nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒09‒16
ten papers chosen by
Georg Man

  1. Credit Misallocation and Economic Growth in Vietnam By Mitsuru Katagiri
  2. An Impact Assessment of Higher Capital Adequacy Requirements: Evidence From India By Noor Ulain Rizvi; Smita Kashiramka; Shveta Singh
  3. Financial Access and Productivity Dynamics in Sub-Saharan Africa By Simplice Asongu
  4. An analysis into FDI as a contributor of growth and development in a group of a selected set of countries from Asia, Africa and South America By JASSODRA Maharaj
  5. Remittances and economic growth : Empirical evidence from South Africa By Nyasha, Sheilla; Odhiambo, Nicholas M
  6. Does remittance inflow granger-cause economic growth in South Africa? A dynamic multivariate causality test By Nyasha, Sheilla; Odhiambo, Nicholas M
  7. Access to finance constraints in adopting latest technologies for business production in small- and medium-sized enterprises (SMEs) By Mohammed Ali Kafaji
  9. Financial structure, institutional quality and monetary policy transmission: A Meta-Analysis. By Bhattacharya, Rudrani; Tripathi, Shruti; Chowdhury, Sahana Roy

  1. By: Mitsuru Katagiri
    Abstract: The legacy of non-performing loans and high opportunity cost of government financing of bank recapitalization impeded the efficiency of financial intermediation and are an important policy issue in Vietnam. This paper presents a theoretical and empirical analysis of the issue. An empirical analysis using corporate data indicates credit misallocation between state owned enterprises and private firms in Vietnam. On the theoretical side, a micro-founded banking model is embedded in a political economy setting to assess the factors determining the size of bank recapitalization and its effects on the efficiency of financial intermediation, economic growth and welfare. The analysis suggests that recapitalization depends on an array of factors, including the tightness of the government budget and the decision maker’s concern for the favored sector.
    Date: 2019–09–06
  2. By: Noor Ulain Rizvi (Indian Institute of Technology Delhi); Smita Kashiramka (Indian Institute of Technology Delhi); Shveta Singh (Indian Institute of Technology Delhi)
    Abstract: Regulatory norms aim to ensure stability and resilience in the banking sector as episodes of crises may have a spill-over effect in the real economy. Literature based on studies of developed economies, suggests that higher capital norms improve the resilience of the banking sector, which in turn, reduces the probability of a financial crisis. An important benefit of which is on the size of the economic loss if the crisis does occur. On the other hand, higher capital requirements pose significant costs to banks, which are, in turn, passed on to the rest of society through reductions in lending volumes, credit rationing and increase in prices of credit that culminates into decreasing the output of the economy. This study aims to find the net impact of implementing Basel norms in a fast-growing economy, (yet under-researched) of Asia, i.e, India. The results prove that the implementation of Basel norms has significant benefits (using a step wise approach, multivariate logistic regression), along with costs (using vector auto regression). In sum, there are positive net benefits in terms of output saved.
    Keywords: Basel, Banking, Financial crisis, India, Comparative study
    JEL: G28 G01 O57
    Date: 2019–06
  3. By: Simplice 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
    Abstract: Both the flow and stock of FDI grew very rapidly in the first part of the twentieth century but this was no match to the growth in FDI after the 2nd World War. It is without doubt that the main mechanism of interconnectedness in the global economy has shifted from trade to FDI which has spread rapidly throughout the world dominating a wide range of industries. One of the most controversial issues is whether Foreign Direct Investment is beneficial to countries. Supporters of FDI (Rodrik, 2000) emphasize that growth is enhanced in the host country as FDI enables technology diffusion, enhances employment of human capital and allows host countries to gain access to wider global markets. On the other hand there is a substantial body of literature which emphasizes that FDI creates hardly any benefits to the host nation. It is often argued that the presence of plentiful and cheap labour is the main reason for attracting FDI. This study attempts to investigate whether FDI contributes to growth in a selected group of countries from Asia, Africa and South America using a panel data analysis. A panel data analysis is conducted for 12 countries in order to examine the effects of FDI, employment, and investment formation (lagged) on economic growth. The data for all variables are from the period from 1977 to 2016.
    Keywords: Foreign Direct Investment, growth, technology, panel
    JEL: F21 F23 F29
    Date: 2019–07
  5. By: Nyasha, Sheilla; Odhiambo, Nicholas M
    Abstract: In this paper, we have empirically examined the impact of remittances on economic growth in South Africa over the period from 1970-2017. The study was motivated by the conflicting empirical findings that have emerged in the literature on the impact of remittance on economic growth in various countries. The study was also motivated by the need to find an empirical backing on the assertion that remittances are good for economic growth and can play a key role in lowering the inequality levels in developing countries. Using the autoregressive distributed lag (ARDL) bounds testing approach, the empirical results, contrary to expectations, have revealed that in South Africa, remittances have a negative impact on economic growth, irrespective of whether the regression analysis is conducted in the long run, or in the short run. The study, therefore, cautions policy makers when it comes to policies related to harnessing remittances for economic growth. The study argues that it is not only remittance inflows that matter, but also how the remittances are utilised to influence economic growth.
    Keywords: Remittances, Economic Growth; South Africa
    Date: 2019–08
  6. By: Nyasha, Sheilla; Odhiambo, Nicholas M
