nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2020‒08‒24
twenty-six papers chosen by
Georg Man

  1. On the Simultaneous Openness Hypothesis: FDI, Trade and TFP Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  2. Toward the path of Economic Expansion in Nigeria: The Role of Trade Globalization By Udi Joshua; Oladimeji M. Salami; Andrew A. Alola
  3. Decomposing Scale and Technique Effects of Economic Growth on Energy Consumption: Fresh Evidence in Developing Economies By Shahbaz, Muhammad; Sinha, Avik; Kontoleon, Andreas
  4. Capital Market Financing and Firm Growth By Tatiana Didier; Ross Levine; Ruth Llovet Montanes; Sergio L. Schmukler
  5. Climate Finance Intermediation: Interest Spread Effects in a Climate Policy Model By Kai Lessmann; Matthias Kalkuhl
  6. The finance-inequality nexus in the BRICS countries: evidence from an ARDL bound testing approach By Boukraine, Wissem
  7. Insurance and Inequality in Sub-Saharan Africa: Policy Thresholds By Simplice A. Asongu; Nicholas M. Odhiambo
  8. Finance, inequality and inclusive education in Sub-Saharan Africa By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  9. Disaggregated financial flows and economic development: Evidence from pre-1913 Germany By Dragosch, André
  10. Banking integration and (under)development: A quantitative reassessment of the Italian financial divide (1814-74) By Chiaruttini, Maria Stella
  11. Relationship between Macroeconomic Indicators and Capital Markets Performance in Selected Southeastern European Countries By Dodig,Ante
  12. Financial crisis, financial globalisation and financial development in Africa By Simplice A. Asongu; Joseph Nnanna
  13. Financial market development in host and source countries and their effects on bilateral foreign direct investment By Donaubauer, Julian; Neumayer, Eric; Nunnenkamp, Peter
  14. Chinese Financial Conditions and their Spillovers to the Global Economy and Markets By Fu, Rong; Lawson, Jeremy; Martinez, Carolina; Watt, Abigail
  15. The Information Content of Capital Controls By Nie,Owen
  16. Technological Diffusion through Foreign Direct Investment: A Firm-level Analysis of Indian Manufacturing Industries By Azusa Fujimori; Manabu Furuta; Takahiro Sato
  17. The Impact of Restrictive Measures on Bilateral FDI in OECD Countries By Zongo, Amara
  18. Trade shocks and credit reallocation By Stefano Federico; Fadi Hassan; Veronica Rappoport
  19. Sending Money Home: Transaction Cost and Remittances to Developing Countries By Junaid Ahmed; Junaid Ahmed; Mazhar Mughal; Inmaculada Martinez-Zarzoso
  20. Financial inclusion and business cycles By Ozili, Peterson K
  21. Access-for-all to Financial Services: Non- resources Tax Revenue-harnessing Opportunities in Developing Countries By Ali Compaore
  22. May microcredit lead to inclusion? By Djaffar Lessy; Nahla Dhib; Francine Diener; Marc Diener
  23. Nicaragua; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua By International Monetary Fund
  24. Guinea; Financial Sector Stability Review By International Monetary Fund
  25. Malaysia; Selected Issues By International Monetary Fund
  26. A COMPOSITE INDEX OF ECONOMIC INTEGRATION IN THE WEST AFRICAN MONETARY ZONE (WAMZ) By Ngozi E. Egbuna; Ismaila Jarju; Sani Bawa; Ibrahima Diallo; Isatou Mendy; Ozolina Haffner; Kormay Adams

  1. 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 assesses the simultaneous openness hypothesis that trade modulates foreign direct investment (FDI) to induce positive net effects on total factor productivity (TFP) dynamics. Twenty-five countries in Sub-Saharan Africa and data for the period 1980 to 2014 are used. The empirical evidence is based on the Generalised Method of Moments. First, trade imports modulate FDI to overwhelmingly induce positive net effects on TFP, real TFP growth, welfare TFP and real welfare TFP. Second, with exceptions on TFP and welfare TFP where net effects are both positive and negative, trade exports modulate FDI to overwhelmingly induce positive net effects on real TFP growth and welfare real TFP. In summary, the tested hypothesis is valid for the most part. Policy implications are discussed.
