nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒01‒11
29 papers chosen by
Georg Man

  1. Corruption in The Banking Sector and Economic Growth in MENA Countries By Najah Souissi-Kachouri
  2. Are Bigger Banks Better? Firm-Level Evidence from Germany By Kilian Huber
  3. Optimal Inward Foreign Direct Investment Share within an International M&A Setting By Paul J.J. Welfens
  4. Money, Human Capital and Endogenous Market Structure in a Schumpeterian Economy By He, Qichun; Wang, Xilin
  5. Tendance de l'inflation sous-jacente en RDC: une modélisation à partir de l'approche VAR structurelle By Murhula, Pacifique
  6. Zombie Credit and (Dis-)Inflation: Evidence from Europe By Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger
  7. Shock Propagation in the Banking System with Real Economy Feedback By Andras Borsos; Bence Mero
  8. Credit Reversals By Vazquez, Francisco
  9. Technology Shocks and Predictable Minsky Cycles By Jean-Paul L’Huillier; Gregory Phelan; Hunter Wieman
  10. Assessing the impact of macroprudential measures: The case of the LTV limit in Lithuania By Tomas Reichenbachas
  11. France; Financial Sector Assessment Program-Technical Note-Balance Sheet Risks and Financial Stability By International Monetary Fund
  12. Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital? By Reint Gropp; Thomas C. Mosk; Steven Ongena; Carlo Wix; Ines Simac
  13. Firms’ leverage across business cycles By Antonio De Socio
  14. Leverage Shocks: Firm-Level Evidence on Debt Overhang and Investment By Serhan Cevik; Fedor Miryugin
  15. France; Financial Sector Assessment Program-Technical Note-Nonfinancial Corporations and Households Vulnerabilities By International Monetary Fund
  16. Household Debt, Consumption and Inequality By Berrak Bahadir; Kuhelika De; William D. Lastrapes
  17. The financial resilience of households: 22 country study with new estimates, breakdowns by household characteristics and a review of policy options By Abigail McKnight; Mark Rucci
  18. Modelling credit risk: evidence for EMV methodology on Portuguese mortgage data By Maria Rosa Borges; Raquel Machado
  19. Capturing banking flows: The predominant role of OFCs in the international financial architecture By Étienne Kintzler; Mathias Lé; Kevin Parra Ramirez
  20. Life after default. Private and Official Deals By Silvia Marchesi; Tania Masi
  21. Place-based SME finance policy and local industrial revivals: An empirical analysis of a directed credit program after WW2 By Takano, Keisuke; Okamuro, Hiroyuki
  22. Capital Markets and SMEs in Emerging Markets and Developing Economies By World Bank Group
  23. Creating Domestic Capital Markets in Developing Countries By Dimitrios G. Demekas; Anica Nerlich
  24. Can Interventions Spur Development of the Insurance Sector? By World Bank
  25. Are smallholder farmers credit constrained? Evidence on demand and supply constraints of credit in Ethiopia and Tanzania By Balana, Bedru; Mekonnen, Dawit Kelemework; Haile, Beliyou; Hagos, Fitsum; Yiman, Seid; Ringler, Claudia
  26. Gender and start-up capital for agrifood MSMEs in Indonesia and Viet Nam By Ambler, Kate; de Brauw, Alan; Herskowitz, Sylvan; Murphy, Mike
  27. Preparing to Maximize Finance for Development in Jordan Through a Policy Framework By Emmanuel Cuvillier; Aijaz Ahmad; Arnaud Dornel; Hussam Alzahrani
  28. The Effects of Currency Devaluation on Output Growth in Developing Economies with Currency Crises By Adebayo Mohammed, Ojuolape; H. Agboola, Yusuf; K. Moshood, Alabi; O. Abdullah, Oladipupo
  29. Feeling the Heat: Climate Shocks and Credit Ratings By Serhan Cevik; João Tovar Jalles

  1. By: Najah Souissi-Kachouri (Université Tunis El Manar)
    Abstract: Our purpose in this article is to study the impact of corruption on the banking performance and on economic growth for a group of MENA countries during the period 2000-2016. Our work is done in two stages. First, we conduct an empirical study on this panel of countries using the static panel method and we show that the effect of corruption on the soundness of the banking sector is not linear and that from a certain threshold, corruption significantly affects the problem of impaired loans in the banking sector of these economies. In a second step, we estimate a model of economic growth. We apply the instrumental variable method for the same panel of countries and we show that the non-performing loans significantly affect the economic growth of these economies. Thus, in highly corrupt economies, the banking sector may be a channel for conveying the effects of corruption on economic growth.
