nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2020‒08‒17
twenty-six papers chosen by
Georg Man

  1. On the causal nature between financial development and economic growth in the Democratic Republic of the Congo: Is it supply leading or demand following? By Christian Pinshi
  2. The Role of Institutional Infrastructures in Financial Inclusion-Growth Relations: Evidence from SSA By Kazeem B. Ajide; Ibrahim D. Raheem; Olorunfemi Y. Alimi; Simplice A. Asongu
  3. Financial Sector Development and Investment in Selected ECOWAS Countries: Empirical Evidence using Heterogeneous Panel Data Method By Chimere O. Iheonu; Simplice A. Asongu; Kingsley O. Odo; Patrick K. Ojiem
  4. The Openness Hypothesis in the Context of Economic Development in Sub-Saharan Africa: The Moderating Role of Trade Dynamics on FDI By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  5. Financial crisis, financial globalisation and financial development in Africa By Simplice A. Asongu; Joseph Nnanna
  6. Reinvigorating Growth in Belize By Dmitry Vasilyev
  7. Capital dynamics, global value chains, competitiveness and barriers to FDI and capital accumulation in the EU By Amat Adarov; Robert Stehrer
  8. Mobilization Effects of Multilateral Development Banks By Chiara Broccolini; Giulia Lotti; Alessandro Maffioli; Andrea F Presbitero; Rodolfo Stucchi
  9. Capital Market Financing and Firm Growth By Didier Brandao,Tatiana; Levine,Ross Eric; Llovet Montanes,Ruth; Schmukler,Sergio L.
  10. Understanding Dollarization: a Keynesian/Kaleckian Perspective By Marco Missaglia
  11. Asset Bubbles, Unemployment, and Financial Market Frictions By Ken-ichi Hashimoto; Ryonghun Im; Takuma Kunieda; Akihisa Shibata
  12. The Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology By Jon Frost; Leonardo Gambacorta; Romina Gambacorta
  13. Does Financial Development Contribute to Income Inequality in Latin America? By Mikek, Peter
  14. Borrowing to Keep Up (with the Joneses) : Inequality, Debt, and Conspicuous Consumption By Banuri,Sheheryar; Nguyen,Ha Minh
  15. Incorporating financial development indicators into early warning systems By Alexey Ponomarenko; Stas Tatarintsev
  16. Estrategias para fomentar la inversión de remesas familiares y la inclusión financiera Estudio de caso de la cadena de valor de turismo de Sacatepéquez en Guatemala By López, Jesús; Padilla, Ramón; Villarreal, Francisco G.
  17. Estrategias para fomentar la inversión de remesas familiares y la inclusión financiera: estudio de caso de la cadena de valor de tomate y chile verde en El Salvador By Padilla Pérez, Ramón; Santamaría, Jesús; Villarreal, Francisco G.
  18. Monetary Policy in an Endogenous Growth Model with R&D and Human Capital Accumulation By Tiago Miguel Guterres Neves Sequeira
  19. A North-South monetary model of endogenous growth with international trade By Óscar Afonso; Tiago Miguel Guterres Neves Sequeira
  20. Rational Sentiments and Economic Cycles By Maryam Farboodi; Péter Kondor
  21. Mobile Money and Investment by Women Businesses in Sub-Saharan Africa By Islam,Asif Mohammed; Muzi,Silvia
  22. Crop Yield Convergence across Districts in India's Poorest State By Sinha,Rishabh
  23. Foreign Currency Borrowing and Firm Financing Constraints in Emerging Markets: Evidence from India By Mohapatra, Sanket; Nagar, Jay Prakash
  24. Macroeconomic determinants of non-performing loans in Mongolia: the influence of currency mismatch and bank size By Chuluunbayar, Delgerjargal
  25. Financial intermediation and technology: What’s old, what’s new? By Boot, Arnoud; Hoffmann, Peter; Laeven, Luc; Ratnovski, Lev
  26. All about the state-Fifty years of innovative technology to deliver an inclusive financial sector By Rouse, Marybeth; Batiz-Lazo, Bernardo; Carbo Valverde, Santiago

  1. By: Christian Pinshi (UNIKIN - University of Kinshasa)
    Abstract: This paper seeks to study and answer the question on the nature and direction of the causality between financial development and economic growth in the Democratic Republic of the Congo (DRC) using data from 2004 to 2019. The long-term relationship not being robust, we opted for the short-term dynamics with the causality test in the sense of Granger to support this question. The results indicated the existence of a one-way causality from economic growth to financial development. This result is in line with the Demand following hypothesis, given the country's economic and financial landscape, which presents a less deep financial system. Consequently, choices of growth policies (increase in knowledge, infrastructure, pleasant business climate, structural reforms, etc.) should be adopted to enhance and develop the Congolese financial system. However, we recognize that once growth is restored and becomes sustainable, financial development could lead to sustained and resilient economic growth.