    Keywords: Productivity; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  2. By: Udi Joshua (Lokoja, Kogi state, Nigeria); Oladimeji M. Salami (Lokoja, Kogi state, Nigeria); Andrew A. Alola (Istanbul Gelisim University, Istanbul, Turkey)
    Abstract: There are debates regarding the effect of globalization on national economies, and whether or not trade openness has a significant positive or negative influence on economic expansion and development. Thus, this study is aimed at investigating the relationship between trade globalization and Nigeria’s economic advancement. The autoregressive distributed lags (ARDL) model was employed for the time series data: real GDP, openness, foreign direct investment and population growth over the period 1981-2017. The findings of this estimation revealed that population growth is significant but inhibitor of economic prosperity (real GDP) in the short-term. However, the significant and long-run determinants of the real GDP are population growth and trade openness but not foreign direct investment. Furthermore, the Granger Causality test revealed that real GDP granger causes population growth. The study therefore concluded that trade openness and globalization are necessary for Nigeria’s economic expansion and development. Consequently, the study opined that the land border closure policy recently implemented by the Nigerian government might necessitate a significant reassessment so that the economic development projections of the country are not hindered.
    Keywords: Economic Expansion; Trade Globalization; Nigeria
    Date: 2020–01
  3. By: Shahbaz, Muhammad; Sinha, Avik; Kontoleon, Andreas
    Abstract: This study contributes by investigating the association between scale, technique and composition effects on energy consumption by considering financial development, oil prices and globalization as potential determinants of economic growth and energy demand. We have applied recent cointegration considering cross-sectional dependence and structural breaks introduced by Westerlund and Edgerton (2008). Furthermore, FMOLS, DOLS and Cup-FMOLS are applied to examine impact of scale effect, technique effect, composition effect, financial development, oil prices and economic globalization on energy consumption. The empirical results show that variables are cointegrated for long run relationship. Scale effect and technique effect are negatively and positively linked with energy consumption. Composition effect and economic globalization stimulate energy demand. Contrarily, financial development and oil prices decline energy consumption. This empirical analysis helps policy makers of developing economies in designing their comprehensive environmental policy for sustainable economic development in long-run.
    Keywords: Scale and Technique Effects, Globalization, Energy Consumption
    JEL: Q4
    Date: 2020–07–01
  4. By: Tatiana Didier (World Bank); Ross Levine (University of California at Berkeley, NBER); Ruth Llovet Montanes (World Bank); Sergio L. Schmukler (World Bank)
    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: bond markets, capital market development, capital raising, equity markets, financial structure, firm dynamics, firm financing, firm size
    JEL: F65 G10 G31 G32 L25 O10 O16 O40
    Date: 2020–08
  5. By: Kai Lessmann; Matthias Kalkuhl
    Abstract: Interest rates are central determinants of saving and investment decisions. Costly financial intermediation distort these price signals by creating a spread between the interest rates on deposits and loans with substantial effects on the supply of funds and the demand for credit. This study investigates how interest rate spreads affect climate policy in its ambition to shift capital from polluting to low-carbon sectors of the economy. To this end, we introduce financial intermediation costs in a dynamic general equilibrium climate policy model. We find that costly financial intermediation affects carbon emissions in various ways through a number of different channels. For low to moderate interest rate spreads, carbon emissions increase by up to 7 percent, in particular, because of lower investments into the capital intensive clean energy sector. For very high interest rate spreads, emissions fall because lower economic growth reduces carbon emissions. If a certain temperature target should be met, carbon prices have to be adjusted upwards by up to one third under the presence of capital market frictions.
    Keywords: financial friction, banking, greenhouse gas mitigation
    JEL: E43 G21 Q54 Q58
    Date: 2020
  6. By: Boukraine, Wissem
    Abstract: Increasing inequality keeps any economy stuck in the middle-income group despite its strong growth. The largest of the middle-income economies are the BRICS countries (Brazil, Russia, India, China and South Africa). In this paper we intend to investigate the long run relation between financial development and income inequality and the shape of the curve that describes it for the BRICS countries. We will tests the Greenwood and Jovanovich (1990) hypothesis by estimating an Autoregressive Distributed Lag (ARDL) for the period 1980-2017. We found evidence for an inverted U-shaped curve relation in Brazil, Russia, India and China; which validate the GJ hypothesis.