    Date: 2020–12–20
  2. By: Kilian Huber
    Abstract: The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.
    JEL: E24 E44 G21 G28
    Date: 2020
  3. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Cumulated inward foreign direct investment has two major macroeconomic effects: (i) on the one hand, there is a positive international technology transfer effect on real GDP (ii) on the other hand, real national income is reduced by profit remittances to the source country. This naturally leads to the question of an optimal FDI share in the total capital stock, namely for maximizing real national income. The analysis presented herein derives new results for the rather simple case of asymmetric inward foreign direct investment and the setting of international mergers & acquisitions. Moreover, an enhanced neoclassical growth model also shows new results for the golden age - the approach assumes that the output elasticity can change and that the FDI inward intensity will affect the output elasticity of capital; empirical evidence for OECD countries is presented. From this transparent analytical framework, clear results for optimal inward FDI are obtained and the implications are indeed relevant in a modern macroeconomic research perspective which includes FDI analysis in open economies. There are crucial economic policy implications for policy makers as well international organizations; the approach also can be integrated into DSGE models.
    Keywords: FDI, technology transfer, optimal economic policy, economic welfare analysis, Schumpeter
    JEL: E6 F15 F21 F23 F41
    Date: 2020–11
  4. By: He, Qichun; Wang, Xilin
    Abstract: We incorporate endogenous human capital accumulation into a scale-invariant Schumpeterian growth model with endogenous market structure. Endogenous human capital accumulation leads to continuous entry of firms. Therefore, continuous horizontal innovation is sustained by human capital accumulation in the absence of population growth and becomes a twin engine of long-run growth (together with vertical innovation). We then study monetary policy by considering a cash-in-advance constraint on consumption. We find that when the capital share in final good production is low (high), the effect of inflation on growth is positive (negative). We then use cross-country panel regressions to test the theoretical prediction and find that inflation and capital share have a significant, negative interaction effect on growth, which provides support for our theory.
    Keywords: Monetary policy; Human capital; Endogenous market structure; Economic growth
    JEL: E41 I15 O30 O40
    Date: 2020–12
  5. By: Murhula, Pacifique
    Abstract: In this paper, we estimate a SVAR model to analyze the trend of underlying inflation in the Democratic Republic of Congo and follow the identification approach of Blanchard and Quah (1989) to impose long-run restrictions. Thus, we use Congolese data on the growth rate of activity and the inflation rate from 2002Q1 to 2019Q4. Our results broadly confirm those generally found in the literature and show that the monetary shock has, in accordance with the identification constraint, almost no effect on economic activity, which tends to validate the verticality of the Phillips curve and the persistence of the negative real shock considerably explains the volatility of inflation in the Democratic Republic of Congo (DRC).
    Keywords: Core Inflation, Price Stability, Monetary Policy, Economic Growth, Structural VAR
    JEL: C32 E31 E52 E58 O47
    Date: 2020–12–28
  6. By: Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger
    Abstract: We show that “zombie credit”—cheap credit to impaired firms—has a disinflationary effect. By helping distressed firms to stay afloat, such credit creates excess production capacity, thereby putting downward pressure on product prices. Granular European data on inflation, firms, and banks confirm this mechanism. Industry-country pairs affected by a rise of zombie credit show lower firm entry and exit rates, markups, and product prices, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. Without a rise in zombie credit, inflation in Europe would have been 0.4 percentage point higher post-2012.
