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on Financial Development and Growth |
| By: | Akcigit, Ufuk (University of Chicago); Dinlersoz, Emin M. (U.S. Census Bureau); Greenwood, Jeremy (University of Pennsylvania); Penciakova, Veronika (Federal Reserve Bank of Atlanta) |
| 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. |
| Keywords: | venture capital; assortative matching; endogenous growth; IPO; management; mergers and acquisitions; research and development; startups; synergies; taxation; patents |
| JEL: | E13 E22 G24 L26 O16 O31 O40 |
| Date: | 2019–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-17&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | This study investigates the role of insurance in economic growth on a panel of forty-eight countries in Africa for the period 2004-2014. The research question the study seeks to answer is the following: what thresholds of insurance penetration positively affect economic growth in Africa? The empirical evidence is based on Generalized Method of Moments. Life insurance increases economic growth while the effect of non-life insurance is not significant. Increasing both life insurance and non-life insurance has negative net effects on economic growth. From an extended analytical exercise, 4.149 of life insurance premium (% of GDP) is the minimum critical mass required for life insurance to positively affect economic prosperity while 1.805 of non-life insurance premium (% of GDP) is the minimum threshold required for non-life insurance to positively affect economic prosperity. Thresholds are also provided from the Hansen (1999) Panel Threshold Regression technique using a balanced sample of 28 countries. |
| Keywords: | Insurance; Economic Growth |
| JEL: | I28 I30 G20 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/037&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone†-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed. |
| Keywords: | Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/038&r=all |
| By: | Angelo D'Andrea; Nicola Limodio |
| Abstract: | This paper provides empirical evidence on the effect of high-speed internet on financial technology and banking in Africa. Our test combines data on 551 banks and 28,171 firms with the staggered arrival of fibre-optic submarine cables in Africa. High-speed internet promoted private-sector lending by banks, and credit and sales by firms. These results are consistent with an extensive adoption of financial technologies, like real-time gross settlement systems (RTGS), lowering transaction costs in African interbank markets. We find that liquidity management considerably changed for banks being weak interbank users prior to high-speed internet. In fact, such banks lowered their internal liquidity hoarding by 10%, increased interbank transactions by 40% and expanded lending by 37%. Analogously, firms in countries with weak pre-existing interbank markets presented stronger effects at the cable arrival. These results are consistent with high-speed internet promoting financial technology adoption, liquidity and credit. |
| Keywords: | Fintech, Banking, Investment, Financial Development |
| JEL: | G2 G21 O16 O12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp19124&r=all |
| By: | Christian S. Otchia (Kwansei Gakuin University, Japan); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | This study uses nightlight time data and machine learning techniques to predict industrial development in Africa. The results provide the first evidence on how machine learning techniques and nightlight data can be used to predict economic development in places where subnational data are missing or not precise. Taken together, the research confirms four groups of important determinants of industrial growth: natural resources, agriculture growth, institutions, and manufacturing imports. Our findings indicate that Africa should follow a more multisector approach for development, putting natural resources and agriculture productivity growth at the forefront. |
| Keywords: | Industrial growth; Machine learning; Africa |
| JEL: | I32 O15 O40 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/046&r=all |
| By: | Cazachevici, Alina; Havranek, Tomas; Horvath, Roman |
| Abstract: | Expatriate workers’ remittances represent an important source of financing for low- and middle-income countries. No consensus, however, has yet emerged regarding the effect of remittances on economic growth. In a quantitative survey of 538 estimates reported in 95 studies, we find that approximately 40% of the studies report a positive effect, 40% report no effect, and 20% report a negative effect. Our results indicate publication bias in favor of positive effects. Correcting for the bias using recently developed techniques, we find that the mean effect of remittances on growth is still positive but economically small. Nevertheless, our results uncover noticeable regional differences: remittances are growth-enhancing in Asia but not in Africa. Studies that do not control for alternative sources of external finance, such as foreign aid and foreign direct investment, mismeasure the effect of remittances. Finally, time-series studies and studies ignoring endogeneity issues report systematically larger effects of remittances on growth. |
| Keywords: | remittances,economic growth,meta-analysis,publication bias,Bayesian model averaging |
| JEL: | D22 E58 G21 F63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:205812&r=all |
