nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒10‒21
eleven papers chosen by
Georg Man

  1. Financial Structure and Economic Growth: Evidence from Sub-Saharan Africa By Naomi M. Mathenge; Dr. Eftychia Nikolaidou
  2. Productivity Growth, Capital Reallocation and the Financial Crisis: Evidence from Europe and the US By Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia
  3. The Determinants and Macroeconomic Impacts of Foreign Direct Investment in Transition Economies By Iwasaki, Ichiro; Tokunaga, Masahiro
  4. Does inward foreign direct investment influence macroeconomic performance? A case of Slovakia By Aneta Bobeni? Hinto?ová
  5. Exploring The Role of Limited Commitment Constraints in Argentina’s "Missing Capital" By Marek Kapička; Finn Kydland; Carlos Zarazaga
  6. Small firms and domestic bank dependence in Europe’s great recession By Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
  7. Is Basel III counter-cyclical: The case of South Africa? By Guangling Liu; Thabang Molise
  8. Real-time signals anticipating credit booms in Euro Area countries By Francesco Simone Lucidi
  9. The determiants of non-performing loans: Do institutions matter? A comparative analysis of the MENA and CEE countries By RACHID, RACHID,Semia
  10. Bank financing to SMEs in the Republic of North Macedonia: Evidence from Survey Data By Tanja Jakimova; Neda Popovska Kamnar
  11. The financial cycle and the regulatory pendulum in the United Kingdom (1885-2016) By Germán Forero-Laverde; Jesús Mur; María Ángeles Pons