    Keywords: zombie lending; undercapitalized banks; disinflation; firm productivity; eurozone
    JEL: E31 E44 G21
    Date: 2020–12–01
  7. By: Andras Borsos (Magyar Nemzeti Bank (Central Bank of Hungary)); Bence Mero (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this paper we develop a model of shock propagation in the banking system with feedback channels towards the real economy. Our framework incorporates the interactions between the network of banks (exhibiting contagion mechanisms among them) and the network of firms (transmitting shocks to each other along the supply chain) which systems are linked together via loan-contracts. Our hypothesis was, that the feedback mechanisms in these coupled networks could amplify the losses in the economy beyond the shortfalls expected when we consider the subsystems in isolation. As a test for this, we embedded the model into a liquidity stress testing framework of the Central Bank of Hungary, and our results proved the importance of the real economy feedback channel, which almost doubled the system-wide losses. To illustrate the versatility of our modeling framework, we presented two further applications for different policy purposes: (i) We elaborated a way to use the model for SIFI identification, (ii) and we showed an example of assessing the impact of shocks originated in the real economy.
    Keywords: systemic risk,financial network, production network, contagion
    JEL: G01 G21 G28 C63
    Date: 2020
  8. By: Vazquez, Francisco
    Abstract: This paper studies episodes in which aggregate bank credit contracts alongside expanding economic activity—credit reversals. Using data for 179 countries during 1960‒2017, the paper finds that reversals are a relatively common phenomenon--on average, they occur every five years. By comparison, banking crises take place every eight years on average. Credit reversals and banking crises also appear related to each other: reversals become more likely in the aftermath of banking crises, while the likelihood of crises drops following reversals. Reversals are shown to be very costly in terms of foregone economic activity—about two-thirds of the costs of banking crises, after taking into account their relative frequencies.
    Keywords: Credit reversals, credit booms, credit crunches, credit cycles, banking crises, financial stability
    JEL: E32 E44 E51 G01 G21
    Date: 2020–12–21
  9. By: Jean-Paul L’Huillier (Brandeis University); Gregory Phelan (Williams College); Hunter Wieman (Williams College)
    Abstract: Big technological improvements in a new, secondary sector lead to a period of excitement about the future prospects of the overall economy, generating boom-bust dynamics propagating through credit markets. Increased future capital prices relax collateral constraints today, leading to a boom before the realization of the shock. But reallocation of capital toward the secondary sector when the shock hits leads to a bust going forward. These cycles are perfectly foreseen in our model, making them markedly different from the typical narrative about unexpected financial shocks used to explain crises. In fact, these cycles echo Minsky’s original narrative for financial cycles, according to which “financial trauma occur as normal functioning event in a capitalistic economy.”(Minsky, 1980)
    Keywords: Endogenous cycles, boom-bust dynamics, optimism, credit markets, predictability.
    JEL: E22 E23 E32 E44
    Date: 2021–01
  10. By: Tomas Reichenbachas (Bank of Lithuania)
    Abstract: In this paper, we adopt a dual micro-and-macro simulation strategy to assess the impact of introducing (or changing) the LTV limit. Due to the nature of borrower-based macroprudential measures, to assess this impact we need to use borrower-level micro data. Tightening (or loosening) the LTV limit increases the share of borrowers constrained by the policy measure in question; thus, the overall impact depends on initial market conditions. We find that the introduction of an LTV limit of 85 % in 2011 had a modest short-term impact on economic activity because the new regulatory limit was non-binding for most borrowers at the time. We estimate that if the LTV limit would not have been introduced, the household loan portfolio would have grown on average 1.5 percentage points faster per year (over 2012-2014). This would have led to a 0.5 percentage point higher housing price growth and a 0.2 percentage point higher real GDP growth. When the macroprudential LTV limit is binding for a significant portion of borrowers, lowering the LTV limit at current market conditions has a much more pronounced effect. We show that if the LTV limit had been implemented at the end of 2004, it would have substantially helped in tempering the credit and housing boom, albeit at the cost of lowering economic growth.
