nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒09‒09
nine papers chosen by
Georg Man

  1. Synergizing Ventures By Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
  2. Financial Access and Productivity Dynamics in Sub-Saharan Africa By Simplice A. Asongu
  3. Growth and Activity Diversification: the impact of financing non-traditional local activities By Thiago Christiano Silva; Benjamin Miranda Tabak
  4. Assessing Financing, Innovation and Growth Linkage: New Evidence for Policy By Anabela Santos; Michele Cincera; Giovanni Cerulli
  5. Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering Policies By Tomas Williams; Pablo Slutzky; Mauricio Villamizar-Villegas
  6. The Impact of Microfinance on Poverty Reduction and Women Empowerment By Bogale Berhanu Bent
  7. The Effect of Financial Inclusion on Household Welfare in China By Mallick, Debdulal; Zhang, Quanda
  8. A Crash Course on the Euro Crisis By Markus K. Bunnermeier; Ricardo Reis
  9. Predicting systemic financial crises with recurrent neural networks By Tölö, Eero

  1. By: Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
    Abstract: Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC-backing increases a startup’s likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
    JEL: G24 O31 O32 O40
    Date: 2019–08
  2. By: Simplice A. Asongu (Yaoundé/Cameroon)
    Abstract: The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  3. By: Thiago Christiano Silva; Benjamin Miranda Tabak
    Abstract: We study how financing non-traditional local activities, conceived here as a proxy for activity diversification, associates with economic growth. We use municipality-level data from Brazil, a country that provides an ideal experimental setup due to the large geographical, social, and economic disparities observed across its more than 5,500 cities. We find that financing non-traditional local activities matters to cities development and such association is stronger at their earlier stages of development. We use the centrality in the network of intercity economic flows as a proxy for the municipality stage of development. The centrality encodes the overall importance of the city in terms of economic intermediation to the entire network structure of business activities. The network is constructed using every observed intercity wire transfers registered in the Brazilian Payments System. Cities more nearby (geographic closeness) and that transact more (economic closeness) with advanced centers have higher growth rates, suggesting the existence of positive spillovers. Economic spillovers are more critical than geographic spillovers for growth. Using natural disasters as sources of unexpected negative events, we also find that the inverted U-shaped association of financial development variables with growth commonly documented in the finance-growth literature breaks down. In addition, the association between financing non-traditional local activities and economic growth becomes negative in times of distress. Our results suggest that cities should restrengthen their traditional activities when adverse conditions befall.
    Date: 2019–08
  4. By: Anabela Santos; Michele Cincera; Giovanni Cerulli
    Abstract: Financing, innovation and growth linkage is a multi-stage process. First, access to finance has a leverage effect on innovation and secondly this additional innovation has an impact on growth. However, few authors have assessed the effect of these three components at the same time. Furthermore, the scientific literature usually focuses more on assessing only the effect of one type of source of financing, such as public support or venture capital, on innovation or firm growth. The aim of the present study is to go further and to assess the effect of eight different sources of financing (internal funds, bank loan, credit line, trade credit, grants, equity, leasing and factoring) on innovation and then on firm growth. Using data from the Survey on the Access to Finance of Enterprises and a three-step econometric approach, the study provides evidence that external sources of financing have a positive effect on innovation and then an additional effect on firm growth (turnover and employment). However, not all sources of external financing have the same impact.Equity financing has a larger effect on the strategic decision to innovate, and the highest output additionality on firm turnover growth, when compared to the effects of other sources of financing.Grants registered a moderate effect on innovation and on output additionality on firm growth (both turnover and employment) and its effect does not appear to be statistically different from other financing instruments (excluding equity). Moreover, grants show higher employment growth than turnover. Furthermore, the number of financing instruments used together also seems to matter, revealing that a financing instrument used alone has no effect on innovation. Our findings suggest that state aid to promote R&D and innovation needs to rely on sounder public/private support integration for it to be successful. All these conclusions could be particularly useful for policy-makers since recommendations for a European Innovation CouncilKeywordsFinancing; Innovation; Firm growth; Europe
