nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2020‒06‒22
eighteen papers chosen by
Georg Man

  1. Financial conditions and the risks to economic growth in the United States since 1875 By Patrick J. Coe; Shaun P. Vahey
  2. What Do Financial Conditions Tell Us about Risks to GDP Growth? By Patrick A. Adams; Tobias Adrian; Nina Boyarchenko; Domenico Giannone; J. Nellie Liang; Eric Qian
  3. Capital Flight from the Franc Zone: Exploring the Impact on Economic Growth By Ameth Saloum Ndiaye
  4. A Pedagogical Note on Risk Sharing Versus Instability in International Financial Integration: When Obstfeld Meets Stiglitz By Raouf Boucekkine; Benteng Zou
  5. Trade, Growth, and the International Transmission of Financial Shocks By Ohdoi, Ryoji
  6. Financial Development and Governance: A Panel Data Analysis Incorporating Cross-sectional Dependence By Khalid, Usman; Shafiullah, Muhammad
  7. Growth, Trade Openness and Environmental Degradation in Nigeria By Ajayi, Patricia; Ogunrinola, Adedeji
  8. The global effects of Covid-19-induced uncertainty By Caggiano, Giovanni; Castelnuovo, Efrem; Kima, Richard
  9. Short-run macroeconomic effects of bank lending rates in Nigeria,1987-91: A computable general equilibrium analysis By D. Olu Ajakaiye
  10. Financialization and Endogenous Technological Change: a Post-Kaleckian Perspective By Parui, Pintu
  11. The impact of renewable energy and technology innovation on Chinese carbon dioxide emissions By Janda Karel; Binyi Zhang
  12. Impacto de la inversión extranjera directa en el crecimiento económico, las exportaciones y el empleo de República Dominicana By Cruz Mejía, Jose Vidal; Cruz-Rodríguez, Alexis
  13. Analyse de la non-linéarité entre la dette publique extérieure et croissance économique dans les pays de la Communauté des Économique États de l’Afrique Centrale « CEEAC » By Ntita Ntita, Jean Christophe; Kazadi Ntita, Franck; Ntanga Ntita, Jean de Dieu
  14. Does Easing Financing Matter for Firm Performance? By Bose, Udichibarna; Mallick, Sushanta; Tsoukas, Serafeim
  15. Competition and perfermance in Uganda's Banking system By Mugume Adam
  16. The Effects of Access to Credit on Productivity Among Microenterprises: Separating Technological Changes from Changes in Technical Efficiency By Nusrat Abedin Jimi; Plamen Nikolov; Mohammad Abdul Malek; Subal Kumbhakar
  17. Locking Crops to Unlock Investment : Experimental Evidence on Warrantage in Burkina Faso By Delavallade,Clara Anne; Godlonton,Susan
  18. The Rise of Fintech: A Cross-Country Perspective By Aurore Oskar KOWALEWSKI; Paweł PISANY

  1. By: Patrick J. Coe; Shaun P. Vahey
    Abstract: We explore the historical relationship between financial conditions and real economic growth for quarterly U.S. data from 1875 to 2017 with a flexible empirical copula modelling methodology. We compare specifications with both linear and non-linear dependence, and with both Gaussian and non-Gaussian marginal distributions. Our results indicate strong statistical support for models that are both non-Gaussian and nonlinear for our historical data, with considerable heterogeneity across sub-samples. We demonstrate that ignoring the contribution of financial conditions typically understates the conditional downside risks to economic growth in crises. For example, accounting for financial conditions more than doubles the probability of negative growth in the year following the 1929 stock market crash.
