nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒02‒15
thirty-one papers chosen by
Georg Man

  1. Développement financier et croissance économique en RDC : Supply leading ou demand folowing ? By Christian Pinshi; Anselme Kabeya
  2. Credit Supply and Productivity Growth By Francesco Manaresi; Nicola Pierri
  3. International financial flows and misallocation By Federico Cingano; Fadi Hassan
  4. Mediating roles of institutions in the remittance-growth relationship: evidence from Nigeria By Ibrahim A. Adekunle; Tolulope O. Williams; Olatunde J. Omokanmi; Serifat O. Onayemi
  5. Remittances and Financial Development in Africa By Ibrahim A. Adekunle; Sheriffdeen A. Tella; Kolawole Subair; Soliu B. Adegboyega
  6. Who did it? A European Detective Story Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool By Mariarosaria Comunale; Francesco Paolo Mongelli
  7. Is Regional Trade Integration a Growth and Convergence Engine in Africa? By Vigninou Gammadigbe
  8. Financing Sustainable Development in Africa: Taking Stock, and Looking Forward By Oluwabunmi Adejumo; Uchenna Efobi; Simplice A. Asongu
  9. Aid Grants vs. Technical Cooperation Grants: Implications for Inclusive Growth in Sub-Saharan Africa, 1984-2018 By Simplice A. Asongu; Hillary C. Ezeaku
  10. The impact of Chinese FDI in Africa: evidence from Ethiopia By Crescenzi, Riccardo; Limodio, Nicola
  11. Finance, Institutions and Private Investment in Africa By Simplice A. Asongu; Joseph Nnanna; Vanessa S. Tchamyou
  12. Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa By Fisayo Fagbemi; Opeoluwa A. Adeosun
  13. Do Interest Rate Controls Work? Evidence from Kenya By Emre Alper; Benedict J. Clements; Niko A Hobdari; Rafel Moyà Porcel
  14. Dissecting Mechanisms of Financial Crises: Intermediation and Sentiment By Krishnamurthy, Arvind; Li, Wenhao
  15. Financial Sector Transparency, Financial Crises and Market Power: A Cross-Country Evidence By Baah A. Kusi; Elikplimi K. Agbloyor; Agyapomaa Gyeke-Dako; Simplice A. Asongu
  16. Competition and Bank Risk the Role of Securitization and Bank Capital By Yener Altunbas; David Marques‐Ibanez; Michiel van Leuvensteijn; Tianshu Zhao
  17. Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks By Yu Shi; Robert M. Townsend; Wu Zhu
  18. Bank default risk propagation along supply chains: evidence from the UK By Ali Kabiri; Vlad Malone; Isabelle Roland; Mariana Spatareanu
  19. Preliminary findings on structural issues in the Vietnamese financial research landscape from 2008-2020 By Ho, Tung Manh; Nguyen, Quoc-Hung; Le, Ngoc-Thang B.; Tran, Hung-Long D.
  20. FinTech in the Financial Market By Maxime Delabarre
  21. FinTech in Financial Inclusion: Machine Learning Applications in Assessing Credit Risk By Majid Bazarbash
  22. Access-for-all to Financial Services: Non-resources Tax Revenue-harnessing Opportunities in Developing Countries By Ali Compaoré
  23. Financial Globalization and Inequality: Capital Flows as a Two-Edged Sword By Barry J. Eichengreen; Balazs Csonto; Asmaa A ElGanainy; Zsoka Koczan
  24. Measuring Income Inequality and Implications for Economic Transmission Channels By Robert Blotevogel; Eslem Imamoglu; Kenji Moriyama; Babacar Sarr
  25. International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending By Sangyup Choi; Davide Furceri; Chansik Yoon
  26. International Public Capital Flows By Hung Ly Dai
  27. Modelling Sovereign Credit Ratings: Evaluating the Accuracy and Driving Factors using Machine Learning Techniques By Bart H. L. Overes; Michel van der Wel
  28. Bank Balance Sheets and External Shocks in Asia: The Role of FXI, MPMs and CFMs By Zefeng Chen; Sanaa Nadeem; Shanaka J Peiris
  29. Current account imbalances: Exploring role of domestic and external factors for large emerging markets By Krittika Banerjee; Ashima Goyal
  30. Inequality, Finance and Renewable Energy Consumption in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  31. Climate Actions and Stranded Assets: The Role of Financial Regulation and Monetary Policy By Francesca Diluiso; Barbara Annicchiarico; Matthias Kalkuhl; Jan C. Minx

  1. By: Christian Pinshi (UNIKIN - University of Kinshasa); Anselme Kabeya (UNIKIN - University of Kinshasa)
    Abstract: This paper aims to verify the causal relationship between financial development and economic growth in the Democratic Republic of Congo (DRC) using data from 2004 to 2019. The dynamic Granger causality analysis is used to analyze the variables. The results indicate that there is a robust, one-way relationship from economic growth to financial development. This result confirms the Demand-following hypothesis that economic growth drives the development of the financial system. Therefore, policies to promote economic growth, such as the accumulation of human capital, macroeconomic stabilization, rehabilitation of key infrastructure, structural reforms and the creation of a good economic environment for the private and regulatory sector, are crucial to improve financial development in the DRC.
