nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒02‒22
33 papers chosen by
Georg Man

  1. The Transitional Dynamic of Finance Led Growth By Weshah Razzak; E. M. Bentour
  2. Entrepreneurship, growth and productivity with bubbles By Lise Clain-Chamosset-Yvrard; Xavier Raurich; Thomas Seegmuller
  3. How banks allocate loans in Italy: a long run perspective By De Bonis, Riccardo; Ferri, Giovanni; Forte, Antonio; Silipo, Damiano Bruno
  4. Escaping the middle income trap and getting economic growth: How does FDI can help the host country? By Nguyen-Huu, Thanh Tam; Pham, Ngoc-Sang
  8. Decomposition of Bank Loans and Economic Activity in Turkey By Hande Kucuk Yesil; Pinar Ozlu; Caglar Yunculer
  9. Banks, shadow banks, and business cycles By Becard, Yvan; Gauthier, David
  10. Online Appendix to "Dynamics of Secured and Unsecured Debt Over the Business Cycle" By Paul Luk; Tianxiao Zheng
  11. Market sentiment, financial fragility, and economic activity: The role of corporate securities issuance By Dieckelmann, Daniel
  12. Financial Destabilization By Ken-ichi Hashimoto; Ryonghun Im; Takuma Kunieda; Akihisa Shibata
  13. Optimal Bailouts in Banking and Sovereign Crises By Sewon Hur; César Sosa-Padilla; Zeynep Yom
  14. Financial crises, macroprudential policy and the reliability of credit-to-GDP gaps By Alessandri, Piergiorgio; Bologna, Pierluigi; Galardo, Maddalena
  15. A Leverage-Based Measure of Financial Stability By Adrian, Tobias; Borowiecki, Karol Jan; Tepper, Alexander
  16. A data-driven approach to measuring financial soundness throughout the world By Alessandro Bitetto; Paola Cerchiello; Charilaos Mertzanis
  17. Global Uncertainty By Caggiano, Giovanni; Castelnuovo, Efrem
  18. Peripherical Financialization and Premature Deindustrialization: A Theory and the Case of Brazil (2003-2015) By José Luis Oreiro; Carmem Aparecida Feijó; Lionelo Franco Punzo; João Pedro Heringer Machado
  19. Informing Entrepreneurs: Public Corporate Disclosure and New Business Formation By John M. Barrios; Jung Ho Choi; Yael V. Hochberg; Jinhwan Kim; Miao Liu
  21. A Revival of Budget Deficit and Economic Growth By Elisha Mavodyo
  23. A Macro-Finance Model of Government Bonds Yields in Vietnam By Ly Dai Hung
  26. What determines private and household savings in India? By Soumya Kanti Ghosh; Hiranya K. Nath
  27. 50 years of capital mobility in the Eurozone: breaking the Feldstein-Horioka Puzzle By Mariam Camarero; Alejandro Muñoz; Cecilio Tamarit
  28. Inequality of opportunity, inequality of effort, and innovation By Alessandro Spiganti
  29. Gender Inclusive Intermediary Education, Financial Stability and Female Employment in the Industry in Sub-Saharan Africa By Simplice A. Asongu; Yann Nounamo; Henri Njangang; Sosson Tadadjeu
  30. The evolution of debtor-creditor relationships within a monetary union: Trade imbalances, excess reserves and economic policy By Claudius Graebner; Philipp Heimberger; Jakob Kapeller; Michael Landesmann; Bernhard Schuetz
  31. Policy uncertainty, lender of last resort and the real economy By Jasova, Martina; Mendicino, Caterina; Supera, Dominik
  32. Does bank efficiency affect the bank lending channel in China? By Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent
  33. The Transmission of Monetary Policy via the Banks' Balance Sheet - Does Bank Size Matter? By Tumisang Loate; Nicola Viegi

  1. By: Weshah Razzak; E. M. Bentour
    Abstract: We depart from the empirical literature on testing the finance led growth. Instead of regression analysis, we use a semi-endogenous growth model, which identifies two productivity growth paths: a steady state and a transitional path. Steady state growth is anchored by population growth. In the transitional dynamic, productivity growth depends on the typical factors growth rates, and excess knowledge, which is the deviation of TFP in the financial sector from steady state growth. TFP is endogenous. It is an increasing function of global research efforts, which is driven by the proportion of population in developed countries that is engaged in research in finance, and the stock of human capital. We find positive evidence for this theory of TFP in the data of ten developed European countries and the United States. We also found some evidence for finance-led-growth, albeit weaker after the past Global Financial Crisis.