    Keywords: Economic growth,financial development
    Date: 2020–07–14
  2. By: Kazeem B. Ajide (University of Lagos, Nigeria); Ibrahim D. Raheem (EXCAS, Liège, Belgium); Olorunfemi Y. Alimi (University of Lagos, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This paper investigates the role of institutional infrastructures in the financial inclusion-growth nexus for a panel of twenty countries in sub-Sahara Africa (SSA).Employing the System Generalized Method of Moments (GMM), the following insightful outcomes are established. First, while there is an unrestricted positive impact of physical access to ATMs and ICT measures of financial inclusion on SSA’s growth but only the former was found significant. Second, the four institutional components via economic, political, institutional and general governances were also found to be growth-spurring. Lastly, countries with low levels of real per capita income are matching up with other countries with high levels of real income per capita. The empirical evidence of some negative net effects and insignificant marginal impacts are indication that imperfections in the financial markets are sometimes employed to the disadvantage of the poor. On the whole, we established positive effects on growth for the most part. The positive effects are evident because the governance indicators compliment financial inclusion in reducing pecuniary constraints hindering credit access and allocation to the poor that deteriorate growth.
    Keywords: Financial Inclusion; Economic Growth; Governance; System Generalized Method of Moments (GMM)
    JEL: G20 I10 O40 P37
    Date: 2020–01
  3. By: Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Kingsley O. Odo (University of Nigeria, Nsukka, Nigeria); Patrick K. Ojiem (University of Nigeria, Nsukka, Nigeria)
    Abstract: This study investigated the impact of financial sector development on domestic investment in selected Economic Community of West African States (ECOWAS) countries for the years 1985 to 2017. The study employed the Augmented Mean Group procedure which accounts for country specific heterogeneity and cross sectional dependence, and the Granger non-causality test robust to cross sectional dependence. The result reveals that (1) the impact of financial sector development on domestic investment depends on the measure of financial sector development utilised, (2) domestic credit to the private sector has a positive but insignificant impact on domestic investment in ECOWAS while banking intermediation efficiency (i.e. ability of the banks to transform deposits into credit) and broad money supply negatively and significant influence domestic investment, (3) cross country differences exist on the impact of financial sector development on domestic investment in the selected ECOWAS countries, and (4) domestic credit to the private sector Granger causes domestic investment in ECOWAS. The study recommends cautiousness in terms of the measure of financial development which is being utilised as a policy instrument to foster domestic investment as well as the importance of employing country-specific domestic investment policies in order to avoid blanket policy measures. Also, domestic credit to the private sector should be given priority when forecasting domestic investment into the future.
    Keywords: Financial Sector Development; Domestic Investment; Augmented Mean Group; Granger non-causality test; ECOWAS
    JEL: C5 E2 E5 G0
    Date: 2020–01
  4. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Paul N. Acha-Anyi (Walter Sisulu University, South Africa)
    Abstract: This study investigates the simultaneous openness hypothesis by assessing the importance of trade openness in modulating the effect of foreign direct investment (FDI) on economic dynamics of gross domestic product (GDP) growth, real GDP and GDP per capita. The focus of the study is on 25 countries in Sub-Saharan Africa over the period spanning from 1980 to 2014. First, trade imports modulate FDI to induce net positive effects on GDP growth and GDP per capita. Second, trade exports moderate FDI to generate overall positive impacts on GDP growth, real GDP and GDP per capita. Implications of the study are discussed, inter alia: (i) both FDI and trade infrastructures are necessary for FDI-focused measures to engender positive economic development outcomes in host communities and countries. (ii) Macroeconomic conditions that are relevant for promoting economic development are necessary for the interactions between trade openness and FDI to generate favorable outcomes in terms of GDP growth, real GDP and GDP per capita.
