nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒03‒22
35 papers chosen by
Georg Man

  1. Expecting the unexpected: economic growth under stress By Ruiz Ortega, Esther; Rodríguez Caballero, Carlos Vladimir; Gonzalez Rivera, Gloria
  2. Inflation Anchoring and Growth: The Role of Credit Constraints By Sangyup Choi; Davide Furceri; Prakash Loungani; Myungkyu Shim
  3. Trust Shocks, Financial Crises, and Money By Jia, Pengfei
  4. Land Property Rights, Cadasters and Economic Growth: A Cross-Country Panel 1000-2015 CE By D'Arcy, Michelle; Nistotskaya, Marina; Olsson, Ola
  5. The fruits of El Dorado: the global impact of American precious metals By Leticia Arroyo Abad; Nuno Palma
  6. The efficiency of the Chinese silver standard, 1920-33 By Nuno Palma; Liuyan Zhao
  7. Potential Growth in Turkey: Sources and Trends By Orhun Sevinc; Ufuk Demiroglu; Emre Cakir; E. Meltem Bastan
  8. Forecasting corporate capital accumulation in Italy: the role of survey-based information By Claire Giordano; Marco Marinucci; Andrea Silvestrini
  9. Capital (Mis)allocation and Incentive Misalignment By Alexander Schramm; Alexander Schwemmer; Jan Schymik
  10. Regional income disparities, monopoly and finance By Feldman, Maryann; Guy, Frederick; Iammarino, Simona
  11. Asset Bubbles and Product Market Competition By Francisco Queirós
  12. Global uncertainty By Giovanni Caggiano; Efrem Castelnuovo
  13. Economic Uncertainty and Remittances to Developing Economies: A System GMM Approach By Charles Mawusi
  14. Risk shocks and divergence between the Euro area and the US in the aftermath of the Great Recession By Brand, Thomas; Tripier, Fabien
  15. Macroeconomic Effects of Loan Supply Shocks: Empirical Evidence for Peru By Jefferson Martínez; Gabriel Rodríguez
  16. Lending Cycles and Real Outcomes: Costs of Political Misalignment By Cagatay Bircan; Orkun Saka
  17. Twin Default Crises By Caterina Mendicino; Kalin Nikolov; Juan Rubio-Ramirez; Javier Suarez; Dominik Supera
  18. The Greek Great Depression from a neoclassical perspective By Dimitris Papageorgiou; Stylianos Tsiaras
  19. American business cycles 1889-1913: An accounting approach By Dou Jiang; Mark Weder
  20. Precautionary liquidity shocks, excess reserves and business cycles By George J. Bratsiotis; Konstantinos Theodoridis
  21. Lender-Specific Mortgage Supply Shocks and Macroeconomic Performance in the United States By Franziska Bremus; Thomas Krause; Felix Noth
  22. Softening the blow: US state-level banking deregulation and sectoral reallocation after the China trade shock By Mathias Hoffmann; Lilia Ruslanova
  23. Differences in African Banking Systems: Causes and Consequences By Mutarindwa, Samuel; Schäfer, Dorothea; Stephan, Andreas
  24. The Liquidity and Sustainability Facility for African Sovereign Bonds: a good ECA/PIMCO idea whose time has come? By Gabor, Daniela
  25. The terrorism-finance nexus contingent on globalisation and governance dynamics in Africa By Simplice A. Asongu; Tii N. Nchofoung
  26. Effects of political institutions on the external debt-economic growth nexus in Africa By Yann Nounamo; Simplice A. Asongu; Henri Njangang; Sosson Tadadjeu
  27. International financial organisations and global child mortality rates By Nosrati, Elias
  28. Success And Failures Of SWFS On The Macroeconomic Performance, Time-Varying Objectives And First Liquidations Of Sovereign Wealth Funds By Jean-François Carpantier; Wessel N. Vermeulen
  29. The Effect of the China Connect By Chang Ma; John Rogers; Sili Zhou
  30. Reserve Accumulation and Firm Investment: Evidence from Matched Bank–Firm Data By Woo Jin Choi; Ju Hyun Pyun; Youngjin Yun
  31. Unequal and Unstable: Income Inequality and Bank Risk By Yuliyan Mitkov; Ulrich Schüwer
  32. What affects bank market power in the Euro area? A structural model approach By Paolo Coccorese; Claudia Girardone; Sherrill Shaffer
  33. Decomposing total factor productivity while treating for misspecification By Emmanuel Mamatzakis; Efthymios Tsionas
  34. Economic preferences over risk-taking and corporate finance By Delis, Manthos; Iosifidi, Maria; Hasan, Iftekhar; Tsoumas, Chris
  35. Competition, social reach and financial sustainability in Peruvian regulated microfinance By Giovanna Aguilar Andía; Jhonatan Portilla Goicochea

  1. By: Ruiz Ortega, Esther; Rodríguez Caballero, Carlos Vladimir; Gonzalez Rivera, Gloria
    Abstract: Large and unexpected moves in the factors underlying economic growth should be the main concern of policy makers aiming to strengthen the resilience of the economies. We propose measuring the effects of these extreme moves in the quantiles of the distribution of growth under stressed factors (GiS) and compare them with the popular Growth at Risk(GaR). In this comparison, we consider local and global macroeconomic and financial factors affecting US growth. We show that GaR underestimates the extreme and unexpected fall in growth produced by the COVID19 pandemic while GiS is much more accurate.