    Keywords: Financial stability, Macroprudential policy, Borrower-based macroprudential policy instruments, LTV limit
    JEL: C32 C53 E58 G28
    Date: 2020–12–02
  11. By: International Monetary Fund
    Abstract: This technical note on balance sheet risks and financial stability on France discusses that macroprudential policy setting faces the challenge of identifying growth of financial and macroeconomic variables above and below potential. A macro-financial structural model is presented that captures: sectoral dynamics of firms and banks and feedbacks between them; capital and default risk dynamics of each sector; capital and risk gaps i.e., deviations of capital and default risk from potential, and it provides; and a quantitative method for measurement. The report finds that default risk fluctuates during time between being too high and too low. Risk is too high during four episodes: prior to the Technology Crisis, prior to the Global Financial Crisis, prior to the Sovereign Debt Crisis, and now. The analysis implies that firms should be encouraged to strengthen their equity capital base by retaining earnings or issuing equity. This could be done also indirectly by publishing related research.
    Keywords: Insurance companies;Banking;Nonbank financial institutions;Cross-border effects;Debt default;ISCR,CR,financial crisis,capital base,equity capital,risk gap
    Date: 2019–10–29
  12. By: Reint Gropp (Halle Institute for Economic Research); Thomas C. Mosk (University of Zurich, Research Center SAFE); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Carlo Wix (Board of Governors of the Federal Reserve System); Ines Simac (KU Leuven)
    Abstract: We study how higher capital requirements introduced at the supranational level affect the regulatory capital of banks across countries. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that treated banks exploit discretion in the calculation of regulatory capital to inflate their capital ratios without a commensurate increase in their book equity and without a reduction in bank risk. Regulatory capital inflation is more pronounced in countries where credit supply is expected to tighten, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.
    Keywords: Bank capital requirements, regulatory forbearance
    JEL: G21 G28
    Date: 2020–12
  13. By: Antonio De Socio (Bank of Italy)
    Abstract: Based on a large sample of mostly unlisted non-financial companies, this paper studies the relationship between business cycles and firms’ leverage, disentangling the relative contributions of debt and equity and assessing the role of firm size in explaining cross-sectional heterogeneity. I find that aggregate leverage initially increases during busts, as debt growth remains steady, while the counterbalancing contribution of equity is smaller; after one year, as debt slows down, leverage decreases. Moreover, firm size matters, also after controlling for other proxies of financial frictions (age, risk, profitability, debt structure): leverage increases more at the beginning of busts for both very large and smaller firms; after one year, leverage decreases less for the latter, mainly due to persistently lower profits.
    Keywords: debt, equity, firm size, business cycles, crises
    JEL: E32 G01 G32
    Date: 2020–12
  14. By: Serhan Cevik; Fedor Miryugin
    Abstract: The global economy is in the midst of an unprecedented slump caused by the coronavirus pandemic. This systemic risk like no other at a time of record-breaking debt levels, especially among nonfinancial firms across the world, could exacerbate corporate vulnerabilities, deepen macro-financial instability, and cause long-lasting damage to economic potential. Using data on more than 2.8 million nonfinancial firms from 52 countries during the period 1997–2018, we develop a two-pronged approach to investigate the relationship between corporate leverage and fixed investment spending. The empirical analysis, robust to a battery of sensitivity checks, confirm corporate leverage is highly vulnerable to disruptions in profitability and cash flow at the firm level and economic growth at the aggregate level. These findings imply that corporate debt overhang could become a strenuous burden on nonfinancial firms, especially if the COVID-19 pandemic lingers and global downturn becomes protracted.
    Date: 2020–12–18
  15. By: International Monetary Fund
    Abstract: This technical note on nonfinancial corporations and households vulnerabilities on France analyzes the structure of nonfinancial corporate financing in the French economy, potential vulnerabilities of the corporate sector, and their possible channels of transmission through interconnections with the financial system. The objective of this paper is to document the evolution of French corporate debt since the global financial crisis, analyze the riskiness of this debt, the quality of allocation of this debt, and uncover potential heterogeneity across sectors and firms which may have implications at the macroeconomic level. This paper also complements existing studies by the Institut National de la Statistique et des Études Économiques, the Haut Conseil de Stabilité Financière and the Banque de France by undertaking a cross-country comparative analysis. Empirical analysis suggests that corporate debt may be allocated efficiently across publicly listed companies, but the picture is less clear among nonpublicly listed firms.