    Keywords: Financial development, Income inequality, ARDL, BRICS
    JEL: C13 G20 I30
    Date: 2020
  7. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: In this study, we examine how insurance affects income inequality in sub-Saharan Africa, using data from 42 countries during the period 2004-2014. Three inequality variables are used, namely: the Gini coefficient, the Atkinson index and the Palma ratio. Two insurance premiums are employed, namely: life insurance and non-life insurance. The empirical evidence is based on the Generalized Method of Moments (GMM). Life insurance increases the Gini coefficient and increasing life insurance has a net positive effect on the Gini coefficient and the Atkinson index. Non-life insurance reduces the Gini coefficient and increasing non-life insurance has a net positive effect on the Palma ratio. The analysis is extended to establish policy thresholds at which increasing insurance premiums completely dampen the net positive effects. From the extended analysis, 7.500 of life insurance premiums (% of GDP) is the critical mass required for life insurance to negatively affect inequality, while 0.855 of non-life insurance premiums (% of GDP) is the threshold required for non-life insurance to negatively affect inequality. Policy thresholds are provided at which insurance penetration decreases income inequality in sub-Saharan Africa.
    Keywords: Insurance; Inclusive development; Africa; Sustainable Development
    JEL: I28 I30 I32 O40 O55
    Date: 2020–01
  8. 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 research complements the extant literature by establishing inequality critical masses that should not be exceeded in order for financial access to promote gender parity inclusive education in Sub-Saharan Africa. The focus is on 42 countries in the sub-region and the data is for the period 2004-2014. The estimation approach is the Generalized Method of Moments. When remittances are involved in the conditioning information set, the Palma ratio should not exceed 6.000 in order for financial access to promote gender parity inclusive “primary and secondary education†and the Atkinson index should not exceed 0.695 in order for financial access to promote inclusive tertiary education. However, when the internet is involved in the conditioning information set, it is established that in order for financial access to promote inclusive primary and secondary education, the: (i) Gini coefficient should not exceed 0.571; (ii) Atkinson index should not be above 0.750 and (iii) Palma ratio should be maintained below 8.000. Irrespective of variable in the conditioning information set, what is apparent is that inequality decreases the incidence of financial access on inclusive education. Hence, a common policy measure is to reduce inequality in order to promote inclusive education using the financial access mechanism. Policy implications are discussed in the light of Sustainable Development Goals.
    Keywords: Africa; Finance; Gender; Inclusive development
    JEL: G20 I10 I32 O40 O55
    Date: 2020–01
  9. By: Dragosch, André
    Abstract: In this paper we analyse income formation patterns throughout the German industrialisation process (1860-1913) through the analysis of different financial flows. Similar to Neuburger & Stokes (1974), we make use of flow statistics originally estimated by Eistert (1970) with regard to four different types of financing, i.e. bills of exchange credit, lombard credit, current account credit, and securities credit which together comprise the total flow of credit provided by the banking system. We also enlarge the data set of Eistert (1970) and Eistert & Ringel (1971) by making use of different sources in order to allow for a representative statistical analysis. To our knowledge, we have compiled the first dataset on German financial flows spanning from 1860 to 1913. Our goal is to provoke a fundamental discussion about the suitability of stock vs. flow statistics - a question which has been disregarded for too many years. Moreover, we would like to shed more light on the question whether a qualitative differentiation of the different types of financing is needed in order to make more precise estimations of the influence of finance on real economic activity in general and non-agricultural income formation in particular. This paradigm derives from the theory of disaggregated credit formalised by Werner (1997) which is amongst others advocated by Eistert & Ringel (1971) as well. Statistical analysis will be conducted by utilising the General-to-Specific (Gets) approach presented in Sucarrat & Escribano (2012). Contrary to Neuburger & Stokes (1974), we have found a significantly positive relation between current account credit flows and non-agricultural output among other findings. Besides, the results might lend further support to the theory of disaggregated credit and might have implications for renowned models of income formation especially the IMF Polak (1957) model (for developing economies).
