nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2020‒04‒13
fourteen papers chosen by
Georg Man

  1. Financial Inclusion and Economic Growth: The Role of Governance in Selected MENA Countries By Emara, Noha; El Said, Ayah
  2. Financial Access and Productivity Dynamics in Sub-Saharan Africa By Simplice A. Asongu
  3. Financial Inclusion and Extreme Poverty in the MENA Region: A Gap Analysis Approach By Emara, Noha; Moheildin, Mahmoud
  4. The Role of ICT and Financial Development on CO2 Emissions and Economic Growth By Ibrahim D. Raheem; Aviral K. Tiwari; Daniel Balsalobre-lorente
  5. The Economics of Growth Fragility in Nigeria By Perekunah B. Eregha; Vincent Olusegun; Emeka Osuji
  6. Financial inclusion in Nigeria: determinants, challenges and achievements By Ozili, Peterson K
  7. Foreign Direct Investment, Domestic Investment and Green Growth in Nigeria: Any Spillovers? By Akintoye V. Adejumo; Simplice A. Asongu
  8. Linear and Nonlinear Growth Determinants: The Case of Mongolia and its Connection to China By Chu, Amanda M.Y.; Lv, Zhihui; Wagner, Niklas F.; Wong, Wing-Keung
  9. Long-term bank lending and the transfer of aggregate risk By Reiter, Michael; Zessner-Spitzenberg, Leopold
  10. Governance, Capital flight and Industrialisation in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  11. Provincial Trade, Financial Friction and Misallocation in China By Kwon, Ohyun; Fleisher, Belton; McGuire, William; Zhao, Min Qiang
  13. The Rise of Fintech Lending to Small Businesses: Businesses’ Perspectives on Borrowing By Brett Barkley; Mark E. Schweitzer
  14. Determinants of inter-regional financial inclusion heterogeneities in the Philippines By Burguillos, Je-Al; Cassimon, Danny

  1. By: Emara, Noha; El Said, Ayah
    Abstract: Financial inclusion, whether in terms of adoption or usage, is one of the main, but challenging priorities in the MENA region. The paper empirically investigates the relationship between financial inclusion and economic growth in selected MENA countries. A system GMM dynamic panel model technique is employed on yearly data for the period 1965-2016, using a number of measures of financial inclusion covering the households and the firms access to finance. Particularly, the study uses indicators such as the number of bank accounts (per 1000 adult population), bank accounts for corporates/enterprises, and the number of bank branches and ATMS (per 100,000 people), percentage of firms using banks to finance investments, the percentage of firms using bank loans to finance working capital, and the percentage of firms using banks to finance investments. The results of the study indicate that financial inclusion positively impacts GDP per capita growth in the selected countries. Financial inclusion measured by the household’s financial access index has a positive and statistically significant impact on economic growth in the MENA region, but requires supervisory and regulatory regimes with backing of the rule of law, judicial independence, contract enforcement, control of corruption, and political stability. The effect firms’ access to finance is only significant in the presence of strong institutions. The results were insignificant for the general financial inclusion measure.
    Keywords: Financial Inclusion; Governance; Economic Growth; MENA; Financial Development
    JEL: C23 G21 O43
    Date: 2019–10–17
  2. By: Simplice A. Asongu (Yaoundé/Cameroon)
    Abstract: The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  3. By: Emara, Noha; Moheildin, Mahmoud
    Abstract: Eradicating extreme poverty remains one of the most significant and challenging Sustainable Development Goals (SDGs) in the Middle East and North African (MENA) region. The latest World Bank statistics from 2018 show that extreme poverty in MENA increased from 2.6% to 5% between 2013 and 2015. MENA ranks third among developing regions for extreme poverty, and fell short of halving extreme poverty by 2015 – the target established by the United Nations’ Millennium Development Goals, the precursor to the SDGs. Using system General Method of Moments dynamic panel estimation methodology on annual data for 11 MENA countries and 23 emerging markets (EMs) over the period 1990 – 2017, this study begins by estimating the impact of financial inclusion – using measures of access and usage – on the eradication of extreme poverty by 2030, the first goal of the SDGs. The results of the study indicate that, on one hand, financial access measures have a positive, statistically significant impact on reducing extreme poverty for the full sample as well as the MENA region. On the other hand, financial usage measures are only statistically significant in reducing extreme poverty for the full sample, but not for the MENA region. The second part of the study employs a gap analysis against four poverty targets—0%, 1.5%, 3%, and 5%—and shows that no MENA country and few EM countries will be able to close the extreme poverty gap and reach the target of 0% by 2030 by depending solely on improvements in financial access. These targets are based on the two benchmarks set by the World Bank and the UN, with intermediaries to capture error and give a fuller picture of what is possible. However, if improvements in financial inclusion alone can bring every EM and MENA country except Djibouti and Romania to bring the most accessible target of reducing global extreme poverty to no more than 5% by 2030. Policy considerations can be directed towards developing and promoting the infrastructure needed for the widespread delivery and usage of financial services, especially for the MENA and EM countries lagging behind the extreme poverty target. Special attention should be paid to the support of digital financial inclusion for its ability to help individuals cope with shocks without reducing consumption. Delivery and usage of financial technology is predicted to magnify the impact of financial inclusion on poverty reduction both directly – as shown in this paper – and indirectly – through channels related to other SDGs. Additionally, governments in the MENA region must take data quality and availability more seriously if they expect to reverse the acceleration of extreme poverty in the digital age.