    Abstract: Ce papier vise à vérifier la relation de causalité entre le développement financier et la croissance économique en République Démocratique du Congo (RDC) en utilisant des données de 2004 à 2019. L'analyse dynamique de la causalité de Granger est utilisée pour analyser les variables. Les résultats indiquent qu'il existe une relation robuste et unidirectionnelle allant de la croissance économique au développement financier. Ce résultat confirme l'hypothèse de Demande following, selon laquelle, la croissance économique entraine le développement du système financier. Par conséquent, des politiques visant à promouvoir la croissance économique, tels que l'accumulation du capital humain, la stabilisation macroéconomique, la réhabilitation des infrastructures clés, les reformes structurelles et la création d'un bon environnement économique pour le secteur privé et réglementaire, sont cruciales pour améliorer le développement financier en RDC.
    Keywords: democratic republic of the,Congo,Economic growth,Financial development,République démocratique du Congo,croissance économique,Mots clés : Développement financier
    Date: 2021–01–04
  2. By: Francesco Manaresi; Nicola Pierri
    Abstract: We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.
    Keywords: Credit;Productivity;Supply shocks;Banking;Bank credit;WP,supply shock,credit supply,interbank market,capital stock
    Date: 2019–05–17
  3. By: Federico Cingano; Fadi Hassan
    Abstract: We study the impact of international financial flows on credit allocation exploiting the early 2000s boom of capital inflows in Italy. Using detailed bank-firm matched data we compare the patterns of credit allocation of banks with different exposure to the shock. Exposed banks significantly expand lending to high productivity and low credit-constraint firms. Constrained but high productivity firms also benefit from the shock. These results hold using alternative measures of firm productivity and credit constraints or of bank exposure to the flows, and do not seem to be driven by concurrent changes in bank funding or by the sorting of borrowers and lenders. We also find that the patterns of credit allocation induced by capital inflows have a positive, albeit small, impact on aggregate TFP. These results show that international financial flows did not contribute to increase misallocation.
    Keywords: International financial flows, misallocation, productivity
    JEL: F30 F43 G21
    Date: 2020–06
  4. By: Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Tolulope O. Williams (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Olatunde J. Omokanmi (Crown-Hill University, Eiyenkorin, Nigeria); Serifat O. Onayemi (Olabisi Onabanjo University, Ogun State, Nigeria)
    Abstract: In this study, we examine the mediating roles of institutions in the remittances growth relationship for some reasons. We found that no country-specific study has towed this line leaving a vacuum in the literature of development and international finance. Most studies along this dimension have been done as a continental panel study with significant attendant deficiencies. Heterogeneous nature of institutional arrangements in African nations makes findings on the moderation roles of institutions in the remittance-growth relationship regional specific. We rely on the autoregressive distributed lag (ARDL) estimation procedure to establish a clear line of thought on the interactions of the variables of interest. Short-run results revealed that remittances inflow positively influence growth, but when institutional factors interact with the remittances variables, only the regulatory quality measures from the product of interactions matters for growth. Nonetheless, long run results revealed that remittances inflow was negatively related with growth, but when interacted with institutional measures and regressed on growth outcomes, we found remittances to positively and statistically influence growth outcomes for all the institutional measures adopted. Therefore, recipient nations should improve on the design and enforcement of laws particularly about their regulatory quality and as well as quality assurance such that they could be positioned to attract increased remittances inflow as well as other sources of external financing needed to augment domestic productivity and growth.