  1. By: Naomi M. Mathenge; Dr. Eftychia Nikolaidou
    Abstract: Financial structure, the extent to which a country’s financial system is either bank-based or market-based has been shown to have an effect on some countries economic growth, while in other countries, it has been shown to be of no economic significance. Many of the studies have focused on developed and emerging economies that have well developed financial systems relative to the financial systems of developing countries.
    Date: 2018–09
  2. By: Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia
    Abstract: How has capital reallocation affected productivity growth since the financial cri- sis? For example, have low interest rates disrupted the reallocation process? This paper calculates the effect on productivity growth of capital reallocation between industries. It uses an accounting framework, due to Jorgenson and his co-authors, that computes the contribution of capital services to productivity growth relative to one where rates of return are equalised between sectors: if capital persists in the low return sectors, the reallocation measure falls. Using data from 11 countries (the major EU economies plus the US), in 1997-2013, we nd: (a) the contribution of capital reallocation to productivity growth is lower in most economies after than before the financial crisis, notably in Mediterranean countries; (b) more capital real- location is correlated with lower real interest rates, contrary to the hypothesis that low real interest rates have hurt capital reallocation; (c) controlling for shocks, lower capital reallocation is associated with lower optimism, and weaker financial systems.
    Keywords: capital reallocation; Intangible Capital; Productivity Growth
    JEL: E01 E22 O47
    Date: 2019–08
  3. By: Iwasaki, Ichiro; Tokunaga, Masahiro
    Abstract: In this paper, we perform a meta-analysis of foreign direct investment in transition economies. The first part examines how transition-specific factors affect FDI in CEE and FSU countries. The latter part explores how large is the impact of FDI on macroeconomic growth in the region. The results of meta-analysis revealed that empirical results reported in previous studies present the close relationship between the progress in transition to a market economy and FDI and a positive effect of FDI on macroeconomic growth in the literature as a whole; this suggests that, in transition economies, the success of transformation towards a marketoriented system and foreign capital flow has created a kind of virtuous cycle.
    Keywords: transition economies, foreign direct investment (FDI), determinants of FDI, macroeconomic impacts of FDI, meta-analysis, publication selection bias
    JEL: E22 F21 F23 F43 P33
    Date: 2019–09
  4. By: Aneta Bobeni? Hinto?ová (Faculty of Business Economics in Ko?ice, University of Economics in Bratislava)
    Abstract: Foreign direct investments (FDI) are generally considered as key drivers of economic development of the country. However, studies confirming significant effects of inward FDI on macroeconomic performance especially in conditions of the Central European countries are rather scare. The present paper investigates effects of different types of inward FDI, namely cross-border mergers and acquisitions and greenfield investment projects on the macroeconomic performance measured by GDP per capita in conditions of Slovakia. The results of regression analysis for the period of 2003-2018 show rather negative impact of greenfield investments allocated in Slovakia as well as cross border sales of local companies on the level of GDP per capita of the host country.
    Keywords: foreign direct investment, macroeconomic performance, mergers and acquisitions, greenfield projects
    JEL: F21 F23 F43
    Date: 2019–10
  5. By: Marek Kapička; Finn Kydland; Carlos Zarazaga
    Abstract: We study why capital accumulation in Argentina was slow in the 1990s and 2000s, despite high productivity growth and low international interest rates. We show that limited commitment constraints introduce two mechanisms. First, the response of investment to a total factor productivity increase is muted and short-lived, while the response to a decrease is large and persistent. Second, unlike in a first-best economy, low international interest rates may reduce capital accumulation, because they increase the relevance of future commitment constraints. A quantitative implementation of the model economy shows that the two mechanisms are quantitatively important for the dynamics of Argentina’s capital accumulation. The model accounts for between 50% and 85% of the capital missing from Argentina in these two periods, relative to what it would be in the absence of the limited commitment frictions.
    JEL: F34 F41 F42 F43 O19 O54
    Date: 2019–10
  6. By: Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
    Abstract: Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks (“domestic bank dependence”) than in countries where firms borrowed more from international banks. Eurozone banking integration in the years 2000–2008 mainly involved cross-border lending between banks while foreign banks’ lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.
    Keywords: Small and medium enterprises, SME access to finance, Banking integration, Domestic bank dependence, International transmission, Eurozone crisis
    JEL: F30 F36 F40
    Date: 2019–10
  7. By: Guangling Liu; Thabang Molise
    Abstract: This paper develops a dynamic general equilibrium model with banking and a macro-prudential authority, and studies the extent to which the Basel III bank capital regulation promotes financial and macroeconomic stability in the context of South African economy. The decomposition analysis of the transition from Basel II to Basel III suggests that it is the counter-cyclical capital buffer that effectively mitigates the pro-cyclicality of its predecessor, while the impact of the conservative buffer is marginal. Basel III has a pronounced impact on the financial sector compared to the real sector and is more effective in mitigating fluctuations in financial and business cycles when the economy is hit by financial shocks. In contrast to the credit-to-GDP ratio, the optimal policy analysis suggests that the regulatory authority should adjust capital requirement to changes in credit and output when implementing the counter-cyclical buffer.
    Keywords: Bank capital regulations, Financial Stability, counter-cyclical capital buffer, DSGE
    JEL: E44 E47 E58 G28
    Date: 2018–08
  8. By: Francesco Simone Lucidi
    Abstract: This paper identifies credit booms in 11 Euro Area countries by tracking private loans from the banking sector. The events are associated with both financial crises and specific macro fluctuations, but the standard identification through threshold methods does not allow to catch credit booms in real time data. Thus, an early warning model is employed to predict the explosive dynamics of credit through several macro-financial indicators. The model catches a large part of the in-sample events and signals correctly both the global financial crisis and the sovereign debt crisis in an out-of-sample setting by issuing signals in real-time data. Moreover, while tranquil booms are driven by global dynamics, crisis-booms are related to the resilience of domestic banking systems to adverse financial shocks. The results suggest an ex-ante policy intervention can avoid dangerous credit booms by focusing on the solvency of the domestic banking system and financial market's overheating.
    Keywords: Credit Boom; Euro Area; Early Warning; Multivariate Logit
    JEL: C32 G01 E32 E51
    Date: 2019–10
  9. By: RACHID, RACHID,Semia
    Abstract: This paper tries to study the determinants of non-performing loans (NPL) in the Middle East and North Africa (MENA) and Central and Eastern European (CEE) countries during the 1997/2016 period. Our analysis, which is based on different panel data estimation approaches, shows that institutions have different effects on the level of NPL in the MENA and the CEE countries. We found that institutions (rule of law) increase the level of NPL in the MENA countries but they decrease these loans in the CEE countries. This result is attributed to the existence of an institutional difference between both samples of countries. In fact, the rise of NPL in the CEE countries is attributed to financial development. On the other hand, the global financial crisis (GFC) has an important effect on the accumulation of NPL in the MENA countries. However, the relationship between the GFC and the NPL is not significant for the CEE countries.
    Keywords: Non-performing loans. Institutional quality. GMM estimator. Comparative analysis
    JEL: G2 G21
    Date: 2019
  10. By: Tanja Jakimova (National Bank of the Republic of North Macedonia); Neda Popovska Kamnar (National Bank of the Republic of North Macedonia)
    Abstract: This paper presents the main findings of the Survey for bank financing to small and medium enterprises (SMEs). The key objective was to capture the main features of the “supply side” of SMEs financing in the Republic of North Macedonia and to identify institutional and policy constraints of banks involvement with SMEs. The findings reveals that banks considered SMEs lending market as large, competitive, not very saturated, but with very positive outlook. While the main driver for bank involvement with SMEs sector is profitability and the good prospects of the SME segment, a number of obstacles are present, including SME-related factors, macroeconomic factors, legal and contractual environment and some bank-specific factors. The overall conclusion is that SMEs access to finance should be further supported and encouraged in order to increase their contribution to growth of the economy.
    Keywords: small and medium enterprises, bank finance, survey data
    JEL: G20
    Date: 2019
  11. By: Germán Forero-Laverde (Universidad Externado de Colombia, Colombia); Jesús Mur (University of Zaragoza, Spain); María Ángeles Pons (University of Valencia, Spain)
    Abstract: The goal of this paper is twofold. First, we study whether there is evidence for a financial cycle, characterized by the joint movement of stock markets and credit aggregates in the United Kingdom from 1885 until 2016. Secondly, after controlling for an assortment of variables, we contrast if the causal relationship between stock markets and credit aggregates, is contingent on the level of financial repression or liberalisation. Regarding the first question, we find evidence of a time-varying relationship between stock markets and credit, and between both variables and the general economy throughout the period. Regarding the second question, our tests show a robust causal relationship between stocks and credit both in the short and long-run. Moreover, said relationship is contingent on whether the economy is experiencing a period of financial repression or latitude. Finally, we contribute evidence that changes in the regulation/deregulation dynamic in 1914 and 1971/79 coincide with structural breaks in our VAR model. Under deregulation, the long-run relationship between both variables was of bidirectional causality. Contrarily, during financial repression, the long-run nexus is broken. These results have implications for the understanding of UK historiography and the underlying mechanisms that drive financial instability.
    Keywords: Financial history, Deregulation, Financial cycle, United Kingdom, Financial stability
    JEL: N14 N24 G18 F33
    Date: 2019–09

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