nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒01‒04
27 papers chosen by
Georg Man

  2. Serbia’s New Growth Agenda By World Bank
  3. To What Extent does Convergence Explain the Slowdown in Potential Growth of the CEE Countries Following the Global Financial Crisis? By Maciej Stefański
  4. Tanzania Mainland Poverty Assessment By World Bank
  5. Zombies at Large? Corporate Debt Overhang and the Macroeconomy By ; Òscar Jordà; Moritz Schularick; Alan M. Taylor
  6. PUBLIC DEBT AND ECONOMIC GROWTH IN BRAZIL By António Afonso; Sérgio Gadelha; Agatha Silva
  7. Credit Frictions in the Great Recession By Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino
  8. Housing booms, reallocation and productivity By Sebastian Doerr
  9. Is Islamic Banking More Procyclical? Cross-Country Evidence By Alexandra ZINS; Laurent WEILL
  10. Precautionary Liquidity Shocks, Excess Reserves and Business Cycles By Bratsiotis, George; Theodoridis, Konstantinos
  11. News Shocks under Financial Frictions By Christoph Görtz; John D. Tsoukalas; Francesco Zanetti
  12. The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model By Hamza Bennani; Matthias Neuenkirch
  13. The Impact of Regulatory Stress Tests on Bank Lending and Its Macroeconomic Consequences By Falk Bräuning; Jose Fillat
  14. Forecasting expected and unexpected losses By Juselius, Mikael; Tarashev, Nikola
  15. Dealing with bank distress: Insights from a comprehensive database By Konrad Adler; Frederic Boissay
  16. trade for development. determinants of economic growth in COMESA region. A panel data approach. By Gelaye, Gassahun Getenet
  17. How relevant is governance to financing for development and partnerships? By Peride K. Blind
  18. Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession By Eckhard Hein; Judith Martschin
  19. Bank Efficiency and Access to Credit: International Evidence By Francis OSEI-TUTU; Laurent WEILL
  20. Does Access to Credit Come with Access to Voting? Democracy and Firm Financing Constraints By Francis OSEI-TUTU; Laurent WEILL
  21. Factors Influencing Access to Formal Credit of Unincorporated Enterprises in India: Analysis of NSSO's Unit-level Data. By Badola, Shivani; Mukherjee, Sacchidananda
  22. Black and White: Access to Capital among Minority-Owned Startups By Robert W. Fairlie; Alicia Robb; David T. Robinson
  23. The Allocation OF Talent: Finance versus Entrepreneurship By Kirill Shakhnov
  24. Lower Bank Capital Requirements as a Policy Tool to Support Credit to SMEs: Evidence From a Policy Experiment? By Dietsch Michel; Fraisse Henri; Lé Mathias; Lecarpentier Sandrine
  25. How Does Climate Change Interact with the Financial System? A Survey By Kakuho Furukawa; Hibiki Ichiue; Noriyuki Shiraki
  26. Bilateral international investments: The big sur? By Fernando Broner; Tatiana Didier; Sergio L. Schmukler; Goetz von Peter
  27. Illicit financial flows and the Global South: A review of methods and evidence By Kasper Brandt

  1. By: , AISDL
    Abstract: This thesis aims to examine the causal relationship between the stock market and economic growth in Vietnam in the period from 2000 to 2015. In order to examine the potential impact of the financial crisis and develop a well-functioning stock market in Vietnam, this study also undertakes a critical comparative quantitative research of a selected developing country in the South-East Asian region to identify potential policy implications. This analysis utilises the Autoregressive Distributed Lag Model to investigate the causal linkage in the long and short-run between the stock market and economic growth. The determinant vectors present in the stock market are the price index and the size of market capitalisation. This study defines economic growth as a real increase in gross domestic product per capita. Then, to develop the well-functioning stock market in Vietnam, this study undertakes a critical comparative quantitative research of a selected developing country in the South-East Asian region for the implications.