    Keywords: Economic Growth, Remittances, Institutions, ARDL, Nigeria
    JEL: E01 E44 F24
    Date: 2020–01
  5. By: Ibrahim A. Adekunle (EXCAS, Liège, Belgium); Sheriffdeen A. Tella (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Kolawole Subair (Yobe State University, Damaturu, Nigeria); Soliu B. Adegboyega (Olabisi Onabanjo University, Ago-Iwoye, Nigeria)
    Abstract: Despite the magnitude of remittances as an alternative source of investment financing in Africa, the financial sector in Africa has significantly remained underdeveloped and unstable. Finding a solution to Africa's financial deregulation problems has proved tenacious partly because of inadequate literature that explain the nature of Africa capital and financial markets which has shown to be unorganised, spatially fragmented, highly segmented and invariably externally dependent. We examine the structural linkages between remittances and financial sector development in Africa. Panel data on indices of remittances was regressed on indices of financial sector development in fifty-three (53) African countries from 1986 through 2017 using the Pooled Mean Group (PMG) estimation procedure. We accounted for cross-sectional dependence inherent in ordinary panel estimation and found a basis for the strict orthogonal relationship among the variables. Findings revealed a positive long-run relationship between remittances and financial development with a significant (positive) short-run relationship. It is suggested that, while attracting migrants' transfers which can have significant short-run poverty-alleviating advantages, in the long run, it might be more beneficial for African governments to foster financial sector development using alternative financial development strategies.
    Keywords: Remittance, Financial Development, Pooled Mean Group, Africa
    JEL: F37 G21
    Date: 2020–01
  6. By: Mariarosaria Comunale (Bank of Lithuania & the Australian National University); Francesco Paolo Mongelli (European Central Bank)
    Abstract: During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.
    Keywords: euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, and synchronization
    JEL: C23 E40 F33 F43
    Date: 2020–05–11
  7. By: Vigninou Gammadigbe
    Abstract: The main objective of Regional Trade Agreements (RTAs) is to stimulate economic growth in participating countries through increased trade, economies of scale, knowledge and technology transfer. Using a panel data over the period 1979 to 2018, this paper examines the contribution of regional trade integration (RTI) to economic growth and income convergence in Africa and its major Regional Economic Communities (RECs). The results of the instrumental variable and panel fixed-effects estimation show that RTI promotes economic growth in Africa. However, it fosters income divergence, reflecting the distribution of the gains from regional integration in favor of the more developed economies of the continent. The results of this study show the importance to support the African Continental Free Trade Area (AfCFTA) project with policies aimed at reducing non-tariff barriers to trade and improving infrastructure in order to maximize the effects on growth in all participating countries.
    Date: 2021–01–29
  8. By: Oluwabunmi Adejumo (Obafemi Awolowo University, Ile-Ife, Nigeria); Uchenna Efobi (Covenant University, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Financing sustainable development in Africa requires financing options that is best for development in the region without further escalating other societal problems. This chapter takes stock of financing options previously advocated for financing development in the African region such as development assistance and foreign investment. By considering its implication on development outcomes like poverty, inequality, and aggregate human development, some drawbacks still exist. Therefore, the chapter identifies, reconfigures and reinvents other financial flows such as mutual support networks, agricultural cooperatives, crowd funding, fiscal responsibility, other forms of informal banking, and remittances, among others to African countries for efficient provision of structures that can aid in the sustenance of development. We conclude that these alternative means of financing development could be a viable policy option to bridge income and development gaps; thereby mainstreaming the process for financial inclusion and sustainability.
    Keywords: Finance; Sustainable Development
    JEL: G20 I00 O10
    Date: 2020–01
  9. By: Simplice A. Asongu (Yaounde, Cameroon); Hillary C. Ezeaku (Caritas University, Enugu, Nigeria)
    Abstract: This study investigates the effects of aid grants on inclusive growth in 37 Sub-Saharan African countries for the period 1984-2018. Grant aid is decomposed into aid grants and technical cooperation grants. Two inclusive growth indicators are used namely: gross domestic product (GDP) per capita growth and unemployment rate. The dynamic panel autoregressive distributed lag (ARDL) approach which is employed comprises three different estimators; the pooled mean group (PMG), mean group (MG), and dynamic fixed effect (DFE). The Hausman diagnostics were used to assess the efficiency and consistency of the estimators. Based on the PMG estimator, our findings show that aid grants and technical cooperation grants exert a positive influence on GDP per capita growth in the long-run. However, while the observed influence of aid grants is found to be significant, technical cooperation grants display insignificant effects. In the short run, however, the PMG estimates show that aid grants and technical cooperation grants have negative and insignificant effects on GDP per capita growth. On the other hand, results based the DFE estimators reveal that neither of the aid grants has influenced the unemployment rate positively in the short-run. However, whereas aid grants contribute significantly to the reduction of the unemployment rate in the long run, technical cooperation grants do not. This study complements the attendant literature by assessing how aid grants versus technical cooperation grants affect inclusive growth. The findings are relevant to international policy coordination for the attainment of sustainable development goals.
