nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒07‒15
eight papers chosen by
Georg Man

  1. Systemic crisis and growth revisited: Has the global financial crisis marked a new era By Sven Steinkamp; Frank Westermann
  2. Insurance Policy Thresholds for Economic Growth in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  3. Remittances, Finance and Industrialisation in Africa By Uchenna R. Efobi; Simplice A. Asongu; Chinelo Okafor; Vanessa Tchamyou; Belmondo Tanankem
  4. Credit and Fiscal Multipliers in China By Sophia Chen; Lev Ratnovski; Pi-Han Tsai
  5. Foreign Direct Investment, Information Technology and Economic Growth Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  6. Conflict as a closure: A Kaleckian model of growth and distribution under financialization By Srinivas Raghavendra; Petri T. Piiroinen
  7. Strong firms, weak banks: The financial consequences of Germany's export-led growth model By Braun, Benjamin; Deeg, Richard
  8. The Coevolution of Banks and Corporate Securities Markets: The Financing of Belgium's Industrial Take-Off in the 1830s By Stefano Ugolini

  1. By: Sven Steinkamp (Osnabrueck University); Frank Westermann (Osnabrueck University)
    Abstract: Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result anymore when updating the sample by one decade that includes the Global Financial Crisis, 2007/8. We analyze the time-varying nature of this relationship in rolling regressions and an historical dataset. In the subset of countries with enforceability problems, we find that the link between occasional crisis, measured by the negative skewness of credit growth, and per-capita output growth still remains intact.
    Keywords: Long-Term Growth; Systemic Crisis; Financial Liberalization
    JEL: F34 O43 G01
  2. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study investigates the role of insurance in economic growth on a panel of forty-eight countries in Africa for the period 2004-2014. The research question the study seeks to answer is the following: what thresholds of insurance penetration positively affect economic growth in Africa? The empirical evidence is based on Generalized Method of Moments. Life insurance increases economic growth while the effect of non-life insurance is not significant. Increasing both life insurance and non-life insurance has negative net effects on economic growth. From an extended analytical exercise, 4.149 of life insurance premium (% of GDP) is the minimum critical mass required for life insurance to positively affect economic prosperity while 1.805 of non-life insurance premium (% of GDP) is the minimum threshold required for non-life insurance to positively affect economic prosperity. Thresholds are also provided from the Hansen (1999) Panel Threshold Regression technique using a balanced sample of 28 countries.
    Keywords: Insurance; Economic Growth
    JEL: I28 I30 G20 O16 O55
    Date: 2019–01
  3. By: Uchenna R. Efobi (Covenant University, Ota, Ogun State, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Chinelo Okafor (Covenant University, Ota, Ogun State, Nigeria); Vanessa Tchamyou (Yaoundé, Cameroon); Belmondo Tanankem (MINEPAT, Cameroon)
    Abstract: The paper assesses how remittances directly and indirectly affect industrialisation using a panel of 49 African countries for the period 1980-2014. The indirect impact is assessed through financial development channels. The empirical evidence is based on three interactive and non-interactive simultaneity-robust estimation techniques, namely: (i) Instrumental Fixed Effects (FE) to control for the unobserved heterogeneity; (ii) Generalised Method of Moments (GMM) to control for persistence in industrialisation and (iii) Instrumental Quantile Regressions (QR) to account for initial levels of industrialisation. The non-interactive specification elucidates direct effects of remittances on industrialisation whereas interactive specifications explain indirect impacts. The findings broadly show that for certain initial levels of industrialisation, remittances can drive industrialisation through the financial development mechanism. Policy implications are discussed.
    Keywords: Africa; Diaspora; Financial development; Industrialisation; Remittances
    JEL: F24 F43 G20 O55
    Date: 2019–01
  4. By: Sophia Chen (International Monetary Fund); Lev Ratnovski (European Central Bank and International Monetary Fund); Pi-Han Tsai (Zhejiang University)
    Abstract: We estimate credit and fiscal multipliers in China, using subnational political cycles as a source of exogenous variation. The tenure of the provincial party secretary, interacted with the credit and fiscal expenditure used in other provinces, instruments for provincial credit and government expenditure growth. We find a fiscal multiplier of 0.75 in 2001-2008, which increased to 1.2 in 2010-2015, consistent with higher multipliers in a slower economy. At the same time, a credit multiplier of 0.2 in 2001-2008 declined to close to zero in 2010-2015, consistent with credit saturation and credit misallocation. Our results suggest that credit expansion cannot further support economic growth in China. The flip side is that lower credit growth is also unlikely to disrupt output growth. Fiscal policy is powerful, and can cushion the macroeconomic adjustment to lower credit intensity.
    Keywords: Credit Growth, Fiscal Stimulus, Macroprudential Policy, Multipliers, China
    JEL: E63 G21 H20 R12
  5. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone†-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed.
    Keywords: Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2019–01
  6. By: Srinivas Raghavendra (J.E. Cairnes School of Business & Economics, National University of Ireland Galway); Petri T. Piiroinen (School of Mathematics, Statistics & Applied Mathematics, National University of Ireland Galway)
    Abstract: In this paper, we show how the conflict between the shareholders (owners) and managers of firms in terms of profit rates generates dynamics between growth and distribution that results in a long-run variation in the capacity utilization rate. The model developed here generates oscillations in the rate of capacity utilization in the short run before settling down to its long-run value. Furthermore, the long-run value of the rate of capacity utilization falls within a range of plausible values and this range is determined by the conflict between shareholders and managers. The conflict as a closure, we believe, provides a more realistic microeconomic underpinning to study the impact of distribution on accumulation and long-run utilization. In doing so, we have not taken the approach of the existence of normal utilization rate that is relied upon by the Harrodian authors (Skott 2008, Skott and Ryoo, 2008) and the endogenization of animal spirits in such a way that the actual utilization influences the desired or normal rate of utilization by the Kaleckian authors (Hein 2012, Lavoie, 2003). The model yields hysteresis in that it generates two different disequilibrium growth paths when shareholders and managers struggle to gain control of the firm.
    Keywords: Capital accumulation, Rate of capacity utilization, Conflict, Rate of profit, Long run Equilibrium, Hysteresis, Efficient frontier, Finance frontier, Leverage ratio, Shareholders, Managers, Power struggle
    Date: 2019–07
  7. By: Braun, Benjamin; Deeg, Richard
    Abstract: The financial foundation of Germany's manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and "patient" domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely export-led growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterized by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power - and relevance - of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.
    Keywords: bank power,business lending,corporate finance,institutional change,non-financial corporations,Banken,exportorientiertes Wachstumsmodell,institutioneller Wandel,Kreditgeschäft,Unternehmensfinanzierung
    Date: 2019
  8. By: Stefano Ugolini (LEREPS)
    Abstract: Recent developments in the literature on financial architecture suggest that banks and markets not only coexist, but also coevolve in ways that are non-neutral from the viewpoint of optimality. This article aims to analyse the concrete mechanisms of this coevolution by focusing on a very relevant case study: Belgium (the first Continental country to industrialize) at the time of the very first emergence of a modern financial system (the 1830s). The article shows that intermediaries played a crucial role in developing secondary securities markets (as banks acted as securitizers), but market conditions also had a strong feedback on banks' balance sheets and activities (as banks also acted as market-makers for the securities they had issued). The findings suggest that not only structural, but also cyclical factors can be important determinants of changes in financial architecture.
    Date: 2019–06

This nep-fdg issue is ©2019 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.