nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2020‒09‒14
sixteen papers chosen by
Georg Man

  1. Finance, Growth and (Macro)Prudential Policy: European Evidence By Martin Hodula; Ngoc Anh Ngo
  2. Financial development,income inequality and carbon emissions in Sub-Saharan African countries: A panel data analysis By Odhiambo, Nicholas M
  3. Panama; Selected Issues By International Monetary Fund
  4. Determinants of financial development of the EU countries in the period 1995-2017 By Edmunds Čižo; Olga Lavrinenko; Svetlana Ignatjeva
  5. Sustainable Development Model of China’s Rural Financial Inclusion and its Effects: A Case Study of Yueqing Rural Commercial Bank By Zhuo, Yubo; Wu, Zheng; Wang, Shuyi; Wang, Xinxin
  6. The joint effects of ICT adoption and access to credit on household income in China By Ma, Wanglin; Qiu, Huanguang; Fan, Yubing; Zhou, Xiaoshi
  7. La inclusión financiera en América Latina y Europa By Sofía Orazi; Lisana Belén Martinez; Hernán P. Vigier
  8. Fomento de la inversión de las remesas familiares en cadenas de valor: estudios de casos de El Salvador, Guatemala y la República Dominicana By Padilla Pérez, Ramón; Stezano, Federico; Villarreal, Francisco G.
  9. Regulatory Arbitrage and Economic Stability By Uluc Aysun; Sami Alpanda
  10. International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries By William Chen; Gregory Phelan
  11. Capital-constrained loan creation, stock markets and monetary policy in a behavioral new Keynesian model By Kotb, Naira; Proaño Acosta, Christian
  12. Collateral damaged? Priority structure, credit supply, and firm performance By Geraldo Cerqueiro; Steven Ongena; Kasper Roszbach
  13. Corporate zombies: Anatomy and life cycle By Ryan Niladri Banerjee; Boris Hofmann
  14. Unpicking Portugal’s export performance: A microdata analysis By Paula Adamczyk; Ben Westmore
  15. Long-run Returns to Impact Investing in Emerging Market and Developing Economies By Cole,Shawn Allen; Melecky,Martin; Molders,Florian; Reed,Tristan
  16. Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn By Josh Lerner; Ramana Nanda

  1. By: Martin Hodula; Ngoc Anh Ngo
    Abstract: This paper examines the interactions between financial development, economic growth and (macro)prudential policy on a sample of euro area countries. Our main takeaway is that active (macro)prudential policy supports the positive finance-growth nexus instead of disrupting it. These benefits are found to be more likely to materialize during tightening of (macro)prudential policy measures and not during easing. This result is conditional on the ability of (macro)prudential policy to curb excess credit growth and mitigate systemic risk, which would otherwise disrupt the market. Moreover, we assert that when analysing the effects of (macro)prudential policy, it is important to account for the direction of (macro)prudential measures, not just for the frequency at which they are implemented.
    Keywords: Development, finance, growth, macroprudential policy, panel analysis
    JEL: G10 G28 O16 O40
    Date: 2020–09
  2. By: Odhiambo, Nicholas M
    Abstract: This paper examines the dynamic relationship between financial development, income inequality and CO2 emissions in a step-wise fashion, using data from 39 sub-Saharan African (SSA) countries during the period 2004-2014. The study uses three income inequality indicators: the Gini coefficient, the Atkinson index and the Palma ratio, to examine these linkages. The study employs the generalised method of moments (GMM) as the estimation technique. The empirical findings show that financial development unconditionally reduces CO2 emissions (metric tons per capita) in SSA countries. The findings also show that there are threshold levels of income inequality that should not be exceeded in order for the negative impact of financial development on CO2 emissions to be sustained. Specifically, the study finds that the negative impact of financial development on CO2 emissions is likely to change to positive if the following inequality levels are exceeded: 0.591, 0.663 and 5.454 respectively for the Gini coefficient, the Atkinson index and the Palma ratio. The findings of this study have far-reaching policy implications, not only for SSA countries, but also for developing countries as a whole. Policy implications are discussed.
    Keywords: Sub-Saharan Africa; Financial Development; CO2 Emissions; Income Inequality, GMM
    Date: 2020–07
  3. By: International Monetary Fund
    Abstract: This Selected Issues paper argues that Panama’s prospects for maintaining buoyant growth critically depends on continued productivity growth underpinned by comprehensive reforms focused on improving education quality, attracting talent, and continuing to enhance the investment climate. Panama experienced both episodes of growth convergence and divergence over the past several decades. Following a stellar performance in recent decades, Panama’s prospects of maintaining high growth rates and moving toward the club of high-income economies critically depends on continued productivity gains. Panama’s economy embarked on a path of rapid growth since the political stabilization in the 1990s, which has brought it closer to moving from the middle to the high-income bracket. However, maintaining high growth rates may prove increasingly challenging, particularly for countries at Panama’s current level of income. Policies that focus on improving education quality, attracting foreign talent toward knowledge-based sectors of the economy, and strengthening the investment environment are likely to be essential for sustaining productivity growth.