    Keywords: Aid grants, Technical Cooperation grants, Inclusive growth
    JEL: B20 F35 F50 O10 O55
    Date: 2020–01
  10. By: Crescenzi, Riccardo; Limodio, Nicola
    Abstract: We exploit exogenous variation in China’s export taxes to investigate the impact of Chinese foreign direct investment (FDI) in Ethiopia. Higher sector-specific export taxes in China lead to more Chinese FDI in Ethiopian districts specialized in those sectors and generate highly heterogeneous effects. Domestic firms competing with Chinese FDI reduce their sales, investment, inputs and prices, while firms in upstream and downstream sectors expand. We build a 20-year district panel of night lights and observe that Chinese FDI leads to no instantaneous impact on local growth, but significant and persistently positive effects after 6-12 years.
    Keywords: foreign direct investment; domestic investment; growth; 639633-MASSIVE-ERC2014-STG
    JEL: F23 O16 O47
    Date: 2021–01–01
  11. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon)
    Abstract: The study extends the debate on finance versus institutions and measurement of property rights institutions. We assess the relationships between various components of property rights institutions and private investment, notably: political, economic and institutional governances. Comparative concurrent relationships of financial dynamics of depth, efficiency, activity and size are also investigated. The findings provide support for the quality of institutions as a better positive correlate of private investment than financial intermediary development. The interaction of finance and governance is not significant in potentially promoting private investment, perhaps due to substantially documented surplus liquidity issues in African financial institutions. The empirical evidence is based on 53 African countries for the period 1996-2010. Policy measures are discussed for reducing financial deposits, increasing financial activity and hence, improving financial efficiency.
    Keywords: Finance; Institutions; Investment: Property Rights; Africa
    JEL: G20 G24 E02 P14 O55
    Date: 2020–01
  12. By: Fisayo Fagbemi (Obafemi Awolowo University, Ile-Ife, Nigeria); Opeoluwa A. Adeosun (Obafemi Awolowo University, Ile-Ife, Nigeria)
    Abstract: The study examines the long run relationship and interconnections between public debt and domestic investment in 13 West African countries from 1986-2018. Using panel Panel Dynamic Least Squares (DOLS) and Panel Fully Modified Least Squares (FMOLS), debt (% of GDP) and external debt have an insignificant effect on investment in the long run, suggesting the negligible effect of public debt on the level of investments. But domestic investment Granger causes public debt indicators, implying that there is unidirectional causality. This suggests that any investment-generation policy could engender a rise in public borrowing, although such public loans might not be effective when there is pervasive mismanagement of public funds, as public debts need to be well managed for ensuring improved investment. Thus, the study suggests that maintaining a strong and effective debt-investment nexus requires fiscal consolidation efforts across countries, as such could lead to enhanced institutional capacity and sustainable investment-generation policy.
    Keywords: Public debt, investment, fiscal policy, cointegration analysis, West Africa
    JEL: H63 E22 H30
    Date: 2020–01
  13. By: Emre Alper; Benedict J. Clements; Niko A Hobdari; Rafel Moyà Porcel
    Abstract: This paper reviews the impact of interest rate controls in Kenya, introduced in September 2016. The intent of the controls was to reduce the cost of borrowing, expand access to credit, and increase the return on savings. However, we find that the law on interest rate controls has had the opposite effect of what was intended. Specifically, it has led to a collapse of credit to micro, small, and medium enterprises; shrinking of the loan book of the small banks; and reduced financial intermediation. We also show that interest rate caps reduced the signaling effects of monetary policy. These suggest that (i) the adverse effects could largely be avoided if the ceiling was high enough to facilitate lending to higher risk borrowers; and (ii) alternative policies could be preferable to address concerns about the high cost of credit.