    Keywords: Probabilities of economic events, Vulnerable growth, Growth at risk, Great Depression
    JEL: C14 C32 C53 E37 E44 N10 N20
    Date: 2020–04
  2. By: Patrick A. Adams; Tobias Adrian; Nina Boyarchenko; Domenico Giannone; J. Nellie Liang; Eric Qian
    Abstract: The economic fallout from the COVID-19 pandemic has been sharp. Real U.S. GDP growth in the first quarter of 2020 (advance estimate) was -4.8 percent at an annual rate, the worst since the global financial crisis in 2008. Most forecasters predict much weaker growth in the second quarter, ranging widely from an annual rate of -15 percent to -50 percent as the economy pauses to allow for social distancing. Although growth is expected to begin its rebound in the third quarter absent a second wave of the pandemic, the speed of the recovery is highly uncertain. In this post, we estimate the risks around the modal forecast of GDP growth as a function of financial conditions. Tighter financial conditions led to a widening in the left tail of the distribution of 2020 growth before weekly economic indicators showed any deterioration. The Federal Reserve and the U.S. Department of the Treasury took aggressive actions to reduce financial stresses and support credit flows—moves aimed at stemming long-lasting impacts from steep economic losses. While GDP growth will depend primarily on the speed with which many activities can be resumed safely, the improved financial conditions in April have reduced the likelihood that financial conditions and real growth will jointly deteriorate in the next few quarters.
    Keywords: growth-at-risk; financial conditions; multimodality; COVID-19
    JEL: G17 G32
    Date: 2020–05–21
  3. By: Ameth Saloum Ndiaye (Department of Economics & CREAUniversity of Dakar,Senegal)
  4. By: Raouf Boucekkine (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, IMéRA - Institute for Advanced Studies - Aix-Marseille University); Benteng Zou (CREA - Center for Research in Economic Analysis - - Université du Luxembourg)
    Abstract: The pure risk sharing mechanism implies that financial liberalization is growth enhancing for all countries as the world portfolio shifts from safe low-yield capital to riskier high-yield capital. This result is typically obtained under the assumption that the volatilities for risky assets prevailing under autarky are not altered after liberalization. We relax this assumption within a simple two-country model of intertemporal portfolio choices. By doing so, we put together the risk sharing effect and a well-defined instability effect. We identify the conditions under which liberalization may cause a drop in growth. These conditions combine the typical threshold conditions outlined in the literature, which concern the deep characteristics of the economies, and size conditions on the instability effect induced by liberalization.
    Keywords: Volatility,Emerging markets,Risk sharing,Economic growth,Financial liberalization
    Date: 2019–02
  5. By: Ohdoi, Ryoji
    Abstract: This study develops a two-country model to explore how financial shocks in one country affect its partner country's business cycles through international trade. Unlike existing studies, I introduce the mechanism of endogenous trade patterns, by which a shock can affect both the intensive and extensive margins of trade. I also embed the mechanism of endogenous growth into the model to indicate the potential for prolonged recessions, even for a transitory shock. I obtain the following four main findings. First, an adverse financial shock in one country induces a global recession, even in the absence of international financial transactions. Second, although the downward shift of real GDP in the partner country is not so large, it can be very prolonged. Third, the real value of exports in the partner drops more seriously than its real GDP. Finally, this drop is caused mainly by a change at the intensive margin rather than the extensive margin.
    Keywords: Eaton–Kortum model; Endogenous growth; Financial frictions; Financial shocks; International business cycles; Margins of trade
    JEL: E22 E32 E44 F11 F44 O4 O41
    Date: 2020–05
  6. By: Khalid, Usman; Shafiullah, Muhammad
    Abstract: This study investigates bidirectional causality between governance and financial development using panel data of 101 countries from 1984 to 2013. The financial development–governance nexus is explored using econometric methods robust to cross-sectional dependence, and the relationship between different levels of development and openness is analyzed. Long-run equation estimates show clear evidence that financial development positively affects governance, and this positive impact is found to be robust to three different measures of governance. Further analysis shows that improving governance quality has positive effects on financial development, while Granger causality tests demonstrate bidirectional causality between financial development and the governance measures. Last, the impact of financial development on governance is dependent on a country’s level of development and openness. These findings underscore the crucial role of financial development in bringing about good governance reforms and economic growth that, in turn, can further develop the financial sector. As such, a symbiotic and synergistic relationship can persist between good governance, growth, and financial development. The findings provide significant motivation for policymakers to encourage openness and financial sector development to lift the standard of living, especially in emerging economies.
