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on Financial Development and Growth |
| By: | Gries, Thomas; Naude, Wim |
| Abstract: | The economic impact of Artificial Intelligence (AI) is studied using a (semi) endogenous growth model with two novel features. First, the task approach from labor economics is reformulated and integrated into a growth model. Second, the standard represen- tative household assumption is rejected, so that aggregate demand restrictions can be introduced. With these novel features it is shown that (i) AI automation can decrease the share of labor income no matter the size of the elasticity of substitution between AI and labor, and (ii) when this elasticity is high, AI will unambiguously reduce aggre- gate demand and slow down GDP growth, even in the face of the positive technology shock that AI entails. If the elasticity of substitution is low, then GDP, productivity and wage growth may however still slow down, because the economy will then fail to benefit from the supply-side driven capacity expansion potential that AI can deliver. The model can thus explain why advanced countries tend to experience, despite much AI hype, the simultaneous existence of rather high employment with stagnating wages, productivity, and GDP. |
| Keywords: | Technology,artificial intelligence,productivity,labor demand,income distribution,growth theory |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc20:224623&r=all |
| By: | Jannsen, Nils |
| Abstract: | Productivity growth in many advanced economies has decelerated in the last decades. There is increasing evidence that the misallocation of production function has contributed to the weakness in productivity. Factors behind this misallocation could include low interest rates or credit booms. In this paper, I evaluate the most recent findings on the impact of misallocation of production factors on productivity and assess their role for the weakness in productivity growth in Germany. Overall, the misallocation of production factors seem to have been less important in Germany than in other advanced economies. Behind the backdrop of the low interest environment has been in place for an extended period of time, the risks that productivity growth is damped due to the misallocation of production factors is increasing. |
| Keywords: | Produktivität,Fehlallokation,Produktionsfaktoren,Finanzkrisen,Productivity,misallocation,production factors,financial crises |
| JEL: | D24 E44 O47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkie:225298&r=all |
| By: | Vu, Quang; Tran, Tuyen |
| Abstract: | Using the Färe-Primont index and instrumental variable fixed effect estimation for the data of small and medium-sized enterprises (SMEs), this study considers if receiving government financial support enables SMEs in Vietnam to become more productive. The paper discovers no evidence of linkage between financial support and firm productivity. However, access to financial support improves technological progress and growth in firm scale but has a negative effect on improvement in technical efficiency. The estimation results reveal that the use of productivity as an aggregated index in previous studies may hide the real effect of government support on firm productivity. |
| Keywords: | Financial support; productivity; small and medium-sized enterprises; Vietnam |
| JEL: | O3 O31 O33 |
| Date: | 2020–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103850&r=all |
| By: | Ira N. Gang; Rajesh Raj Natarajan; Kunal Sen |
| Abstract: | How does informal economic activity respond to increased financial inclusion? Does it become more entrepreneurial? Does access to new financing options change the gender configuration of informal economic activity and, if so, in what ways and what directions? We take advantage of nationwide data collected in 2010/11 and 2015/16 by India's National Sample Survey Office on unorganized (informal) enterprises. This period was one of rapid expansion of banking availability aimed particularly at the unbanked, under-banked, and women. |
| Keywords: | Entrepreneurship, Financial constraints, Gender, Informal sector, Difference-in-difference, India |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2020-144&r=all |
| By: | Salzmann, Leonard |
| Abstract: | The literature has widely discussed the role of financial and economic uncertainty shocks for the macroeconomy. However, it has turned out to be difficult to isolate these shocks from financial market indicators and uncertainty proxies because any identifying restriction on their response profile requires strong assumptions. To obtain more robust results, I model financial and uncertainty shocks jointly in a state-dependent FAVAR setup for the U.S. and provide agnostic identification bounds on their effects. I document that (i) uncertainty shocks are of limited relevance for real activity and asset prices in boom periods but have significantly contractionary effects in recessions. (ii) By comparison, adverse financial shocks are contractionary both in recessions and boom periods. (iii) Identifying assumptions play a significant role in the effect magnitudes, especially for uncertainty shocks and in recessions. (iv) Financial conditions are generally a key transmission channel of uncertainty shocks. (v) Uncertainty transmits financial shocks to a noticeable degree in recessions. |
| Keywords: | Macroeconomic tail events,nonlinear FAVARs,uncertainty shocks,financial shocks |
| JEL: | E32 E37 E44 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc20:224588&r=all |
| By: | Ozge Akinci; Gianluca Benigno; Marco Del Negro; Albert Queraltó |