    Keywords: Innovation, Microfinance, Microfinance in Europe
    Date: 2019
  5. By: Tomas Williams (George Washington University); Pablo Slutzky (University of Maryland); Mauricio Villamizar-Villegas (Central Bank of Colombia)
    Abstract: CWe explore the unintended consequences of anti-money laundering (AML) policies. For identification, we exploit the implementation of the SARLAFT system in Colombia in 2008, aimed at controlling the flow of money from drug trafficking into the financial system. We find that bank deposits in municipalities with high drug trafficking activity decline after the implementation of the new AML policy. More importantly, this negative liquidity shock has consequences for credit in municipalities with little or nil drug trafficking. Banks that source their deposits from areas with high drug trafficking activity cut lending relative to banks that source their deposits from other areas. We show that this credit shortfall negatively impacted the real economy. Using a proprietary database containing data on bank-firm credit relationships, we show that small firms that rely on credit from affected banks experience a negative shock to investment, sales, size, and profitability. Additionally, we observe a reduction in employment in small firms. Our results suggest that the implementation of the AML policy had a negative effect on the real economy.
    Keywords: money laundering; organized crime; financial system; bank lending; liquidity; economic growth
    JEL: I15 O15 Q12
    Date: 2019–05
  6. By: Bogale Berhanu Bent (University of Antwerp, Belgium)
    Abstract: This paper is to examine the impact of microfinance on poverty reduction and women empowerment as perceived by microfinance institutions and experienced by aspiring women credit participant in Ethiopia. The study reviewed different literatures and broadly focused on social activities and economic empowerment of women beside household poverty reduction and economic development and the effect of household income, the objective of this study is to show how microfinance works, by using women participants for reducing poverty and how it affects the living standard (income, saving etc.) of the household poor people in Ethiopia, The microfinance institutions (MFIs) provide the opportunity for the people who are living under the poverty lines, the institution particularly encourage poor women households and the result will show that how poverty reduced by encouraging and providing access to finance poor household. Microfinance institutions are claimed to directly affect household income by encouraging productivity, increasing diversity of production and productivity, and maximizing the utilization of the available resources (Binswanger, 2007; Dejene, 2007; Sudan, 2007; Akintoye, 2008; Belwal et al., 2012; Fletschner & Kenney, 2014)
    Keywords: microfinance institutions, poverty, women
    Date: 2018
  7. By: Mallick, Debdulal; Zhang, Quanda
    Abstract: Financial inclusion is one of the key factors contributing to household welfare. We explore this effect in China utilizing a unique household survey panel data. Financial inclusion is measured by owning a transaction account at formal financial institutions. We employ an innovative method of heteroscedasticity-based identification recently developed by Klein and Vella (2009a; 2010) to identify the causal effect of financial inclusion. We find that welfare effects of financial inclusion varied across urban and rural areas and income groups. Financial inclusion significantly increased overall consumption, but the impact was greater among urban than rural households. The effect was stronger in the case of food consumption. Financial inclusion also decreased consumption inequality but only among urban households. The uneven effect of financial inclusion across level of urbanization and commodity types have important policy implications for promoting financial inclusion not only in China but also in other developing countries.
    Keywords: Financial inclusion; Consumption; Inequality; Welfare
    JEL: D12 D14 G21 I31
    Date: 2019–08
  8. By: Markus K. Bunnermeier (Princeton University); Ricardo Reis (London School of Economics; Centre for Macroeconomics (CFM))
    Abstract: The financial crises of the last twenty years brought new economic concepts into classroom discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12.Length: 51 pages
    Date: 2019–08
  9. By: Tölö, Eero
    Abstract: We consider predicting systemic financial crises one to five years ahead using recurrent neural networks. The prediction performance is evaluated with the Jorda-Schularick-Taylor dataset, which includes the crisis dates and relevant macroeconomic series of 17 countries over the period 1870-2016. Previous literature has found simple neural network architectures to be useful in predicting systemic financial crises. We show that such predictions can be greatly improved by making use of recurrent neural network architectures, especially suited for dealing with time series input. The results remain robust after extensive sensitivity analysis.
    JEL: G21 C45 C52
    Date: 2019–08–27

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