    Keywords: Stressed Growth; Multi-Level Factor Model; Growth Vulnerability
    JEL: O41 F47 F44 E44 E32 C55 C32
    Date: 2021–03–15
  2. By: Sangyup Choi (Yonsei University); Davide Furceri (IMF); Prakash Loungani (IMF); Myungkyu Shim (Yonsei University)
    Abstract: Can inflation anchoring foster growth? To answer this question, we use panel data on sectoral growth for 22 manufacturing industries from 36 advanced and emerging market economies over 1990–2014 and employ a difference-in-difference strategy based on the theoretical prediction that higher inflation uncertainty particularly depresses investment in industries that are more credit constrained. Industries characterized by high external financial dependence, liquidity needs, and R&D intensity, and low asset tangibility, tend to grow faster in countries with well-anchored inflation expectations. The results, based on an IV approach—using indicators of monetary policy transparency and central bank independence as instruments— confirm our findings.
    Keywords: industry growth; inflation anchoring; inflation forecasts; credit constraints; difference-in-difference; central bank independence
    JEL: E52 E63 O11 O43 O47
    Date: 2020–12–29
  3. By: Jia, Pengfei
    Abstract: A precondition for a well-functioning monetary system is trust. This paper develops a neoclassical general equilibrium model in which public and private money coexist and the impact of trust shocks on the macroeconomy is examined. In this paper, trust is modelled as limited commitment between borrowers and lenders. A borrower who issues private money can credibly commit to repay at most a fraction of his or her future output. The paper shows that a lack of trust can engineer a financial crisis, with substantial effects on both the real and monetary variables. In the model, an unexpected drop in the trust parameter causes young workers to divert less of their savings into investment goods and more of their savings into consumption goods. A fall in capital investment in turn leads to a decline in real output. I also show that trust shocks can have detrimental effects on both workers and entrepreneurs. In addition, the model shows that, to clear the money market, an increase in the real demand for government money causes the price level to fall, inducing transitory deflation. This is in line with the low inflation episodes during and following the Great Recession. The decline in capital investment and the price level also implies that the amount of deposits has to shrink in a financial crisis. Finally, once trust shocks hit the economy, the money multiplier drops. This is due to the decrease in capital investment and the increase in the real demand for government money.
    Keywords: Trust shocks, Financial crises, Public money, Private money.
    JEL: E31 E32 E41 E44 E51
    Date: 2021–02–26
  4. By: D'Arcy, Michelle (Trinity College Dublin); Nistotskaya, Marina (University of Gothenburg); Olsson, Ola (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Since the transition to agricultural production, property rights to land have been a key institution for economic development. Clearly defined land rights provide economic agents with increased access to credit, secure returns on investment, free up resources used to defend one's land rights, and facilitate land market transactions. Formalized land records also strengthen governments' capacity to tax land-owners. Despite a large body of extant micro-level empirical studies, macro-level research on the evolution of formal rights to land, and their importance for economic growth, has so far been lacking. In this paper, we present a novel data set on the emergence of state-administered cadasters (i.e. centralized land records) for 159 countries over the last millennium. We also analyze empirically the association between the development of cadastral institutions and long-run economic growth in a panel of countries. Our findings demonstrate a substantive positive effect of the introduction of cadasters on modern per capita income levels, supporting theoretical conjectures that states with more formalized property rights to land should experience higher levels of economic growth.