    Keywords: Economic Output; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  5. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: This study unites two streams of research by simultaneously focusing on the impact of financial globalisation on financial development and pre- and post-crisis dynamics of the investigated relationship. The empirical evidence is based on 53 African countries for the period 2004-2011 and Generalised Method of Moments. The following findings are established. First, whereas marginal effects from financial globalisation are positive on financial dynamics of activity and size, corresponding net effects (positive thresholds) are negative (within range). Second, while decreasing financial globalisation returns are apparent to financial dynamics of depth and efficiency, corresponding net effects (negative thresholds) are positive (not within range). Third, financial development dynamics are more weakly stationary and strongly convergent in the pre-crisis period. Fourth, the net effect from the: pre-crisis period is lower on money supply and banking system efficiency; post-crisis period is positive on financial system efficiency and pre-crisis period is positive on financial size.
    Keywords: Banking; Financial crisis; Financial development
    JEL: F02 F21 F30 F40 O10
    Date: 2020–01
  6. By: Dmitry Vasilyev
    Abstract: In the 1990s and early 2000s, Belize grew faster than its regional peers. By the mid-2000s, however, economic growth had slowed down to the regional average. A vicious circle of low growth and increasing public debt has been clouding Belize’s outlook. This paper applies a growth diagnostic approach based on the Hausmann-Rodrik-Velasco framework to investigate the main growth constraints and opportunities for higher growth in Belize. Improvements in access to finance and in the business climate could unlock Belize’s strengths.
    Keywords: Economic growth;Social indicators;Financial indicators;Demographic indicators;Total factor productivity;growth diagnostics,development policies,structural transformation.,growth constraint,world development indicator,TFP,IMF,Rodrik
    Date: 2019–02–04
  7. By: Amat Adarov (The Vienna Institute for International Economic Studies); Robert Stehrer (The Vienna Institute for International Economic Studies)
    Abstract: The study analyses the relationships between capital dynamics, productivity, global value chains and foreign direct investment using panel data techniques. Among other results, we confirm the high importance of tangible and intangible ICT capital for productivity and GVC integration. We examine the extent of underinvestment in ICT in the EU relative to other major economies and identify bottlenecks for efficient capital allocation. The sluggish economic performance of the EU in the post-crisis period has been further challenged by the COVID-19 outbreak. Consolidating policy efforts to facilitate ICT investment, tackling the barriers to ICT adoption and broad-based digitalisation are critical for the EU in order to maintain a competitive edge and unlock new growth opportunities in the new normal.
    Keywords: productivity, digitalisation, ICT capital, FDI, global value chains, barriers to ICT investments, intangible capital
    JEL: F14 F15 F21 E22 O47
    Date: 2020–06
  8. By: Chiara Broccolini; Giulia Lotti; Alessandro Maffioli; Andrea F Presbitero; Rodolfo Stucchi
    Abstract: We use loan-level data on syndicated lending to a large sample of developing countries between 1993 and 2017 to estimate the mobilization effects of multilateral development banks (MDBs), controlling for a large set of fixed effects. We find evidence of positive and significant direct and indirect mobilization effects of multilateral lending on the number of deals and on the total size of bank inflows. The number of lending banks and the average maturity of syndicated loans also increase after MDB lending. These effects are present not only on impact, but they last up to three years and are not offset by a decline in bond financing. There is no evidence of anticipation effects and the results are not driven by confounding factors, such as the presence of large global banks, Chinese lending and aid flows. Finally, the economic effects are sizable, suggesting that MBDs can play a vital role to mobilize private sector financing to achieve the goals of the 2030 Development Agenda.