| Abstract: | We introduce the concept of a financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint, as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector, measured by an increase in leverage, are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial conditions index and show how it is related to the gap between the natural and financial stability interest rates. |
| Keywords: | r**; financial crises; financial stability; occasionally binding credit constraint |
| JEL: | E4 E5 G0 |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89011&r=all |
| By: | Jia, Pengfei |
| Abstract: | Paying negative interest rates on central bank digital currency (CBDC) becomes increasingly relevant to monetary operations, since several major central banks have been actively exploring both negative interest rate policy and CBDC after the Great Recession. This paper provides a formal analysis to evaluate the macroeconomic impact of negative interest rates on CBDC through the lens of a neoclassical general equilibrium model with monetary aggregates. In the benchmark model, agents have access to two types of assets: CBDC and productive capital. The demand for digital currency is motivated by a liquidity constraint. I show that paying negative interest on CBDC induces agents to save less and consume more via a substitution effect. A drop in savings in turn causes a fall in capital investment, subsequent output, and real money balances. To clear the money market, the price level increases. I then extend the model to include government bonds which deliver a positive return. This allows me to study a non-trivial portfolio effect: when the government pays a negative interest rate on CBDC, the tax on agents' capital spending increases, inducing a decrease in capital investment and an increase in government bonds in agents' portfolio. Such a policy causes a drop in investment and output. However, there is a transitory decline in the price level due to a "flight to quality". |
| Keywords: | CBDC, Negative interest rates, Monetary policy, Public money. |
| JEL: | E21 E22 E31 E42 E52 E63 |
| Date: | 2020–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103828&r=all |
| By: | Adriana Grasso (Bank of Italy); Juan Passadore (Einaudi Institute for Economics and Finance (EIEF)); Facundo Piguillem (Einaudi Institute for Economics and Finance (EIEF) and CEPR) |
| Abstract: | The recent debate about the falling share of labor income has brought attention to the trends in income shares, but less attention has been devoted to their variability. In this paper, we analyze how their fluctuations can be insured against between workers and capitalists, and the corresponding implications for financial markets. We study a neoclassical growth model with aggregate shocks that affect income shares and financial frictions that prevent firms from fully insuring idiosyncratic risk. We examine theoretically how aggregate risk sharing is distorted by the combination of idiosyncratic risk and moving shares. Accumulation of safe assets by firms and risky assets by households emerges naturally as a tool to insure income shares’ risk. We calibrate the model to the U.S. economy and show that low interest rates, rising capital shares, and accumulation of safe assets by firms and risky assets by households can be rationalized by persistent shocks to the labor share. |
| Keywords: | income shares fluctuation, risk sharing, asset prices, corporate savings glut |
| JEL: | E20 E32 E44 G11 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1283_20&r=all |
| By: | Régis MARODON |
| Abstract: | The great planetary challenges, be it the climate, loss of nature or human solidarity, call for concerted actions at all levels, on a scale commensurate with the problems. Yet, this transformative change, which requires mobilising actors across the board, cannot be achieved overnight. A transitional period will be needed to allow the actors to build socio-economic models attuned to this vision. While multilateralism is struggling to meet these challenges, public development banks – whether operating at sub-national, national, regional or international level – can cooperate and contribute to the search for economic and social models that hold promise for the future. Building on their dual role as a provider of public funding and an enabler to leverage private finance, Public Development Banks (PDBs) need to acquire the tools and indicators to help them select and support low-carbon initiatives as a priority. They need to put in place “sustainable development analytical tools” allowing them to select operations on the basis of criteria other than purely financial ones and, where necessary, propose long-term loans for high impact operations. They must also ensure that none of their financing is likely to encourage activities at odds with the attainment of the Sustainable Development Goals, particularly those on climate and nature. This paper explores the reasons why development banks can play a leading role in promoting the transition to sustainable development. It proposes five recommendations for decision-makers in order to help build the conditions for a successful transition.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11701&r=all |
| By: | Sergio Gusmão Suchodolski; Adauto Modesto Junior; Cinthia Helena De Oliveira Bechelaine; Leila Maria Bedeschi Costa |
