nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒09‒23
ten papers chosen by
Georg Man

  1. Dispersion in Financing Costs and Development By Tiago Cavalcanti; Bruno Martins; Cezar Santos; Joseph Kaboski
  2. The Persistent Effect of a Credit Crunch on Output and Productivity: Technical or Allocative Efficiency? By Patricio Toro
  3. The Role of ICT and Financial Development on CO2 Emissions and Economic Growth By Ibrahim D. Raheem; Aviral K. Tiwari; Daniel Balsalobre-lorente
  4. Domestic Financial Participation and Financial Policies in Emerging Economies By Alan Finkelstein-Shapiro; Victoria Nuguer
  5. Microfinance and Poverty Reduction: Evidence from Djibouti By Mohamed Abdallah Ali; Mazhar Mughal
  6. The impact of remittancess on poverty : What relations in Sub-saharan Africa and latin America ? By Aloui, Zouhaier
  7. The effect of aid on growth in the presence of economic regime change By Samanhyia, Solomon; Cassimon, Danny
  8. Innovations in emerging markets: the case of mobile money By Pelletier, Adeline; Khavul, Susanna; Estrin, Saul
  9. One size does not fit all. Cooperative banking and income inequality By Raoul Minetti; Pierluigi Murro; Valentina Peruzzi
  10. The relative performance of family firms depending on the type of financial market By Lohwasser, Todor S.