    Keywords: Official development assistance;International bond markets;Sovereign credit ratings;International financial markets;Poverty reduction and development;Multilateral Development Banks,Private Capital Flows,Mobilization Effects,Catalytic Finance,Syndicated loans,syndicated loan,MDB,outcome variable,mobilization,bond issuance
    Date: 2019–02–15
  9. By: Didier Brandao,Tatiana; Levine,Ross Eric; Llovet Montanes,Ruth; Schmukler,Sergio L.
    Abstract: This paper studies whether there is a connection between finance and growth at the firm level. It employs a new dataset of 150,165 equity and bond issuances around the world, matched with income and balance sheet data for 62,653 listed firms in 65 countries over 1990-2016. Three main patterns emerge from the analyses. First, firms that choose to issue in capital markets use the funds raised to grow by enhancing their productive capabilities, increasing their tangible and intangible capital and the number of employees. Growth accelerates as firms raise funds. Second, the faster growth is more pronounced among firms that are more likely to face tighter financing constraints, namely, small, young, and high-R&D firms. Third, capital market issuances are associated with faster growth among firms located in countries with more developed capital markets relative to banks. Capital markets are also comparatively effective at allowing financially constrained firms to raise capital.
    Keywords: Financial Sector Policy,Capital Markets and Capital Flows,Capital Flows,Financial Economics,Finance and Development,Mining&Extractive Industry (Non-Energy)
    Date: 2020–07–27
  10. By: Marco Missaglia (University of Pavia (IT))
    Abstract: What does “dollarization” mean in a world of endogenous money, i.e. a world where money is not (only) created by printing pieces of paper, but (mainly) by making loans? Is it true that dollarization only constitutes a limitation of sovereignty in the short run (making it harder to run standard stabilization macro policies) or can it slow the growth process of a country? The paper builds a theoretical, Keynesian-Kaleckian growth model for a dollarized economy in a framework of endogenous money to answer these questions. We will show that, ceteris paribus, the steady-state medium-term growth rate of a dollarized economy is lower than that of a country with its own currency. We will also show that a dollarized economy is more likely to be unstable than an economy with its own currency, in the specific sense that, everything else being equal, it is more likely for a dollarized economy to fall into a debt trap.
    Keywords: Dollarization, Keynesian Macro Models
    JEL: E12 F41
    Date: 2020–07
  11. By: Ken-ichi Hashimoto (Graduate School of Economics, Kobe University); Ryonghun Im (Institute of Economic Research, Kyoto University); Takuma Kunieda (School of Economics, Kwansei Gakuin University); Akihisa Shibata (Institute of Economic Research, Kyoto University)
    Abstract: A tractable model with infinitely lived agents is constructed for the exam- ination of bubbles and unemployment. It is demonstrated that the presence of bubbles stimulates capital accumulation and reduces unemployment. The presence of bubbles also changes the e ects of government policies that target unemployment and welfare conditions in the labor market. The main findings are as follows: (i) the presence of bubbles is more beneficial to an economy with severe credit constraints; (ii) the presence of bubbles mitigates the negative effects of taxation and unemployment benefits on unemployment and welfare; and (iii) these mitigation effects decrease as credit constraints are relaxed.
    Keywords: Asset bubbles, Unemployment, Labor-market matching frictions, Financial frictions.
    JEL: J64 O41 O42
    Date: 2020–07
  12. By: Jon Frost (Bank for International Settlements and Cambridge Centre for Alternative Finance); Leonardo Gambacorta (Bank for International Settlements and CEPR); Romina Gambacorta (Bank of Italy)
    Abstract: This paper analyses the role of financial development and financial technology in inequality in (returns to) wealth. Using micro data from the Survey on Household Income and Wealth (SHIW) conducted by the Bank of Italy over the period 1991-2016, we find that financial development (number of bank branches) and financial technology (use of remote banking) both have a positive association with households’ financial wealth and financial returns. By applying an instrumental variable approach to control for endogeneity, we find that the two variables are, by and large, substitutes. The economic significance of both decreased in the last part of the sample period, as remote banking became more widespread. Finally, other things equal, the effects of financial development and financial technology increase when moving toward the top of the wealth distribution. This is in line with the so-called “Matthew effect” (Merton, 1968), or the capacity of wealthy households to achieve higher returns than other households.