    Date: 2019–08–01
  2. By: World Bank
    Keywords: Finance and Financial Sector Development - Finance and Development Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Investment and Investment Climate Public Sector Development - Public Investment Mangement Private Sector Development - Business Environment
    Date: 2020–03
  3. By: Maciej Stefański
    Abstract: The paper estimates a simple growth model with time-varying cross-country fixed effects on a panel of high-income countries and decomposes changes in potential growth into convergence, movements in the steady state determinants, global TFP growth and labor force growth in order to investigate the sources of potential growth slowdown in CEE following the global financial crisis. Convergence is found to explain about 40% of the slowdown, the other main drivers being falling investment to GDP ratio and the TFP component. Further decomposition of investment and TFP demonstrates that domestic and external factors each account for 25-30% of the slowdown.
    Keywords: convergence, potential growth, decomposition, TFP, investment, CEE.
    JEL: O43 O47
    Date: 2020–12
  4. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - Microfinance Poverty Reduction - Poverty Assessment Social Protections and Labor - Labor Markets
    Date: 2020–03
  5. By: ; Òscar Jordà; Moritz Schularick; Alan M. Taylor
    Abstract: With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near universe modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.
    Keywords: corporate debt; business cycles; local projections
    JEL: E44 G32 G33 N20
    Date: 2020–12–08
  6. By: António Afonso; Sérgio Gadelha; Agatha Silva
    Abstract: This paperprovides new insights on the relationship between public debt and economic growth in Brazil. We used Granger causality tests, in multivariate and bivariate analyses using respectively VEC and ARDL methodologies, and monthly data over the period 1998:1-2019:11. We findthat: i) debt-to-GDP and GDP growth rate have a bi-directional Granger causality relationship; ii) debt can improve growth in the short run and becomesharmful in the long run; iii) GDP growth always reduces debt, both in the short and long run; iv) the dynamic between debt and growth in the long run is influenced by the inflation rate, exchange rate and the Emerging Markets Bond Index Plus(Embi+).
    Keywords: Granger causality; Vector Autoregressive;Autoregressive Distributed Lag; government debt; economic growth; Brazil.
    JEL: C32 C22 O40 H63 H69
    Date: 2020–12
  7. By: Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino
    Abstract: Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the firm-side credit channel. We then evaluate the relative benefits of a fixed-sized transfer to households and to firms that improves each group's access to credit. We find that the effects of such a transfer on employment are substantially larger when the transfer targets households rather than firms. Hence, we provide theoretical and quantitative support to the view that the employment decline during the Great Recession would have been less severe if instead of focusing on easing firms' access to credit, the government had expended an equal amount of resources to alleviate households' credit constraints.
    Keywords: Credit constraints; Collateral constraints; Great Recession; Financial recession; Government transfers
    JEL: E30 E32 E62 H51 J20 J60
    Date: 2020–12–15
  8. By: Sebastian Doerr
    Abstract: I establish that US public firms holding real estate have persistently lower levels of productivity than non-holders. Rising real estate values relax collateral constraints for companies that own real estate and allow them to expand production. Consequently, an increase in house prices reallocates capital and labor towards inefficient firms, with negative consequences for aggregate industry productivity. Industries with a stronger relative increase in real estate values see a significant decline in total factor productivity, and the within-industry covariance between firm size and productivity declines. My results suggest a novel channel through which real estate booms affect productivity and have implications for monetary policy.
    Keywords: housing boom, collateral, misallocation, productivity, low interest rates
    JEL: D22 D24 O16 O47 R3
    Date: 2020–11
  9. By: Alexandra ZINS (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper investigates cyclicality of Islamic banking relative to conventional banking. We examine whether loan growth and profitability have a different sensitivity to economic growth for Islamic banks and for conventional banks. We use panel data from 525 banks covering 16 countries with dual banking systems spanning the period from 2008 to 2018. We find no difference in lending cyclicality: Islamic banks and conventional banks have both a procyclical lending behavior. Profitability is procyclical for Islamic banks but not for conventional banks. Our findings support the view that Islamic banking presence does not contribute to strengthen economic stability.
    Keywords: Islamic banking, loan growth, financial stability, bank profitability, business cycles, procyclicality.