    Keywords: Interest rate policy;Banking;Bank credit;Credit;Central bank policy rate;WP,interest rate,rate,lending,control,bank
    Date: 2019–05–31
  14. By: Krishnamurthy, Arvind (Stanford U); Li, Wenhao (U of Southern California)
    Abstract: We develop a model of financial crises with both a financial amplification mecha- nism, via frictional intermediation, and a role for sentiment, via time-varying beliefs about an illiquidity state. We confront the model with data on credit spreads, equity prices, credit, and output across the financial crisis cycle. In particular, we ask the model to match data on the frothy pre-crisis behavior of asset markets and credit, the sharp transition to a crisis where asset values fall, disintermediation occurs and output falls, and the post-crisis period characterized by a slow recovery in output. A pure amplification mechanism quantitatively matches the crisis and aftermath period but fails to match the pre-crisis evidence. Mixing sentiment and amplification allows the model to additionally match the pre-crisis evidence. We consider two versions of sentiment, a Bayesian belief updating process and one that overweighs recent observations. Both models match the crisis patterns qualitatively, while the non-Bayesian model better matches the pre-crisis froth quantitatively. Finally, we show that a lean-against-the-wind policy has a quantitatively similar impact in both versions of the belief model, indicating that policy need not condition on true beliefs.
    Date: 2020–09
  15. By: Baah A. Kusi (University of Ghana Business School, Ghana); Elikplimi K. Agbloyor (University of Ghana Business School, Ghana); Agyapomaa Gyeke-Dako (University of Ghana Business School, Ghana); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: The study investigates how financial sector transparency moderates the influence of financial crises on bank market power across seventy-five economies between 2004 and 2014. Employing two-step dynamic system generalized method of moments the study shows that while public sector-led financial sector transparency reduces bank market power, private sector-led financial sector transparency promotes bank market power given that private sector-led transparency gives financial cost advantage to financially sound banks to solidify the market power and dominance. Similarly, while financial crises reduce the market power of banks implying that during financial crises banks lose their market power, financial sector transparency promotes the negative effect of financial crises on bank market power. This implies that during financial crises, financial sector transparency whether enforced through private or public sector, boosts the weakening effect of financial crises on bank market power. These findings imply that regulators can rely on financial transparency to tame bank market power to enhance banking competitiveness. The findings and results are consistent even when country, time and continental effects are controlled for.
    Keywords: Market Power; Bank; Financial Sector Transparency; Private Sector; Public Sector
    Date: 2020–01
  16. By: Yener Altunbas; David Marques‐Ibanez; Michiel van Leuvensteijn; Tianshu Zhao
    Abstract: We examine how bank competition in the run-up to the 2007–2009 crisis affects banks’ systemic risk during the crisis. We then investigate whether this effect is influenced by two key bank characteristics: securitization and bank capital. Using a sample of the largest listed banks from 15 countries, we find that greater market power at the bank level and higher competition at the industry level lead to higher realized systemic risk. The results suggest that the use of securitization exacerbates the effects of market power on the systemic dimension of bank risk, while capitalization partially mitigates its impact.
    Keywords: Banking;Systemic risk;Securitization;Financial crises;Competition;WP,bank risk,capital ratio,bank competition variable
    Date: 2019–07–02
  17. By: Yu Shi; Robert M. Townsend; Wu Zhu
    Abstract: Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.
    Keywords: Credit;Supply shocks;Bank credit;Stocks;Capital markets;WP,subsidiary firm,trade credit,bank financing condition,profit margin
    Date: 2019–05–21
  18. By: Ali Kabiri; Vlad Malone; Isabelle Roland; Mariana Spatareanu
    Abstract: How does banks' default risk affect the probability of default of non-financial businesses? The literature has addressed this question by focusing on the direct effects on the banks' corporate customers - demonstrating the existence of bank-induced increases in firms' probabilities of default. However, it fails to consider the indirect effects through the interfirm transmission of default risk along supply chains. Supply chain relationships have been shown to be a powerful channel for default risk contagion. Therefore, the literature might severely underestimate the overall impact of bank shocks on default risk in the business economy. Our paper fills this gap by analyzing the direct as well as the indirect impact of banks' default risk on firms' default risk in the U.K. Relying on Input-Output tables, we devise methods that enable us to examine this question in the absence of microeconomic data on supply chain links. To capture all potential propagation channels, we account for horizontal linkages between the firm and its competitors in the same industry, and for vertical linkages, both between the firm and its suppliers in upstream industries and between the firm and its customers in downstream industries. In addition, we identify trade credit and contract specificity as significant characteristics of supply chains, which can either amplify or dampen the propagation of default risk. Our results show that the banking crisis of 2007-2008 affected the non-financial business sector well beyond the direct impact of banks' default risk on their corporate clients.