    Keywords: Loans;Housing;Global financial crisis of 2008-2009;Housing prices;Banking;ISCR,CR,financial crisis,real GDP,bank credit,return on assets
    Date: 2019–10–29
  16. By: Berrak Bahadir (Department of Economics, Florida International University); Kuhelika De (Department of Economics, Grand Valley State University); William D. Lastrapes (Department of Economics, University of Georgia)
    Abstract: This paper examines the link between household credit shocks, consumption and income inequality at the national level. Empirically, we use country-speciï¬ c VAR models to estimate the dynamic responses of aggregate consumption to household credit shocks. We then show in cross-country regressions that the consumption response is more sensitive to such shocks in countries with higher levels of inequality, even after controlling for ï¬ nancial development. Theoretically, we construct and simulate a dynamic model based on the effect of inequality on the incidence of credit constraints, to illustrate potential causal mechanisms.
    Keywords: credit constraints, credit shocks, income distribution, VAR, Gini coefficient, local projections
    JEL: E21 E32 E44 E51
    Date: 2020–12
  17. By: Abigail McKnight; Mark Rucci
    Abstract: Some households are less resilient to financial shocks than others. This may be because they have low levels of savings, have limited access to affordable credit, already hold high levels of debt or lack the skills required to manage household budgets. Financial resilience is difficult to estimate because it is a dynamic concept - the ability to recover quickly from an income or expenditure shock. This means that we have to turn to indicators of resilience. In this paper we present new estimates using harmonised micro-data for 22 countries and a number of different indicators focusing on households' savings and debt relative to their income. The results show considerable variation across countries and between households within countries. Some of this variation is likely to be due to differences in financial institutions, welfare states and cultural norms. This research was conducted prior to the Covid-19 pandemic but these baseline statistics on the financial resilience of households highlight just how vulnerable some households were to the financial shocks that followed. In 15 out of the 22 countries included in this research fewer than half of all households held sufficient savings to cover the value of three months' income and many were already over-indebted. How countries respond to the pandemic in terms of protecting households' livelihoods will be an important factor affecting households' resilience and longer term prospects.
    Keywords: financial resilience, income, savings, debt
    JEL: D14 D31 I31 I32 I38
    Date: 2020–05
  18. By: Maria Rosa Borges; Raquel Machado
    Abstract: Traditional credit risk models failed during the recent financial crisis and revealed weaknesses in forecasting and stress testing procedures. One of the main reasons for this failure was the fact that they did not include lifecycle and macroeconomic adverse selection effects. The Exogenous-Maturity-Vintage (EMV) models emerged in this context, in the credit risk literature. In this article, we assess the applicability of the EMV models to a dataset consisting of Portuguese mortgage data between 2007 and 2017, to study the determinants of default rates. We obtain and examine the exogenous, maturity and vintage curves from the dataset under analysis, plotting defaults rates through time, under each of the three component’s logic (default rates by calendar period, by age and by vintage). We show that these curves follow the expected behavior. Finally, we identify a set of explanatory variables suitable to be incorporated in an EMV model specification, for forecasting purposes, and discuss the rationality for their inclusion in the model.
