nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒08‒12
nine papers chosen by
Georg Man

  1. Revisiting the finance-growth nexus: A socioeconomic approach By Agiropoulos, Charalampos; Karkalakos, Sotiris; Polemis, Michael
  2. Credit constraints and the propagation of the Great Depression in Germany By Adam, Marc C.; Jansson, Walter
  3. Lending Standards, Productivity and Credit Crunches By Jonathan Swarbrick
  4. Winter is possibly not coming : mitigating financial instability in an agent-based model with interbank market By Lilit Popoyan; Mauro Napoletano; Andrea Roventini
  5. Shock Transmission through Cross-Border Bank Lending: Credit and Real Effects By Galina Hale; Tumer Kapan; Camelia Minoiu
  6. Business cycles,bilateral trade and international financial intergration : Evidence from Economic Community of West African States (ECOWAS) By Zouri, Stéphane
  7. Inequality, ICT and Financial Access in Africa By Vanessa S. Tchamyou; Guido Erreygers; Danny Cassimon
  8. Challenges of Doing Business in Africa: A Systematic Review By Simplice A. Asongu; Nicholas M. Odhiambo
  9. The Impact of Mobile Money in Developing Countries By Jana Hamdan

  1. By: Agiropoulos, Charalampos; Karkalakos, Sotiris; Polemis, Michael
    Abstract: Despite the fact that financial development is recognised as a vital determinant of countries’ economic growth path, many empirical studies fail to further isolate the role of socioeconomic indicators on accelerating growth. This study attempts to fill this gap by examining the statistical significance and the behavior of several socioeconomic indicators on economic growth. We apply parametric (System GMM estimators) and semi-parametric techniques along the lines of Baltagi and Li (2002) on a panel data set of 19 EU countries over the period 1995-2017. We test for nonlinear effects on economic growth for three banking indicators (domestic credit, non-performing loans and banking capitalization). In contrast to the related literature, our findings provide sufficient evidence of nonlinear relationships between several aspects of financial development and economic growth. Our results imply significant policy implications for policy makers and regulators in their effort of balancing banking development with a resurgence in economic growth within the EU periphery.
    Keywords: Socioeconomic aspects; Growth; Banking development; Semi-parametric analysis; Non-linear effects.
    JEL: C14 G20 O11
    Date: 2019–07–18
  2. By: Adam, Marc C.; Jansson, Walter
    Abstract: We evaluate the role played by loan supply shocks in the decline of investment and industrial production during the Great Depression in Germany from 1927 to 1932. We identify loan supply shocks in the context of a time varying parameter vector autoregression with stochastic volatility. Our results indicate that credit constraints were a significant driver of industrial production between 1927 and 1932, supporting the view that a structurally weak banking sector was an important contributor to the German Great Depression. We find further that loan supply shocks were an important driver of investment in the early phase of the depression, between 1927 and 1929, but not between 1930 and 1932. We suggest possible explanations for this puzzle and directions for future research.
    Keywords: Bayesian,Credit supply,Great Depression,Germany
    JEL: C11 E32 N14 N24
    Date: 2019
  3. By: Jonathan Swarbrick
    Abstract: We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis. Endogenous lending standards emerge due to an informational asymmetry between borrowers and lenders about the riskiness of borrowers. By using loan approval probability as a screening device, banks ration credit following financial disturbances, generating large endogenous movements in total factor productivity, explaining why productivity often falls during crises. Furthermore, the mechanism implies that financial instability is heightened when interest rates are low.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; Financial markets; Financial stability; Interest rates; Productivity
    JEL: E22 E32 E44 G01
    Date: 2019–07
  4. By: Lilit Popoyan (Laboratory of Economics and Management); Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Observatoire français des conjonctures économiques)
    Abstract: We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally interact in dfferent markets. In particular, banks provide credit to firms according to a Basel II or III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to dfferent types of Taylor rules. We find that the model endogenously generates market freezes in the interbank market which interact with the financial accelerator possibly leading to firm bankruptcies, banking crises and the emergence of deep downturns. This requires the timely intervention of the Central Bank as a liquidity lender of last resort. Moreover, we find that the joint adoption of a three mandate Taylor rule tackling credit growth and the Basel III macro-prudential frame-work is the best policy mix to stabilize financial and real economic dynamics. However, as the Liquidity Coverage Ratio spurs financial instability by increasing the pro-cyclicality of banks’ liquid reserves, a new counter-cyclical liquidity buffer should be added to Basel III to improve its performance further. Finally, we find that the Central Bank can also dampen financial in- stability by employing a new unconventional monetarypolicy tool involving active management of the interest-rate corridor in the interbank market.
    Keywords: Financial instability; Interbank market freezes; Monetary policy; Macro-prudential policy; Basel III regulation; Tinbergen principle; Agent - based models
