nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒12‒09
nine papers chosen by
Georg Man

  1. Market-Based Financing for Small Corporations during Early Industrialisation: The Case of Salt Corporations in Japan, 1880s-1910s By Kiyotaka Maeda
  2. Foreign Direct Investment and Economic Growth: Simultaneous Equation Model Case of Southern Mediterranean Countries (SMC) By aidi, mohamed
  3. Response of agricultural growth to public expenditures and foreign direct investment in Cameroon: 1985-2016 By Ukpe, U.H.; Djomo, C.R.F.; Ogebe, F.O.; Igwe, S.; Gbadebo, O.; Ngo, V.
  4. Rise of ineffective incentives: New empirical evidence on tax holidays in developing countries By Stausholm, Saila Naomi
  5. Investment Pattern of Youth in India with particular reference to Mumbai By Saikia, Sudarshana
  6. The global financial cycle and us monetary policy in an interconnected world By Stéphane Dées; Alessandro Galesi
  7. Capital Flow Volatility: The Effects of Financial Development and Global Financial Conditions By Shiyi Wang
  8. The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency: Pre-Crisis Era Revisited By Simplice A. Asongu; Joseph Nnanna; Vanessa S. Tchamyou
  9. Reasons for the Demise of Interest: Savings Glut and Secular Stagnation or Central Bank Policy? By Thomas Mayer; Gunther Schnabl

  1. By: Kiyotaka Maeda (Department of Japanese History, Faculty of Letters, Keio University)
    Abstract: This study investigates how small corporations in rural areas arranged funds and reassesses the role of market-based financing for Japanese small and medium-sized enterprises from the 1880s through the 1910s. Whereas previous studies have focused on the financing of large corporations in urban areas, this paper argues that corporations of various sizes, including small ones in rural areas, arranged their funds from the stock market during Japan's industrialisation. By applying this style of financial arrangement, these corporations expanded their production scales, accelerating the local formation of specialised producing regions and boosting the regional economy.
    Keywords: market-based financing, industrialisation, small and medium-sized enterprises (SMEs), over-the-counter market, salt industry
    JEL: N15 N25 N85
    Date: 2019–10–29
  2. By: aidi, mohamed
    Abstract: In this work we study the effect of FDI on the economies of the South Mediterranean countries. Taking into account the positive effects and starting from the establishment of a simultaneous equation model applied to 8 countries, we tried to demonstrate the mechanisms through which FDI acts on economic growth. The estimation of our model shows that the level of human capital exports and to a lesser extent domestic investment, are the most prominent factors in creating positive effects. However, these results, while important, remain weakly motivating to generate positive growth or at least to reduce the negative effects of FDI.
    Keywords: Foreign Direct Investment, Economic Growth, Simultaneous Equation Model
    JEL: F21 O43
    Date: 2019–11–29
  3. By: Ukpe, U.H.; Djomo, C.R.F.; Ogebe, F.O.; Igwe, S.; Gbadebo, O.; Ngo, V.
    Keywords: Agribusiness, Public Economics
    Date: 2019–09
  4. By: Stausholm, Saila Naomi
    Abstract: Developing countries employ tax incentives in the hope of attracting investors, but questions remain on the effects of these policies. Asking whether tax incentives undermine or facilitate development, this paper investigates tax rates and tax holidays in terms of both economic and social impacts in developing countries 1985-2014 in the largest panel data set ever deployed for this purpose. The collection of new data results in three major contributions to the existing literature. First, the analysis shows that the use of tax holidays has increased over the last decade throughout all four regions surveyed: Latin America, Asia, Africa and the Caribbean. Second, the analysis finds that the effect of tax holidays on FDI is negligible and decreasing, and importantly, that it does not translate into neither real capital accumulation nor economic growth. Third, the paper then investigates how the revenue losses from tax incentives can mean real differences for human development by analyzing the effect on tax revenues, spending, health and education outcomes. The paper concludes that tax holidays are negatively correlated with tax revenues, and as revenues decrease, the spending on education decreases. This has real effects, as evidenced by a significant negative correlation with enrollment in primary education. The analysis concludes that tax holidays overall have more negative than positive impacts on sustainable development.