    Keywords: credit risk; EMV models; mortgage loans; default rates; vintages. JEL Classification: G20; G21
    Date: 2020–11
  19. By: Étienne Kintzler; Mathias Lé; Kevin Parra Ramirez
    Abstract: This issue of Economic and Financial Debates provides new insights on offshore financial centers (OFCs) and their role in the international financial system. We first develop a statistical methodology to identify and quantify the importance of these OFCs as counterparties in the total of cross-border banking positions, based on international banking data. This allows us to establish a list of OFCs based on objective and transparent statistical criteria. A list of 13 countries/jurisdictions is derived from this work. We subsequently compute an indicator measuring the degree of extraterritoriality for each banking system based on the OFC list previously compiled in order to quantify their importance in the international financial architecture. It appears that the banking system of a reporting country holds, on average, 1/5 of its asset positions on entities resident in OFCs and receives 1/6 of its liability positions from entities resident in OFCs. Should the scope be limited to interbank positions only, this ratio is 15% on both asset and liability sides. The French banking system is at the median of global distribution and slightly below it compared to banking systems of similar maturity. Overall, the French banking system has more recourse to OFCs for funding purposes than for capital investment purposes and favors 5 OFCs among the 13 we identified. We conduct an analysis of cross-border banking flows during the major stress caused by the financial crisis in 2008 to better understand the financial stability issues raised by OFCs. On the one hand, the volatility of flows vis-à-vis OFCs is, on average, higher than or equal to that observed vis-à-vis major banking systems. On the other hand, the volume of flows to and from the OFCs is similar to those between the largest banking systems. The large volume and very significant volatility of these flows thus underline the financial stability challenges that OFCs are likely to raise. Finally, we apply a community detection method to the graph representing the interbank positions network in order to analyze the organizational pattern of banking systems interactions. Four communities emerge and indicate a very clear regionalization pattern whose perimeters reflect the importance of economic, commercial or geopolitical links in interbank links. The OFCs participate in this regionalization and are each integrated into the nearest geographical area. This integration has been taking place since 2003 and suggests that, despite the increasing interconnection of banking systems, OFCs retain a form of geographical specialization.
    Keywords: .
    Date: 2020
  20. By: Silvia Marchesi; Tania Masi
    Abstract: This paper studies the relationship between sovereign debt default and annual GDP growth distinguishing between private and official deals. Using the Synthetic Control Method to analyze 23 official and private defaulters from 1970 to 2017, we find that private defaults generate output losses both during the crisis and persisting over time. Conversely, official defaulters do not show a permanent drop in GDP per capita, neither during the crisis nor in its aftermath. Using panel data analysis to control for the creditorsÂ’loss (haircut), we conÂ…rm that official and private defaults may have different effects on GDP growth.
    Keywords: Sovereign defaults, Output losses, Synthetic control method
    JEL: F34 G15 H63
    Date: 2020–02
  21. By: Takano, Keisuke; Okamuro, Hiroyuki
    Abstract: This paper examined the effects on the performance of local SMEs of a modernization fund program for small business enterprises implemented by Osaka Prefecture in the early 1950s. Utilizing firm-level panel data based on business credit reports, we empirically evaluated the effects of the program. We found an improvement in production levels among the recipients. In addition, recipients in sectors related to munitions production or in industrial agglomerations specialized in these sectors achieved additional or larger improvements in their production levels.
    Keywords: place-based policy, postwar revival, directed credit, modernization, Osaka
    JEL: H84 N95 O12 R51 R58
    Date: 2020–10
  22. By: World Bank Group
    Keywords: Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - International Financial Markets Private Sector Development - Emerging Markets Private Sector Development - Small and Medium Size Enterprises
    Date: 2020
  23. By: Dimitrios G. Demekas; Anica Nerlich
    Keywords: Finance and Financial Sector Development - Capital Markets and Capital Flows Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - International Financial Markets Finance and Financial Sector Development - Securities Markets Policy & Regulation International Economics and Trade - Foreign Direct Investment
    Date: 2020–01
  24. By: World Bank
    Keywords: Public Sector Development - Regulatory Regimes Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - Financial Structures Finance and Financial Sector Development - Insurance & Risk Mitigation
    Date: 2020–01
  25. By: Balana, Bedru; Mekonnen, Dawit Kelemework; Haile, Beliyou; Hagos, Fitsum; Yiman, Seid; Ringler, Claudia
    Abstract: Credit constraint is considered by many as one of the key barriers to adoption of modern agricultural technologies, such as chemical fertilizer, improved seeds, and irrigation technologies, among smallholders. Past research and much policy discourse associates agricultural credit constraints with supply-side factors, such as limited access to credit sources or high costs of borrowing. However, demand-side factors, such as risk-aversion and financial illiteracy among borrowers, as well as high transaction costs, can also play important roles in credit-rationing for smallholders. Using primary survey data from Ethiopia and Tanzania, this study examines the nature of credit constraints facing smallholders and the factors that affect credit constraints. In addition, we assess whether credit constraints are gender-differentiated. Results show that demand-side credit constraints are at least as important as supply-side factors in both countries. Women are more likely to be credit constrained (from both the supply and demand sides) than men. Based on these findings, we suggest that policies should focus on addressing both supply- and demand-side credit constraints, including through targeted interventions to reduce risk, such as crop insurance and gender-sensitive policies to improve women’s access to credit.