    Keywords: Semi endogenous growth, finance, productivity growth
    JEL: O40 E10
    Date: 2020–05–05
  2. By: Lise Clain-Chamosset-Yvrard (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon); Xavier Raurich (UB - Universitat de Barcelona); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Entrepreneurship, growth and total factor productivity are larger when there is a financial bubble. We explain these facts using a growth model with financial bubbles in which individuals face heterogeneous wages and returns on productive investment. The heterogeneity in the return of in- vestment separates individuals between savers and entrepreneurs. Savers buy financial assets, which are deposits or a financial bubble. Entrepreneurs incur in a start-up cost and borrow to invest in productive capital. The bubble provides liquidities to credit-constrained entrepreneurs. These liquidities increase investment and entrepreneurship when the start- up cost is large enough, which explains that growth and entrepreneurship can be larger with bubbles. Finally, productivity can be larger when the bubble further increases the investment of more productive entrepreneurs. This can occur when the return of investment is correlated with wages.
    Keywords: bubble,entrepreneurship,growth,productivity
    Date: 2021–02–05
  3. By: De Bonis, Riccardo; Ferri, Giovanni; Forte, Antonio; Silipo, Damiano Bruno
    Abstract: Finance is a salient driver in promoting growth also by supporting changes in the specialization of production. Thus, it is paramount that finance goes to sunrise productive branches embodying more technology and so higher growth potential. Is it so in reality? We address this question by investigating the long-run allocation of bank loans in the bank-dependent Italian economy. We reach three main findings. First, banks lent more to the branches where value added was growing more rapidly, while loans went less to riskier sectors with higher bad loans ratios. Second, the allocation of loans was, however, insensitive to the growth of productivity and did not support the higher technology branches. Third, the allocation of loans to the more technology-oriented branches improved since the early 1990s, when credit markets were liberalized. Overall, in our assessment banks were rather following than leading productive transformations, but managed to avoid large scale misallocation of credit. Hence, we give banks just a pass grade.
    Keywords: Allocation of bank loans; Branch productivity and value added; Long-run perspective; Non performing loans.
    JEL: G20 G21 O30 O47
    Date: 2021
  4. By: Nguyen-Huu, Thanh Tam; Pham, Ngoc-Sang
    Abstract: The paper investigates the country receiving FDI's optimal strategy in an optimal growth context. First, if the multinational enterprise has high productivity or the entry cost is high, no domestic firm enters the new industry. Still, the host economy's investment stock converges to a higher steady state than that of the closed economy. Second, if the old sector is strong enough and the domestic firm's productivity is high, the foreign firm will be dominated, even eliminated by the domestic one. Third, we show that if the host country invests in R\&D, its economy may grow without bounds. In this case, FDI helps the host country only at the first stages of its development process. We present empirical evidence that supports our theoretical findings.
    Keywords: Optimal growth, FDI, MNE, R\&D, fixed cost
    JEL: E2 F23 F4 O3 O4
    Date: 2021–01–16
  5. By: Dzingai Francis Chapfuwa (1 University of Johannesburg, Faculty of Economics and Econometrics, Johannesburg, South Africa); Peter Baur (Economics, University of Johannesburg, Faculty of Economics and Econometrics, Johannesburg, South Africa)
    Abstract: The paper analysed the interlinkages among institutions, FDI and economic growth. The paper analysed whether institutions play a role in determining the effect of FDI on economic growth and whether the existence of strategic natural resources matter. Dynamic Panel General Method of Moments Technique (GMM) model with Weidmeijer corrected errors and orthogonal deviations is applied for the period 1996 to 2016. The results show that the effect of FDI on economic growth is both negative and positive across the estimated models indicating the heterogeneity in terms of the initial host country conditions. The thesis found that institutions as a whole are weak for SADC countries hence a negative relationship between institutions and economic growth for the SADC countries. What is however key is that FDI on its own without institutional indicators can lead to an increase in economic growth for the SADC countries. The effect of institutions on FDI and hence economic growth was not significant in the full sample. However, after taking out countries endowed with strategic natural resources, good institutional indicators leads to an increase in economic growth eliminating the natural resource endowment bias.