    Keywords: Economic growth;Income distribution;Anti-money laundering;Combating the financing of terrorism;Economic conditions;Banking sector;Selected issues;Macroprudential policies and financial stability;Banking systems;Financial systems;Foreign banks;SBP,interbank,CFT,AML,FATF
    Date: 2019–01–17
  4. By: Edmunds Čižo (Daugavpils University); Olga Lavrinenko (Daugavpils University); Svetlana Ignatjeva (Daugavpils University)
    Abstract: The aim of the research is to determine the impact of openness and political stability which characterize the state of political rights and civil liberties; financial state regulation; the determinant of legal traditions which determines judicial independence, impartiality of the courts, protection of property rights, etc., the determinant of financial institutions, as well as the impact of certain macroeconomic indicators on the financial development of the EU countries in the period 1995-2017.
    Keywords: financial development,EU,determinants of financial development
    Date: 2020–06–30
  5. By: Zhuo, Yubo; Wu, Zheng; Wang, Shuyi; Wang, Xinxin
    Keywords: Community/Rural/Urban Development, Risk and Uncertainty, Agribusiness
    Date: 2020–07
  6. By: Ma, Wanglin; Qiu, Huanguang; Fan, Yubing; Zhou, Xiaoshi
    Keywords: Community/Rural/Urban Development, Institutional and Behavioral Economics, Research Methods/Statistical Methods
    Date: 2020–07
  7. By: Sofía Orazi; Lisana Belén Martinez; Hernán P. Vigier
    Keywords: Inclusión financiera; clúster jerárquicos; América Latina; Europa.Keywords: financial inclusion; hierarchical clustering; Latin America; Europe.
    JEL: G23 O16 O17 C38 N26 N24
    Date: 2019–07–01
  8. By: Padilla Pérez, Ramón; Stezano, Federico; Villarreal, Francisco G.
    Abstract: Las remesas familiares son una fuente importante de recursos y financiamiento externo para muchos países de América Latina y el Caribe, y contribuyen significativamente a la disminución de la pobreza, al incremento del consumo privado y al crecimiento económico nacional, entre otros factores. Si bien la mayor parte de las remesas se destina a cubrir necesidades inmediatas como alimentación, salud y vivienda, existe la oportunidad de destinar una parte a actividades productivas generadoras de ingresos. En este documento se resumen los hallazgos principales de un proyecto de colaboración técnica de la Comisión Económica para América Latina y el Caribe (CEPAL) y el Fondo Internacional de Desarrollo Agrícola (FIDA) con los Gobiernos de El Salvador, Guatemala y la República Dominicana enfocado en fomentar una mayor inversión de las remesas en cadenas de valor rurales. El punto de partida es reconocer el carácter estrictamente privado de las remesas familiares, por lo que las acciones dirigidas a los receptores y emisores de dichos recursos se enfocan siempre en incentivos, asesoría y la facilitación del proceso para lograr la inversión de las remesas. En el documento se incluye una síntesis de la metodología de trabajo, se recogen los espacios en que las remesas pueden emplearse para el fortalecimiento de las cadenas de valor y se presentan las estrategias y líneas de acción dirigidas a incentivar la inversión de las remesas en dichas cadenas.
    Date: 2020–08–28
  9. By: Uluc Aysun (University of Central Florida, Orlando, FL); Sami Alpanda (University of Central Florida, Orlando, FL)
    Abstract: This paper shows that national bank regulation can ensure nancial and economy stability only if business cycles are driven by domestic and non- nancial global shocks. If global nancial shocks are more important, by contrast, national regulatory policies can be destabilizing. These inferences are drawn from a two-country DSGE model with global banking, nancial regulation and the nancial accelerator mechanism. The results indicate that bank regulation suppresses the ampli cation e¤ects of the nancial accelerator mechanism when countries face domestic and non- nancial global shocks. When there is a global nancial shock, however, highly-regulated countries are more vulnerable to the ebbs and ows of global bank lending since their rms are more leveraged and externally funded. More generally, the results imply that the nancial trilemma is not binding in economies where domestic and non- nancial global shocks drive the business cycle.
    Keywords: bank regulation, DSGE, nancial accelerator, global banks, nancial trilemma.
    JEL: E32 E44 F33 F44
    Date: 2020–08
  10. By: William Chen (Williams College); Gregory Phelan (Williams College)
    Abstract: Lack of coordination for prudential regulation hurts developing economies but benefits advanced economies. We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts in international markets. Both countries have incentives to stabilize their economy by using prudential limits, but the emerging economy depends on the advanced economy to bear global risk. Financially developed economies are unwilling to intermediate global risk, which means bearing systemic risk, preferring financial stability over credit flows. Advanced economies prefer tighter prudential limits than would occur with coordination, giving them greater bargaining power when negotiating international agreements.