    JEL: N13 N23 O11 O42 C32
    Date: 2019
  10. By: Chiaruttini, Maria Stella
    Abstract: When in 1860 Southern Italy was annexed to the Kingdom of Italy, it suddenly found itself within a larger national market characterised by high levels of public debt, a new currency and increased competition in banking. Monetary problems, the depreciation of public bonds and the loss of pre-eminence of the Southern public banks to the advantage of the Piedmontese National Bank, the predecessor of the Bank of Italy, are increasingly often taken as evidence of the harmful effects of financial integration on the Southern economy. This paper, focusing on the banking side of the story, argues, on the contrary, that the South benefited significantly from its integration with the North and that the relative underdevelopment of its credit markets was not due to a policy of 'internal financial colonialism' pursued by Northern capitalists with the backing of the Italian state, but to different economic conditions and the long-lasting impact of the poor banking policies implemented under the Bourbons.
    JEL: E50 F36 G21 G28 N23 P51
    Date: 2020
  11. By: Dodig,Ante
    Abstract: This study tests the weak form of the efficient capital markets theorem in five transition economies in Southeast Europe between 2005 and 2016. A panel pooled mean group estimator is used to examine the relationship between macroeconomic indicators and the performance of stock market indexes. This is a suitable estimator for these young frontier markets, given that they have yet to develop the breadth and depth of an advanced market?such as ample liquidity and traders?to aggregate cross-country data and use level series prime data instead of differentials of the same. These frontier capital markets are found to be weak form inefficient, meaning that stock prices do not reflect available current public information. In other words, when a market is transparent and investor behavior is rational, the macroeconomic data should be included in the value of the stock indexes. The five countries may benefit from bringing their capital markets legislation in line with those of developed countries and by improving corporate governance and transparency. This would boost investor trust and liquidity. The coverage of this research can be extended to find more standardized data values and develop additional factors not captured by this model.
    Keywords: Capital Flows,Capital Markets and Capital Flows,International Trade and Trade Rules,Inflation,Economic Growth,Industrial Economics,Economic Theory&Research,Financial Sector Policy
    Date: 2020–07–17
  12. 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
  13. By: Donaubauer, Julian; Neumayer, Eric; Nunnenkamp, Peter
    Abstract: We study an underexplored research question, namely whether financial market development in both host and source countries has an effect on bilateral stocks of foreign direct investment (FDI) and, particularly, whether the effect of financial market development in one member of the country pair conditions the effect of financial market development in the other member. We estimate gravity-type models in a global sample of 43 source and 137 host countries over the period 2001–12. We address reverse causality concerns by restricting the sample to observations where reverse causality, if existent, should be less relevant. Our major and robust findings are that bilateral FDI increases with better developed financial markets in both the host and the source country and that for developing host countries, financial market development in source and host countries functions as substitutes for each other.
    Keywords: foreign direct investment; financial market devleopment; gravity model; financial market development
    JEL: J1 L81
    Date: 2020–03–01
  14. By: Fu, Rong; Lawson, Jeremy; Martinez, Carolina; Watt, Abigail
    Abstract: Assessing financial conditions in China is challenging given the wide range of conventional and unconventional policy tools the authorities wield to influence economic and market variables. We utilise principal component analysis to construct a new index that captures the most important policy and market dimensions of Chinese financial conditions over time. We then study the relationship between the index and key domestic and international economic variables, as well as asset prices, within a Bayesian VAR framework. We find evidence that exogenous shocks to Chinese financial conditions have strong spillover effects, particularly to global industrial activity, and emerging market bond spreads and equity prices. However, a variant of our model that allows for time-variation in the parameters implies that these spillover effects have been diminishing over time. When compared to the effects of US economic and financial conditions, our results suggest that Chinese economic shocks have weaker spillovers but financial shocks have stronger spillovers, particularly to emerging markets.