    Keywords: inequality, financial development, banks, financial technology, fintech
    JEL: G10 G21 O15 D63
    Date: 2020–06
  13. By: Mikek, Peter
    Abstract: Latin America has experienced a trend of substantial reduction in inequality over last few decades. We investigate the effects of rapid development of financial sector on inequality in the region. In particular, we estimate a panel with country fixed effects based on a newly compiled dataset. We found that financial deepening has exacerbated income inequality on the continent. The results suggest that there is no Kuznetz curve in Latin America. Along with education and GDP level the inflation rate is associated with reduction in income gap. While exports are neutral, tax revenues and FDI aggravate inequality.
    Keywords: Income inequality, Financial deepening, Poverty, Income distribution, Financial development, Latin America
    JEL: G00 I39 O16
    Date: 2019–07
  14. By: Banuri,Sheheryar; Nguyen,Ha Minh
    Abstract: The quest for status is a powerful motivator, but does it affect inequality? This paper presents a novel lab experiment that was designed and conducted to identify the relationship between inequality, status signaling, debt, and conspicuous consumption. It reports three main findings: First, consumption increases when it is"conspicuous"(i.e. is both observable, and signals ability/status). Second, borrowing increases when consumption is conspicuous. More critically, this increase in loan-taking is driven by those at the bottom of the income distribution. Third, in the presence of conspicuous consumption, access to finance exacerbates inequality. The results point to a vicious cycle of inequality and costly borrowing.
    Keywords: Access to Finance,Gender and Development,Economic Growth,Industrial Economics,Economic Theory&Research,Inequality,Public Sector Management and Reform
    Date: 2020–08–10
  15. By: Alexey Ponomarenko (Bank of Russia, Russian Federation); Stas Tatarintsev (Bank of Russia, Russian Federation)
    Abstract: We set up an early warning system for financial crises based on the Random Forrest approach. We use a novel set of predictors that comprises financial development indicators (e.g. levels of credit to GDP ratio) in addition to conventional imbalances measures (e.g. credit gaps). The evaluation of the model is conducted using a three-step procedure (i.e. training, validation and testing sub-samples). The results indicate that combining financial imbalances and financial development indicators helps to improve the out-of-sample accuracy of the early warning system
    Keywords: Early warning indicators, financial crisis, financial development, credit gap, random forest
    JEL: C40 C52 G01 E44
    Date: 2020–07
  16. By: López, Jesús; Padilla, Ramón; Villarreal, Francisco G.
    Abstract: En algunos países de ingreso medio y bajo, los flujos de las remesas superan con amplitud a los que corresponden, por ejemplo, a la inversión extranjera y la asistencia oficial para el desarrollo. Guatemala es uno de los países en que las remesas tienen un peso importante en relación con el producto interno bruto (PIB) (9.287,8 millones de dólares en 2018, lo que equivalió al 12,1% del PIB). El objetivo de este documento es presentar un diagnóstico y ofrecer un conjunto de estrategias para fomentar una creciente inversión de las remesas familiares en Guatemala a través de una mayor inclusión financiera, a partir del estudio de caso de la cadena de valor de turismo en La Antigua y otros municipios de Sacatepéquez. Sobre la base del análisis del estado actual de los flujos de remesas y su uso, así como del examen de las principales limitaciones que enfrenta la cadena de valor, se identifican oportunidades para aprovechar las remesas familiares en el financiamiento de proyectos productivos mediante un mayor acceso y uso de productos y servicios financieros formales.
    Date: 2020–07–24
  17. By: Padilla Pérez, Ramón; Santamaría, Jesús; Villarreal, Francisco G.
    Abstract: En este documento se presentan un conjunto de estrategias para fomentar una creciente inversión de las remesas familiares, a través de una mayor inclusión financiera, a partir del estudio de caso de la cadena de valor de tomate y chile verde en El Salvador. Sobre la base del análisis del estado actual de los flujos de remesas y su uso, así como del examen de las principales limitaciones que enfrenta la cadena de valor, se identifican oportunidades para aprovechar las remesas familiares en el financiamiento de proyectos productivos mediante un mayor acceso y uso de productos y servicios financieros formales. Este documento forma parte de la iniciativa conjunta entre el Fondo Internacional de Desarrollo Agrícola (FIDA) y la Comisión Económica para América Latina y el Caribe (CEPAL), con el apoyo financiero de la Unión Europea, que busca contribuir al diseño de estrategias y políticas que permitan diversificar el rango de actividades económicas accesibles a los habitantes rurales que se encuentran en condiciones de pobreza, mediante la promoción del empleo y el emprendimiento.