    Keywords: cadaster; property rights; growth
    JEL: N20 O43
    Date: 2021–03
  5. By: Leticia Arroyo Abad; Nuno Palma
    Date: 2020
  6. By: Nuno Palma; Liuyan Zhao
    Date: 2020
  7. By: Orhun Sevinc; Ufuk Demiroglu; Emre Cakir; E. Meltem Bastan
    Abstract: This paper estimates potential growth in Turkey using a production function estimation approach. Our approach aims to measure the inputs of production in the most detailed fashion that is possible and empirically addresses concepts of sustainable potential growth for Turkey. While developing measures of the sources of potential growth, we provide a thorough discussion of the estimated trends in labor force participation, capital growth by asset type, and total factor productivity since the mid-2000s. Our results suggest that the key driver of potential growth has increasingly been capital accumulation. The declining trend in the positive TFP growth stands out as the key area of improvement for potential growth.
    Keywords: Potential growth, Labor force participation, Productivity, Capital accumulation
    JEL: E1 J21 O4
    Date: 2021
  8. By: Claire Giordano (Bank of Italy); Marco Marinucci (Bank of Italy); Andrea Silvestrini (Bank of Italy)
    Abstract: While there is a vast macroeconomic literature that singles out the main drivers of capital accumulation in advanced economies during and after the global financial and sovereign debt crises' recessionary phase, there is much less research seeking to identify both models and variables that possess out-of-sample forecasting ability for gross fixed capital formation. Moreover, micro-founded variables are scarcely employed in macroeconomic forecasting of real investment. We fill this gap by considering a battery of univariate and multivariate time-series models to forecast investment of non-financial corporations in Italy, an interesting case-study due to its steep downturn during the two afore-mentioned crises. We find that a vector error correction model augmented with firm survey-based variables accounting for business confidence, demand uncertainty and financing constraints generally outperforms the autoregressive benchmark and a series of competing multivariate time-series models in various, alternative, evaluation samples that take into account the impact of both the global financial crisis and the sovereign debt crisis on forecast accuracy.
    Keywords: Real investment, forecasting evaluation, firm survey data, vector error correction model
    JEL: C32 C52 E22 E27
    Date: 2021–02
  9. By: Alexander Schramm; Alexander Schwemmer; Jan Schymik
    Abstract: We study how managerial incentives affect the allocation of capital inside firms. To identify the effect of incentives on investment decisions we use a within-firm estimator that exploits variation across capital goods and a US accounting reform as an exogenous shock to managers' short-termist incentives. Our evidence shows that capital (mis)allocation within firms can be amplified by short-termist incentives. More short-term incentives cause a shift in investment expenditures away from durables towards more short-lived capital goods, effectively shortening the durability of firms' capital stocks. To study the economic implications of this within-firm misallocation channel, we then build a model of firm investments with incentive frictions that we calibrate to the US economy. We show that even moderate increases in short-termist incentives, such as those around the accounting reform, may cause substantial inefficiencies. These inefficiencies lead to large within-firm spreads in the marginal products of capital goods, causing long-run declines in output and real wages.
    Keywords: Corporate investment; Firm dynamics; Capital reallocation; Short-term incentives
    JEL: E22 G31 D24 D25 L23
    Date: 2021–01
  10. By: Feldman, Maryann; Guy, Frederick; Iammarino, Simona
    Abstract: The overall rise in inequality in the USA since 1980 has been matched by a rise in inequality between places; local and regional development policies aimed at reversing this polarisation have seen limited success. We propose an explanation for the spatial polarisation of prosperity and the failure of the policies to remedy it. Our explanation is based on the interaction of monopoly power, agglomeration economies in technology clusters and the power of financial sector actors over non-financial firms—all phenomena characteristic of the post-1980 economy. We review evidence for each of these elements and propose some causal relationships between them, as an outline of an ongoing research programme.
