nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒07‒29
ten papers chosen by
Georg Man

  1. Insurance policy thresholds for economic growth in Africa By Asongu, Simplice A; Odhiambo, Nicholas M
  2. Financing economic growth in Greece: lessons from the crisis By Helen Louri; Petros Migiakis
  4. The Impacts of Domestic and Foreign Direct Investments on Economic Growth: Fresh Evidence from Tunisia By Bouchoucha, Najeh; Bakari, Sayef
  5. Foreign direct investment,information technology and economic growth dynamics in Sub-Saharan Africa By Asongu, Simplice A; Odhiambo, Nicholas M
  6. Development banking, state of confidence and sustainable growth By Victor Manuel Isidro Luna
  7. The impact of a higher leverage ratio on the South African economy By Davies Rob; Makrelov Konstantin; Harris Laurence
  8. Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis By Daniel A. Dias; Carlos Robalo Marques; Carlos Robalo Marques
  9. Resource misallocation and total factor productivity: Manufacturing firms in South Africa By Newman Carol; Rand John; Tsebe Mpho
  10. How does Caste Affect Entrepreneurship? Birth vs Worth By Sampreet Singh Goraya

  1. By: Asongu, Simplice A; Odhiambo, Nicholas M
    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
    Date: 2019–07
  2. By: Helen Louri (Athens University of Economics and Business); Petros Migiakis (Bank of Greece)
    Abstract: We examine the existence of a feedback loop between the resilience of the financial sector and Greek economic activity. A sequence of structural VARs is employed using data for bank credit, liquidity, capital, asset quality and private demand in 2001-2018 in two data sets. One in monthly frequency with which we examine the determinants of credit provision by Greek banks, and another in quarterly frequency with which we examine the finance-growth nexus for the Greek economy. We find that (a) the deterioration in the quality of Greek banks’ balance sheets affected negatively the provision of credit to the economy, (b) central bank liquidity and recapitalizations of Greek banks provided only a partial remedy and (c) the decline in credit significantly weakened economic activity. Also, we find that there is a role for market financing of the economy but this cannot substitute for the predominantly bank-based financing. Therefore, as the Greek economy starts bouncing back Greek banks have an important role to play, first by solving the high NPLs problem and providing the necessary credit and second by improving the efficiency of capital allocation towards a sustainable growth model.
    Keywords: Greek crisis; credit provision; finance-growth nexus; financial stability; NPLs.
    JEL: E22 E44 G01 G21
    Date: 2019–06
  3. By: Brahim Gaies (IPAG Business School); Stéphane Goutte (UP8 - Université Paris 8 Vincennes-Saint-Denis); Khaled Guesmi (IPAG Business School)
    Abstract: This paper analyses the effects of financial globalization on growth in developing countries, focusing on its interaction with exchange rate volatility. Based on dynamic panel data models and the two-step system Generalized Method of Moments (system GMM) estimator, it replicates the method of Gaies et al. (2019a; 2019b) and extends it by exploring a new spillover effect of financial globalization in terms of exchange rate volatility measured by six different indicators. The findings show the positive influence of investment-globalization on growth through the traditional channel of capital accumulation and by reducing the negative impact of exchange rate volatility. These impacts are not ensured by indebtedness-globalization, thereby shedding light on the government's decision in developing countries on foreign capital control policy. These results are robust to changes in the estimator and variables used.
    Keywords: Interactions,Foreign Investors,Government Policy,Dynamic Panel,Exchange Rate Volatility
    Date: 2019–07–05
  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: C13 E22 F13 F14 O11 O20 O47 O55
    Date: 2019–06
  5. By: Asongu, Simplice A; Odhiambo, Nicholas M
    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
    Date: 2019–07
  6. By: Victor Manuel Isidro Luna
    Abstract: This article outlines the role of three types of development banks (communal, national, and multilateral) in promoting sustainable growth and development in the future. The 2007-2008 crisis made clear the need for: (1) heavy investment in developed as well as peripheral countries, and (2) coordinated financial institutions at the local, national, and international levels. Given a historical and spatial context, development banks can adopt different types of ownership (public or private), can target a myriad of specific sectors, and can promote local and international cooperation. We argue that for sustainable growth to be achieved, “confidence” has to be provided by public financial institutions. In our analysis we follow post-Keynesian ideas, which, considering the use of money with “social responsibility,” are thought to match the ideas of other heterodox approaches.
    Keywords: Development Banks, 2007-2008 Crisis, State of Confidence, Post-Keynesian, Sustainable Growth
    JEL: G10 G20
    Date: 2019–07
  7. By: Davies Rob; Makrelov Konstantin; Harris Laurence
    Abstract: We employ a micro-founded and stock-and-flow-consistent model to study the impact of a higher leverage ratio on the South African economy. The model provides a rich representation of institutional balance sheets.The relationship between bank capital, risk-taking behaviour, lending spreads, and economic activity is highlighted. The financial accelerator mechanism operates through the balance sheets of all economic institutions. The introduction of a higher leverage ratio is likely to generate negative economic impacts in the short run. The negative gross domestic product effect is greatest if the financial sector reduces leverage by reducing the value of assets.The regulatory shock leads the sector to change its perception of risk, reducing the size of the money multiplier and increasing lending spreads. Higher regulatory requirements also affect the transmission of monetary policy. Effective monetary policy requires understanding how the financial sector is likely to meet new requirements and change its perceptions of risk.
    Keywords: Computable general equilibrium,Financial dynamics,leverage ratio,Stock and flow,Risk management
    Date: 2019
  8. By: Daniel A. Dias; Carlos Robalo Marques; Carlos Robalo Marques
    Keywords: Productivity, firm-level data, entry, exit, survival
    JEL: D24 E32 L25 O47
    Date: 2019–06–05
  9. By: Newman Carol; Rand John; Tsebe Mpho
    Abstract: Misallocation of labour and capital can greatly reduce aggregate productivity. In this study, we use tax administrative data to examine the extent of resource misallocation in the South African context.In addition, we zoom in on how different government incentives affect the allocation (or misallocation) of capital and labour across firms, and we quantify the extent to which alleviating these policy-induced distortions would improve productivity for the manufacturing sector in South Africa.We also analyse heterogeneity in the extent of misallocation along the firm size distribution and identify firm size categories where these policy distortions are having the biggest impact on productivity.
    Keywords: resource misallocation,Productivity
    Date: 2019
  10. By: Sampreet Singh Goraya
    Abstract: This paper examines the relative importance of the caste system in explaining the resource misallocation in India and quantifies its impact on aggregate productivity. I document that the historically disadvantaged castes (LC) are less likely to enter entrepreneurship even though they are more productive on average. At the intensive margin, the LC entrepreneurs are less capital-intensive but have higher marginal revenue product of capital relative to high castes. In a quantitative model of entrepreneurship, I find that the LC face higher entry cost and stricter financial constraints and that such asymmetries reduce aggregate TFP by 2.54% and output by 6%.
    Keywords: misallocation, productivity, caste system
    JEL: O11 E23 D61
    Date: 2019–07

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