    JEL: G21
    Date: 2020
  10. By: Bratsiotis, George (Department of Economics, University of Manchester); Theodoridis, Konstantinos (Cardiff Business School)
    Abstract: This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the reluctance of the banking sector to "lend" to the real economy induced by an exogenous change in financial intermediaries' preference for "high" liquid assets. The identified shock has sizeable and state (volatility) dependent effects on the real economy. To understand the transmission of the shock, we develop a DSGE model of financial intermediation with credit and liquidity frictions. The precautionary liquidity shock is shown to work through two channels: it increases the level of reserves and the deposit rate. The former is a balance sheet effect, which reduces the loan-to-deposit ratio. The higher deposit rate affects the intertemporal decisions of households and the cost of borrowing to firms. The overall effect is a downward co-movement in output, consumption, investment and prices, which is amplified the higher are the long-run risks in the economy and the responsiveness of banks to potential risk.
    Keywords: House Prices, SVAR; Sign and Zero Restrictions; DSGE; Precautionary Liquidity Shock; Excess Reserves; Deposit Rate; Risk, Financial Intermediation.
    JEL: C10 C32 E30 E43 E51 G21
    Date: 2020–12
  11. By: Christoph Görtz; John D. Tsoukalas; Francesco Zanetti
    Abstract: We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a significant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplification of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional ‘news view’ of aggregate fluctuations.
    Keywords: news shocks, business cycles, DSGE, VAR, Bayesian estimation
    JEL: E20 E30
    Date: 2020
  12. By: Hamza Bennani; Matthias Neuenkirch
    Abstract: We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 2003Q1–2019Q4 with a special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states (e.g., a normal state and a crisis state), using an underlying logit model determining the relative weight of these states over time. We show that shocks to the credit spread and shocks to credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are less important in explaining growth fluctuations. Credit standards and the credit spread are also the key determinants of the underlying state of the economy in the logit submodel. Together with a more pronounced transmission of monetary policy shocks in the crisis state, this provides further evidence for a financial accelerator in the euro area. Finally, the detrimental effect of credit conditions is also reflected in the labor market.
    Keywords: credit growth, credit spread, credit standards, euro area, financial accelerator, mixture VAR, monetary policy transmission
    JEL: E44 E52 E58 G21
    Date: 2020
  13. By: Falk Bräuning; Jose Fillat
    Abstract: We use an expansive regulatory loan-level data set to analyze how the portfolios of the largest US banks have changed in response to the Dodd-Frank Act Stress Test (DFAST) requirements. We find that the portfolios of the largest banks, which are subject to stress-testing, have become more similar to each other since DFAST was implemented in 2011. We also find that banks with poor stress-test results tend to adjust their portfolios in a way that makes them more similar to the portfolios of banks that performed well in the stress-testing. In general, stress-testing has resulted in more diversified bank portfolios in terms of sectoral and regional composition. However, we also find that all the large banks diversified in a similar way, creating a more concentrated systemic portfolio in the aggregate. Finally, we analyze the effects of stress-testing and portfolio sensitivity to macroeconomic scenarios on credit supply. Our findings indicate that banks that experience worse results in the stress tests cut lending relative to their peers and specifically in loans that are most sensitive to the stress-test scenarios. At the borrower level, firms that rely more on credit from banks with poor stress-test results are not able to substitute lost funding and therefore face a larger reduction in credit and cut back investment. These results highlight a macroprudential effect of stress-testing: Credit growth is curtailed during a credit expansion in those banks holding a portfolio that is more sensitive to stressful scenarios. Hence, these banks are expected to be in a more resilient position at the onset of a downturn.
    Keywords: banking; regulation; stress testing; portfolio similarity; credit supply
    JEL: G20 G21 G28
    Date: 2020–10–01
  14. By: Juselius, Mikael; Tarashev, Nikola
    Abstract: Extending a standard credit-risk model illustrates that a single factor can drive both expected losses and the extent to which they may be exceeded in extreme scenarios, ie “unexpected losses.” This leads us to develop a framework for forecasting these losses jointly. In an application to quarterly US data on loan charge-offs from 1985 to 2019, we find that financial-cycle indicators – notably, the debt service ratio and credit-to-GDP gap – deliver reliable real-time forecasts, signalling turning points up to three years in advance. Provisions and capital that reflect such forecasts would help reduce the procyclicality of banks’ loss-absorbing resources.