    Keywords: Regional income distribution; Monopoly; Technology clusters; Platforms; Financialization; Spatial inequality; LSE OA Fund
    JEL: O33 R11 R12
    Date: 2020–12–31
  11. By: Francisco Queirós (Università di Napoli Federico II and CSEF)
    Abstract: This paper studies the interactions between asset bubbles and competition. I first document a negative industrylevel relationship between measures of stock market overvaluation and indicators of market power: larger overvaluation is associated with an increase in the number of firms, lower markups and a higher probability of negative earnings. I then construct multi-industry growth model featuring imperfect competition and rational bubbles that sheds light on these findings. By providing an entry or production subsidy, bubbles stimulate competition and reduce monopoly rents. When they are sufficiently large they can, however, lead to excessive entry and competition. I also show that imperfect competition depresses the interest rate, thereby relaxing the conditions for the emergence of rational bubbles.
    Keywords: Rational Bubbles, Competition, Market Power, British Railway Mania, Dotcom Bubble
    JEL: E44 L13 L16
    Date: 2021–03–17
  12. By: Giovanni Caggiano; Efrem Castelnuovo
    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 set-identification 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.
    Keywords: Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier.
    JEL: C32 E32
    Date: 2021–02
  13. By: Charles Mawusi (University of Bordeaux)
    Abstract: The recent Global Financial Crisis has threatened global economic and financial stability and as a consequence, reinforced our interest in examining the impact of economic uncertainty. Given the growing importance of remittances to the growth and development of economies, this paper examines how economic uncertainty shocks impact inward remittances of a panel of 53 developing and least developed countries over the period 1996-2018. Using a two-step system GMM approach, we find that economic uncertainty shocks induced a positive and statistically significant remittance response to developing and least-developed economies. The result is consistent with the predominant altruistic behavior of migrants from developing economies, and further, suggests the importance of migrants' remittances in moderating the potential adverse effects of uncertainty.
    Keywords: Remittances,Uncertainty,GMM,Panel,Economic Policy F24,D73,C23,F68
    Date: 2021–02–21
  14. By: Brand, Thomas; Tripier, Fabien
    Abstract: Highly synchronized during the Great Recession of 2008-2009, the Euro area and the US have diverged in the period that followed. To explain this divergence, we provide a structural interpretation of these episodes through the estimation for both economies of a business cycle model with financial frictions and risk shocks, measured as the volatility of idiosyncratic uncertainty in the financial sector. Our results show that risk shocks have stimulated US growth in the aftermath of the Great Recession and have been the main driver of the double-dip recession in the Euro area. They play a positive role in the Euro area only after 2015. Risk shocks therefore seem well suited to account for the consequences of the sovereign debt crisis in Europe and the subsequent positive effects of unconventional monetary policies, notably the ECB's Asset Purchase Programme (APP).
    Keywords: Great Recession, Business cycles, Uncertainty, Divergence, Risk Shocks
    Date: 2021–03
  15. By: Jefferson Martínez (Pontificia Universidad Católica del Perú); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú / Fiscal Council of Peru)
    Abstract: This paper quantifies and assesses the impact of an adverse loan supply (LS) shock on Peruís main macroeconomic aggregates using a Bayesian vector autoregressive (BVAR) model in combination with an identification scheme with sign restrictions. The main results indicate that an adverse LS shock: (i) reduces credit and real GDP growth by 372 and 75 basis points in the impact period, respectively; (ii) explains 11.2% of real GDP growth variability on average over the following 20 quarters; and (iii) explained a 180-basis point fall in real GDP growth on average during 2009Q1-2010Q1 in the wake of the Global Financial Crisis (GFC). Additionally, the sensitivity analysis shows that the results are robust to alternative identification schemes with sign restrictions; and that an adverse LS shock has a greater impact on non-primary real GDP growth. JEL Classification-JEL: C11, E32, E51.