    Keywords: Financial Inclusion; Extreme Poverty; MENA Region SDGs; Gap Approach
    JEL: C23 G21 O43
    Date: 2020–03–15
  4. 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
  5. By: Perekunah B. Eregha (Pan-Atlantic University, Lekki-Lagos. Nigeria); Vincent Olusegun (Pan-Atlantic University, Lekki-Lagos. Nigeria); Emeka Osuji (Pan-Atlantic University, Lekki-Lagos. Nigeria)
    Abstract: The Nigerian economy has been structurally defective with average GDP growth rate of 2.0% trailing population growth rate at approximately 3%. A country where budgetary preparation is based on exogenous oil price for revenue and running on a rising debt profile with little or no infrastructure to show. Consequently, this study unravels the domestic and foreign risks to growth fragility in Nigeria using descriptive analysis and inference from theoretical perspectives. We then conclude by proposing that government makes rigorous efforts to reposition the economy if the current state of fragile growth, high unemployment and declining social welfare conditions are to be changed.
    Keywords: Growth Fragility, Domestic Risk Factors, Widening Fiscal Deficit, Descriptive Analysis.
    Date: 2019–01
  6. By: Ozili, Peterson K
    Abstract: This article analyse several indicators of financial inclusion in Nigeria. The findings reveal that people with at least a secondary education and unemployed people had higher levels of debit card ownership, higher levels of account ownership of any type, and higher levels of account ownership in a financial institution. Also, people with at least a secondary education had higher levels of borrowings from a bank or another type of financial institution, and had lower levels of savings at a financial institution. On the other hand, savings using a savings club or persons outside the family decreased among females, poor people and among people with a primary education or less. Furthermore, there were fewer credit card ownership by unemployed people while credit card ownership increased among employed people, the richest people and among people with at least a secondary education. Also, borrowings from family or friends decreased for most categories in 2014 and 2017. Finally, the econometric estimation shows that borrowings and savings outside financial institutions (using family, friends or saving clubs) significantly contributed to economic growth than borrowing and savings through financial institutions. The findings have implications.
    Keywords: financial inclusion, access to finance, financial exclusion, development, economic growth, poverty reduction, Nigeria, digital finance, cashless policy, financial education, financial literacy, Africa, robo advisor, regulatory sandbox
    JEL: G20 G21 G28 O31 O43 O55
    Date: 2020–03
  7. 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
  8. By: Chu, Amanda M.Y.; Lv, Zhihui; Wagner, Niklas F.; Wong, Wing-Keung
    Abstract: We investigate growth determinants for Mongolia as a small emerging economy considering China as its large neighbor. Our causality analysis during January 1992 to August 2017 reveals significant linear and nonlinear relationships in growth explanation. China’s GDP and coal prices, together with some of their linear and nonlinear lagged components, predict Mongolia’s GDP, where a one percent increase in China’s GDP relates to an increase in Mongolia of 1.5 percent. Current exchange rates and the nonlinear components of lagged levels of consumer prices also explain growth. Our results underline the role of macroeconomic drivers of growth in emerging economies.
    Keywords: gross domestic product (GDP); economic growth; energy prices; coal prices; consumer prices; foreign direct investment (FDI); exchange rates; cointegration; multivariate Granger causality; nonlinear Granger causality;
    JEL: C53 E52 F42
    Date: 2020–03–20
  9. By: Reiter, Michael (IHS, Vienna and NYU Abu Dhabi); Zessner-Spitzenberg, Leopold (Vienna Graduate School of Economics and IHS, Vienna)
    Abstract: Long-term debt contracts transfer aggregate risk from borrowing firms to lending banks. When aggregate shocks increase the future default probability of firms, banks are not compensated for the default risk of existing contracts. If banks are highly leveraged, this can lead to financial instability with severe repercussions in the real economy. To study this mechanism quantitatively, we build a macroeconomic model of financial intermediation with long-term defaultable loan contracts and calibrate it to match aggregate firm and bank exposure to business cycle risks. Our model exhibits banking crises that closely resemble observed crisis episodes. We find that such crises do not arise in an economy with short-term debt. Our results on the role of long-term debt completely reverse if financial regulation is implemented to increase banks' risk bearing capacity. The financial sector is then well equipped to take on the aggregate risk, such that long-term lending stabilizes the business cycle by providing insurance to the corporate sector.