    Keywords: FDI, Institutions, Economic growth, SADC, MNCs, GMM
    JEL: E E02
    Date: 2020–09
  6. By: Mustapha Djaballah (Economics department - University of Mohamed Budiaf ( M’sila) - Algeria)
    Abstract: This article empirically discusses the possible interactions between the rate of economic growth, the rate of change in inflows of foreign direct investment (FDI) and the rate of real equilibrium real exchange, in MENA countries (18 countries) for the period 2000 -2019. The result suggests that there is a positive relationship between financial development and economic growth. The study also documents that inflation and government expenditure have negative impact on economic growth for those selected MENA countries. The paper ends with some policy implications and potential limitations.
    Keywords: GDP, FDI, Exchange rate, Dynamic Panel Modeling
    JEL: C32 O47 F17 F31
    Date: 2020–12
  7. By: Anvar Kobilov (Department of “Economics and Service†, Faculty of Social Sciences, Kashkadarya region, Karshi sity, Kuchabag street, 17, Karshi State University, Uzbekistan); Oybek Kurbanov (Department of “Economics and Service†, Faculty of Social Sciences, Kashkadarya region, Karshi sity, Kuchabag street, 17, Karshi State University, Uzbekistan)
    Abstract: This paper investigates the determinants of Foreign direct investment (FDI) in selected 78 countries. The paper uses the data sets from 2000 to 2018, according to World Bank Statistics. The chosen empirical model is based on FDI theories and previous empirical studies on this subject. Due to availability of data, selected counties are divided into 4 groups (advanced economies, developing countries, transition economies and low income counties). The results indicate trade openness is significant factor for FDI inflows in selected countries.
    Keywords: Foreign direct investment, grows rate of per capita GDP, age dependency ratio, gross domestic savings, trade openness, inflation, real interest rate.
    JEL: E22 E44
    Date: 2020–09
  8. By: Hande Kucuk Yesil; Pinar Ozlu; Caglar Yunculer
    Abstract: We examine the empirical link between loans and economic activity in Turkey with a focus on the components of loans by borrower (household/business) and by purpose of use (housing/personal) as well as currency of denomination (domestic/foreign). We estimate a separate VAR model for each type of loan and each GDP expenditure item to analyse whether different types of loans have different effects on economic activity and through what channels. According to our empirical results, credit shocks have statistically significant impact on economic activity, especially within the first two quarters. We find that shocks that expand household and TL-denominated business loans by the same rate have quite similar effects on private consumption, final domestic demand and GDP while household loans has a much smaller impact on investment compared to business loans. While shocks to FX-denominated business loans have significant effect on total investment, they have much weaker effect on private consumption and GDP. The effect of housing loans on investment is found to be comparable to that of business loans, suggesting strong feedback between demand for housing and construction investment. We also investigate the robustness of findings to alternative data samples, as well as some alternative identifying restrictions.
    Keywords: Household credit, Business credit, GDP growth, Credit shocks
    JEL: E44 E32 C32
    Date: 2021
  9. By: Becard, Yvan (PUC-Rio); Gauthier, David (Bank of England)
    Abstract: Credit spreads on household and business loans move in lockstep and spike in every recession. We propose a theory as to why banks tighten their lending standards following a drop in market sentiment. The key feature is a procyclical shadow banking sector that shifts risk from traditional banks to investors through securitisation. We fit the model to euro‑area data and find that market sentiment shocks are the main driver of business and financial cycles over the past two decades.
    Keywords: Credit spreads; shadow banks; business cycles; financial shocks
    JEL: E32 E44 G21 G23
    Date: 2021–02–12
  10. By: Paul Luk (Hong Kong Institute for Monetary and Financial Research); Tianxiao Zheng (International Monetary Fund)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2021
  11. By: Dieckelmann, Daniel
    Abstract: Using new quarterly U.S. data for the past 120 years, I show that sudden reversals in equity and credit market sentiment approximated by several measures of corporate securities issuance are highly predictive of banking crises and recessions. Deviations in equity issuance from historical averages also help to explain economic activity over the business cycle. Crises and recessions often occur independently of domestic leverage, making the credit-to-GDP gap a deficient early-warning indicator historically. The fact that equity issuance reversals predict banking crises without elevated private credit levels, suggests that changes in investor sentiment can trigger financial crises even in the absence of underlying banking fragility.
