nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒10‒28
nine papers chosen by
Georg Man

  1. The Dynamics of Financial Development, Globalization, Economic Growth and Life Expectancy in Sub-Saharan Africa By Shahbaz, Muhammad; Shafiullah, Muhammad; Kumar, Mantu
  2. Manufacturing Sector and Economic Growth: A Panel Study of Selected African Countries By Clement Moyo
  3. South Korea’s and China’s catching-up: a new developmentalist analysis By Bresser-Pereira, Luiz Carlos; Jabbour, Elias Jabbour; Paula, Luiz Fernando de Paula
  4. Inflation, Complexity and Endogenous Growth By Tiago Miguel Guterres Neves Sequeira; Pedro Mazeda Gil; Óscar Afonso
  5. How Do Short-term Financial Constraints Affect SMEs’ Long-Term Investment: Evidence from the Working Capital Channel By Théo Nicolas
  7. Predicting recessions: financial cycle versus term spread By Claudio Borio; Mathias Drehmann; Dora Xia Author-X-Name_First: Dora
  8. Jobless recoveries after financial crises (and the key role of the extensive margin of employment) By Françoise Delmez
  9. Capital Account Liberalization and Capital Flows to Sub-Saharan Africa: A Panel Threshold Approach By Tamara Esther Mughogho; Imhotep Paul Alagidede