    Keywords: default risk, propagation of banking crises, supply chains
    JEL: G21 G34 O16 O30
    Date: 2020–06
  19. By: Ho, Tung Manh; Nguyen, Quoc-Hung; Le, Ngoc-Thang B.; Tran, Hung-Long D.
    Abstract: In this report, we will look at major research findings on foreign direct investment (FDI), SMEs, micro-credit programs, financial inclusion, and IFRS adoption. These topics are of increasing importance, and they have gradually become critical for academia, policymakers, and corporate sectors if they are set to investigate Vietnam’s fast-expanding economy.
    Date: 2021–01–12
  20. By: Maxime Delabarre (Sciences Po - Sciences Po)
    Abstract: This essay argues that the common competition framework is not to be applied to the financial sector. If traditionally competition brings efficiency and diversity in a market, financial regulators must also ensure the stability of the financial market. Henceforth, some limits and entry barriers have to exist. This is particularly true for FinTech companies. If the potential of those new actors is not to be contested, the risk they can bring is also quite obvious. If regulators want the market to be disrupted and to see consumers benefiting from the power of innovation of technology-based companies, they need to adapt their regulatory framework. Only under this condition will the benefits outweigh the potential risks.
    Keywords: Financial regulations,financial stability,competition,financial market,innovation
    Date: 2021–01–12
  21. By: Majid Bazarbash
    Abstract: Recent advances in digital technology and big data have allowed FinTech (financial technology) lending to emerge as a potentially promising solution to reduce the cost of credit and increase financial inclusion. However, machine learning (ML) methods that lie at the heart of FinTech credit have remained largely a black box for the nontechnical audience. This paper contributes to the literature by discussing potential strengths and weaknesses of ML-based credit assessment through (1) presenting core ideas and the most common techniques in ML for the nontechnical audience; and (2) discussing the fundamental challenges in credit risk analysis. FinTech credit has the potential to enhance financial inclusion and outperform traditional credit scoring by (1) leveraging nontraditional data sources to improve the assessment of the borrower’s track record; (2) appraising collateral value; (3) forecasting income prospects; and (4) predicting changes in general conditions. However, because of the central role of data in ML-based analysis, data relevance should be ensured, especially in situations when a deep structural change occurs, when borrowers could counterfeit certain indicators, and when agency problems arising from information asymmetry could not be resolved. To avoid digital financial exclusion and redlining, variables that trigger discrimination should not be used to assess credit rating.
    Keywords: Credit risk;Credit;Credit ratings;Loans;Machine learning;WP,ML model,bears risk,machine learning technique,ML analysis,ML evaluation
    Date: 2019–05–17
  22. By: Ali Compaoré (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Financial inclusion refers to access to and use of formal financial services by individuals and businesses and the literature unambiguously documented that access-for-all to financial services is conducive to important economic and development outcomes. In this paper, we particularly investigate the impact of financial inclusion on non-resources tax revenue in developing countries. Based on a sample of 63 developing countries over the period 2004-2017 and drawing on the dynamic generalized method of moments (GMM), the paper finds that greater access to financial services captured by the number of ATMs per 100,000 adults increases government non-resources tax-to-GDP ratio, and this result is driven by households consumption and business expansion. Our findings provide insights on tax resources-harnessing opportunities from implementing and promoting financial inclusion policies for developing economies.
    Keywords: G21,H20,O11,O23 Financial inclusion,Non-resource tax-to-GDP ratio,Private consumption,Unemployment,Developing countries
    Date: 2020–12–29
  23. By: Barry J. Eichengreen; Balazs Csonto; Asmaa A ElGanainy; Zsoka Koczan
    Abstract: We review the debate on the association of financial globalization with inequality. We show that the within-country distributional impact of capital account liberalization is context specific and that different types of flows have different distributional effects. Their overall impact depends on the composition of capital flows, their interaction, and on broader economic and institutional conditions. A comprehensive set of policies – macroeconomic, financial and labor- and product-market specific – is important for facilitating wider sharing of the benefits of financial globalization.