    Keywords: Corporate securities issuance,market sentiment,nancial fragility,banking crises,recessions
    JEL: E32 G01 G32 G41 N11 N12
    Date: 2021
  12. By: Ken-ichi Hashimoto (Graduate School of Economics, Kobe University); Ryonghun Im (Institute of Economic Research, Kyoto University); Takuma Kunieda (School of Economics, Kwansei Gakuin University); Akihisa Shibata (Institute of Economic Research, Kyoto University)
    Abstract: This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy. Applying a neoclassical production function, we demonstrate that as financial frictions are mitigated, the economy loses stability and a flip bifurcation occurs at a certain level of financial frictions under an empirically plausible elasticity of substitution between capital and labor. Furthermore, the amplitude of fluctuations increases as financial frictions are mitigated and is maximized when the financial market approaches perfection. These outcomes imply that financial innovations are likely to destabilize an economy.
    Keywords: Financial innovations, endogenous business cycles, financial destabilization, heterogeneous agents.
    JEL: E13 E32 E44
    Date: 2021–02
  13. By: Sewon Hur (Federal Reserve Bank of Dallas); César Sosa-Padilla (University of Notre Dame and NBER); Zeynep Yom (Department of Economics, Villanova School of Business, Villanova University)
    Abstract: We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to the private sector. Shocks to bank capital can trigger banking crises, with government sometimes finding it optimal to extend guarantees over bank assets. This leads to a trade-off: Larger bailouts relax domestic financial frictions and increase output, but also imply increasing government fiscal needs and possible heightened default risk (i.e., they create a 'diabolic loop'). We find that the optimal bailouts exhibit clear properties. Other things equal, the fraction of banking losses that the bailouts would cover is: (i) decreasing in the level of government debt; (ii) increasing in aggregate productivity; and (iii) increasing in the severity of the banking crisis. Even though bailouts mitigate the adverse effects of banking crises, we find that the economy is ex ante better off without bailouts: the 'diabolic loop' they create is too costly.
    Keywords: Bailouts; Sovereign Defaults; Banking Crises; Conditional Transfers; Sovereign-bank diabolic loop
    JEL: E32 E62 F34 F41 G01 G15 H63
    Date: 2021–01
  14. By: Alessandri, Piergiorgio; Bologna, Pierluigi; Galardo, Maddalena
    Abstract: The Basel III regulation explicitly prescribes the use of Hodrick-Prescott filters to estimate credit cycles and calibrate countercyclical capital buffers. However, the filter has been found to suffer from large ex-post revisions, raising concerns on its fitness for policy use. To investigate this problem we study credit cycles in a panel of 26 countries between 1971 and 2018. We reach two conclusions. The bad news is that the limitations of the one-side HP filter are serious and pervasive. The good news is that they can be easily mitigated. The filtering errors are persistent and hence predictable. This can be exploited to construct real-time estimates of the cycle that are less subject to ex-post revisions, forecast financial crises more reliably, and stimulate the build-up of bank capital before a crisis. JEL Classification: E32, G01, G21, G28
    Keywords: credit cycle, Hodrick-Prescott filter, macroprudential policy
    Date: 2021–02
  15. By: Adrian, Tobias (Monetary and Capital Markets Department); Borowiecki, Karol Jan (Department of Business and Economics); Tepper, Alexander (Columbia University)
    Abstract: The size and the leverage of financial market investors and the elasticity of demand of unlevered investors define MinMaSS, the smallest market size that can support a given degree of leverage. The financial system's potential for financial crises can be measured by the stability ratio, the fraction of total market size to MinMaSS. We use that financial stability metric to gauge the buildup of vulnerability in the run-up to the 1998 Long-Term Capital Management crisis and argue that policymakers could have detected the potential for the crisis.