  1. By: Tiago Cavalcanti (University of Cambridge); Bruno Martins (Central Bank of Brazil); Cezar Santos (Fundacao Getulio Vargas); Joseph Kaboski (University of Notre Dame)
    Abstract: We study how dispersion in financing cost and financial contract enforcement affect entrepreneurship, firm dynamics and productivity. We use employee-employer administrative linked data combined with data on financial transactions of all formal firms in Brazil to show how interest rate spreads vary with firm size, age, among other characteristics. We present a general equilibrium model with endogenous occupational choice based on a modified version of Buera, Kaboski, and Shin (2011), which are consistent with those facts of the the credit market. We then provide evidence on the allocative effects of financial reforms. Eliminating dispersion in financing cost leads to more credit and higher output due to cheaper credit for productive agents with low assets. In addition, abstracting from heterogeneity in interest rate spreads understates the impacts of financial reforms that improve the enforcement of credit contracts.
    Date: 2019
  2. By: Patricio Toro
    Abstract: This paper estimates the impact of a credit crunch on output and productivity growth by disentangling two complementary channels: technical and allocative efficiency. Starting from the census of Chilean firms and exploiting a large-scale natural experiment during the 2008-09 crisis, I show that a sharp contraction in credit supply had persistent real effects, as the output of more affected firms did not catch up with that of less affected firms. A negative but moderate effect on firm-level productivity helps to explain this persistence. Also, the dispersion of the marginal productivity of capital increases within more affected firms. In the aggregate, productivity growth explains around a third of the impact of the credit crunch on output growth in the medium run. In turn, allocative efficiency explains twice as much as technical efficiency of productivity growth.
    Date: 2019–09
  3. By: Ibrahim D. Raheem (EXCAS, Liège, Belgium); Aviral K. Tiwari (Kochi, India); Daniel Balsalobre-lorente (Ciudad Real, Spain)
    Abstract: This study explores the role of the information and communication Technology (ICT) and financial development (FD) on both carbon emissions and economic growth for the G7 countries for the period 1990-2014. Using PMG, we found that ICT has a long run positive effect on emissions, while FD is a weak determinant. The interactive term between the ICT and FD produces negative coefficients. Also, both variables are found to impact negatively on economic growth. However, their interactions show they have mixed effects on economic growth (i.e., positive in the short-run and negative in the long-run). Policy implications were designed based on these results.
    Keywords: ICT; Financial development; Carbon emissions; Economic growth and G7 countries
    JEL: E23 F21 F30 O16
    Date: 2019–01
  4. By: Alan Finkelstein-Shapiro (Tufts University); Victoria Nuguer (Inter-American Development Bank)
    Abstract: The Global Financial Crisis (GFC) of 2008-2009 highlighted the role of the banking system as an important propagation mechanism of U.S. financial shocks to emerging economies (EMEs). Recent evidence shows that compared to advanced economies (AEs), emerging economies (EMEs) exhibit considerably lower levels of firm participation in the domestic banking system, leading several EMEs to promote greater firm domestic financial participation. What are the implications of this greater firm participation in the banking system for the response to external financial shocks, such as those experienced by EMEs during the GFC? How should cyclical financial policies adapt to increasingly greater levels of firm domestic financial participation? We build a two-country RBC model with banking frictions, endogenous firm entry, and limited domestic financial participation by firms. Using the model, we show that greater firm financial participation in EMEs limits the effect of adverse external financial shocks on EME financial and macro aggregates, with endogenous firm entry playing a critical role in the volatility-reducing effects of greater firm financial participation in EMEs. We provide empirical evidence for EMEs that broadly supports our model findings and mechanisms. More broadly, our findings suggest that cyclical financial policies aimed at stabilizing credit market fluctuations may need to adapt to the average degree of domestic financial participation.
    Date: 2019
  5. By: Mohamed Abdallah Ali (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Mazhar Mughal (ESC Pau)
    Abstract: Does access to microfinance improve household welfare? We seek the answer to this question using data on 2,060 borrower and non-borrower households based in six major urban centers of Djibouti. We construct a composite index of multi-dimensional poverty and carry out estimations using a number of econometric techniques. Our results show that neither access to micro-credit nor its ostensibly productive use is significantly associated with poverty regardless of the duration of time since the loan was acquired. This holds both for access to, and the amount of micro-credit obtained. The results raise doubts on the effectiveness of Djibouti's microfinance programme.
    Keywords: Microfinance,poverty,productive loans,Djibouti
    Date: 2019–09–11
  6. By: Aloui, Zouhaier
    Abstract: This article examines the impact of international remittances on poverty in sub-Saharan Africa and Latin America between 1996-2016. The results of our regressions show that international remittances have a positive effect in reducing poverty in Latin America but not significant in sub-Saharan Africa. This relationship between international remittances and poverty is significantly different between sub-Saharan Africa and Latin America. This result implies that remittances play an important role in increasing household consumption and hence in reducing poverty. This supports our assertion that international remittances have more impact on poverty reduction in rich regions than in poor regions. This study shows that improvements in these attractiveness factors international remittances tend to decrease levels of poverty. It is also supported by the fact that in Sub-Saharan African countries, governments tend to invest in international remittances like other sources of external finance.
    Keywords: international remittances, poverty, sub-Saharan Africa, Latin America.
    JEL: F22 F24 I32
    Date: 2019–09–09
  7. By: Samanhyia, Solomon; Cassimon, Danny
    Abstract: The empirical literature on aid effectiveness is mired with controversy. In this regard, the paper aims to investigate the effect of aid on economic growth in Ghana. Using Auto-Regressive Distributed Lagged Models as the main estimation strategy, the study concludes that aid has a positive and statistically significant effect on economic growth. The effect of aid on economic growth is more pronounced taking into account the marginal effect of a shift in economic policy from a controlled economic regime to an open market system. The result is robust when the data is triangulated with other estimation methods. Following the key findings, the study recommends that government pursues economic policies that promotes more private sector participation. Also, alternative financing that focuses on the domestic market should be encouraged to avoid the negative impact of dwindling aid inflows.
    Keywords: Economic Growth; Aid; Economic Regime; Cointegration; Ghana
    JEL: F35 G20 H3 O4
    Date: 2019–08
  8. By: Pelletier, Adeline; Khavul, Susanna; Estrin, Saul
    Abstract: Mobile money is a financial innovation that provides transfers, payments, and other financial services at a low or zero cost to individuals in developing countries where banking and capital markets are deficient and financial inclusion is low. We use transaction costs and institutional theories to explain the growth and impact of mobile money. Having developed a new archival dataset that tracks mobile money deployment across 90 emerging economies during 16 years between 2000 and 2015, we address the question of relative economic impact of the banking and telecoms sectors in the provision of mobile money. We show that telecom groups and not banks are more likely to launch mobile money in countries where legal rights are weaker and credit information less prevalent. However, it is when mobile money is offered via a banking channel that the spillover effects on the economy are greater. Findings have significant implications for policy and strategy.
    JEL: G21 M13 O33
    Date: 2019–09–09
  9. By: Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University); Valentina Peruzzi (LUISS University)
    Abstract: The re-regulation wave following the global financial crisis is putting pressure on local community and cooperative banks. In this paper, we show that cooperative banking can play a pivotal role in reducing income inequalities in local communities. By analyzing Italian local (provincial) credit markets over the 2001-2011 period, we find that cooperative banks mitigate income inequality more than their commercial counterparts. This effect remains significant when we account for the pervasiveness of relationship lending in the provinces, suggesting that it is the specific nature and orientation of cooperative banks, rather than their lending technologies, that improve income distribution. The impact of cooperative banking on inequality appears to be mainly channeled by reduced migratory flows and lower business turnover.
    Keywords: Cooperative banks, income inequality, financial development.
    JEL: G21 G38 O15
    Date: 2019–02
  10. By: Lohwasser, Todor S.
    Abstract: The purpose of this multi-level meta-analytic study is to examine the impact of the financial environment on general performance differences between family firms and non-family firms. The considerable cross-country variability of meta-analyses focusing on this relationship suggests noticeable differences between firm- and country-based characteristics. We trace this variance to differences in the respective development of the financial markets and banking systems. We show that family firms outperform non-family firms in market-based economies. We further show that family firms report worse performance measures in well-developed financial markets. If, however, strong investor protection buttresses these already welldeveloped financial markets, family firms also outperform non-family firms. Our study has implications for banks, family firm owners, investors, and policy-makers.
    JEL: G15 G32 O16
    Date: 2019

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