| Abstract: | Financing the implementation of the seventeen Sustainable Development Goals (SDGs) has been a development challenge since the establishment of the 2030 Agenda – especially under the unequal circumstances imposed by COVID-19. This paper aims to better inform this debate by highlighting the nature of Subnational Development Banks (SDBs) in the context of sustainable finance and how they operate within development networks.To this end, the research method used addresses a comparative study among countries that stand out for the number of subnational institutions in their development systems, Brazil and Vietnam. After comparing the Brazilian and Vietnamese particularities, we present concrete examples of SDBs working to connect local needs to the 2030 Agenda investments. As final conclusions, the study allows to demonstrate that, by being the last mile specialist on the ground, in different localities, with particular backgrounds and contexts, SDBs could be available channels to international resources to address financial needs of local firms and governments, improving both efficiency and effectiveness of development programs and funds. Highlighting the potential of SDBs, this analysis leaves possibilities for a future research agenda on more integrated national development finance systems focused on local impact.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| Keywords: | Brésil, Vietnam |
| JEL: | Q |
| Date: | 2020–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11686&r=all |
| By: | Laurent WAGNER |
| Abstract: | Public financial institutions and National Development Banks (NDBs) in particular are well suited to fill financing gaps in un- or under- served markets. By virtue of their developmental mandate, and local expertise, NDBs are able to operate and invest in the most vulnerable regions where the risk is often too great for a majority of private actors. This study intends to reflect on NDBs mandates in this context by shedding light on the significant role they can play to address scarcity of financing in vulnerable areas within developing countries. Using firm-level data for 127 countries over 2006-2018, we find that on average, there is no significant difference in terms of productivity levels between firms accessing private versus public finance. NDBs tend to provide more finance in less developed localities relative to private commercial banks. Our results show therefore that public banks support more firms in less developed localities, without necessarily selecting less productive firms. Instead, they seem to be able to manage more risks related to the local context that fall outside of the direct control of the firm but that might affect their future portfolio performance. Evidence also supports the emerging consensus that public banks play a countercyclical role by strengthening their credit offer during bad times.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11672&r=all |
| By: | Jiajun XU; Kedi WANG; Xinshun RU |
| Abstract: | Access to large, long-term, and stable funding sources is a prerequisite for achieving the objectives of national development banks (NDBs). By systematically collecting data on the funding sources of NDBs worldwide, we are the first to answer the questions of what are the main types of funding sources available to NDBs, and what are the stylized facts of such funding sources. We find that public agencies and market actors are the two main sources of funding for NDBs where governments deploy both administrative measures and market-based means to mobilize funding for NDBs. In particular, NDBs can rely on government support to use market-based means to give full play to the leverage of the sovereign creditworthiness, transforming market funds into large long-term funds to advance development goals. In addition, direct and explicit funding support such as direct budgetary transfers from the government or official development assistance is also important for NDBs. Building upon the key characteristics of funding sources for NDBs worldwide, we finally propose ten research questions for future exploration from the perspective of New Structural Economics and encourage scholars who are interested in this area to conduct further research.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11688&r=all |
| By: | José Antonio OCAMPO; Victor ORTEGA |
| Abstract: | This paper looks at the role, evolution and regional coverage of the system of multilateral and national development banks (MDBs and NDBs) and international climate change funds. It analyzes the roles that development banks should play to correct the market failures that characterize financial systems, particularly in emerging and developing countries. It concludes that MDBs should be capitalized to better support the recovery of emerging and developing countries after the COVID-19 crisis. They should also be aligned with the Sustainable Development Goals, and enhance the role they play in promoting innovation and structural transformation, and in supporting climate change mitigation and adaptation. It underscores that the development banks should work as a system, and that better networking between MDBs and NDBs is essential and should be systematically monitored. Finally, it points out that MDBs should support the development of strong NDBs in the regions where these institutions are underrepresented.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11706&r=all |
| By: | Eduardo FERNANDEZ-ARIAS; Jiajun XU |