    Keywords: International Capital Flows, Capital Controls, Macroeconomic Instability, Macroprudential Regulation, Policy Coordination, Spillovers, Financial Crises.
    JEL: E44 F36 F38 F42 G15
    Date: 2020–05
  11. By: Kotb, Naira; Proaño Acosta, Christian
    Abstract: In this paper we incorporate a stock market and a banking sector in a behavioral macro-finance model with heterogenous and boundedly rational expectations. Households' savings are diversified among bank deposits and stock purchases, and banks' lending to firms is subject to capital-related costs. We find that households' participation in the stock market, coupled to the existence of a capital-constrained banking sector affects the transmission of monetary policy to the economy significantly, and that households' deposits act as a critical spill-over channel between the real and the financial sectors. In other words, we relate the regulatory stance in the banking sector with the degree of pass-through of monetary policy shocks. Further, we investigate the performance of a leaning-against-the-wind (LATW) monetary policy which targets asset prices concerning macroeconomic and financial stability.
    Keywords: Behavioral Macroeconomics,Banking,Stock Markets,Monetary Policy
    JEL: E44 E52 G21
    Date: 2020
  12. By: Geraldo Cerqueiro (Católica-Lisbon School of Business and Economics); Steven Ongena (University of Zürich, Swiss Finance Institute, KU Leuven and CEPR); Kasper Roszbach (Norges Bank and University of Groningen)
    Abstract: A unique legal reform in 2004 in Sweden redistributed collateral rights from banks holding floating liens to unsecured creditors without changing the value of assets on firms' balance sheets. Using a country-wide panel of all incorporated firms, we document that a zero-sum redistribution of collateral rights and the resulting reduction in collateral capacity towards banks contracts the amount and maturity of corporate debt and leads firms to slow investment and forego growth. Altering their allocation of assets, firms reduce particularly those assets with a low collateralizable value for banks and also hoard more cash. However, the reform has no impact on corporate capital intensity or efficiency, suggesting that under these newly binding credit constraints firms simply shrink their operations.
    Keywords: Collateral, investment, financial constraints, difference-in-differences, floating lien, seniority
    JEL: D22 G31 G32
    Date: 2019–05–29
  13. By: Ryan Niladri Banerjee; Boris Hofmann
    Abstract: Using firm-level data on listed non-financial companies in 14 advanced economies, we document a rise in the share of zombie firms, defined as unprofitable firms with low stock market valuation, from 4% in the late 1980s to 15% in 2017. These zombie firms are smaller, less productive, more leveraged and invest less in physical and intangible capital. Their performance deteriorates several years before zombification and remains significantly poorer than that of non-zombie firms in subsequent years. Over time, some 25% of zombie companies exited the market, while 60% exited from zombie status. However, recovered zombies underperform compared to firms that have never been zombies and they face a high probability of relapsing into zombie status.
    Keywords: zombie companies, firm behaviour, economic dynamism, productivity growth, bankruptcy
    JEL: D22 D24 E43 G33
    Date: 2020–09
  14. By: Paula Adamczyk; Ben Westmore
    Abstract: Portugal has notably increased its international openness over recent decades, with exports’ share of GDP rising by 20 percentage points since 1993. This analysis couples microdata with panel regression techniques to investigate the drivers of Portuguese export growth over the 1995-2016 period. The results highlight that there was no one single factor behind the export expansion. While an improvement in price competitiveness played a significant role, the majority of the increase in exports was explained by other factors. These include increases in the quality of export products and weak domestic demand that prompted firms to increase their focus on foreign markets. The empirical results also suggest that the restoration of the health of the Portuguese financial sector and its further development is beneficial for export growth.
    Keywords: competitiveness, export performance, financial development, international trade, microdata, Portugal
    JEL: F10 F14 F43 F65 C32 C55
    Date: 2020–09–14
  15. By: Cole,Shawn Allen; Melecky,Martin; Molders,Florian; Reed,Tristan
    Abstract: There is growing interest in impact investing, the idea of deploying capital to obtain both financial and social or environmental returns. Examination of every equity investment made by one of the largest and longest-operating impact investors across 130 emerging market and developing economies shows this portfolio has outperformed the S&P 500 by 15 percent. Investments in larger economies have higher returns, and returns decline as banking systems deepen and countries relax capital controls. These results are consistent with imperfect integration of international capital markets and the thesis of impact investing that some eligible markets do not receive sufficient investment capital.
    Keywords: Non Bank Financial Institutions,Investment and Investment Climate,Capital Flows,Capital Markets and Capital Flows,Inflation,Global Environment
    Date: 2020–08–26
  16. By: Josh Lerner; Ramana Nanda
    Abstract: Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold, and shape the direction of, a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.
    JEL: G24 O31
    Date: 2020–07

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