    JEL: G17 G21 G28
    Date: 2020–12–21
  15. By: Konrad Adler; Frederic Boissay
    Abstract: We study the effectiveness of policy tools that deal with bank distress (i.e. central bank lending, asset purchases, bank liability guarantees, impaired asset segregation schemes). We present and draw on a novel database that tracks the use of such tools in 29 countries between 1980 and 2016. To keep "all else" equal, we test whether different policies explain differences in how countries fared through bank distress episodes that feature observationally similar initial macro–financial vulnerabilities. We find that, altogether, policy interventions help restore GDP growth and normalize the economy when bank distress follows a period of high cross–border exposures. Central bank lending and asset purchase schemes are especially effective in the first and second years of distress, respectively, and when bank distress follows low asset valuations, high bank leverage and weak bank performance. Overall, our results suggest that swift and broad–ranging policies can mitigate the adverse economic effects of bank distress.
    Keywords: bank distress, distress mitigation policy
    JEL: G01 G38 E60
    Date: 2020–12
  16. By: Gelaye, Gassahun Getenet
    Abstract: The objective of this paper is to analyze the determinants of economic growth in COMESA member countries from 1985-2015 using a panel data approach. In the study both descriptive and econometric analysis were used. For model specification a Hausman test and link tests were used. A Hausman test suggested for fixed effect model as an appropriate model in this study. In addition, other CLM assumptions were detected before the actual regression result and there were found a problem of serial correlation and heteroskedasticity. As a result, a cluster robust of standard error test was used to handle the problem. The regression result show that foreign direct investment, broad money, trade openness, and human capital growth were found to have positive and significant impact on economic growth in the region. In contrast, gross fixed capital formation in this study was found to have insignificant impact on economic growth in COMESA member countries. Moreover, government final consumption expenditure, inflation and population growth affects economic growth negatively and significantly in COMESA member countries. In this paper a policy recommendation appeal to appreciate domestic saving and investment from the residence, and reduction of tariff for imported capital goods and domestic innovation, reforms to be forwarded more open to global trade for the region (COMESA) member countries through reduction of trade barriers between the COMESA member countries and the rest of the world, and government consumption or investment in the region should be geared towards more productive activities for economic growth were discussed in this research paper.
    Date: 2020–11–29
  17. By: Peride K. Blind
    Abstract: It would be hard to fathom any Sustainable Development Goal (SDG) being achieved without either adequate human and financial resources and partnerships or institutions that are effective, inclusive and accountable. One would expect, therefore, that two of the most cross-cutting SDGs of the 2030 Agenda, SDG16 on Peace, justice and strong institutions and SDG17 on the Means of implementation and partnerships for development would receive ample attention in scholarly work and policy analysis. A quick overview of the literature reveals, however, that although SDG16 and SDG17 are examined quite extensively in and of themselves, linkages between the two seldom receive attention. This article attempts to fill in the gap by undertaking a preliminary comparative analysis of the targets of these two Goals. It asks if certain means of implementation included in the Addis Ababa Action Agenda on Financing for Development (AAAA) and in SDG17 can address some of the governance challenges covered by SDG16 targets, and vice-versa. The overall aim of the paper is twofold: (i) to provide ideas on how a targeted focus on SDG16-SDG17 interactions can assist in mainstreaming the AAAA into the 2030 Agenda for Sustainable Development, and (ii) to elucidate how a public administration focus can be instrumental in doing the latter and in interlinking SDG16 and SDG17.
    Keywords: financing for development, means of implementation, partnerships, engagement, governance, public institutions, public administration, public policy, public management, sustainable development, sustainable development goals, policy coherence, policy integration, 2030 Agenda for Sustainable Development
    JEL: D02 E61 G32 H83 L38 O20 O21 O43 Q01
    Date: 2019–10
  18. By: Eckhard Hein (Berlin School of Economics and Law (DE)); Judith Martschin
    Abstract: We contribute to the recent debates on demand and growth regimes in modern finance-dominated capitalism linking them to the post-Keynesian research on macroeconomic policy regimes. We examine the demand and growth regimes, as well as the macroeconomic policy regimes for the big four Eurozone countries, France, Germany, Italy and Spain, for the periods 2001-09 and 2010-19. First, our approach supports the usefulness of the identification of demand and growth regimes according to growth contributions of the main demand components and financial balances of the macroeconomic sectors. This allows for an understanding of the demand sources of growth, or stagnation, if there is a lack of demand, of how these sources are financed and of potential financial instabilities and fragilities. Second, when it comes to the macroeconomic policy drivers of demand and growth regimes, as well as their respective changes, we show that the exclusive focus on fiscal policies, as in the previous literature, is too limited, and that it is the macroeconomic policy regime which matters here, i.e. the combination of monetary, fiscal and wage policies, as well as the open economy conditions.