    Abstract: In this study we examine the dynamic causal relationship between remittances and economic growth in South Africa during the period from 1970 to 2017. Although South Africa is well known for being a source of cross-border remittances to various countries, especially in the African continent, remittance inflows to South Africa have grown in the recent past. The growth in remittances on the one hand, and the need to fight against poverty and inequality in South Africa and ultimately improve economic growth, on the other hand, prompted the need for this study. The study uses the autoregressive distributed lag (ARDL) approach within a multivariate Granger-causality setting to examine the remittance-growth causal link ? in an effort to address the variable omission bias. The empirical findings of the study show that remittances and economic growth are not causally related in South Africa, irrespective of whether the estimations are done in the long run or in the short run. This finding, though contrary to the expectation, is not surprising, given the level of financial sector development South African.
    Keywords: Remittances; Economic Growth; South Africa; Granger-Causality
    Date: 2019–08
  7. By: Mohammed Ali Kafaji (Alfaisal University)
    Abstract: The small and medium-sized enterprises (SMEs) play crucial role in supporting the economies of developing countries. However, with globalization and open market trends, SMEs need to compete with new entrants to maintain their market share and growth. The degree of technology adaptation and level of process sophistication help the SMEs to achieve their targeted level of growth through improvement of business effectiveness and efficiency. Access to finance is a critical success factor in such endeavor and supports the SMEs to alleviate growth constraints. This paper presents research data on the degree that access to finance impacts the abilities of SMEs to grow through improvement of process sophistication for enhanced business production. The raw data was gathered from over 400 firms independently using one unified assessment tool over a period of five years. This data is then analyzed using inferential statistics through one-way analysis of variance (ANOVA) to evaluate and compare the average scores associated with the research variables. Furthermore, the post hoc analysis is applied to assess the extent and direction of variation in the scores and moderated across different years. The results showed that the adopted level of process sophistication is positively correlated with the availability of technology with limited role played by access to finance. These relationships are discussed and analyzed in the context of local market growth, sophistication, financial capabilities, and financial facilities. The research aims to assist SME stakeholders and governing bodies in recognizing the impact of changes on macroeconomic scale from SMEs growth and sustainability perspectives.
    Keywords: Small and medium-sized enterprises; Access to finance; Process sophistication; Business technologies.
    JEL: A19 F36 L22
    Date: 2019–06
  8. By: Charu Bhurat (SVKM?s NMIMS Anil Surendra Modi School of Commerce)
    Abstract: Financial inclusion means providing access to financial services at affordable cost to all individuals and businesses especially to the vulnerable and weaker income groups. This paper aims to examine the concept of financial inclusion and its relevance with respect to the world?s emerging economies Brazil, Russian Federation, India, China and South Africa (BRICS). The BRICS nations have been the growth drivers of the world economy and higher financial inclusion means a better level of socio-economic development. Various financial inclusion indicators from The Global Partnership for Financial Inclusion (GPFI) have been used to compare data of these countries. With the help of this paper, an attempt has been made to analyse the state of financial inclusion and digital financial services amongst BRICS nations. Also, the BRICS nations have been compared in terms of income as well as gender disparity for various financial inclusion indicators.
    Keywords: BRICS, Financial inclusion, digital transactions, banking
    JEL: E02 E44 F33
    Date: 2019–06
  9. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Tripathi, Shruti (National Institute of Public Finance and Policy); Chowdhury, Sahana Roy (International Management Institute, Kolkata)
    Abstract: The long-standing empirical literature of monetary policy transmission acknowledges weak transmission of monetary policy shock to real activities and inflation in emerging economies. Fragile financial system, low level of financial integration and weak institutions are often cited as the reasons for lack of monetary policy transmission in these economy. This paper investigates to what extent these factors explain the variation in the extent of monetary policy transmission in a comprehensive set of developed and developing economies using meta-analysis framework. We find that the degree of financial development captured by various financial indicators explain cross-country variations in the magnitude and time lag of monetary policy transmission. We also find the role of financial accelerator in transmission magnitude to output growth.
    Keywords: Financial developmen ; Institutions ; Monetary Policy Transmission ; Meta-Analysis
    JEL: C51 E52 E58
    Date: 2019–07
  10. By: Wilfried Kisling; Antonio Tena Junguito
    Abstract: This article identifies and analyzes the determinants of the success of German exports to Argentina between 1875 and 1913, the fastest emerging market in South America at that time. New German technology and increasing productivity were complemented by banking and financial support for trade. We find that industrial sectors linked to German foreign banks (Auslandsbanken) in Argentina benefited from privileged access to financial support and hence exported more in comparison with other leading industrial countries. Our findings contribute to the literature on Latin American emerging markets and the role of finance in the development of foreign trade.
    Date: 2019–08–14

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