    Date: 2020–07–28
  18. By: Tiago Miguel Guterres Neves Sequeira (University of Coimbra, Centre for Business and Economics Research, CeBER andFaculty of Economics)
    Abstract: Despite some recent evidence according to which different inflation rates have effects on long run growth, endogenous growth theory had advanced little on explaining the mechanics of monetary influence on economic growth. We follow the increasing interest in the issue offering a new explanation for the influence of monetary policy on growth in both long and short run: the cash requirements for households expenditures in education. Quantitatively, the model replicates both the small influence of monetary policy on growth while also highlighting the effects it can have on welfare and allocations of resources throughout different sectors in the economy.
    Keywords: endogenous economic growth, inflation, interest rate, monetary policy, cash-in-advance (CIA).
    JEL: O30 O40 E13 E17 E61
    Date: 2020–07
  19. By: Óscar Afonso (CEF-UP, CEFAGE-UBI and Faculty of Economics of University of Porto); Tiago Miguel Guterres Neves Sequeira (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics)
    Abstract: We devise a North-South endogenous growth model with international trade and money to study the effects of inflation (and monetary policy) on wage inequality, specialization, and growth. The relationship between monetary policy and wage inequality depends on the fact that skilled-production firms are less credit constrained than unskilled-production firms. Interestingly, inflation affects the structure of production by increasing the production share made by skilled-intensive firms, and decreases economic growth. Furthermore, inflation decreases the difference of wage inequality between countries; shrinking the skill premia difference. Moreover, inflation and trade have opposite effects on wage inequality and on specialization: while trade tends to decrease intra-South wage inequality, inflation tends to increase it; while trade tends to increase the number of different intermediate goods produced with unskilled technology in the South; inflation acts the other way around. Results are confirmed quantitatively.
    Keywords: Inflation; Wage inequality; North-South trade; CIA constraints; Technological knowledge bias.
    JEL: F16 F43 O31 O33 O40 E41
    Date: 2020–06
  20. By: Maryam Farboodi; Péter Kondor
    Abstract: We propose a rational model of endogenous cycles generated by the two-way interaction between credit market sentiments and real outcomes. Sentiments are high when most lenders optimally choose lax lending standards. This leads to low interest rates and high output growth, but also to the deterioration of future credit application quality. When the quality is sufficiently low, lenders endogenously switch to tight standards, i.e. sentiments become low. This implies high credit spreads and low output, but a gradual improvement in the quality of applications, which eventually triggers a shift back to lax lending standards and the cycle continues. The equilibrium cycle might feature a long boom, a lengthy recovery, or a double-dip recession. It is generically different from the optimal cycle as atomistic lenders ignore their effect on the composition of the pool of borrowers. Carefully chosen macro-prudential or countercyclical monetary policy often improves the decentralized equilibrium cycle.
    JEL: D82 E32 E44 G01 G10
    Date: 2020–07
  21. By: Islam,Asif Mohammed; Muzi,Silvia
    Abstract: This study connects two important findings in Sub-Saharan Africa. First, digital technologies such as mobile money have become widespread and have increased investment by businesses, especially in East Africa. Second, women-owned business in the region significantly lag their male counterparts in capital investments. Using data for 16 Sub-Saharan African economies, the study connects the two findings by exploring whether mobile money use by women-owned firms increases their investment. The findings indicate that the positive relationship between mobile money use and investment is largely driven by women-owned firms and is statistically insignificant for men-owned firms. Potential channels of these effects are explored. Women-owned firms that use mobile money to transact with suppliers are more likely to invest. Mobile money also seems to facilitate greater provision of customer credit and generally greater demand for more credit by women-owned firms. Such patterns are not observed for men-owned firms.