| Abstract: | How should National Development Banks (NDBs) assess the cost-effectiveness of using loans and loan guarantees in order to choose the type of financial instrument most appropriate for each program? We find that the development impact per dollar of fiscal resource required by each instrument largely depends on the kind of market failure that the NDB program addresses. Broadly speaking, theory suggests that the failure of the market to carry out investment projects with high social return due to positive externalities calls for soft loans or subsidy grants to incentivize investors, while poor enforcement of loan repayment or shortcomings of the private financial system to bear risk would generally favor the use of loan guarantees to improve the profitability of private loans to borrowers deemed uncreditworthy.Agency costs in second-tier operations may justify first-tier operations with a larger scope for lending, including a role for contingent lending with equity participation to reduce the fiscal burden. This stylized benchmark provides a starting point to analyze NDBs’ rationales for instrument choice and assess whether actual financial frictions are sufficiently important to justify deviations from these guidelines.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11685&r=all |
| By: | Stephany GRIFFITH-JONES; Shari SPIEGEL; Jiajun XU; Marco CARRERAS; Natalya NAQVI |
| Abstract: | This paper explores how development banks should deploy appropriate financial instruments to encourage real economic risk-taking while minimizing financial engineering risks. We distinguish real economic risks from financial engineering or intermediary risks and argue that using complex financial instruments to leverage additional private financing may undermine policy steer and lead to too much risk being taken by development banks. We then explore comparative advantages of different financial instruments such as loans, guarantees, equity, and insurance in tackling risks in normal times. Then we synthesize common features of development banks’ responses to the COVID-19 crisis. Finally, we propose future research directions.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11680&r=all |
| By: | Ricardo GOTTSCHALK; Lavinia B. CASTRO; Jiajun XU |
| Abstract: | History shows that financial crises have been a significant driver of banking regulation evolution, since the 1930s. Although Basel III made much progress in building a safer and less leveraged system, the SDGs, the climate crisis and the COVID crisis require bold action. Financial regulation on Development Banks should be discussed, considering not only a secure payment system but also a system that meets sustainable development goals. As the paper argues, these are not contradictory objectives. Development banks have unique characteristics to manage risk and can contribute to a more sustained growth path, which actually helps reducing overall financial instability. This paper is policy oriented and intends to promote a dialogue among governments, development banks and regulators. It aims to discuss the potential trade-offs of Basel III capital framework for National Development Banks regarding their ability to fulfil their developmental mandate. Do these banks deserve special treatment? What can regulators do to adapt Basel rules in order to reduce possible impacts? In particular, it discusses Basel III higher capital requirements, capital buffers, as well as the changes made on the treatment of market risk, concentration, liquidity risk and operational risks. The paper starts with a brief history of banking regulation and a summary of the main theoretical approaches that justifies it. It provides an analytical discussion of Basel III standards, considering NDBs’ characteristics and discusses how specific Basel III standards affect the ability of NDBs to fulfil their missions. The paper presents and compares three large non-retail-deposit-taking NDBs experience on Basel II implementation: BNDES of Brazil, CDB of China and KfW of Germany, drawing on both secondary information and interviews. The paper concludes that some of Basel III rules do not affect NDBs’ roles. However, some specific rules can constrain them in straightforward ways. The biggest constraint seems to come less from the levels of comprehensiveness and complexity of the framework, and more from tightening the levels of capital requirements and demanding better capital quality. Although in the three cases, capital has not been a binding constraint for them in regular times; it can become so in times of crises. The second area of contention for these big banks is the disincentive to the use of internal models, which, again, may imply more capital requirements and less risk adequacy. A third area is the new large exposure rule, which is problematic for all three banks, given their focus on large, infrastructure projects. A fourth area refers to the high-risk weights required for exposures to project finance and equity. These are financing modality and tools NDBs use extensively to support large and complex projects, and activities that involve innovation financing. A final area concerns changes in the method used for the calculation of operational risks.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC).Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11687&r=all |
| By: | Kaufmann, Christoph |
| Abstract: | This paper studies the role of international investment funds in the transmission of global financial conditions to the euro area using structural Bayesian vector auto regressions. While cross-border banking sector capital ows receded significantly in the aftermath of the global financial crisis, portfolio ows of investors actively searching for yield on financial markets world-wide gained importance during the post-crisis "second phase of global liquidity" (Shin, 2013). The analysis presented in this paper shows that a loosening of US monetary policy leads to higher global investment fund in ows to euro area equities and debt. These in ows do not only imply elevated asset prices, but also coincide with increased debt and equity issuance in the euro area. The findings demonstrate the growing importance of non-bank financial intermediation over the last decade and have important policy implications for monetary and financial stability. |