    Keywords: Sistema Bancario, Choque de Oferta de Crédito, Modelo VAR Bayesiano, Restricciones de Signo, Economía Peruana
    Date: 2020
  16. By: Cagatay Bircan; Orkun Saka
    Abstract: We document a strong political cycle in bank credit and industry outcomes in Turkey. In line with theories of tactical redistribution, state-owned banks systematically adjust their lending around local elections compared with private banks in the same province based on electoral competition and political alignment of incumbent mayors. This effect only exists in corporate lending and creates credit constraints for firms in opposition areas, which suffer drops in assets, employment and sales but not firm entry. Financial resources and factors of production are misallocated as more effient provinces and industries suffer the greatest constraints, reducing aggregate productivity.
    Keywords: bank credit, electoral cycle, state-owned banks, misallocation
    JEL: G21 D72 D73 P16
    Date: 2021
  17. By: Caterina Mendicino (European Central Bank); Kalin Nikolov (European Central Bank); Juan Rubio-Ramirez (Emory University); Javier Suarez (CEMFI, Centro de Estudios Monetarios y Financieros); Dominik Supera (Wharton School)
    Abstract: We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited upside but significant downside risk. The asymmetric distribution of these returns and their implications for the evolution of bank net worth are important for capturing the frequency and severity of twin default crises - simultaneous rises in firm and bank defaults associated with sizeable negative effects on economic activity. As a result, our model implies higher optimal capital requirements than common specifications of bank asset returns, which neglect or underestimate the impact of borrower default on bank solvency.
    Keywords: Bank default, firm default, financial crises, bank capital requirements.
    JEL: G01 G28 E44
    Date: 2020–06
  18. By: Dimitris Papageorgiou (Bank of Greece); Stylianos Tsiaras (European University Institute)
    Abstract: This paper follows the great depression methodology of Kehoe and Prescott (2002, 2007) to study the importance of total factor productivity (TFP) in the Greek economic crisis over the period 2008-2017. Using growth accounting and the neo- classical growth model, the paper shows that exogenous changes in TFP are crucial for the Greek depression. The theoretical model reproduces quite well the decline in economic activity over 2008-2013 and the subsequent period of slow recovery found in the data. Nevertheless, it is less successful in predicting the magnitude of the decline in output and the labour factor. In addition, including financial frictions and risk shocks into the neoclassical growth model, does not significantly improve the model’s performance.
    Keywords: Great Depression; Greece; Growth Accounting; DSGE
    JEL: D81 G01 G21 G33 E44 E52 E58
    Date: 2021–02
  19. By: Dou Jiang; Mark Weder
    Abstract: This paper quantitatively investigates the Depression of the 1890s and the 1907 recession in the United States. Business Cycle Accounting decomposes economic fluctuations into their contributing factors. The results suggest that both the 1890s and the 1907 recessions were primarily caused by factors that affect the efficiency wedge, i.e. slumps in the economy’s factor productivity. Distortions to the labor wedge played a less important role. Models with financial market frictions that translate into the efficiency wedge are the most promising candidates for explaining the recessionary episodes.
    Keywords: Business cycles, Depression of the 1890s, Recession of 1907
    JEL: E32 E44 N11
    Date: 2021–01
  20. By: George J. Bratsiotis; Konstantinos Theodoridis
    Date: 2020
  21. By: Franziska Bremus; Thomas Krause; Felix Noth
    Abstract: This paper provides evidence for the propagation of idiosyncratic mortgage supply shocks to the macroeconomy. Based on micro-level data from the Home Mortgage Disclosure Act for the 1990-2016 period, our results suggest that lender-specific mortgage supply shocks affect aggregate mortgage, house price, and employment dynamics at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger are mortgage, house price, and employment growth. While shocks at the level of shadow banks significantly affect mortgage and house price dynamics, too, they do not matter much for employment.