    Date: 2019–07
  5. By: Galina Hale; Tumer Kapan; Camelia Minoiu
    Abstract: We study the transmission of financial shocks across borders through international bank connections. Using data on cross-border interbank loans among 6,000 banks during 1997-2012, we estimate the effect of asset-side exposures to banks in countries experiencing systemic banking crises on profitability, credit, and the performance of borrower firms. Crisis exposures reduce bank returns and tighten credit conditions for borrowers, constraining investment and growth. The effects are larger for foreign borrowers, including in countries not experiencing banking crises. Our results document the extent of cross-border crisis transmission, but also highlight the resilience of financial networks to idiosyncratic shocks.
    Keywords: cross-border interbank exposures ; banking crises ; shock transmission ; bank loans ; real economy
    JEL: F34 G01 F36 G21
    Date: 2019–07–17
  6. By: Zouri, Stéphane
    Abstract: This paper identifies the determinants of synchronization of business cycles in ECOWAS because it allows decision-makers to better target their economic policies. It is relevant given the willingness of ECOWAS heads of state to create a single currency by 2020. Indeed, conducting actions in the direction of the synchronization of business cycles is important because the asymmetries of the cycles observed within a monetary union determine its sustainability. Unlike previous studies in this area, it is innovative as it takes into account international financial integration. In addition, it proposes new measures to increase the quality of results. Finally, it takes into account the structure of trade by analyzing inter-regional links. The results show that bilateral trade and financial openness are determinants of the synchronization of business cycles in the region. However, they show that, trade channel dominates financial openness channel. In addition, the results show that the weakness of intra-community trade doesn’t constitute a barrier to monetary union.
    Keywords: business cycles, trade intensity, financial integration, ECOWAS.
    JEL: E32 F15 F36 O55
    Date: 2019–07–22
  7. By: Vanessa S. Tchamyou (University of Antwerp, Belgium); Guido Erreygers (University of Antwerp, Belgium); Danny Cassimon (University of Antwerp, Belgium)
    Abstract: This study investigates the role of information and communication technology (ICT) on income inequality through financial development dynamics of depth (money supply and liquid liabilities), efficiency (at banking and financial system levels), activity (from banking and financial system perspectives) and size, in 48 African countries for the period 1996 to 2014. The empirical evidence is based on Generalised Method of Moments. While both financial depth and size are established to reduce inequality contingent on ICT, only the effect of financial depth in reducing inequality is robust to the inclusion of time invariant variables to the set of strictly exogenous variables. We extend the analysis by decomposing financial depth into its components, namely: formal, informal, semi-formal and non-formal financial sectors. The findings based on this extension show that ICT reduces income inequality through formal financial sector development and financial sector formalization as opposed to informal financial sector development and financial sector informalization. The study contributes at the same time to the macroeconomic literature on measuring financial development and responds to the growing field of addressing post-2015 Sustainable Development Goals (SDGs) inequality challenges by means of ICT and financial access.
    Keywords: Inequality; ICT; Financial development; Africa
    JEL: I30 L96 O16 O55
    Date: 2018–01
  8. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This paper provides a systematic review of challenges to doing business in Africa. It complements the extant literature by answering two critical questions: what are the linkages between the ease of doing business and economic development; and what are the challenges to doing business in Africa? In providing answers to these questions, the nexus between the ease of doing business and economic development is discussed in six main strands, namely: wealth creation and sharing; opportunities of employment; balanced regional and economic development; Gross Domestic Product (GDP) and GDP per capita; standards of living and exports. Moreover, challenges to doingbusiness are articulated along the following lines: (i) issues related to the cost of starting a business and doing business; (ii) shortage of energy and electricity; (iii) lack of access to finance; and (v) high taxes and low cross-border trade.
    Keywords: Business; Development; Africa
    JEL: L59 O10 O30 O20 O55
    Date: 2018–01
  9. By: Jana Hamdan
    Abstract: Mobile money is a success story in terms of facilitating account ownership and payments in developing and emerging countries. Today, telecommunication companies offer mobile money services across more than 90 countries. The most popular services are deposits and instant digital money transfers between users. Widespread mobile money adoption is boosting financial inclusion, reducing in transaction costs and facilitating successful consumption smoothing and risk sharing among users. Nonetheless, mobile money is also associated with heterogeneous effects and risks among the poor and vulnerable populations. This article reviews the recent literature on the impact of mobile money in developing countries.
    Date: 2019

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.
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