| Keywords: | Monetary policy,international spillovers,capital ows,investment funds |
| JEL: | F32 F42 G11 G15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc20:224573&r=all |
| By: | Lutz, Flora; Zessner-Spitzenberg, Leopold |
| Abstract: | We propose a small open economy model where agents borrow internationally and invest in liquid foreign assets to insure against liquidity shocks, which temporarily shut out the economy of short-term credit markets. Due to the presence of a pecuniary externality individual agents borrow too much and hold too little liquid assets relative to a social planner. This inefficiency rationalizes macroprudential policy interventions in the form of reserve accumulation at the central bank coupled with a tax on foreign borrowing. Unless combined with other measures, a tax on foreign borrowing is detrimental to welfare; it reduces agents' incentives to invest in liquid assets and thereby increases financial instability. Our model can quantitatively match the simultaneous depreciation of the exchange rate and contractions in output, gross trade ows, foreign liabilities and foreign reserves during sudden stop episodes. |
| Keywords: | international reserves,sudden stops,liquidity,macroprudential policy,pecuniary externalities |
| JEL: | D62 E44 F32 F34 F41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc20:224520&r=all |
| By: | Amrita Chatterjee (Assistant Professor, Madras School of Economics); Simontini Das (Assistant Professor, Jadavpur University, Kolkata: 700032) |
| Abstract: | Financial Inclusion has its primary objective in providing access to useful and affordable financial products and services that meet the needs of so far unbanked population for transactions, payments, savings, credit and insurance in a responsible and sustainable way. The penetration of banking services in India has made reasonable progress though there are still regional disparities with especially the rural and female population lagging behind. However, not only access but also usage of financial services matters. Moreover, as there is a strong initiative towards digitalized cashless economy in India, it is important to examine whether the country is ready for a more technology-driven financial system. As far as the diffusion of telecommunication technology is concerned, India has made a remarkable progress in urban areas giving rise to significant digital divide between rural and urban India. With spread of mobile and mobile internet though, this divide has come down to some extent. Thus if this inclination towards mobile technology can be properly channelized to improve the access as well as usage of financial services through spread of mobile banking then more and more people can be brought under the purview of institutional credit system leading to reduction in poverty and inequality. The current paper intends to study the role of information and communication technology (ICT) diffusion in improving the status of financial inclusion across the different states of India. Two separate indices for Financial Inclusion and Information Technology Diffusion are formed and the states are clustered to club the states similar in terms of their performance. Then the paper tries to test whether ICT diffusion is one of the indicators of Financial Inclusion in India. The dynamic panel data analysis helped us to identify the role of technology as well as other socio-economic factors which can contribute in interstate disparities in FI. The results show that technology does play an important role in improving financial inclusion. As the elderly people in rural as well as urban areas are still not that familiar with mobile and internet, they may not be able to get benefited by ICT revolution. But lack of education and more importantly poor status of financial literacy play a very vital role in FI |
| Keywords: | Financial Inclusion, Information and Communication Technology Diffusion, Dynamic Panel Data Model |
| JEL: | L86 L96 C23 G21 |
| URL: | http://d.repec.org/n?u=RePEc:mad:wpaper:2019-178&r=all |
| By: | Claire Yurong Hong; Xiaomeng Lu; Jun Pan |
| Abstract: | This paper examines how FinTech can lower investment barriers and help households move toward optimal risk-taking, using a unique account-level data on consumption, investments, and FinTech usage from Ant Group. During our sample period, China experienced a rapid increase in FinTech penetration in the form of offline digital payment, and our measure of FinTech adoption is constructed relative to this fast-developing trend of new technology. Taking advantage of our consumption data, we further infer individuals’ risk tolerance from their consumption volatility. We find that, while Fin-Tech adoption improves risk-taking for all, the more risk-tolerant individuals benefit more from FinTech advancement. The magnitude of FinTech improvement is further quantified relative to the optimal alignment of risk-taking and consumption prescribed by Merton (1971). Aggregating to the city-level, we find significant variations in Fin-Tech adoption across cities in China, owing to the gradual spread of the new technology from Hangzhou to inner China. Examining the enhancement in risk-taking across geographical locations, we find that cities with low financial-service coverage benefit the most from FinTech penetration. Overall, our results show that, by unshackling the traditional constraints, FinTech improves risk-taking for individuals who need it the most. |
| JEL: | G11 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28063&r=all |