| By: | Akintoye V. Adejumo (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | Globally, investments in physical and human capital have been identified to foster real economic growth and development in any economy. Investments, which could be domestic or foreign, have been established in the literature as either complements or substitutes in varying scenarios. While domestic investments bring about endogenous growth processes, foreign investment, though may be exogenous to growth, has been identified to bring about productivity and ecological spillovers. In view of these competing–conflicting perspectives, this chapter examines the differential impacts of domestic and foreign investments on green growth in Nigeria during the period 1970-2017. The empirical evidence is based on Auto-regressive Distributed Lag (ARDL) and Granger causality estimates. Also, the study articulates the prospects for growth sustainability via domestic or foreign investments in Nigeria. The results show that domestic investment increases CO2 emissions in the short run while foreign investment decreases CO2 emissions in the long run. When the dataset is decomposed into three sub-samples in the light of cycles of investments within the trend analysis, findings of the third sub-sample (i.e. 2001-2017) reveal that both types of investments decrease CO2 emissions in the long run while only domestic investment has a negative effect on CO2 emissions in the short run. This study therefore concludes that as short-run distortions even out in the long-run, FDI and domestic investments has prospects for sustainable development in Nigeria through green growth. |
| Keywords: | Investments; Productivity; Sustainability; Growth |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/078&r=all |
| By: | Tweneboah Senzu, Emmanuel |
| Abstract: | The desire of the modern economies is to be well structured and planned to innovatively attract foreign direct investment, which is the prime interest of governance of developing economies. This underpins the choice of the conference theme, “Building a resilient African economy through innovative financing, trade, and Investment for sustainable development of the continent”, with the effort of this paper is to project a skeletal ex-post situation of Ghana’s financial market which is synonymous to most quality performing financial market in developing countries on the continent of Africa with subjective recommendations for aspired progressive direction. |
| Keywords: | Banking & Finance, Financial Sector, Macroeconomics, Monetary Policy, Central Bank, Foreign Direct investment |
| JEL: | E22 E26 E5 G21 G28 |
| Date: | 2019–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96783&r=all |
| By: | Shaghil Ahmed; Ricardo Correa; Daniel A. Dias; Nils Gornemann; Jasper Hoek; Anil K. Jain; Edith X. Liu; Anna Wong |
| Abstract: | China’s economy has become larger and more interconnected with the rest of the world, thus raising the possibility that acute financial stress in China may lead to global financial instability. This paper analyzes the potential spillovers of such an event to the rest of the world with three methodologies: a VAR, an event study, and a DSGE model. We find the sentiment channel to be the primary spillover channel to the United States, affecting global risk aversion and asset prices such as equity prices and the dollar, in addition to modest real effects through the trade channel. In comparison, the combined financial and real effects to other advanced and emerging market economies, especially net commodity exporters, would be more consequential due to their larger direct exposure to China and more limited scope of monetary policy to respond to shocks. |
| Keywords: | China ; Financial crisis ; Spillovers ; Financial system |
| JEL: | F30 G28 E60 |
| Date: | 2019–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1260&r=all |
| By: | Daniel Baksa (Institute for Capacity Development, International Monetary Fund and Central European University); Istvan Konya (Institute of Economics, Centre for Economic and Regional Studies, and University of Pécs and Central European University) |
| Abstract: | We study the role of productivity convergence and financial conditions in the recent growth experience of Hungary. We build a stochastic, small-open economy growth model with productivity convergence, capital accumulation and external borrowing. Using empirically identified processes for productivity and the external interest premium, we simulate the effects of two unexpected, permanent changes on Hungarian growth. The first change is the sharp productivity slowdown starting in 2006, and the second is the tightening of external financial conditions starting in 2009. Simulating our model, we show that the empirically identified productivity and interest premium processes - along with the two unexpected permanent changes and regular i.i.d. productivity and interest premium innovations – capture the main medium-run dynamics of the Hungarian economy both before and after the global financial crisis. Running counterfactuals, we also find that the observed slowdown in GDP per capita growth was mostly driven by productivity, while the tightening of external financing conditions is important to understand investment behavior and the net foreign asset position. |
| Keywords: | economic growth, convergence, productivity, interest premium, Hungary |
| JEL: | E13 E22 F43 O47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1916&r=all |
| By: | Thomas Grjebine; Jérôme Héricourt; Fabien Tripier |
| Abstract: | The creation of the European Monetary Union (EMU) in 1999 was expected to become a catalyst for real convergence in Europe. Far from being the case, real divergence increased from the early 1990s as evidenced by low productivity growth in the "periphery" of the Euro area relative to "core" countries. This report investigates the role of sectoral reallocation in this divergence, focusing on three archetypal countries: France, Germany, and Spain. Using the EU-KLEMS database of sectoral Total Factor Productivity (TFP), we first show that sector reallocations have been at the origin of productivity losses in the considered countries and contributed significantly to this divergence. Second, we investigate how the substantially diverging real estate prices between these countries could explain those sectoral reallocations. More specifically, when access to external finance is restricted due to financial frictions, real estate assets may be used as collateral by borrowers to relax these constraints and increase investments. Real estate shocks turn out to be a strong driver of productivity divergence, causing the lag of Spain behind Germany before the Great Recession and that of France afterwards. For comparison purpose, we also shed light on the role of sectoral reallocation in the UK productivity puzzle. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econpr:_15&r=all |