    Keywords: Bayesian VAR; Chinese Economy; financial conditions; Financial Markets spillovers; Impulse Responses; Macroeconomic spillovers; TVP-Bayesian VAR; Variance Decomposition
    JEL: C11 E32 E42 E44 E47 E51 E58
    Date: 2019–10
  15. By: Nie,Owen
    Abstract: Capital controls, policy measures used by governments to regulate cross-country financial flows, have become standard policy options in many emerging market economies. This paper will focus on what capital controls reveal about the state of the economy and the implications of such revelation for policy efficacy. Using a small open economy model with a collateral constraint and overborrowing relative to the social optimum, this paper incorporates a representative agent's Bayesian updating of information in response to change in policy and show that the efficacy of capital controls to contain financial crises and improve welfare could be undermined if the agent rationally learns from policy. Empirically, this paper finds that capital controls convey important information market participants use to improve their understanding of fundamentals. This paper highlights the need for policymakers to consider the unintended consequences of information revelation in the design of capital flow management policies.
    Keywords: Macroeconomic Management,Banks&Banking Reform,Fiscal&Monetary Policy,Consumption,International Trade and Trade Rules
    Date: 2020–07–30
  16. By: Azusa Fujimori (Department of Management, Osaka Seikei University, Japan); Manabu Furuta (Department of Economics, Aichi Gakuin University, Japan); Takahiro Sato (Research Institute for Economics and Business Administration, Kobe University, Japan)
    Abstract: This study examines technology diffusion resulting from foreign direct investment (FDI) in the domestic manufacturing sector in India. We employ unit-level panel data (where a unit refers to an enterprise within the manufacturing sector) from 2000 to 2007, covering all medium- and large-size manufacturing enterprises in India, obtained from India's Central Statistics Office. We attempt to empirically capture evidence of FDI technology spillover effects through two key mechanisms: horizontal spillover (technology diffusion within the same industry) and vertical spillover (technology diffusion between foreign firms and their customer or suppliers). Vertical spillover effects can be further divided into backward linkages (technology diffusion from foreign firms to upstream industries), and forward linkages (technology diffusion from foreign firms to downstream industries). In addition, technology diffusion can be the result of both short- and long-term spillover effects. The results of the empirical analyses highlight the presence of short- and long-term horizontal spillover effects, both of which negatively affect the total factor productivity performance of domestic manufacturers. Moreover, we find an inverse relationship between the growth of FDI and total factor productivity in upstream industries in the short term; however, this changes to a positive relationship in the long term. Furthermore, the results show no evidence of FDI spillover effects to downstream sectors.
    Keywords: Technology diffusion; Foreign direct investment; Total factor productivity; Backward spillover effect; Manufacturing industries; Unit-Level data
    JEL: C81 F21 O53
    Date: 2020–03
  17. By: Zongo, Amara
    Abstract: In 2016, some 55 economies introduced at least 112 measures affecting foreign investment. Two thirds of these measures sought to liberalise, promote and facilitate new investment (falling since 2016). Almost a third of these measures are new restrictions (increasing since 2016). Restrictive policies are growing in trade policy choices. This paper investigates the effects of restrictions on FDI stocks among OECD countries. Using a gravity model with panel data from 2010 to 2017 for all OECD countries, we suggest negative effects of restrictions on FDI stocks. Services sector deregulation and strict environmental restrictions have positive effects on FDI. Therefore, the difference in FDI restrictions between countries emerges as the key factor for foreign investment. This study also shows the substitution between foreign and domestic investment in the presence of FDI restrictions. The optimal policy to be implemented to attract FDI is to liberalise or deregulate the services sector specifically the financial sector.
    Keywords: International Trade, FDI stocks, FDI restrictions, OECD countries, gravity model
    JEL: F1 F13 F14 K23
    Date: 2020–03–15
  18. By: Stefano Federico (Bank of Italy); Fadi Hassan (Bank of Italy); Veronica Rappoport (London School of Economics)
    Abstract: This paper shows that there are endogenous financial constraints arising from trade liberalization. We find that banks with a high share of loans to firms exposed to competition from China experience an increase in non-performing loans and a reduction in their credit capacity. The drop in credit supply affects both firms directly exposed to import-competition from China and firms expected to expand upon trade liberalization, with economically relevant implications in terms of employment, investment, and output. This financial spillover between losers and winners from trade holds back the reallocation of factors of production between firms and sectors, which is crucial to the welfare implication of trade liberalization.