    Keywords: Leverage; financial crisis; financial stability; minimum market size for stability; MinMaSS; stability ratio; Long-Term Capital Management; LTCM
    JEL: G01 G10 G20 G21
    Date: 2021–02–17
  16. By: Alessandro Bitetto (University of Pavia); Paola Cerchiello (University of Pavia); Charilaos Mertzanis (University of Pavia)
    Abstract: We use a fully data-driven approach and information provided by the IMF’s financial soundness indicators to measure the soundness of a country’s financial system around the world. Given the nature of the measurement problem, we apply principal component analysis (PCA) to deal with the presence of strong cross-sectional dependence in the data due to unobserved common factors. Using this comprehensive sample and various statistical methods, we produce a data-driven measure of financial soundness that provides policy makers and financial institutions with a tool that is easy to implement and update.
    Keywords: Financial soundness, Data-driven, Cross-country, Policy framework, Principal Component Analysis, Random Forest
    JEL: E32 E42 E61 E02 F02
    Date: 2021–02
  17. By: Caggiano, Giovanni; Castelnuovo, Efrem
    Abstract: We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves self-identifcation via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is.
    JEL: C32 E32
    Date: 2021–02–11
  18. By: José Luis Oreiro (None); Carmem Aparecida Feijó; Lionelo Franco Punzo; João Pedro Heringer Machado
    Abstract: The main objective of this paper is to discuss the concept of financialization in developing economies, arguing that the broad definition of financialization - understood as a growing role of motivations, markets and financial institutions in the operation of domestic and international economies – does not take into consideration important features of those economies, such as the hierarchy of currencies and the subordination to the principles of the so-called Washington Consensus. The latter imposed the adoption of a foreign savings-driven growth model, which mostly applied to Latin American countries. Hence, the financialization process in LDCs will be denominated peripherical financialization, since it is associated with dependence upon capital inflows from developed countries and with the reduction in the autonomy of their macroeconomic policies, even within flexible exchange rate regimes. Attraction of capital inflows to countries with a subordinate position in international financial markets, requires high interest rate differentials which have as side effect a trend to the overvaluation of real exchange rates. This creates a trap, high interest rates with an associated overvalued exchange rate. This trap reduces policy space, turning procyclical even fiscal policy. Moreover, the overvaluation of real exchange rate reduces price competitiveness of the manufacturing industry, becoming the main drive toward these countries’ premature deindustrialization. It will be shown that the macroeconomic performance of the Brazilian economy in the period 2003-2015 fits almost perfectly this model of peripherical financialization.
    Keywords: Financialization, Premature Deindustrialization, high interest rate-overvalued exchange rate trap
    JEL: O11 O14 O16
    Date: 2021–02
  19. By: John M. Barrios (University of Chicago - Booth School of Business); Jung Ho Choi (Stanford University - Stanford Graduate School of Business); Yael V. Hochberg (Rice University - Jones Graduate School of Business); Jinhwan Kim (Stanford University - Stanford Graduate School of Business); Miao Liu (University of Chicago - Booth School of Business)
    Abstract: We examine the relationship between public firm disclosure and aggregate new business formation. Consistent with the notion that public company disclosures provide information spillovers that reduce the extent of uncertainty about new investment opportunities, we find that increased public firm presence is positively associated with new business formation in an industry. Furthermore, using plausibly exogenous information shocks generated by new IPOs in a geographic area, we find that post-IPO, new business registration in the public company's geographic area rise by 4 to 10%, consistent with soft information channels serving to reinforce hard information in public disclosures. New IPOs are associated with significant increases in Edgar downloading activity in the IPOs’ geographic area, consistent with the notion that public firm disclosures are providing important investment opportunity information that facilitates new business formation.
    Keywords: Entrepreneurship, financial disclosures, real effects, externalities, IPOs
    JEL: D80 D81 D83 L26 M41
    Date: 2020
  20. By: Trabelsi Ramzi (High Business School of Tunis (ESCT), Manouba University, Tunisia)
    Abstract: The main purpose in this paper is to examine the impact of different public policies on the economic growth in Tunisia between 1990 and 2014. We estimated our basic model by using the ARDL bounds test technique. The econometric analysis gave various images and very interesting results .Our main findings indicate that Tunisian’s disappointed economic growth results from bad designed and misguided public policies. This finding provides key insights on policy recommendations for policymakers.