    Keywords: Credit supply shocks, mortgage market concentration, real effects from housing markets
    JEL: E44 G21 R20
    Date: 2021
  22. By: Mathias Hoffmann; Lilia Ruslanova
    Abstract: U.S. state-level banking deregulation during the 1980’s mitigated the impact of the China trade shock (CTS) on local economies (states and commuting zones) a decade later, in the 1990s. Local economies, where local banking markets opened up earlier, were also effectively financially more integrated by the 1990’s and saw smaller declines in house prices, wages, and income following the CTS. We explain this pattern in a theoretical model that emphasizes the stabilizing effect of financial integration on demand for housing and on housing prices: faced with an adverse shock to their region’s terms-of-trade (i.e. the CTS), households in more open states can more easily access credit to smooth consumption. This stabilizes consumer demand for housing, keeps the relative price of housing up, stabilizes wages in the non-tradable sector and thus facilitates the sectoral reallocation of labor away from import-exposed manufacturing towards the housing sector. This in turn stabilizes income and consumption. We corroborate these predictions of our model in state- and commuting zone level data. Then, using granular bank-county-level data, we show that household consumption smoothing in response to the CTS was easier in financially open areas, because geographically diversified banks were more elastic in their lending response to household’s increased demand for credit. Our findings highlight that household access to finance is important to ease adjustment after asymmetric terms-of- trade shocks in monetary unions, in particular when the geographical mobility of labor is limited.
    Keywords: banking deregulation, China trade shock, sectoral reallocation, house prices, consumer access to finance
    JEL: F16 F41 G18 G21 J20
    Date: 2021–02
  23. By: Mutarindwa, Samuel; Schäfer, Dorothea; Stephan, Andreas
    Abstract: This paper links banking system development to the colonial and legal history of African countries. Based on a sample of 40 African countries from 2000 to 2018, our empirical findings show a significant dependence of current financial institutions on the inherited legal origin and the colonization type. Findings also reveal that current financial legal institutions are not major determinants of banking system development, and that institutional development and governance quality are more important. A high share of government spending relative to GDP also positively affects banking system development in African countries.
    Keywords: Legal origin,colonial history,financial institutions,banking system,correlated random effects model
    JEL: G21 G38 G39 K15 K40
    Date: 2021
  24. By: Gabor, Daniela
    Abstract: This paper maps the balance of benefits and risks underpinning the ECA/PIMCO proposal for a Liquidity and Sustainability Facility that would provide “concessional” repo financing to private investors in African sovereign bonds. In market speak, investors would finance their African sovereign debt holdings with LSF repo loans. The brief first examines the macrofinancial risks for African government bond issuers and for central banks that the LSF repo instrument engenders, as well as the developmental impact of a private-finance-led development paradigm that seeks the structural transformation of local financial systems towards bond-based finance. It then fleshes out the “Reform” and “Rethink” approaches to the ECA/PIMCO proposal. A reform of the institutional design of the LSF can minimise these macrofinancial risks. The Rethink approach in turn maps out alternative development pathways that prioritise local development banking instead of bond finance.
    Date: 2021–01–25
  25. By: Simplice A. Asongu (Yaounde, Cameroon); Tii N. Nchofoung (Ministry of Trade, Yaoundé, Cameroon)
    Abstract: This study empirically verifies the effect of terrorism on financial development and how globalisation and governance modulate the incidence of terrorism on financial development in Africa. Two terrorism indicators are adopted for this study, namely, the: number of terrorism incidences and number of terrorism deaths. The methodology involves the pooled data technique running from 1996-2018 for 34 African countries. The results from the POLS, Driscoll-Kraay and the Newey-West standard error corrections show that terrorism is detrimental to financial development. From the interactive regressions, three major tendencies are apparent. First, terrorism dynamics consistently have an unconditional negative effect on financial development. Second, the globalization and government dynamics modulate the terrorism dynamics to broadly induce a negative net effect on financial development. Third, policy thresholds at which the modulating variables reverse the net effect on financial development from negative to positive are: (i) 71.61572 trade (% of GDP) and 13.97872 FDI (% of GDP) for the incidence of terror and (ii) 1.16201 trade (% of GDP) for terror deaths. The computed thresholds make economic sense and worthwhile in terms of policy implications because they are within statistical range. The result is robust to alternative measures of terrorism and financial development. Policy implications are discussed.
