nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒08‒19
five papers chosen by
Georg Man

  1. Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting By Rangan Gupta; Philton Makena
  2. The Effects of Access to Credit on Productivity: Separating Technological Changes from Changes in Technical Efficiency By Jimi, Nusrat Abedin; Nikolov, Plamen; Malek, Mohammad Abdul; Kumbhakar, Subal C.
  3. The Impact of Credit Market Sentiment Shocks - A TVAR Approach By Böck, Maximilian; Zörner, Thomas O.
  5. Revisiting The Finance-Inequality Nexus in a Panel of African Countries By Christelle Meniago; Simplice A. Asongu

  1. By: Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Philton Makena (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: We develop an overlapping generations monetary endogenous growth (generated by productive public expenditures) model with inflation targeting, characterized by relocation shocks for young agents, which in turn generates a role for money (even in the presence of the return-dominating physical capital) and financial intermediaries. Based on this model, we show that two distinct growth paths emerge conditional on a threshold value of the share of physical capital in the production function. Along one path, we find convergence to a single stable equilibrium, and on the other path, we find multiple equilibria: a stable low-growth and an unstable high-growth, with the stable low-growth equilibrium found to be locally indeterminate. Since, government expenditure is productive in our model, a higher inflation-target would translate into higher growth, but under multiple equilibria, this is not necessarily always the case.
    Keywords: Endogenous Growth, Inflation Targeting, Growth Dynamics
    JEL: C62 O41 O42
    Date: 2019–08
  2. By: Jimi, Nusrat Abedin (State University of New York); Nikolov, Plamen (State University of New York); Malek, Mohammad Abdul (Kyoto University); Kumbhakar, Subal C. (Binghamton University, New York)
    Abstract: Improving productivity among microenterprises is important, especially in low-income countries where market imperfections are pervasive, and resources are scarce. Relaxing credit constraints can increase the productivity of microenterprises. Using a field experiment involving agricultural microenterprises in Bangladesh, we estimated the impact of access to credit on the overall productivity of rice farmers and disentangled the total effect into technological change (frontier shift) and technical efficiency changes. We found that relative to the baseline rice output per decimal, access to credit resulted in, on average, approximately a 14 percent increase in yield, holding all other inputs constant. After decomposing the total effect into the frontier shift and efficiency improvement, we found that, on average, around 11 percent of the increase in output came from changes in technology, or frontier shift, while the remaining 3 percent was attributed to improvements in technical efficiency. The efficiency gain was higher for modern hybrid rice varieties, and almost zero for traditional rice varieties. Within the treatment group, the effect was greater among pure tenant and mixed-tenant microenterprise households compared with microenterprises that only cultivated their own land.
    Keywords: field experiment, microfinance, credit, efficiency, productivity, farmers, South Asia
    JEL: E22 H81 Q12 D2 O12 O16
    Date: 2019–07
  3. By: Böck, Maximilian; Zörner, Thomas O.
    Abstract: This paper investigates the role of credit market sentiments and investor beliefs on credit cycle dynamics and their propagation to business cycle fluctuations. Using US data from 1968 to 2019, we show that credit market sentiments are indeed able to detect asymmetries in a small-scale macroeconomic model. By exploiting recent developments in behavioral finance on expectation formation in financial markets, we are able to identify an unexpected credit market news shock exhibiting different impacts in an optimistic and pessimistic credit market environment. While an unexpected movement in the optimistic regime leads to a rather low to muted impact on output and credit, we find a significant and persistent negative impact on those variables in the pessimistic regime. Therefore, this article departs from the current literature on the role of financial frictions for explaining business cycle behavior in macroeconomics and argues in line with recent theoretical contributions on the relevance of expectation formation and beliefs as source of cyclicity and instability in financial markets.
    Keywords: Credit cycles, Belief formation, Threshold VARs
    Date: 2019–07
  4. By: Simplice A. Asongu, Phd (Department of Economics, University of South Africa); Nicholas M. Odhiambo (Department of Economics, University of South Africa)
    Abstract: This study investigates whether information sharing channels that are meant to reduce information asymmetry have led to an increase in financial access. The study employs a Generalised Method of Moments technique using data from 53 African countries during the period from 2004-2011 to examine this linkage. Information sharing channels are theoretically designed to promote the formal financial sector and discourage the informal financial sector. The study uses two information sharing channels: private credit bureaus and public credit registries.
    Keywords: Information asymmetry; Financialisation; Financial Access; Africa
    JEL: R10
    Date: 2018–06
  5. By: Christelle Meniago (School of Economics, Sol Plaatje University); Simplice A. Asongu (Africa Governance and Development Institute)
    Abstract: The study assesses the role of financial development on income inequality in a panel of 48 African countries for the period 1996 to 2014. Financial development is defined in terms of depth (money supply and liquid liabilities), efficiency (from banking and financial system perspectives), activity (at banking and financial system levels) and stability while, three indicators of inequality are used, namely, the: Gini coefficient, Atkinson index and Palma ratio. The empirical evidence is based on Generalised Method of Moments. When financial sector development indicators are used exclusively as strictly exogenous variables in the identification process, it is broadly established that with the exception of financial stability, access to credit (or financial activity) and intermediation efficiency have favourable income redistributive effects. The findings are robust to the: control for unobserved heterogeneity in terms of time effects and inclusion of time invariant variables as strictly exogenous variables in the identification process.
    Keywords: Africa, Finance, Inequality, Poverty.
    JEL: R10
    Date: 2018–06

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