    Keywords: Financial Sector Policy,Gender and Development,Access to Finance,International Trade and Trade Rules
    Date: 2020–07–27
  22. By: Sinha,Rishabh
    Abstract: Bihar, India's poorest state, witnessed impressive yield growth in each of its three principal crops over 2005-17. This paper examines whether a convergence in district yields accompanied the improvement in yields at the state level, thereby reducing regional inequalities in land productivity. The convergence test allows the idiosyncratic element of productivity to be time-varying, thus allowing yields to diverge in some interim phases. Rice yields across districts appear to be converging to a common level, while maize yields have diverged over the same period. However, the sub-period analysis shows a trend of divergence for both crops going forward. In contrast, wheat yields seem to be converging to a common level recently, although the convergence for the entire period is weak. The analysis also identifies district clubs, which are converging to similar steady states. The club classification transcends agro-climatic boundaries, indicating a need for policy action to aid yield growth in lagging districts. Finally, there is no evidence that the divergence in yields was driven by a divergence in credit allocation, highlighting the limitations of a macro credit-driven policy. Credit supply might not be enough when there are structural snags in the availability of direct agricultural inputs.
    Keywords: Climate Change and Agriculture,Crops and Crop Management Systems,Agricultural Economics,Food Security,Fertilizers,Financial Sector Policy
    Date: 2020–07–27
  23. By: Mohapatra, Sanket; Nagar, Jay Prakash
    Abstract: This study examines the relationship between foreign currency borrowing and financing constraints for Indian firms. Using panel data for 2,512 non-financial listed firms in India during 1996-2016, this study finds that the sensitivity of investment to internal cash flows, an indicator of financing constraints, is higher for firms with foreign currency debt exposure compared to other firms. Financing constraints are higher prior to new foreign currency borrowing compared to a matched sample of firms with only domestic borrowing, but decrease after foreign borrowing, suggesting that foreign debt reduces firms’ financing constraints. Moreover, firms that have relationships with either private or foreign banks have higher financing constraints when undertaking new foreign borrowing compared to those enjoying exclusive relationships with only government-owned banks. The financing constraints for foreign currency borrowers are also found to be higher during domestic credit booms compared to other periods. Non-manufacturing firms and those with lower than median export revenues and higher than median tangible assets experience greater financing constraints compared to other firms when they borrow in foreign currencies. These findings provide new evidence on the role of foreign currency borrowing in mitigating financing constraints in emerging market economies.
    Date: 2020–08–01
  24. By: Chuluunbayar, Delgerjargal
    Abstract: Non-performing loans (NPLs) is leading indicator of financial system health. Understanding the determinants of credit quality is essential to conducting stress test and macro prudential policy. The macroeconomic determinants of NPLs have been found to differ between countries and are potentially sensitive to model specification, particularly a mismatch between the loan currency (foreign/domestic) and sector orientation (tradeable/non-tradeable). This paper examines the macro-determinants of NPLs in Mongolia using monthly panel data for 14 banks between December 2003 and December 2019. Using a system GMM approach for the overall sample and subsamples isolating systemically important banks, I find foreign currency loan quality to be more sensitive to macroeconomic variables and big banks more exposed to the currency mismatch problem.
    Keywords: Non-performing loans, Mongolian banking system, currency mismatch, system GMM approach
    JEL: C23 G21
    Date: 2020–06–20
  25. By: Boot, Arnoud; Hoffmann, Peter; Laeven, Luc; Ratnovski, Lev
    Abstract: We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications. JEL Classification: G20, G21, E58, O33
    Keywords: communication, financial innovation, financial intermediation, fintech, information
    Date: 2020–07
  26. By: Rouse, Marybeth; Batiz-Lazo, Bernardo; Carbo Valverde, Santiago
    Abstract: This paper documents the long-term nature of technological innovations which have transformed retail finance and addressed financial exclusion. The paper also contributes to the body of literature on the state as an entrepreneur. The roots of financial inclusion are traced back to the 1960s with a discussion of the role played by the state, in contrast to that of the private sector and disruptive innovation. The case of the world-recognised mobile payment service M-Pesa, which has been credited with transforming access to financial services in Africa, is then examined. The empirical results suggest that the state was actively involved in the development and deployment of applications of information and communication technologies which led to M-Pesa. This study provides support for policies that promote mobile banking technology as a means of enhancing financial inclusion. The study also confirms that public-private partnerships, together with an enabling regulatory environment, facilitate technological innovation.
    Keywords: Disruptive technology; financial inclusion; innovation; state as an entrepreneur; Kenya
    JEL: G20 H70 O31
    Date: 2020–07–20

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