    Keywords: terrorism, financial development, globalisation, governance, Pooled data
    JEL: D74 G28 F65 P37 C52
    Date: 2021–03
  26. By: Yann Nounamo (Douala, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Henri Njangang (University of Dschang , Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon)
    Abstract: The main contribution of this study is the determination of an endogenous threshold of institutional quality, beyond which external debt would affect economic growth differently. The focus is on 14 countries of the African Franc zone over the period 1985-2015. Based on the panel Smooth Threshold Regression model, the results reveal that the relationship between external debt and economic growth is based on institutional quality. It is found that the level of indebtedness at which the effect of external debt on economic growth becomes negative is higher in countries with lower levels of corruption and high levels of democracy. This means that poor institutional quality prevents a country from taking full advantage of its credit opportunities. Thus, the more countries become democratic, the more debt helps finance economic growth. These results are robust to sensitivity analysis and Generalized Method of Moments estimation.
    Keywords: external debt, political institutions, economic growth
    Date: 2021–01
  27. By: Nosrati, Elias
    Abstract: This paper makes a contribution to the sociology and political economy of "successful societies" by investigating how children’s health across the world is impacted by multilateral financial organisations. In particular, I assess the causal effect of domestic policy reforms mandated by the International Monetary Fund (IMF) on child mortality rates across 176 countries between 1990 and 2017 using instrumental variables. I find that IMF programmes cause up to 90 excess under-5 deaths per 1,000 live births (95% CI: 50–130). This aggregate effect appears to be driven by large-scale privatisation reforms, which cause up to 132 excess child deaths per 1,000 live births (95% CI: 72–191).
    Date: 2021–03–12
  28. By: Jean-François Carpantier (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Wessel N. Vermeulen (Newcastle University)
    Abstract: There are now more than 100 Sovereign Wealth Funds around the world and some exist for more than 50 years. Currently, they face headwinds due to the end of the commodity supercycle and to gradual reduction of the global imbalances. We review what remains from their original definitions and discuss the SWFs’ alternative institutional design for reaching their objectives (saving, stabilization and development). We find that SWFs are more heterogenous than ever. We then review the available literature on the assessment of their effectiveness in stabilizing the economy, economic development and long-term savings. We find that this is a severely understudied area. By extension, not all SWF have had a successful track-record and the world has moved into a period with regular SWF liquidations, which may be a new area research.
    Keywords: Sovereign Wealth Funds; Resources management; Natural resource course; intergeneration equity
    Date: 2021–03–05
  29. By: Chang Ma (Fudan University); John Rogers (Federal Reserve Board); Sili Zhou (Fudan University)
    Abstract: Stock market liberalization generates benefits and costs. We estimate these effects using the Shanghai (Shenzhen) - Hong Kong Stock Connect, an important opening that allows foreign investors to trade a subset of mainland Chinese firms. The liberalization brought connected Chinese firms lower funding costs and more investment, but also increased sensitivity to foreign shocks. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We find that both (greater) risk sharing and (lower) funding cost channels explain our results.
    Keywords: Capital Account Liberalization; Capital Controls; Global Financial Cycle; Foreign Spillovers; China Connect; Corporate Investment
    JEL: F38 E40 E52 G15
    Date: 2020–12–07
  30. By: Woo Jin Choi (Korea Development Institute); Ju Hyun Pyun (Korea University Business School); Youngjin Yun (Bank of Korea)
    Abstract: We match non-financial firms in Korea with their main banks for the period over 2003-2017 to examine whether and how corporate investments are affected by changes in international reserves. We first show that firm investment is negatively associated with international reserves. By tracing the public securities used for sterilization, we further show that investment of a non-financial firm reduces if its main bank increases public securities holdings in accordance with reserve accumulation. Massive supply of sterilization securities shifts banks’ balance sheet composition and adversely affects investments, especially for financially constrained firms.
    Keywords: FX reserves, sterilized intervention, firm investment, bank balance sheet
    JEL: C23 E22 E58 F21 F31
    Date: 2020–11–15
  31. By: Yuliyan Mitkov; Ulrich Schüwer
    Abstract: We provide evidence that regions in the U.S. with higher income inequality tend to have a riskier banking sector. However, not all banks are more risky, as reflected in a higher dispersion of bank risk. We show how a model based on risk-shifting incentives where banks channel insured deposits into subprime loans can account for both findings. In equilibrium, a competition to risk-shift emerges, leading to a subprime lending boom in which loans to high-risk borrowers carry negative NPVs. Some banks engage in risk-shifting by lending to high-risk subprime borrowers, while the rest specialize in lending to low-risk prime borrowers.