    Date: 2021–01–08
  24. By: Robert Blotevogel; Eslem Imamoglu; Kenji Moriyama; Babacar Sarr
    Abstract: We study the channels that theoretically transmit the effects of inequality to economic growth, unlike much of the existing literature that focuses on the direct linkage. The role of inequality in these transmission channels is difficult to pin down and varies with the particular inequality indicator chosen. We run our analyses with six methodologically distinct inequality measures (Gini coefficients and Top10 income shares). Methodological differences within the set of Gini coefficients and the Top10 income shares exert a first-order impact on the estimated relationships, which is generally larger than the effect of switching between Gini and Top10 income shares. For a given inequality indicator, we find that the transmission channels can react in opposite directions, with the net effect on growth difficult to determine. Finally, we emphasize two additional but so far underappreciated empirical complications: (i) estimated relationships change over time; and (ii) fragile countries create significant but counterintuitive empirical associations that may obscure structural relationships.
    Keywords: Income inequality;Personal income;Income distribution;Human capital;Disposable income;WP,inequality indicator,event study,income share,capital consumption,price level
    Date: 2020–08–14
  25. By: Sangyup Choi; Davide Furceri; Chansik Yoon
    Abstract: This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards the 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending. The magnitude of the effect is also economically significant: the effect of 1 percent of GDP increase (decrease) in spending (revenue) is comparable to an exogenous decline in the federal funds rate. We also find that fiscal shocks tend to have larger effects during periods of recessions than expansions in the source country, and that the adverse effect of a fiscal consolidation is larger than the positive effect of the same size of a fiscal expansion. In contrast, we do not find systematic and statistically significant differences in the spillover effects across recipient countries depending on their exchange rate regime, although capital controls seem to play some moderating role. The extension of the analysis to a panel of 16 small open economies confirms the finding from the U.S. economy.
    Keywords: Cross-border banking;Bank credit;Fiscal stimulus;Expenditure;Spillovers;WP,bank lending,government spending,exchange rate,monetary policy
    Date: 2019–07–12
  26. By: Hung Ly Dai (Vietnam Central Economic Commission, Hanoi, Vietnam)
    Abstract: We analyze the international public capital flows by exploring the sovereign debt rating, a proxy for the safety of safe assets, on a crosssection sample of 132 advanced and developing economies. A higher sovereign debt rating is associated with less net public capital inflows, which are attributed to the decrease of grants inflows, net official debts inflows and IMF credit flows. Moreover, a higher productivity growth rate is associated with more foreign reserves for low sovereign debt rating but with less foreign reserves for high sovereign debt rating. Therefore, the net public capital inflows, especially the foreign reserves, builds up a buffer stock for the economy with low sovereign debt rating to insure against future uncertainty. The result is robust for instrument variable (IV) regression.
    Keywords: Public Capital Flows,Sovereign Debt Rating,Productivity Growth,Allocation Puzzle,Instrument Variable Regression
    Date: 2020–06
  27. By: Bart H. L. Overes; Michel van der Wel
    Abstract: Sovereign credit ratings summarize the creditworthiness of countries. These ratings have a large influence on the economy and the yields at which governments can issue new debt. This paper investigates the use of a Multilayer Perceptron (MLP), Classification and Regression Trees (CART), and an Ordered Logit (OL) model for the prediction of sovereign credit ratings. We show that MLP is best suited for predicting sovereign credit ratings, with an accuracy of 68%, followed by CART (59%) and OL (33%). Investigation of the determining factors shows that roughly the same explanatory variables are important in all models, with regulatory quality, GDP per capita and unemployment rate as common important variables. Consistent with economic theory, a higher regulatory quality and/or GDP per capita are associated with a higher credit rating, while a higher unemployment rate is associated with a lower credit rating.
    Date: 2021–01
  28. By: Zefeng Chen; Sanaa Nadeem; Shanaka J Peiris
    Abstract: In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabilities. This paper extends the DSGE model of Gertler and Karadi (2011) to incorporate these key features and estimates a panel vector autoregression on ten Asian economies to understand the role of the banking sector in transmitting spillovers from the global financial cycle to small open economies. It also evaluates the effectiveness of foreign exchange intervention (FXI) and other macroeconomic policies in responding to external financing shocks. External financial shocks affect net external liabilities of banks and the exchange rate, leading to changes in credit supply by banks and investment. For example, a capital outflow shock leads to a deprecation that reduces the net worth and intermediation capacity of banks exposed to foreign currency liabilities. In such cases, the exchange rate acts as shock amplifier and sterilized FXI, often deployed by Asian economies, can help cushion the economy. By contrast, with real shocks, the exchange rate serves as a shock absorber, and any FXI that weakens that function can be costly. We also explore the effectiveness of the monetary policy interest rate, macroprudential policies (MPMs) and capital flow management measures (CFMs).
