nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒07‒22
ten papers chosen by
Georg Man

  1. Insurance Policy Thresholds for Economic Growth in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  2. Financial Reforms and Industrialisation: Evidence from Nigeria By Oludele E. Folarin
  3. Foreign Direct Investment, Information Technology and Economic Growth Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  4. A Keynes + Schumpeter model to explain development, speculation and crises By Giancarlo Bertocco; Andrea Kalajzić
  5. The financial stability index (6) – Estimated by the Institute of Financial Studies By Ion Stancu; Andrei Tudor Stancu; Iulian Panait
  6. The Mobile Phone, Information Sharing and Financial Sector Development in Africa: A Quantile Regressions Approach By Simplice A. Asongu; Nicholas M. Odhiambo
  7. Threefold policies for bank development: Do independence and transparency matter? By Emna Trabelsi
  8. The Coevolution of Banks and Corporate Securities Markets: The Financing of Belgium’s Industrial Take-Off in the 1830s By Stefano Ugolini
  9. The Effects of Inflation Targeting for Financial Development By Geoffrey R. Dunbar; Amy (Qijia) Li
  10. Is the relationship between inflation and financial development symmetric or asymmetric? new evidence from Sudan based on NARDL By Ismail, Yusra; Masih, Mansur

  1. 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
  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: 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
  4. By: Giancarlo Bertocco (University of Insubria (IT)); Andrea Kalajzić
    Abstract: Recently, Dosi and his co-authors have developed a ‘Keynes+Schumpeter’ model which “endogenously generates self-sustained growth patterns together with persistent economic fluctuations ...”. The aim of this work is twofold. First, to show that the K+S model developed by Dosi and his co-authors does not allow to explain the instability that characterizes a capitalist economy. This limitation is due to the fact that the model overlooks some key elements of Schumpeter’s analysis. The second objective is to show that a solid K+S model can be built starting from the elements of Schumpeter’s theory neglected by Dosi and his co-authors.
    Keywords: bank money, innovations, crisis
    JEL: O11 O16 O42
    Date: 2019–07
  5. By: Ion Stancu (Institute of Financial Studies Bucharest); Andrei Tudor Stancu (Norwich Business School, UK); Iulian Panait (Financial Supervisory Authority)
    Abstract: In each issue of the Financial Studies Review, we update and publish the Financial Stability Index (FSI) of our Institute of Financial Studies, which tracks the correlation between economic growth and macroeconomic and financial factors in Romania.We constructeda composite index using a linear combination of financial variables that are considered to have a significant impact on economic activity. These financial variables are weighted with respect to their cumulated two quarters impulse response on GDP growth, as estimated by a VAR model.Developing such a composite index of financial stability or financial stresshas two main utilities:•The analysis of the correlation between financial variables and the real economy placed in the context of different historical episodes of financial crisis. Also, this correlation analysis reveals, in each period, the significant positive or negative contribution of each financial variable to real economic growth. Following this analysis, the FSIcan measure the impact of economic and financial policy measures aimed at mitigating financial crises. The short-term prediction of real economic growth estimated by forecasting the next period evolution of the real economic activity (GDPt+1) using current period GDPtand FSItand economic and financial variables in the FSItcomposition.
    Keywords: composite index, financial stress index, economic growth, VAR model, short-term prediction
    JEL: E63 G01 G28
    Date: 2019–05
  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: Emna Trabelsi (Unité de Recherche d'Analyses Quantitatives Appliquées - Université de Tunis [Tunis])
    Abstract: A well-developed banking sector is crucial to achieve a sustained economic growth. To attain this goal, both central banks and government have embraced operational and institutional arrangements. In this paper, I offer an empirical lookup on how monetary independence and transparency of macroprudential and fiscal policies are linked to bank development. Drawing upon a panel dataset for the period 1998-2014, I find that both macroprudential transparency (proxied by central bank financial stability transparency) and fiscal transparency are positively related to the share of credit granted by banks to the private sector, implying that more transparency enhances bank development. More independence from central banks seems, however, to decrease the ratio of bank credit to GDP. By considering interactions, the marginal effect of central bank financial stability transparency on bank credit/GDP, conditional on the levels of independence, is positive but decreases under a particular range of independence values. If central bank independence interacts with fiscal transparency, the marginal effect of fiscal transparency is positive and significant over a specific range of the degree of central bank independence but there is no statistical support that the marginal effect decreases within the same range unless I use the independence index of Garriga (2016).
    Keywords: central bank independence,central bank financial stability transparency,fiscal transparency,bank credit,dynamic panel
    Date: 2019–04–27
  8. By: Stefano Ugolini (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2J - Université Toulouse - Jean Jaurès - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)
    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.
    Keywords: Universal banks,stock markets,corporate finance,financial development
    Date: 2019–06–17
  9. By: Geoffrey R. Dunbar; Amy (Qijia) Li
    Abstract: The adoption of inflation targeting (IT) by central banks leads to an increase of 10 to 20 percent in measures of financial development, with a lag. We also find evidence that the financial sector benefits of IT adoption were higher for early-adopting central banks. Our results suggest that roughly 12 to 14 years after the Reserve Bank of New Zealand adopted inflation targeting in 1989, the benefits for financial development for new adopters of inflation targeting may have been negligible.
    Keywords: Financial Institutions; Inflation targets; Transmission of monetary policy
    JEL: E44 E58
    Date: 2019–07
  10. By: Ismail, Yusra; Masih, Mansur
    Abstract: This study highlights the impact of inflation on financial development, using NARDL approach and the annual data available allow us to cover a period of 56 years. Sudan is used as a case study. The relationship between inflation and financial development remains an important issue in both theoretical and empirical literature because of its important implications on macroeconomic stabilization policies. The importance of the study comes from examining a developing country which is witnessing an economic deterioration generally and a hyper-inflation crisis that marked it as the second highest inflation rate in Africa in the 1st quarter of 2019. We test whether the relationship between the variables is symmetrical or asymmetrical in both short run and long run. Applying the autoregressive distributed lags model (ARDL) and Nonlinear ARDL approaches proposed by Pesaran et al. (2001) and Shin et al. (2014) respectively, results confirm the presence of long run equilibrium relationship between inflation and financial development. Our findings tend to suggest that the long run relationship is symmetrical, while evidence is in support of asymmetrical short- run trade-off between the variables. Two main contributions are added to the previous literature. First, it applies a recent methodology that is Nonlinear ARDL (NARDL). Secondly it presents a new evidence from one of the high indebted poor countries-HIPC (Sudan) using data from 1961 to 2017.
    Keywords: Inflation, financial development, non-linear ARDL
    JEL: C58 E44
    Date: 2019–06–24

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.