    Date: 2017–12–14
  5. By: Saikia, Sudarshana
    Abstract: A nation’s productive capacity depends on a healthy capital formation. Robust savings rate coupled with good capital mobilization are the key macro economic variables, which play a significant role in economic growth. A nation's savings and investment propensities also play a key role in achieving dynamic stability in the capital market. Per Capita Income in India has been on the rise since all of the last decade. With growth in the PCI, savings and investment in the country too has shown a northbound movement. At the same time, there has been a phenomenal rise in the youth population. This has made India the youngest nation with a demographic dividend appearing to be a reality. This young work force is expected to drive the engine of growth. In Economics, investment is generally held to mean formation of capital. As such, from a pure economics point of view, the formation of physical assets is important when considering investment. However this study focuses on what is referred to as Financial Investment i.e. investment in shares and securities aimed primarily at earning income rather than enhancing production. By virtue of this the words savings and investment come closer in meaning than traditionally seen. However a slight difference still remains which is that while savings is simply setting aside funds for future, investment also involves mobilizing them so that somebody else may use it for productive purposes. This study examines the savings and investment pattern of select college going students (Age: 17-25 years) in the city of Mumbai who has just begun to earn. The study also looks into the basic financial literacy amongst the youth; how they go about educating themselves, and how do they look at risk, returns and various modes of investments and what determines the same. Primary data was collected using a survey method. The information generated during data collection was both qualitative and quantitative. The major objectives of the study were (1) To understand the youngsters’ income and saving pattern. (2) To know their long-term financial goals. (3) To find out risk appetite of youngsters. (4) To find out whether the young investors are looking for long term growth or risk or return or liquidity. The study finds that safety and security, which were always important reasons for investment, are still influential in determining the direction of investment. Respondents liked to keep multiple options while choosing their investment options. However, returns on investment were obviously the most considered factor followed by risk. Saving accounts in banks appears to be the most common way of saving and investing for the respondents. Mutual fund has gained the favor of young investors. Investment in mutual funds through the Systematic Investment Plan (SIP) is a favored investment option for the youngsters. This is especially true of the young salaried class, which has just started earning and does not have a fat bank balance as yet. Youngsters today do know about the options available to them due to the rapid spread of information in recent times; they are not always sure about how to go about investing in newer ways actively. An informed investor is a good investor; there is opportunity for providing them with guidance and information but it has to be done in a way that is in accordance with their lifestyle – seminars and workshops are no longer the kind of options to peruse. Podcasts, online videos, forums and tutorials are the way of learning of the young generation. The social media platforms specially Face Book, Twitter, LinkedIn along with e-groups and websites can be a medium to spread awareness about various options available for the young investors. Thus, investor education can play a vital role in improving the active participation of the investors in the market, which can help them in the informed investment and in getting good returns.
    Date: 2018–03–26
  6. By: Stéphane Dées (Banque de France and University of Bordeaux); Alessandro Galesi (Banco de España)
    Abstract: We assess the international spillovers of US monetary policy with a large-scale global VAR which models the world economy as a network of interdependent countries. An expansionary US monetary policy shock contributes to the emergence of a Global Financial Cycle, which boosts macroeconomic activity worldwide. We also find that economies with floating exchange rate regimes are not fully insulated from US monetary policy shocks and, even though they appear to be relatively less affected by the shocks, the differences in responses across exchange rate regimes are not statistically significant. The role of US monetary policy in driving these macrofinancial spillovers gets even reinforced by the complex network of interactions across countries, to the extent that network effects roughly double the direct impacts of US monetary policy surprises on international equity prices, capital flows, and global growth. This amplification increases as countries get more globally integrated over time, suggesting that the evolving network is an important driver for the increasing role of US monetary policy in shaping the Global Financial Cycle.