    Date: 2021–01–15
  29. By: Krittika Banerjee (Indira Gandhi Institute of Development Research); Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: Global trade imbalances have been a focal point of discussion in international economics literature but opinions remain highly divided with respect to its origin. This paper studies the impact of relative financial development and governance institutions of key large emerging market economies (EMEs) on their current account balances (CAB) defined as surpluses vis-a-vis impact from uncertainty in foreign capital flows over 1995-2018. Changing dynamics of global imbalances, that underwent significant structural changes around the years 2000 and 2008 (Global Financial Crisis), is also studied. Panel instrumental variable (Anderson-Hsiao, 1981) estimation is used to account for endogeneity from institutions. Results show that EMEs with higher financial development as well as better governance institutions accumulate significantly lesser surpluses. This supports the hypothesis of excess precautionary savings from lack of institutions. Democratic accountability emerges as a dominant factor throughout the entire period of analysis and also yielded the highest impact on CAB during pre-2008 years. Government stability and anti-corruption measures along with financial development influenced CAB only after 2000. While surpluses are reduced with better institutions, they are, however, increased significantly with higher uncertainty in the external sector as well as with higher independence from natural resource exports. EME surpluses were increased significantly with increased volatility in net flows in overall and portfolio equity capital respectively in 2001-08 and post-2008 period, the latter showing the higher impact on portfolio flows to EMEs during unconventional monetary policy years. Results indicate that during post-2008 years significant rebalancing in EME surpluses occurred due to less intervention accompanied with lower growth and developing institutions. Policy implications follow: EMEs institutions are important instruments in correcting global imbalances, while AE policies should also take into account repercussions on EMEs through the financial and external sectors.
    Keywords: Current account, Global imbalances, Governance, Capital flows, Precautionary savings, Uncertainty, Anderson-Hsiao method
    JEL: F42 F14 F32
    Date: 2021–01
  30. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The study investigates linkages between financial development, income inequality and renewable energy consumption from 39 countries in Sub-Saharan Africa. The empirical evidence is based on data for the period 2004-2014, Generalized Method of Moments (GMM) and Quantile Regressions (QR). The GMM results show that financial development unconditionally promotes renewable energy consumption while income inequality counteracts the underlying positive effect. The QR results reveal that the GMM findings only withstand empirical validity in bottom quantiles of the renewable energy consumption distribution. In order to increase room for policy implications for the promotion of renewable energy consumption, critical masses of income inequality that should not be exceeded are computed for bottom quantiles of the renewable energy consumption distribution while income inequality thresholds that should be exceeded are computed for top quantiles of the renewable energy consumption distribution. The study reconciles two strands of the literature. Theoretical, practical and policy implications are discussed.
    Keywords: Renewable energy; Inequality; Finance; Sub-Saharan Africa; Sustainable development
    JEL: H10 Q20 Q30 O11 O55
    Date: 2020–01
  31. By: Francesca Diluiso (Mercator Research Institute on Global Commons and Climate Change (MCC)); Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Matthias Kalkuhl (Mercator Research Institute on Global Commons and Climate Change (MCC) & University of Potsdam); Jan C. Minx (Mercator Research Institute on Global Commons and Climate Change (MCC) & Priestley International Centre for Climate, university of Leeds)
    Abstract: Limiting global warming to well below 2°C may result in the stranding of carbon-sensitive assets. This could pose substantial threats to financial and macroeconomic stability. We use a dynamic stochastic general equilibrium model with financial frictions and climate policy to study the risks a low-carbon transition poses to financial stability and the different instruments central banks could use to manage these risks. We show that, even for very ambitious climate targets, transition risks are limited for a credible, exponentially growing carbon price, although temporary \green paradoxes" phenomena may materialize. Financial regulation encouraging the decarbonization of the banks' balance sheets via tax-subsidy schemes significantly reduces output losses and inflationary pressures but it may enhance financial fragility, making this approach a risky tool. A green credit policy as a response to a financial crisis originated in the fossil sector can potentially provide an effective stimulus without compromising the objective of price stability. Our results suggest that the involvement of central banks in climate actions must be carefully designed in compliance with their mandate to avoid unintended consequences.
    Keywords: Climate policy, financial instability, financial regulation, green credit policy monetary policy; transition risk
    JEL: E50 H23 Q43 Q50 Q58
    Date: 2020–07–22

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