    Keywords: Demand and growth regimes, macroeconomic policy regimes, post-Keynesian macroeconomics
    JEL: E11 E12 E61 E63 E65 O57
    Date: 2020–12
  19. By: Francis OSEI-TUTU (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper examines the impact of bank efficiency on access to credit. We test the hypothesis that higher bank efficiency, meaning better ability of banks to operate at lower costs, favors access to credit for firms. To this end, we perform a cross-country analysis with firm-level data on access to credit and bank-level data to compute bank efficiency, using a sample of about 54,000 firms from 76 countries. We find that greater bank efficiency improves access to credit for firms. The beneficial impact of bank efficiency to alleviate credit constraints takes place through the demand channel by reducing borrower discouragement to apply for a loan. Whereas the positive impact of bank efficiency on credit access is observed for firms of all sizes, the effect tends to be more pronounced in countries with better economic and institutional framework. Our results therefore support policies favoring bank efficiency to enhance access to credit.
    Keywords: bank efficiency, access to credit, borrower discouragement.
    JEL: G21 O16
    Date: 2020
  20. By: Francis OSEI-TUTU (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg)
    Abstract: Access to credit is one of the main obstacles for the growth of firms. We test the hypothesis that democracy exerts an impact on access to credit. Democratic development is expected to alleviate credit constraints for firms by favoring inclusive institutions and by strengthening the institutional framework. We perform regressions at the firm-level on a large dataset of 46,000 firms in 108 countries. We find evidence of a negative effect of democratic development on credit constraints for firms. We further establish that democratic development contributes to reduce borrower discouragement and leads to more bank loan approval decisions. Our key finding is therefore that democracy favors access to credit. Our work contributes to the debate on the impact of democracy on economic development by considering one firm-level channel of transmission.
    Keywords: democracy, access to credit, financing constraints.
    JEL: G21 P16
    Date: 2020
  21. By: Badola, Shivani (National Institute of Public Finance and Policy); Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Unincorporated enterprises significantly contribute to India's GDP and generate large scale employment. Lack of access to formal credit often constrains enterprises to scale up. Understanding factors influencing access to formal credit of unincorporated enterprises is important which may help enterprises to improve performance and become credit worthy. For creditors, present analysis may help to broad base the criteria in selection and disbursement of credit to enterprises. The present paper explores the factors which influence access to formal credit of unincorporated enterprises across states in India. Results show that various operational and economic characteristics influence the access to formal credit. The analysis indicates that size of an enterprise (measured in terms of number of workers, total assets, etc.), gross value added, turnover, maintenance of written and bank account, years of operation, internet usage, female entrepreneur, registration under various acts/authorities, ownership type, enterprise type, type of activities (manufacturing, services or trading), enterprises facing problems, government assistance, state specific variables etc. are statistically significant factors.
    Keywords: Unincorporated enterprises ; outstanding loan liabilities ; access to formal credit ; informal credit ; Probit Model ; India
    JEL: E44 E51 G20 G21 L53
    Date: 2020–12
  22. By: Robert W. Fairlie; Alicia Robb; David T. Robinson
    Abstract: We use confidential and restricted-access data from the Kauffman Firm Survey and matched administrative data on credit scores to explore racial disparities in access to capital for new business ventures. The novel results on racial inequality in startup financing indicate that black-owned startups start smaller and stay smaller over the entire first eight years of their existence. Black startups face more difficulty in raising external capital, especially external debt. We find that disparities in credit-worthiness constrain black entreprenuers, but perceptions of treatment by banks also hold them back. Black entrepreneurs apply for loans less often than white entrepreneurs largely because they expect to be denied credit, even when they have a good credit history and in settings where strong local banks favor new business development.