    Keywords: trilemma, Global Financial Cycle, monetary policy spillovers, network effects
    JEL: C32 E52 F40
    Date: 2019–12
  7. By: Shiyi Wang
    Abstract: Volatile international capital flows increase the risk of financial crises and reduce economic growth. The theoretical literature predicts that financial globalization will make capital flows more volatile. Importantly, the deepening of financial globalization has led to the emergence of the global financial cycle, which makes taming capital flows even more challenging. It is important to measure capital flow volatility and examine what factors affect it. In this paper, I estimate the time-varying capital flow volatility of 39 countries, including both advanced and emerging economies since 2000, and find that bank flows are the most volatile while foreign direct investment flows are the most stable. Panel regressions show that higher local financial development and more volatile and riskier global financial conditions increase capital flow volatility. I also find that there exists a threshold effect: financial volatility and risk in the global financial center are transmitted more strongly to countries that are more financially developed. The impulse responses of state-dependent local projections confirm the threshold effect and indicate that it is stronger for bank flows than for FDI and portfolio flows. These empirical findings provide insights into international capital flow management.
    JEL: E44 E52 F32 F36
    Date: 2019–12–02
  8. By: Simplice A. Asongu (Yaoundé/Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon)
    Abstract: The study assesses the role of globalization-fuelled regionalization policies on financial allocation efficiency in four economic and monetary regions in Africa for the period 1980 to 2008. Banking system and financial system efficiency proxies are used as dependent variables whereas seven bundled and unbundled globalization variables are employed as independent indicators. The bundling exercise is achieved by means of principal component analysis while the empirical evidence is based on interactive Fixed Effects regressions. The following findings are established. First, financial allocation efficiency is more sensitive to financial openness compared to trade openness and most sensitive to globalization. The relationship between allocation efficiency and globalization-fuelled regionalization policies is: (i) Kuznets or inverted U-shape in the UEMOA and CEMAC zones (evidence of decreasing returns to allocation efficiency from globalization-fuelled regionalization) and (ii) U-shape overwhelmingly in the COMESA and scantily in the EAC (increasing returns to allocation efficiency from globalization-fuelled regionalization). Established shapes are relevant to specific globalization dynamics within regions. Economic and monetary regions are more prone to surplus liquidity than purely economic regions. Policy implications and measures of fighting surplus liquidity are discussed.
    Keywords: Globalization; Financial Development; Regional Integration; Panel; Africa
    JEL: A10 D60 E40 O10 P50
    Date: 2019–01
  9. By: Thomas Mayer; Gunther Schnabl
    Abstract: In this paper we compare the Keynesian, neoclassical and Austrian explanations for low interest rates and sluggish growth. From a Keynesian and neoclassical perspective low interest rates are attributed to ageing societies, which save more for the future (global savings glut). Low growth is linked to slowing population growth and a declining marginal efficiency of investment as well as to declining fixed capital investment due to digitalization (secular stagnation). In contrast, from the perspective of Austrian business cycle theory, interest rates were step by step decreased by central banks to stimulate growth. This paralyzed investment and growth in the long term. We show that the ability of banks to extend credit ex nihilo and the need of time to produce capital invalidates the IS identity assumed in the Keynesian theory to hold permanently. Furthermore, we find no empirical evidence for the global savings glut and secular stagnation hypotheses. Instead, low growth can be explained by the emergence of quasi “soft budget constraints” as a result of low interest rates, which reduce the incentive for banks and enterprises to strive for efficiency.
    Keywords: Mises, Hayek, Keynes, Hansen, Summers, secular stagnation, aging societies, global savings glut, monetary policy, central banks, credit creation
    JEL: E12 E14 E32 E43
    Date: 2019

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