    Keywords: trade liberalisation, China shock, bank credit, resource reallocation, gains from trade
    JEL: F10 F14 F65 G21
    Date: 2020–07
  19. By: Junaid Ahmed (Pakistan Institute of Development Economics, Islamabad); Junaid Ahmed (Pakistan Institute of Development Economics, Islamabad); Mazhar Mughal (Pau Business School, Pau, France); Inmaculada Martinez-Zarzoso (University of Goettingen, Germany and University Jaume I, Castellón, Spain)
    Abstract: Remittances, the part of the migrant's income sent back to their family living in the origin country, have become a critical stepping-stone to economic development for many developing nations. A key factor that causes migrants to use informal channels is the high cost of transferring funds through formal channels. Reducing the cost of remitting is one of the 2030 Sustainable Development Goals; it is also an important policy objective as it helps to bring remittances into the formal economy, enhances financial inclusion and increases the net income of receiving households. This study examines the question of whether and to what extent the reduction in the cost of remittances increases the flow of remittances to developing countries, and whether larger amounts are remitted when the cost per transaction decreases (the so-called scale effect). It uses bilateral data on remittance flows and exploits a novel dataset covering transaction costs for 30 sending and 75 receiving countries for the period 2011-2017. A gravity model of remittance flows is estimated using panel data and instrumental variable techniques to account for potential endogeneity. We find that transaction cost is a significant predictor of the volume of formal remittances. A 1 percent decrease in the cost of remitting USD 200 leads to about a 1.6 percent increase in remittances. This association remains unchanged regardless of the models used and techniques employed. In addition to this strong impact of transfer fees, migrant stock, exchange rate stability in the recipient country and financial development in both the recipient and sending countries are also found to be important factors driving remittances. The findings suggest that policies designed to increase remittances need to focus on decreasing the cost of remitting through formal channels.
    Keywords: Bilateral Remittances; Cost of Remitting; International Migration; Developing Countries
    JEL: F22 F24 F30 O10 O17
    Date: 2020
  20. By: Ozili, Peterson K
    Abstract: The current debate on financial inclusion pays little attention to whether financial inclusion is pro-cyclical with the fluctuating business cycle. This article investigates the relationship between financial inclusion and the business cycle. The findings reveal that the level of savings and the number of active formal accounts are pro-cyclical with fluctuations in the business cycle. Also, the level of savings by adults particularly for women and poor people decreases during recessionary periods while the number of active formal accounts decline for the adult population especially for women during recessionary periods. The findings also reveal that not all indicators of financial inclusion are pro-cyclical with fluctuating business cycles. The implication of the findings is that poor people and women will exit the formal financial sector during a recession, as banks become unwilling to lend money to poor individuals and households during bad times, and this will lead to financial exclusion and vice versa. Policy makers seeking to increase the level of financial inclusion should focus on the timing of financial inclusion policies along the business cycle as the findings suggest that it might be more difficult to achieve financial inclusion objectives during recessions.
    Keywords: Financial inclusion, pro-cyclicality, business cycle, financial crisis, access to finance, economic cycles, GDP, formal account ownership, borrowing, savings
    JEL: E10 E21 E3 E32 E51 G2 G21 I31
    Date: 2020
  21. By: Ali Compaore (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Financial inclusion refers to access to and use of formal financial services by individuals and businesses and the literature unambiguously documented that access-for-all to financial services is conducive to important economic and development outcomes. In this paper, we particularly investigate the impact of financial inclusion on non-resources tax revenue in developing countries. Based on a sample of 63 developing countries over the period 2004-2017 and drawing on the dynamic generalized method of moments (GMM), the paper finds that greater access to financial services captured by the number of ATMs per 100,000 adults increases government non-resources tax-to-GDP ratio, and this result is driven by households consumption and business expansion. Our findings provide insights on tax resources-harnessing opportunities from implementing and promoting financial inclusion policies for developing economies. JEL Codes: G21; H20; O11; O23.