    Keywords: Inequality, Financial stability, Agency costs, Composition of credit, Banking competition
    JEL: G11 G21 G28 G51
    Date: 2021–01
  32. By: Paolo Coccorese; Claudia Girardone; Sherrill Shaffer
    Abstract: In this study we explore market power in 13 EU banking sectors for the years 2007 to 2019 by estimating a structural model with demand and supply equations, where the mark-up of price over marginal cost is parameterized as a measure of banks’ conduct that depends on selected factors. Our evidence indicates that EU banks enjoy a significant degree of market power, which shows a decreasing trend over time and some difference across countries. More competition is associated with higher bank density, lower bank capitalization, more efficient and stable banking systems, and better macroeconomic conditions. Finally, a clear convergence pattern emerges in the behaviour of EU banks.
    Keywords: Banking, Market power, European integration
    JEL: C36 F36 G21 L10
    Date: 2021–01
  33. By: Emmanuel Mamatzakis (Department of Management, Birkbeck, University of London, UK); Efthymios Tsionas (Economic Department, Lancaster University Management School, UK)
    Abstract: Decomposing firm performance has been challenging for some time. Yet the importance of accurately measuring performance is unequivocal. We propose a flexible functional of total factor productivity (TFP) that measures firm performance and treats misspecification. We argue that measuring bank productivity at global level, which is provided by our model based on bank micro-foundations, is better suited than other measures. Our results suggest that there is not much convergence in TFP across the world, though the technology has positively contributed to bank TFP growth. However, nonperforming loans have had the opposite effect. Furthermore, we show that bank risk-taking and raising capital by equity are negatively related to TFP growth; instead, liquidity has a positive impact.
    Date: 2020–03
  34. By: Delis, Manthos; Iosifidi, Maria; Hasan, Iftekhar; Tsoumas, Chris
    Abstract: We contend that economic preferences over risk-taking in different subnational regions worldwide affect fundamental aspects of firms’ corporate financing, namely financing costs and capital structure. We study this hypothesis, by hand-matching firms’ regions worldwide with the corresponding regional economic risk-taking preferences. Our baseline results show that credit and bond pricing increase with higher risk-taking preferences, whereas such preferences yield lower ratios of book leverage and short-term debt. We backup our baseline results with an instrumental variables approach, which is based on the premise that high-yield agricultural societies in the pre-industrial era exhibit low risk-taking preferences.
    Keywords: Economic preferences; Risk-taking; Financing costs; Loan spreads; Bond spreads; Capital structure
    JEL: G21 G32 Z13
    Date: 2021–02–27
  35. By: Giovanna Aguilar Andía (Departamento de Economía de la Pontificia Universidad Católica del Perú); Jhonatan Portilla Goicochea (Departamento de Economía de la Pontificia Universidad Católica del Perú)
    Abstract: El objetivo de este estudio es analizar el efecto de la competencia sobre el alcance social y la sostenibilidad financiera de las instituciones microfinancieras (IMFs) reguladas peruanas en el periodo enero 2003 – junio 2016. Utilizamos el Índice de Lerner como indicador de competencia, mientras que el total de deudores y el crédito promedio por deudor son los indicadores de amplitud y profundidad de alcance social, respectivamente. Asimismo, el ratio de autosuficiencia operativa y la rentabilidad sobre activo son los indicadores de desempeño financiero. La evidencia encontrada sugiere que la competencia entre IMFs peruanas aumentó por más de una década, entre enero del 2003 y noviembre del 2014, y considerando que la sostenibilidad financiera determina el alcance social, hallamos evidencia robusta de que una mayor competencia deteriora el desempeño financiero de las IMFs. Sin embargo, no encontramos resultados robustos del efecto de la competencia en la profundidad y en la amplitud del alcance social. Además, se encuentra que, la mayor autosuficiencia operativa y rentabilidad favorecen la profundidad y amplitud del alcance social de las IMFs peruanas por lo que no existe un trade-off entre el alcance social y la sostenibilidad financiera en el sector regulado de microfinanzas peruano. JEL Classification-JE: G21
    Keywords: Alcance social , Competencia , Microfinanzas , Sostenibilidad financiera
    Date: 2020

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