  1. By: Shahbaz, Muhammad; Shafiullah, Muhammad; Kumar, Mantu
    Abstract: The importance of life expectancy is recognized in the development economics literature because of its increasing effects on labor productivity and economic growth in in long-run. However, no published study to date empirically examines the nonlinear relationships between globalization, financial development, economic growth and life expectancy in Sub-Saharan African (SSA) countries. Therefore, our study intends to fill this gap by using non-parametric cointegration test and multivariate Granger causality test towards a non-linear empirical understanding of the factors affecting the life expectancy. We consider the case of 16 Sub-Saharan African economies using annual data over the period 1970-2012. The empirical analysis indicates that financial development, globalization and economic growth appear to have a positive impact upon life expectancy in Sub-Saharan African economies, except for Gabon and Togo. Our empirical findings may provide insightful policy implications towards improving population health conditions which are vital for promoting the productivity of labor force and long-run economic growth in Sub-Saharan African countries. In light of these policy implications, governments should incorporate globalization, financial development and economic growth as key economic instruments in formulating sustainable developmental policy to promote life expectancy for the people in Sub-Saharan African countries.
    Keywords: Financial development; Life expectancy; Sub-Saharan Africa; Nonlinear causality
    JEL: I0
    Date: 2019–10–09
  2. By: Clement Moyo (Nelson Mandela University, South Africa Author-2-Name: Leward Jeke Author-2-Workplace-Name: Nelson Mandela University, South Africa Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - The manufacturing sector plays an important role in any economy. However, Africa has experienced significant deindustrialisation over the last few decades, whilst economic growth has been on an upward trend over the same period. The high growth rates have mostly been propelled by improved macroeconomic stability and the commodity price boom. Further, the slowdown in commodity prices has recently caused a deceleration of economic growth which begs the question: Does promoting the manufacturing sector result in higher and sustainable economic growth and reduce unemployment? This study assesses the impact of the manufacturing sector on economic growth in 37 African countries.Methodology/Technique - This study employs the System-GMM Model for the period between 1990 and 2017. This technique is ideal as the number of cross-sectional units is greater than the number of time periods. This technique also caters for problems of endogeneity and heteroscedasticity.Findings - The results show that manufacturing value has a positive effect on economic growth in African countries. Therefore, it is recommended that policy makers enact measures to boost manufacturing output.Novelty - The deceleration of economic growth in African countries coupled with high unemployment and poverty levels has brought the issue of re-industrialisation into the spotlight. This study is vital for policy makers in African countries who seek to promote economic growth and employment levels. The study contributes to literature in African countries by incorporating variables such as human capital and institutional quality which are major determinants of economic growth.Type of Paper - Empirical.
    Keywords: Manufacturing Value Added; Economic Growth; African Countries; System-GMM.
    JEL: C23 E23 O14 O40
    Date: 2019–09–22
  3. By: Bresser-Pereira, Luiz Carlos; Jabbour, Elias Jabbour; Paula, Luiz Fernando de Paula
    Abstract: The purpose of this paper is to analyze the catching-up processes of South Korea and post-1978 reforms China, based on a new developmentalist approach that considers four fundamental factors: 1) a complementarity relationship between the state and the market as a dynamic process that changes over time; 2) necessary complementarity between macroeconomic policy and industrial policy; 3) the key role of public and development banks in attacking the problem of “development financing”; and a particular focus on 4) the centrality of exchange rate and balance of payments administration for the development process in these countries. The paper’s fundamental question is to what extent the catching-up process in these countries can be understood as the application of a new developmentalist strategy, taking each country’s particular historical traits into account.
    Date: 2019–10–17
  4. By: Tiago Miguel Guterres Neves Sequeira (CeBER and Faculty of Economics, University of Coimbra); Pedro Mazeda Gil (CEF.UP, Faculty of Economics, University of Porto); Óscar Afonso (CEF.UP, Faculty of Economics, University of Porto)
    Abstract: In this article, we argue that inflation increases complexity pertaining to knowledge production (or R&D). Then, we expand a recently developed complexity index based on entropy to include the effect of inflation. As a result of this new mechanism in an endogenous growth model, inflation is no longer superneutral. In the model, inflation can decrease economic growth in a nonlinear way, a sudden upward shock on inflation can severely hurt economic growth and an inflation cut can be responsible for a take-off. These effects are illustrated quantitatively.
    Keywords: Inflation, endogenous economic growth, complexity effects, entropy.
    JEL: O10 O30 O40 E22
    Date: 2019–09
  5. By: Théo Nicolas
    Abstract: This paper investigates the real effects of short-term financial constraints in the light of the working capital channel: cash credit constraints may force SMEs to forgo investment opportunities in order to finance their working capital needs. Building on unique indicators of cash and investment credit constraints derived from survey data, I find that: (1) short-term credit constraints are as important as long-term ones in SMEs' investment decisions; (2) the detrimental effect of cash credit constraints on corporate investment is even stronger for firms with higher working capital needs; (3) the negative relationship between working capital and fixed investment is associated with short-term financial frictions; and (4) only liquid SMEs are able to offset short-term financial frictions by adjusting their accounts receivable and inventories.
    Keywords: : Investment, Bank credit, Financial constraints, Working capital, Survey data.
    JEL: D82 E32 E51 G01 G21
    Date: 2019
  6. By: Aniceth Kato Mpanju (Tanzania Institute of Accountancy)
    Abstract: The major purpose of this paper is to analyze the impact of microfinance services on SME?s performance in Dar-es-Salaam region, Tanzania. Using a sample of 350 SMEs, the study adopted a descriptive-correlation research design an econometric analysis using statistical package for social sciences (SPSS) version 24. The results show that microfinance services in the form of financial intermediation and enterprise development had to a large extent adequate to small and medium-sized entrepreneurs. Then from above analysis we may conclude that there existed a strong relationship between the extent of microfinance services and the performance of SMEs and that microfinance services influenced the performance of the SMEs in the Dar-es-Salaam region.
    Keywords: Microfinance services, SMEs, Microfinance institutions, Financial literacy and enterprise development
    JEL: G29
    Date: 2019–10
  7. By: Claudio Borio; Mathias Drehmann; Dora Xia Author-X-Name_First: Dora
    Abstract: Financial cycles can be important drivers of real activity, but there is scant evidence about how well they signal recession risks. We run a horse race between the term spread - the most widely used indicator in the literature - and a range of financial cycle measures. Unlike most papers, ours assesses forecasting performance not just for the United States but also for a panel of advanced and emerging market economies. We find that financial cycle measures have significant forecasting power both in and out of sample, even for a three-year horizon. Moreover, they outperform the term spread in nearly all specifications. These results are robust to different recession specifications.
    Keywords: financial cycle, term spread, recession risk, panel probit mode
    JEL: C33 E37 E44
    Date: 2019–10
  8. By: Françoise Delmez (UNamur - DeFiPP)
    Abstract: Using an dynamic panel of 15 developed countries over the 1960-2010 period, this paper compares employment and hours recovery paths after financial vs. non-financial crises. We show that post financial crises recoveries display a stronger uplift of individual hours and a weaker one of the employment rate. The results are robust to controlling for the strength of the recovery in terms of GDP growth per capita, the depth of the preceeding recession, labour-market institutions differences potentially correlated with financial vs non-financial crises and for dynamic panel bias. In conclusion, we argue that considering both margins of employment, in particular the role of extended hours in coping with rising output, improves our understanding of financial crises as a source of jobless recoveries.
    Keywords: Financial crises, jobless recoveries, employment, working time
    Date: 2019–04–01
  9. By: Tamara Esther Mughogho; Imhotep Paul Alagidede
    Abstract: Theory on capital account liberalization (CAL) posits that opening up capital accounts should result in inflows of capital to developing countries. Empirical evidence of this for Sub-Saharan Africa (SSA) remains wanting. This study was, therefore, aimed at examining the effects of CAL on capital inflows to SSA. We employ both Fixed Effects and System-GMM estimators for a panel of SSA 13 countries from 1996 to 2013. We also employ sample splitting and threshold effects methodology to examine possible asymmetries in capital flows to SSA. From our study, we find that capital account liberalization promotes capital flows to SSA. We also find evidence of the existence of threshold effects of financial sector development and institutional quality. That is, higher levels of intuitional quality and financial sector development are deemed beneficial to maximize benefits from CAL.
    Date: 2019–10

This nep-fdg issue is ©2019 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.