    Keywords: Financial inclusion,Non-resource tax-to-GDP ratio,Private consumption,Unemployment,Developing countries
    Date: 2020–07–17
  22. By: Djaffar Lessy; Nahla Dhib (Equipe de Probabilité et Statistique - JAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique, Université Côte d'Azur, CNRS, LJAD - Partenaires INRAE); Francine Diener (Equipe de Probabilité et Statistique - JAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique); Marc Diener (Equipe de Probabilité et Statistique - JAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We consider a Markov-Chain model for a Microfinance Institution (MFI) borrower who can be in one of four states: Applicant (A), Beneficiary (B − or B +) of a small or a large loan, or included (I) in the regular banking system. Given the transition matrix we compute the equilibrium and deduce the influence of probability parameters on what is profitable to the borrower within breaking-even constraints of the MFI. We give a general theorem on the total expected actualized income of a Markov Chain with Income (MCI), that we then apply to our model to determine the constrains emerging from Absence of Strategic Default (ASD) requirements. These do not only bound the probabilities from above but sometimes also from below.
    Keywords: Micro-credit,Markov Chain with Income,financial inclusion,Absence of Strategic Default JEL codes: C02,D24,G21,L26
    Date: 2020–08–11
  23. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation with Nicaragua highlights that social unrest and its aftermath eroded confidence and caused large capital and bank deposits outflows that resulted in a prolonged output contraction. Banks cut lending, which exacerbated the downturn. Faced with sharply lower revenues and a severe tightening in available financing, including on account of sanctions, the government was forced to cut spending and adopt a procyclical tax package. The economy is projected to continue to contract in the near term as it adjusts to weaker confidence and lower external financing. The sharp contraction in credit will continue to depress investment, and the tight fiscal and external financing situation will continue to drag down medium-term growth. The key risks relate to further erosion in confidence and renewed deposit outflows. The imposition of additional sanctions by trading partners could also heighten economic stress. It is recommended to maintain a conservative fiscal stance in 2020 remains the key to maintain macroeconomic stability. Curbing expenditures on goods and services will allow increased spending on social programs, social safety nets, and public investment, which would lead to more equitable and sustainable growth.
    Keywords: Financial and Monetary Sector;Central banks;Economic integration;Real sector;Financial systems;ISCR,CR,percent of GDP,national authority,INSS,net international reserve,Proj
    Date: 2020–02–27
  24. By: International Monetary Fund
    Abstract: The IMF conducted a Financial Sector Stability Review of the Republic of Guinea in June 2019. The review shows that while the current economic situation is benign, the financial soundness indicators (FSIs) point to increasing vulnerabilities. The economic outlook is currently positive. Moreover, financial inclusion is growing rapidly as mobile money services are quickly adopted. However, the FSIs suggest growing vulnerabilities and possibly some idiosyncratic stress in the banking sector. As a result of data quality and availability issues, it is difficult to make a more in-depth assessment of financial stability and potential vulnerabilities. The financial sector structure is, to some extent, a mitigant to the potential financial stability vulnerabilities. All banks are part of foreign financial groups that they can fall back on during periods of stress. While the current economic situation is benign, it is an opportune moment to develop the necessary capacity to handle potential financial stability vulnerabilities. As a priority, on and offsite supervision and the availability and quality of data on the banking sector, and in a later stage also for the other financial sectors, should be significantly improved, and the regulatory framework for banks should be modernized.
    Keywords: Macroprudential policies and financial stability;Financial institutions;Islamic finance;Financial markets;Financial services;ISCR,CR,WAMZ,bank law,AFW,deposit-taking,commercial bank
    Date: 2020–02–12
  25. By: International Monetary Fund
    Abstract: This Selected Issues paper investigates impact of financial technology (FinTech) on Malaysia’s financial sector. Malaysia is digitally enabled to seize the opportunities brought by FinTech. Malaysian banks continue to dominate in deposits, lending and capital raising, but they have been gradually reducing their emphasis on physical distribution networks. The top five Malaysian banks have increased their technology-related spending over the past three years. Regulators have been mindful of developments outside of the traditional regulatory perimeter that could pose financial stability risks. Rapidly evolving technology is likely to bring multiple challenges to the financial sector. Regulatory requirements are an important component of operating in the FinTech space. Regulators must strike a balance between ensuring financial stability and consumer protection, while promoting innovation and competition. In order to address the lack of regulatory acumen among FinTech industry players, Bank Negara Malaysia has spearheaded various initiatives. A key challenge for Malaysian regulators is to strike a balance between reaping the benefits of FinTech and mitigating potential downside risks in both conventional and Islamic finance. Frequent refinements to regulations and supervision are required to keep pace with the highly dynamic nature of FinTech to balance benefits and risks.