| By: | Bose, Udichibarna; Mallick, Sushanta; Tsoukas, Serafeim |
| Abstract: | Financial reforms have been found to be highly important in promoting aggregate productivity. Yet, the linkage between access to finance, firm-level productivity, and exporting performance has been overlooked in the literature. We fill this gap using a rich dataset of 11,612 Indian firms over the period 1988-2014 to study the impact of a unique financial policy intervention on firm performance. We document a significant effect of capital-account liberalization through the lens of an export-oriented policy initiative on firms’ productivity and consequently on their exporting activity. Finally, the beneficial effect of the policy change is more pronounced for financially vulnerable firms, as measured by high debt dependence and low levels of liquidity. |
| Keywords: | Productivity; Exporting; Financing; FX market liberalization |
| Date: | 2019–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:25847&r=all |
| By: | Ibrahim D. Raheem (Liège, Belgium); Simplice A. Asongu (Yaoundé, Cameroon); Sara le Roux (Oxford, UK) |
| Abstract: | This study examines the asymmetry between capital flows and economic growth in 42 countries for the period 1990-2017. It further argues that uncertainty is an important channel through which asymmetry operates. As such, the three measures of uncertainty are macroeconomic, fiscal and institutional. The Generalised Method of Moments is used as an empirical strategy. The existence of an asymmetry is confirmed by the findings as capital flows are more reactive to economic drag when compared to economic growth. Furthermore, the channels through which asymmetry operate are heterogeneous to measures of capital flows and proxies for uncertainty. |
| Keywords: | Capital flows, Economic growth, Asymmetry, Uncertainty and Emerging countries |
| JEL: | C13 F3 G15 O16 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/047&r=all |
| By: | Eugenia Andreasen; Sofía Bauducco; Evangelina Dardati |
| Abstract: | This paper studies the effects of capital controls on firms' production, investment and exporting decisions. We empirically characterize the firm's responses to the introduction of a capital control, using the Chilean encaje implemented between 1991 and 1998 as a laboratory. Motivated by our findings, we build a general equilibrium model with heterogeneous firms, financial constraints and international trade and calibrate it to the Chilean economy. We find that capital controls re- duce aggregate production and investment while increasing exports, the share of exporters and TFP. The effects of capital controls are exacerbated for firms in more capital-intensive sectors and for exporters. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:852&r=all |
| By: | Jiao, Yang (Fudan University); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | Using Japanese firm data covering the Japanese financial crisis in the early 1990s, we find that exporters' domestic sales declined more significantly than their foreign sales, which in turn declined more significantly than non-exporters' sales. This stylized fact provides a new litmus test for different theories proposed in the literature to explain a trade collapse associated with a financial crisis. In this paper we embed the Melitz's (2003) model into a tractable DSGE framework with incomplete financial markets and endogenous credit allocation to explain both the Japanese firm-level data and the well-documented aggregate trade collapse during a financial crisis in world economic history. The model highlights the role of credit reallocation between non-exporters and exporters as the main mechanism in explaining exporters' behaviors and trade collapse following a financial crisis. |
| Keywords: | Credit Crunch; Credit Reallocation; Exporter Behavior; Financial Crisis; Heterogeneous Firms; Trade Collapse |
| JEL: | E22 E32 E44 F00 F10 F11 F41 |
| Date: | 2019–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-023&r=all |
| By: | Efrem Castelnuovo (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne) |
| Abstract: | This survey features three parts. The first one covers the recent literature on domestic (i.e., country-specific) uncertainty and offers ten main takeaways. The second part reviews contributions on the fast-growing strand of the literature focusing on the macroeconomic effects of uncertainty spillovers and global uncertainty. The last part proposes a novel measure of global financial uncertainty and shows that its unexpected variations are associated to statistically and economically fluctuations of the world business cycle. |
| Keywords: | Uncertainty, uncertainty shocks, spillovers, global financial uncertainty, world business cycle. |
| JEL: | C22 E32 E52 E62 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2019n13&r=all |
| By: | Patty Duijm |
| Abstract: | This study investigates what drives the credit cycle, focusing on the role of foreign funded bank credit (FFC). Considering credit cycles in 41 countries over the period 1985-2015, this study finds that credit booms are associated with an increase in the share of FFC in an economy, both in emerging and developed economies and for business as well as for household credit cycles. The impact of FFC on credit booms is however significantly higher in emerging countries. While FFC increases rapidly during the boom, the period preceding the boom is characterized by an in increase in domestically funded credit relative to FFC. FFC thus accelerates credit during the boom. The increased credit needs during a boom may cause the subsitution of domestically funded credit by FFC, as the growth in FFC is less restricted than domestically funded credit, for example by the domestic deposit base. |
| Keywords: | credit cycles; international banking; financial crisis |
| JEL: | F34 F44 G21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:658&r=all |