    Keywords: financial development; governance; cross-sectional dependence; economic growth; bidirectional causality; globalization
    JEL: F6 G10 G38 O16 O43
    Date: 2020–05–04
  7. By: Ajayi, Patricia; Ogunrinola, Adedeji
    Abstract: This study provides empirical insight into the relationship between growth, trade openness, and environmental degradation in Nigeria. The autoregressive distributed lag bounds testing approach was applied on time series data from 1960-2017. Employing the Pollution Haven and Environmental Kuznets Curve hypotheses, empirical findings validate the EKC hypothesis in Nigeria in the long-run. All estimated parameters were found to have the expected signs in the short- and long-run, except population, with the expected sign only in the long-run. The analysis proves that trade openness and population aid environmental degradation in the short-run. It reveals that financial development counters environmental degradation in both the short- and long-run, and real income per capita has a positive and significant effect on environmental degradation in both the short- and long-run. The coefficient of the error correction term suggests that 62.5% of the divergence between actual and equilibrium CO2 emissions is corrected annually. Post-estimation tests employed proves the robustness of the result. The RESET test affirmed the specification of the model and the CUSUM and CUSUM of squares tests confirm the stability of the parameters. Consequently, Nigeria should foster policies that encourage the development and utilization of renewable energy to boost economic development.
    Keywords: Growth; trade openness; environmental degradation, pollution haven hypothesis, environmental Kuznets curve, sustainable development
    JEL: F1 F18 O4 O44
    Date: 2020–02
  8. By: Caggiano, Giovanni; Castelnuovo, Efrem; Kima, Richard
    Abstract: We estimate a three-variate VAR using proxies of global financial uncertainty, the global financial cycle, and world industrial production to simulate the effects of the jump in financial uncertainty observed in correspondence of the Covid-19 outbreak. We predict the cumulative loss in world output one year after the uncertainty shock due to Covid-19 to be about 14%.
    JEL: C32 E32
    Date: 2020–06–08
  9. By: D. Olu Ajakaiye (Nigerian Institute of Social and Economic Research)
  10. By: Parui, Pintu
    Abstract: In post-Keynesian literature, Hein (2012a) was the first to incorporate financialization as an influential positive determinant of the rate of technological change. However, financialization is more like a two-edged sword which can affect technological change negatively as well. We capture both the positive as well as the negative effect of financialization on technological change which encapsulates the possibility of multiple equilibria. In analyzing the long run of the model we endogenize the financialization parameter as well and get richer dynamics than Hein (2012a). We show that under certain circumstances, the higher speed of diffusion of technological innovation, more regulated financial markets, and higher intra-class competition among firms are desirable for stabilizing the economy. Finally, we provide some policy prescriptions for the same.
    Keywords: Capital accumulation, Distribution, Financialization, Kaleckian model, technological change, Andronov–Hopf bifurcation, Limit cycles
    JEL: C62 C69 D33 E12 G01 O16 O41
    Date: 2018–10–05
  11. By: Janda Karel; Binyi Zhang
    Abstract: Understanding the influencing factors of carbon dioxide emissions is an essential prerequisite for pol- icy makers to maintain sustainable low-carbon economic growth. Based on the Autoregressive Distributed Lag Model (ARDL) and Vector Error Correction Model (VECM), we investigate the relationships among economic growth, carbon emission, financial development, renewable energy consumption and technology innovation for China for the period 1965-2018. Our empirical results confirm the presence of a long run relationship among the underlying variables. Our long run estimates show that financial development has negatively significant impacts on carbon emissions, whereas renewable energy and technology innovation have limited impacts on carbon mitigations. In addition, the short run Granger causality analysis reveals that renewable energy consumption has a bidirectional Granger causality with carbon emissions and technology innovations. In the short run, we find that financial development can positively effect China’s carbon mitigation indirectly, via the channels of renewable energy sources and technology innovations. Our results have a number of public policy implications for Chinese policy makers to maintain sustainable low carbon economic development: (i) establish a green finance market to mobilize the social capital into green industry; (ii) continue the environmental law enforcement to control for carbon emissions among energy-intensive industries; (iii) provide government fiscal incentives to promote renewable energy sources on both supply and demand sides of the market.
    Keywords: Financial development, Carbon emissions, ARDL, China
    JEL: K32 O13 P28
    Date: 2020–01–01
  12. By: Cruz Mejía, Jose Vidal; Cruz-Rodríguez, Alexis
    Abstract: The aim of this article is to identify the impact of foreign direct investment (FDI) on the gross domestic product (GDP), exports and employment of the Dominican Republic, using panel data models, during 2010-2018. The controlled results show that the inflow of FDI is an important factor for the development of the Dominican economy, because it promotes growth, employment and exports. The participation in the factors of production was also found, both for capital income and for labor income.