    Keywords: Economic Growth; Public policy; ARDL
    JEL: O40 E62 C22
    Date: 2019–12
  21. By: Elisha Mavodyo
    Abstract: South Africa has experienced high budget deficits accompanied by sluggish economic growth over the years. Fears mount that such a trend may worsen due to the advent of the Covid-19. Yet, the effect of budget deficit on economic growth remains one of the widely debated topics in economics. This article gives empirical evidence on the budget deficit-economic growth nexus and the deficit spending channels that are growth stimulating in South Africa over the period 1980 to 2018. Relying on the Dynamic Ordinary Least Squares (DOLS), results show that budget deficit is growth promoting and that budget deficit is growth stimulating if it is channelled towards export-oriented industrialisation of ores and metals.
    Keywords: DOLS; endogeneity; budget deficit; economic growth; export-oriented industrialisation
    JEL: C14 C25 C61
    Date: 2020–04–04
  22. By: Mahammad Allazov (Azerbaijan State Economics University, Faculty of Finance and Financial Institutions, Baku, Azerbaijan)
    Abstract: The paper assesses the impact of financial instruments in Azerbaijan on the stock market and joint stock companies and determines the effect of the stock market capitalization level on budget revenues and expenditures and the optimal threshold. A significant part of financial resources for investment purposes arises in the securities market, especially in the corporate securities sector. The main factor in improving the efficiency of the securities market should be increasing the volume of trading operations and creation of favorable conditions for this, increasing the variety and use of capital instruments, the issuance of new financial instruments. Based on the correlation between budget expenditures and budget revenues and the level of capitalization of the stock market with the application of economic-mathematical methods, the optimal level of capitalization of the stock market was determined. Based on the elasticity coefficient, it was determined that budget revenues and budget expenditures will change by 0.17% due to a 1% change in the capitalization level of the stock market in Azerbaijan. As a result of economic-mathematical methods, it was determined that a 1% increase in the capitalization level of the stock market in Azerbaijan results in a 0.17% increase in GDP.
    Keywords: : Financial markets, stock markets, financial instruments, stock market efficiency
    JEL: D53 E44 G15
    Date: 2020–09
  23. By: Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam)
    Abstract: We characterize a macro-finance model of government bonds yields in Vietnam. The evidence is based on a time-varying structural vector autoregression (TVC-VAR) model with a monthly sample from 02/2012 to 10/2018. The bonds yields serve as effective indicators for the macroeconomic variables. For the two-month horizon of forecasting, the model tends to forecast the inflation more effectively than the economic growth and exchange rate's change. Moreover, the macroeconomic fundamentals also drive the bonds yields curve: the output growth move closely with the long-run value of curve, the depreciation rate of domestic currency is consistent with the medium-run of curve, and the inflation rate goes in line with the short-run of curve.
    Keywords: Government Bonds,Vector Autoregression,Macro-Finance
    Date: 2020–06
  24. By: Shagufta Sultana (Pakistan Institute of Development Economics, Pakistan)
    Abstract: Pakistan receives huge amount of aid flows every year like other developing countries but still stagnant and aid dependent. This reality forced a vigorous debate on effectiveness of aid. The objective of present study is to examine the effectiveness of foreign aid and other variables such as (bilateral aid, multilateral aid, inflation, trade openness, US aid, UK aid and Japanese aid) on economic growth of Pakistan over the period 1972-2014. When we disaggregate aid in terms of bilateral aid, multilateral aid, aid from United States, aid from UK and aid from Japan, all the aid sources showed insignificant relationship with the economic growth of Pakistan in the short run. Bounds test for Cointegration accepts the hypothesis that no long run relationship exists between the variables. So in the absence of long run relationship study takes the analysis towards short run relationship by using multivariate Granger Causality test. The causality test results showed that total foreign aid, bilateral aid, aid from United States and aid from UK does not causes economic growth significantly in Pakistan over the period 1972-2014. On the other hand multilateral aid and Japanese aid significantly causes growth. Granger Causality test results showsbi-directional causality between multilateral aid and economic growth. The study is useful for policy implications because results show that multilateral aid have significant relationship with economic growth in Granger Causality test. So authorities should give priority to multilateral aid over bilateral aid
    Keywords: Economic Growth, Bilateral aid, Multilateral aid, Inflation, Trade openness, ARDL, ADF, Granger Causality
    JEL: E31 O40 B22
    Date: 2019–12
  25. By: Yadav Mani Upadhyaya (Tribhuvan University, Nepal Coordinator Research Management Cell (RMC), Saraswati Multiple Campus)
    Abstract: The role of foreign aid in economic development remains debatable in economic literature. Some studies empirically proved its positive impact on economic growth, while some studies emphasized its undesirable effects. In Nepal, several economists have tried to find out the non-optimal utilization of foreign aid in the economic development of Nepal. The focus of the study is an analytical component of the impact of Japanese support and its role on the economic development of Nepal. Recently, the government’s development slogan ‘Prosperous Nepal and Happy Nepali’ would definitely positive with the proper use of Japanese aid on the economic development of Nepal. The goal of this study is to analyze the impact of Japanese help on the overall economic development of Nepal. The methodological tool has been totally based on secondary data and verified quantitatively with the statistical test of significance. The result of the study has been positively analyzed. This research article concludes that the impact of Japanese aid in the economic development of Nepal, which would be definitely constructive for the economic growth of Nepal.