    Keywords: ETHIOPIA; TANZANIA; EAST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; adoption; agriculture; technology; gender; smallholders; supply balance; credit; farmers; irrigation; agricultural techonologies; credit constraints; small-scale irrigation
    Date: 2020
  26. By: Ambler, Kate; de Brauw, Alan; Herskowitz, Sylvan; Murphy, Mike
    Abstract: Micro, small, and medium enterprises (MSMEs) in developing countries frequently face financial con-straints undermining their ability to reach their full production potential. These constraints include expo-sure to uninsured risk, lack of suitable savings technologies, and expensive or inaccessible credit. Such challenges may be particularly acute for MSMEs operating in the agrifood system, in value chains be-tween farmers and retailers, where the seasonality and structure of these value chains creates unique financing needs relative to other sectors. Moreover, constraints affecting MSME performance in one part of the value chain may impact other value chain actors both up and downstream, including smallholder farmers, consumers, and exporters. As has been observed more broadly about MSMEs, marginalized groups such as women, low-income households, and ethnic minorities often face additional barriers to finance and adoption suitable financial services.1 If so, then the most vulnerable populations may be unintentionally excluded from emerging economic opportunities in the agriculture sector.
    Keywords: VIET NAM, VIETNAM, SOUTH EAST ASIA, ASIA, INDONESIA, gender, small and medium enterprises, agrifood systems, value chains, capital, start-up
    Date: 2020
  27. By: Emmanuel Cuvillier; Aijaz Ahmad; Arnaud Dornel; Hussam Alzahrani
    Keywords: Governance - Governance and the Financial Sector
    Date: 2020–02
  28. By: Adebayo Mohammed, Ojuolape (University of Ilorin,); H. Agboola, Yusuf (University of Ilorin,); K. Moshood, Alabi (University of Ilorin,); O. Abdullah, Oladipupo (University of Ilorin,)
    Abstract: Currency devaluation is an important topic in the history of international economics and finance. It has proved to impact positively on some economies’ growth and negatively on others. This study focuses on the real effects of devaluing the currency in short and long run using panel data analysis. Seven countries were examined, these are; Ghana, Mexico, Malaysia, Pakistan, Philippines, Singapore and South Africa. These countries devalued their currencies within the same period under consideration. The long run effects and relationships were determined by testing for co-integration using different co-integration methods, and the short run effect was determined using the Fully Modified OLS (FMOLS) and the Error Correction Model. A panel data covering the period between 1981- 2010, was used in the analysis.The empirical results show the existence of no significant relationship between currency devaluation and output growth in the short run and a negative relationship between currency devaluation and economic growth in the long run.
    Date: 2020–12–27
  29. By: Serhan Cevik; João Tovar Jalles
    Abstract: Climate change is an existential threat to the world economy like no other, with complex, evolving and nonlinear dynamics that remain a source of great uncertainty. There is a bourgeoning literature on the economic impact of climate change, but research on how climate change affects sovereign risks is limited. Building on our previous research focusing on the impact of climate change on sovereign risks, this paper empirically investigates how climate change may affect sovereign credit ratings. By means of binary-choice models, we find that climate change vulnerability has adverse effects on sovereign credit ratings, after controlling for conventional macroeconomic determinants of credit worthiness. On the other hand, with regards to climate change resilience, we find that countries with greater climate change resilience benefit from higher (better) credit ratings. These findings, robust to a battery of sensitivity checks, also show that impact of climate change is disproportionately greater in developing countries due largely to weaker capacity to adapt to and mitigate the consequences of climate change.
    Date: 2020–12–18

This nep-fdg issue is ©2021 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.