    Keywords: Foreign Direct Investment, Exports, Employment, Panel Data.
    JEL: E22 E24 F43 O40
    Date: 2020–06–05
  13. By: Ntita Ntita, Jean Christophe; Kazadi Ntita, Franck; Ntanga Ntita, Jean de Dieu
    Abstract: This paper determines the effect of external public debt on the economic growth of the Economic Community of Central African States. To achieve this objective, we used the Hansen model (1999) over the period 1996-2017. The results of the econometric tests indicate a no linear relationship between the external public debt and the economic growth with an optimum threshold evaluated at 72.11 % of GDP. Indeed, the external public debt has a positive impact on the economic growth for any debt below this threshold. However, any debt beyond this threshold has a negative impact on the economic growth. Therefore, to sustain economic growth in the ECCAS, external public debt management should be conditionned by good governance.
    Keywords: Public external debt, economic growth, threshold effect, ECCAS.
    JEL: C23 H63 O11 O55
    Date: 2020–05–19
  14. 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
  15. By: Mugume Adam (Bank of Uganda)
  16. By: Nusrat Abedin Jimi; Plamen Nikolov; Mohammad Abdul Malek; Subal Kumbhakar
    Abstract: Improving productivity among farm microenterprises is important, especially in low-income countries where market imperfections are pervasive and resources are scarce. Relaxing credit constraints can increase the productivity of farmers. Using a field experiment involving microenterprises in Bangladesh, we estimate the impact of access to credit on the overall productivity of rice farmers, and disentangle the total effect into technological change (frontier shift) and technical efficiency changes. We find that relative to the baseline rice output per decimal, access to credit results in, on average, approximately a 14 percent increase in yield, holding all other inputs constant. After decomposing the total effect into the frontier shift and efficiency improvement, we find that, on average, around 11 percent of the increase in output comes from changes in technology, or frontier shift, while the remaining 3 percent is attributed to improvements in technical efficiency. The efficiency gain is higher for modern hybrid rice varieties, and almost zero for traditional rice varieties. Within the treatment group, the effect is greater among pure tenant and mixed-tenant farm households compared with farmers that only cultivate their own land.
    Date: 2020–06
  17. By: Delavallade,Clara Anne; Godlonton,Susan
    Abstract: Financial market imperfections remain pervasive in developing countries, constraining potentially profitable investment decisions, especially for rural smallholder farmers. Warrantage is an innovative model of rural finance with the potential to overcome credit, storage, and commitment constraints through a localized inventory credit scheme. Exploiting random variations in household access to warrantage and intensity of access across villages, this paper studies the direct impact of this scheme on beneficiaries as well as its spillover effects. Take-up of storage is high (94 percent), while credit take-up is moderate (38 percent). Households with access to warrantage primarily store sorghum and maize and sell their production over an extended period of time, earning higher average prices and resulting in higher sales revenue ($248, or 33 percent, on average). Increased incomes are spent on long-term investments, including human capital expenditures (education), livestock purchases, and investment in agricultural inputs for the subsequent year.
    Keywords: Crops and Crop Management Systems,Climate Change and Agriculture,Livestock and Animal Husbandry,Educational Sciences,Nutrition,Food Security
    Date: 2020–05–18
  18. By: Aurore Oskar KOWALEWSKI (IESEG School of Management & LEM-CNRS 9221); Paweł PISANY (Institute of Economics, Polish Academy of Sciences)
    Abstract: This study investigates the determinants of fintech company creation and activity using a cross-country sample that includes developed and developing countries. Using a random effect negative binomial model and explainable machine learning algorithms, we show the positive role of technology advancements in each economy, quality of research, and more importantly, the level of university-industry collaboration. Additionally, we find that demographic factors may play a role in fintech creation and activity. Some fintech companies may find the quality and stringency of regulation to be an obstacle. Our results also show the sophisticated interactions between the banking sector and fintech companies that we may describe as a mix of cooperation and competition.
    Keywords: fintech, innovation, start up, developed countries, developing countries
    JEL: G21 G23 L26 O30
    Date: 2020–07

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