    Keywords: Foreign aid, debatable concept, optimal utilization, positive impact, economic goal, economic development.
    JEL: F F
    Date: 2020–12
  26. By: Soumya Kanti Ghosh (State Bank of India, Mumbai (India)); Hiranya K. Nath (Department of Economics and International Business, Sam Houston State University)
    Abstract: This paper uses annual data from 1960 to 2016 to examine the determinants of private and household saving behavior in India. The results indicate that per capita real income and access to banks are significant determinants with favorable impacts on private as well as household saving rates in short as well as long run. Further, as inflation accelerates, the uncertainty about the future value of their accumulated savings and expected real rate of return discourage households and other private agents from saving. A desire to maintain a certain level of real expenditures also contributes to this decrease in saving rate. An increase in dependent population reduces private and household saving rates in the short run while it increases the private saving rate in the long run. The results further indicate that a rise in the real interest rate increases household saving rate in the short run but reduces both private and household saving in the long run. It does not seem to have any significant impact on total private saving in the short run. Additionally, increased corporate saving tends to reduce household saving in both time horizons. Further, both private and household saving rates have declined significantly after the global financial crisis. Finally, any deviation from the long run equilibrium for saving rates dissipates rather quickly. Overall, these results seem to suggest that policies intended to increase per capita income, lower inflation, and increase accessibility to banking will go a long way in increasing private and household saving in India.
    Keywords: Private saving rate, household saving rate, Autoregressive Distributed Lag (ARDL), Bounds test, India
    JEL: E21 E43
    Date: 2021–01
  27. By: Mariam Camarero (University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón (Spain)); Alejandro Muñoz (University of València, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, (Spain) de Marcenado, 27, 28015, Madrid (Spain)); Cecilio Tamarit (University of València and INTECO, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, (Spain))
    Abstract: This paper assesses capital mobility for the Eurozone countries by studying the long-run relationship between domestic investment and savings for the period 1970-2019. Our main goal is to analyze the impact of economic events on capital mobility during this period. We apply the cointegration methodology in a setting that allows us to identify endogenous breaks in the long-run saving-investment relationship. Specifically, the breaks coincide with relevant economic events. We find a downward trend in the saving-investment retention since the 70s for the so-called “core countries”, whereas this trend is not so clear in the peripheral, where the financial and sovereign crises have had a more substantial impact. Our analysis captures other economic events: the Exchange Rate Mechanism (ERM) crisis, the German reunification, the European financial assistance program, and the post-crisis period. Our results also indicate that the original euro design had some caveats that remain unsolved.
    Keywords: Capital mobility; Feldstein-Horioka puzzle; Multiple Structural Breaks; Cointegration, unit roots
    JEL: F36 F45 O16
    Date: 2021–02
  28. By: Alessandro Spiganti
    Abstract: Is inequality good or bad for innovation? I study an endogenous growth model with heterogeneous agents; due to credit frictions, inequalities in wealth lead to misallocation of talent. A more unequal reward scheme incentivises innovation in any given period, but it leads to a more unequal distribution of opportunities that may exacerbate the misallocation of talent in the next period. Empirically, I show that the flow of patents in a US state is negatively correlated with inequality of opportunity, but positively with inequality of effort; and that the elimination of state death taxes, as a proxy for an increase in the financial incentives towards risky activities, had a positive short-term but a negative longterm effect on the growth rate of patents.