    JEL: J15 J71 L26
    Date: 2020–11
  23. By: Kirill Shakhnov (University of Surrey)
    Abstract: The rapid growth of US financial services coupled with rapid increases in wealth inequality have been focusing policy debate as to the function of the financial sector and on its social desirability as a whole. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented agents efficiently match investors with entrepreneurs, but extract excessive informational rents due to contract incompleteness. Thus the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The estimated model accounts for the simultaneous growth of wealth inequality and the financial sector in the US. The endogenous feedback between inequality and the size of the financial sector is quantitatively important.
    JEL: E44 E24 G14 L26
    Date: 2020–12
  24. By: Dietsch Michel; Fraisse Henri; Lé Mathias; Lecarpentier Sandrine
    Abstract: Starting in 2014 with the implementation of the European Commission Capital Requirement Directive, banks operating in the Euro area were benefiting from a 25% reduction (the Supporting Factor or "SF" hereafter) in their own funds requirements against Small and Medium-sized enterprises ("SMEs" hereafter) loans. We investigate empirically whether this reduction has supported SME financing and to which extent it is consistent with SME credit risk. Economic capital computations based on multifactor models do confirm that capital requirements should be lower for SMEs. Taking into account the uncertainty surrounding their estimates and adopting a conservative approach, we show that the SF is consistent with the difference in economic capital between SMEs and large corporates. As for the impact on credit distribution, our difference-in-differences specification enables us to find a positive and significant impact of the SF on the credit supply.
    Keywords: SME finance, Credit supply, Basel III, Credit risk modelling, Capital requirement.
    JEL: C13 G21 G33
    Date: 2020
  25. By: Kakuho Furukawa (Bank of Japan); Hibiki Ichiue (Bank of Japan); Noriyuki Shiraki (Bank of Japan)
    Abstract: We survey the growing literature on the interaction between climate change, which is likely associated with a growing intensity and frequency of natural disasters, and the financial system. Assets, in particular properties, do not adequately price in climate risks although disclosure and communication help alleviate the mispricing of assets. Further, natural disasters restrict the credit supply from affected banks even in areas not directly hit by the disaster; however, this negative impact is less severe for banks with more capital. Meanwhile, insurance provides some protection for the economy, firms, and households against the impact of natural disasters, but there are several challenges such as low coverage and moral hazard. Finally, our survey considers policy implications for financial authorities.
    Keywords: Asset Pricing; Banking; Insurance; Climate Change; Natural Disaster; Financial Stability
    JEL: G12 G21 G22 G41 Q54 R31
    Date: 2020–12–24
  26. By: Fernando Broner; Tatiana Didier; Sergio L. Schmukler; Goetz von Peter
    Abstract: Using country-to-country data, this paper documents a set of novel stylized facts about the rise of the South in global finance. The paper assembles comprehensive bilateral data on cross-border bank loans and deposits, portfolio investment in debt and equity, foreign direct investment, and international reserves. The main finding is that global financial integration with and especially within the South (countries outside the G7 and Western Europe) has grown faster than within the North. By 2018, the South accounted for 24 to 40 percent of international loans and deposits, portfolio investment, and foreign direct investment, an increase of roughly 10 percentage points since 2001. The growing importance of the South is reflected in the intensive and extensive margins, with fast growth in the number of bilateral links. Although China weighs heavily in these trends, international investment in the rest of the South has increased to a similar extent.
    Keywords: international capital flows; emerging economies; international financial integration; foreign direct investment; portfolio investment
    JEL: F21 F36 G15
    Date: 2020–12
  27. By: Kasper Brandt
    Abstract: Illicit financial flows (IFFs) constitute a major challenge for development in the Global South, as domestic resource mobilization is imperative for providing crucial public services. While several methods offer to measure the extent of IFFs, each has its benefits and drawbacks. Critically, methods based on the balance of payments identity may capture licit as well as illicit flows, and a method based on macroeconomic trade discrepancies suffers from doubtful assumptions.
    Keywords: illicit financial flows, Domestic resources mobilization, Tax havens, Multinational firms, Profit shifting
    Date: 2020

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