    Keywords: Islamic finance;Financial services;Macroprudential policies and financial stability;Financial institutions;Financial systems;ISCR,CR,e-money,sandbox,FTEG,mobile bank,capital raise
    Date: 2020–02–28
  26. By: Ngozi E. Egbuna; Ismaila Jarju; Sani Bawa; Ibrahima Diallo; Isatou Mendy; Ozolina Haffner; Kormay Adams
    Abstract: Empirical evidence suggests that regional economic integration plays a crucial role in accelerating growth and development, reducing poverty and economic disparity and boosting productivity and employment, in addition to expanding markets, maximising the efficiency of resource allocation and increasing investment opportunities. Consequently, countries across the globe, including those in Africa, participate in regional integration arrangements to derive the huge benefits associated with it. The Economic Community of West African States (ECOWAS) was, therefore, established in May 1975 to promote cooperation and integration among the countries of the West African sub-region. To fast-track the ECOWAS Monetary Cooperation Programme (EMCP), a two-track approach to monetary integration was adopted by the ECOWAS Authority, leading to the establishment of the West African Monetary Zone (WAMZ) in 2000. The second monetary zone was initially scheduled to kick-off in January 2003, but there have been several postponements due to the slow progress in meeting the macroeconomic convergence criteria by Member States. In spite of the slow progress, evidence has shown that WAMZ countries have made considerable progress towards achieving economic integration in the sub-region. This called for the need to measure and assess Member countries’ performance in the WAMZ integration process using a composite index. Against this background, the study seeks to develop an economic integration index to adequately measure the intensity and pace of regional economic integration in the Zone. The index would help to assess each Member State’s efforts towards the WAMZ integration process. The WAMZ Economic Integration Index (WEII) is composed of five dimensions – trade integration, regional infrastructure, compliance with ECOWAS trade-related protocols, compliance with WAMZ macroeconomic convergence criteria and financial integration. Twenty indicators were identified across the five dimensions to compute the composite index for the period 2015 - 2017. Index weights were obtained and assigned to each of the five dimensions using Principal Component Analysis. Results from the analysis showed that the WAMZ trade integration index increased from 0.063 in 2015 to 0.073 in 2016, but declined to 0.032 in 2017. The result indicated that intra-regional trade was significantly low among the WAMZ economies compared to other regions across the world; thus, Member countries would need to expand their intra-regional trade volumes overtime to improve regional economic integration. The WAMZ regional infrastructure index, however, declined marginally from 0.382 in 2015 to 0.381 in 2016 before rising to 0.386 in 2017, with four Member States recording increases in both 2016 and 2017, while the other two recorded declines in 2016 before increasing in 2017. The WAMZ countries have recorded significant progress in their compliance with ECOWAS trade-related protocols, as the WAMZ compliance index increased to 0.698 and 0.740 in 2016 and 2017, respectively, from 0.649 in 2015. Compliance with the WAMZ macroeconomic convergence criteria, however, has been slow, as the compliance index remained at 0.528 in both 2015 and 2016 before rising to 0.667 in 2017. The financial integration index declined from 0.955 in 2015 to 0.927 in 2016 before increasing to 0.943 in 2017. The WAMZ economic integration index showed increased level of integration among Member States, as the index scores rose to 0.536 and 0.571 in 2016 and 2017, respectively, from 0.529 in 2015, indicating increased commitment to the WAMZ integration agenda. The under-performance by some of the Member States in the WAMZ-index is attributable to the twin shocks of the Ebola Virus Disease (EVD) and the fall in world commodity prices, in addition to the massive landslide in Sierra Leone in 2017. In terms of country performances, whereas Nigeria recorded the highest WAMZ-index depicting the country as the most integrated in the sub-region, the composite indexes of Sierra Leone and Liberia were the lowest with the indexes for Sierra Leone being below the sub-regional averages throughout the three years while that of Liberia was below the sub-regional average in 2017.
    Keywords: Economic Integration Index, trade integration, macroeconomic convergence, WAMZ.
    JEL: C38 C43 F15 O55
    Date: 2018–12

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