    Keywords: Occupational Choices, Adverse Selection, Bequests, Theil's Index, Death Taxes
    JEL: D15 D53 D58 D82 H23 O31
    Date: 2020
  29. By: Simplice A. Asongu (Yaounde, Cameroon); Yann Nounamo (University of Douala, Cameroon); Henri Njangang (University of Dschang , Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon)
    Abstract: The study examines how financial stability modulates the effect of inclusive intermediary education on female employment in the industry for the period 2008-2018 in Sub-Saharan Africa. The empirical evidence is based on Tobit, Ordinary Least Squares (OLS) and Quantile regressions. There are positive interactive or conditional effects between inclusive intermediary education and financial stability in the Tobit, OLS and bottom quantiles estimations. A net positive (negative) effect is apparent in the 10th quantitle (median) of female employment in the industry distribution. Implications are discussed.
    Keywords: inclusive education; financial sustainability, gender economic inclusion
    JEL: E23 F21 F30 L96 O55
    Date: 2021–02
  30. By: Claudius Graebner (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria; ZOE Institute for future-fit Economies, Bonn, Germany); Philipp Heimberger (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria; Vienna Institute for International Economic Studies (wiiw), Vienna, Austria); Jakob Kapeller (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Michael Landesmann (Department of Economics, Johannes Kepler University Linz, Austria; Vienna Institute for International Economic Studies (wiiw), Vienna, Austria); Bernhard Schuetz (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This paper analyses the emergence of internal debtor-creditor relationships within a monetary union. Developing a stock-flow consistent model consisting of three regions - North, South, and the Rest of the World (RoW), where North and South form a monetary union - it shows how the simultaneous presence of investment booms, declining export performance and mercantilist policies within a monetary union can interact in order to create Minsky-type boom-bust cycles. Fiscal policy and an internal lender of last resort can help sustain economic life under existing structural imbalances, though without eliminating the root causes of boom-bust patterns.
    Date: 2021–01
  31. By: Jasova, Martina; Mendicino, Caterina; Supera, Dominik
    Abstract: We show that a reduction in lender of last resort (LOLR) policy uncertainty positively affects bank lending and propagates to investment and employment. We exploit a unique policy that reduced uncertainty regarding the availability of future LOLR funding for banks as a quasi-natural experiment. Using micro-level data on banks, firms and loans in Portugal, we generate cross-sectional variation in banks’ exposure to uncertainty and find that the size of the haircut subsidy - the gap between private market and central bank security valuations - plays a key role in the propagation of the shock to lending and the real economy. JEL Classification: E44, E52, E58, G21, G32
    Keywords: bank credit, central bank liquidity, firm-level employment and investment, haircut subsidy, policy uncertainty
    Date: 2021–02
  32. By: Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent
    Abstract: This work examines the impact of bank efficiency on the bank lending channel in China. Using a sample of 175 Chinese banks over the period 2006–2017, we investigate how the reaction of the loan supply to monetary policy actions depends on a bank’s efficiency. While bank efficiency does not exert an impact on the effectiveness of monetary policy transmission overall, it does favor the transmission of monetary policy for banks with low loan-to-deposit ratios. In addition, the expansion of shadow banking activities has been associated with a positive impact of bank efficiency on monetary policy transmission. These results suggest that bank efficiency may influence the bank lending channel in certain cases.
    JEL: E52 G21
    Date: 2021–02–08
  33. By: Tumisang Loate (Department of Economics, University of Pretoria); Nicola Viegi (SARB Chair in Monetary Economics, Department of Economics, University of Pretoria)
    Abstract: We study the credit channel of monetary policy in South Africa between 2002 and 2019 using banks' balance sheets. We show that there is a significant heterogeneity within the banking sector in both the loan and deposit sides of the banks' balance sheets. In response to a contractionary monetary policy shock, big banks adjust their loan portfolio by lending to businesses and reducing lending to households whereas for small banks we find the opposite. The increase in corporate lending amid declining inventories is consistent with the hypothesis of ``hedging and safeguarding the capital adequacy ratio" rather than funding business inventories. This paper highlights the importance of heterogeneity in customers, market power and business models in the banking sector, which characterises the socio-demographics dynamics in South Africa.
    Keywords: Credit channel, banks balance sheets, monetary policy
    JEL: E32 E52 G21
    Date: 2021–01

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