks on the term premium and bank lending By Bluwstein, Kristina; Yung, Julieta
  7. The Rise of Domestic Capital Markets for Corporate Financing: Lessons from East Asia By Facundo Abraham; Juan J. Cortina; Sergio L. Schmukler

  1. By: Luca Spinesi; Mario Tirelli
    Abstract: R&D investment are an important engine of growth and development.Yet economists have often claimed underinvestment, based on the consideration thatthese projects are more costly to finance, especially, due to the asymmetric informa-tion between inside and outside investors. Coherently, a recent empirical evidence hasshown that firms intensively active in R&D are less leveraged and rely more heavilyon internal finance. Motivated by this evidence, we study the e↵ects of asymmetricinformation and financial frictions within a GE economy of Schumpeterian tradition.The model and equilibrium concept are rich enough to represent investment and in-novation decisions, technology adoption/di↵usion through patent licensing and, mostimportantly, firms’ financial decisions. In this representation, R&D-intensive firmsmight e↵ectively rely more on internal sources and equity than on debt financing, rel-ative to what would happen in frictionless markets. Further, financial decisions a↵ectaggregate investment and income dynamics.
    Keywords: Innovation; R&D; Schumpeterian growth; financial equilibrium; asym-metric information; firm financial structure
    JEL: O33 O34 O41 D53 G32
    Date: 2019–07
  2. By: Mtiraoui, Abderraouf; Lassoued, Mongi; Hassen Khémiri, Hend
    Abstract: Drawing on a review of the innovative literature, we first examine theoretically the nature of the relationship between financial development and economic growth, while taking into account the role played by Islamic finance in steering investment and public spending. which takes into account the effective human (education) in the presence of conventional finance. Finally, we try empirically to discover the influences of Islamic finance as a trend towards economic growth describing the stability and sustainability of any financial system used and hence the relationship between Islamic financial development and economic growth. Our empirical validation is based on a panel data application for our MENA region over a long period of 20 years (1990-2009).
    Keywords: Islamic Finance, Economic Growth and Panel Data
    JEL: G32
    Date: 2019–07–02
  3. By: Patnaik, Ila (National Institute of Public Finance and Policy); Pandey, Radhika (National Institute of Public Finance and Policy)
    Abstract: High levels of savings and investments are key to India's sustained and robust long-term growth. While India's saving rate has declined in recent years, a bigger challenge facing the economy is the intermediation of savings to finance the growing requirements of industry and infrastructure. This paper describes the trajectory of savings and investments in India. The major source of investment in the coming decades is expected to be investment in infrastructure and in micro, small and medium enterprises. The paper highlights the issues in infrastructure and MSME financing and proposes an agenda for reforms. Reduced financial repression, deep and liquid bond markets, improvement in banking regulation, improved access to bank credit to MSMEs should be the agenda for financial sector reforms. A framework for failure resolution of financial firms and a conducive environment for competition in the financial sector should be part of the strategy to promote the rate of savings and capital formation.
    Date: 2019–06
  4. By: Bouchoucha, Najeh; Bakari, Sayef
    Abstract: This paper aims to analyze the impact of domestic investment and Foreign Direct Investment on economic growth in Tunisia during the period 1976–2017. This study is based on the Auto-Regressive Distributive Lags (ARDL) approach that is proposed by Pesaran et al (2001). Bound testing approaches to the analysis of level relationships. According to the results of the analysis, domestic investment and foreign direct investment have a negative effect on economic growth in the long run. However, in the short run, only domestic investment causes economic growth. The findings are important for Tunisian economic policy makers to undertake the effective policies that can promote and lead domestic and foreign investments to boost economic growth.
    Keywords: Domestic investment; Foreign Direct Investment; Economic Growth; Tunisia; ARDL.
    JEL: F11 F13 F14 F43 O47 O55
    Date: 2019–06
  5. 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 F13 F14 F15 O11 O16 O47 O53
    Date: 2019–01
  6. By: Bluwstein, Kristina (Bank of England); Yung, Julieta (Bates College)
    Abstract: We develop a dynamic stochastic general equilibrium framework that can account for important macroeconomic and financial moments, given Epstein-Zin preferences, heterogeneous banking and third-order approximation methods that yield a time-varying term premium that feeds back to the real economy. A risk perception shock increases term premia, lowers output, and reduces short-term credit in the private sector in response to higher loan rates and constrained borrowers, as banks rebalance their portfolios. A ‘bad’ credit boom, driven by investors mispricing risk, leads to a more severe recession and is less supportive of economic growth than a ‘good’ credit boom based on fundamentals.
    Keywords: Stochastic discount factor; DSGE; long-term interest rate; risk mispricing; macro-financial linkages; bank lending
    JEL: E43 E44 E58 G12
    Date: 2019–06–21
  7. By: Facundo Abraham (World Bank Development Research Group); Juan J. Cortina (World Bank Development Research Group); Sergio L. Schmukler (World Bank Development Research Group)
    Abstract: During the past decades, firms from emerging economies have significantly increased the amount of financing obtained in capital markets. Most of the literature has focused on issuances in international markets, which appear to have been a key driver of the overall activity in a context of financial globalization. This paper explores whether domestic issuances have also played a role in this increase in financing. By examining the case of East Asia, which captures most of the capital raisings among emerging economies, this paper shows that domestic issuances have been the main component of the overall expansion in capital market financing since 2000. As domestic markets developed, more and smaller firms accessed capital markets, while larger corporations increased their funding sources and their resilience to international shocks. The experience of East Asia shows that domestic capital markets can play a useful role and that numerous policies might aid in their development.
    Keywords: Asian Financial Crisis; corporate bond markets; corporate financing; Global Financial Crisis; SME capital markets; stock markets; syndicated loan markets
    JEL: F33 G00 G01 G15 G21 G23 G31
    Date: 2019–06

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