    Keywords: Banking, Financial frictions, Maturity transformation
    JEL: E32 E43 E44 G01 G21
    Date: 2020–04
  10. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The study examines the role of governance in modulating the effect of capital flight on industrialisation in Africa. The empirical evidence is based on Generalised Method of Moments and governance is bundled by principal component analysis, namely: (i) political governance from political stability and “voice and accountability†; (ii) economic governance from government effectiveness and regulation quality; and (iii) institutional governance from corruption-control and the rule of law. First, governance increases industrialisation whereas capital flight has the opposite effect; and second, governance does not significantly mitigate the negative effect of capital flight on industrialisation. Policy implications are discussed.
    Keywords: Econometric modelling; Capital flight; Governance; Industrialisation; Africa
    JEL: C50 F34 G38 O14 O55
    Date: 2019–01
  11. By: Kwon, Ohyun (School of Economics); Fleisher, Belton (Department of Economics); McGuire, William (Department of Economics); Zhao, Min Qiang (The Wang Yanan Institute for Studies in Economics)
    Abstract: We study the implications of financial-market imperfections on labor and capital misallocation in China. Financial friction stems from private sectors’ credit constraints that limit the efficient use of capital relative to state firms. Our model can jointly explain labor flows out of and capital flows into Chinese provinces with high capital market distortion. To formally test our model hypotheses, we develop a measure of regional financial friction based on our model such that underlying financial friction can be inferred from differences-in-differences in the market shares of private and state sectors and their marginal rental rates of capital. Our regression results confirm that our measure of financial friction has robust power in explaining interprovincial capital and labor flows. Our structural analysis shows that improving financial frictions results in an aggregate 3.9% welfare gain in China that is rather heterogeneously distributed across provinces.
    Keywords: financial friction; regional capital flows; Chinese economy
    JEL: F21 F22 O15 P23 R13
    Date: 2020–03–30
  12. By: Kayode Bankole (University of Ibadan [Nigeria]); Israel Ukolobi; Onyuka Mcdubus
    Abstract: This Study was designed to explore the impact of money supply on savings and investment in developing countries. Nigeria was selected as the case study. Literature related to the subject matter was reviewed. Secondary data for the seventeen (17) years on money supply, savings and investment were obtained from Central Bank of Nigeria Statistical Bulletin. The models were appropriately specified and the data collected were analysed using Eviews7 Statistical package. We found a high correlation between money supply, and the independent variables. This study recommends that the government should make money available to enable individuals engage in economic activities. Also this study recommends that government should provide enabling environment for private investors to permit stress-free economic activities. Government should release enough money for training and development of youths to encourage them to engage in entrepreneurship ventures that can stimulate savings and investment.
    Date: 2020–03–26
  13. By: Brett Barkley; Mark E. Schweitzer
    Abstract: Online lending through fintech firms is a rapidly expanding segment of the financial market that is receiving much attention from investors and increasing scrutiny from regulators. Research is only beginning to assess how fintech firms’ entry is altering the choices and outcomes of small businesses that borrow from them. The Federal Reserve Small Business Credit Survey is a unique data source on the experiences of business owners with new and more traditional sources of credit. We find that the businesses using online lenders are not representative of small and medium-size enterprise in the US. Businesses borrowing online are younger, smaller, and less profitable. Through reaching borrowers less likely to be served by traditional lenders fintech lenders have substantially expanded the small business finance market. We apply treatment effects estimators to flexibly control for composition differences in the borrowers. After controlling for compositional differences between online and bank borrower, we find that loan application amounts are generally smaller with fintech lenders; businesses that receive fintech loans expect more revenue and employment growth than those receiving a bank loan; and businesses that borrow from banks are more satisfied than businesses that borrow online, which are still more satisfied than businesses who were denied credit. These results highlight issues that the financial industry and regulators should examine as fintech lending to small businesses continues to expand.
    Keywords: Small business lending; online alternative lenders; fintech; firm growth
    JEL: G21 G23 G28 C31
    Date: 2020–04–03
  14. By: Burguillos, Je-Al; Cassimon, Danny
    Abstract: This study explores the key factors that affected the deepening of financial inclusion across the 17 regions of the Philippines from 2013-2017. Using the regional multidimensional financial inclusion index (FII) developed by the BSP, the study finds out that significant heterogeneities exist among regions, and that they persist over time, suggesting most importantly that the least financially inclusive regions do not show significant progress. Moreover, using different panel estimation techniques, we try to determine the possible factors that affect this inter-regional financial inclusion heterogeneities. Overall, we show that regional GDP per capita, population, a proxy for the availability of physical infrastructure, and the degree of mobile penetration are among the robust factors explaining the financial inclusion variations across regions.
    Keywords: financial inclusion, financial development, inter-regional disparities, the Philippines
    JEL: I30 G18 O53 R11
    Date: 2020–04

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