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on Financial Development and Growth |
| By: | Gloria González-Rivera (University of California, Riverside); Carlos Vladimir Rodríguez-Caballero (Mexico Autonomous Institute of Technology (ITAM) and CREATES); Esther Ruiz Ortega (Universidad Carlos III de Madrid) |
| 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: | Growth vulnerability, Multi-level factor model, Stressed growth |
| JEL: | C32 C55 E32 E44 F44 F47 O41 |
| Date: | 2021–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2021-06&r=all |
| By: | Nicolás Álvarez; Antonio Fernandois; Andrés Sagner |
| Abstract: | This paper applies the Growth-at-Risk (G@R) methodology proposed by Adrian et al. (2019) to the Chilean economy. To this aim, we first develop a Financial Conditions Index (FCI) from a broad set of local and external macro-financial variables covering the period from 1994 to 2020, such as asset prices, short and long-term spreads, and volatility measures that characterizes the vulnerabilities of the domestic financial market. The FCI identifies periods of substantial tight financial conditions that coincide with several episodes of economic downturns and market turmoils such as the 1997 Asian Crisis, the 2007-2009 Global Financial Crisis, and the coronavirus pandemic in mid-March 2020. The G@R analysis reveals that the FCI contains relevant information to forecast lower future GDP growth distribution quantiles. Thus, our results show that downside risks to growth intensify during periods of economic and financial distress. In particular, the 5th percent quantile of economic growth during the 2007-2009 Global Financial crisis reached roughly -10% due to tighter financial conditions propelled by the deterioration of the credit to GDP gap and adverse external conditions such as higher global volatility and lower terms of trade. These findings, and others discussed in the paper, highlight this methodology’s usefulness as an additional tool to support monitoring and risk management duties by policymakers. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:905&r=all |
| By: | Delle Monache, Davide (Bank of Italy); De Polis, Andrea (Univeristy of Warwick); Petrella, Ivan (Univeristy of Warwick) |
| Abstract: | We document a substantial increase in downside risk to US economic growth over the last 30 years. By modelling secular trends and cyclical changes of the predictive density of GDP growth, we find an accelerating decline in the skewness of the conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, which turned negative in the aftermath of the Great Recession, is associated with the long-run growth slowdown started in the early 2000s. Short-run skewness fluctuations imply negatively skewed predictive densities ahead of and during recessions, often anticipated by deteriorating financial conditions, while positively skewed distributions characterize expansions. The model delivers competitive out-of-sample (point, density and tail) forecasts, improving upon standard benchmarks, due to the strong signals of increasing downside risk provided by current financial conditions. |
| Keywords: | business cycle, financial conditions, downside risk, skewness, score driven models. |
| JEL: | C12 C22 C51 C53 E37 E44 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1324_21&r=all |
| By: | Helena Chuliá (Riskcenter- IREA and Department of Econometrics, University of Barcelona, Av.Diagonal, 690, 08034. Barcelona, Spain.); Ignacio Garrón (University of Barcelona, Av.Diagonal, 690, 08034. Barcelona, Spain.); Jorge M. Uribe (Riskcenter, University of Barcelona, Faculty of Economics and Business, Open University of Catalonia, Barcelona, Spain.) |
| Abstract: | We study the international propagation of financial conditions from the United States to global financial markets. The impact is highly heterogeneous alongside the quantiles of the distribution of the two major funding sources, credit and equity. Indeed, it is greater on the lower quantiles, which means that analogous to vulnerable growth episodes, examined by the past literature, there exist as well vulnerable funding periods of a global scale, originated from financial weakness in the US. These episodes are related to downside risk in terms of credit creation and firms’ market value around the world. Our estimates differentiate between first and second moment (i.e. uncertainty) shocks to financial conditions. This distinction proves to be relevant as it uncovers a complex propagation of shocks via different economic channels. On the one hand, credit growth largely responds to first moment shocks of US financial conditions four quarters after their occurrence, which is consistent with a credit view explanation of the transmission. On the other hand, stock markets react more sensitively and rapidly (mainly within a quarter) to second moment shocks, which can be theoretically associated with a portfolio channel underlying the shocks spread. We also document a heterogeneous impact across countries. In the case of credit growth this heterogeneity is better explained by the size or depth of the markets, while in the case of stock markets, the explanation is rooted on the strength of the financial connectedness with the US. |
| Keywords: | Financial conditions, Financial uncertainty, Quantile regression, Credit growth, Stock market. JEL classification: E44, F34, F37, F44, G15. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202106&r=all |
| By: | Barbaro, Bianca; Tirelli, Patrizio |
| Abstract: | We build a business cycle model characterized by endogenous firms dynamics, where banks may prefer debt renegotiation, i.e. non-performing exposures, to outright borrowers default. We find that debt renegotiations only do not have adverse effects in the event of financial crisis episodes, but a large share of non-performing firms is associated with a sharp deterioration of economic activity in two cases. First, if there are congestion effects in banks ability to monitor non-performing loans. Second, if such loans adversely affect the commercial banks’ moral hazard problem due to their opacity. Aggressive interest rate reductions and quantitative easing limit defaults and the output contraction caused by a financial crisis, without ad- verse effects on the entry of new, more productive firms. The model shows that the observed long-run trend in the share of non-performing loans might be caused by the persistent reduction in technological advancements which drive firm entry rates and firms turnover. JEL Classification: E32, E44, E50, E58 |
| Keywords: | DSGE model, financial frictions, firms entry, non-performing loans, quantitative easing |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212531&r=all |
| By: | Sewon Hur; César Sosa-Padilla; Zeynep Yom |
| 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 bank- ing 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. |
| JEL: | E32 F34 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28412&r=all |
| By: | Yann Nounamo (Douala, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Henri Njangang (Dschang , Cameroon); Sosson Tadadjeu (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 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/017&r=all |
| By: | Francisco J. Buera; Joseph P. Kaboski; Robert M. Townsend |
| Abstract: | Macroeconomic development remains an important policy goal because of its ability to lift entire populations out of poverty. In our review of the literature, we emphasize that the best way to achieve this objective is to embrace a synthesis of methods and ideas, with the science of experiments as a unifying feature. RCTs need representative data and structural modeling, and macro models need to be designed and disciplined to the realities and data of developing country economies. Macroeconomic models have key lessons for gathering and analyzing micro evidence and for moving to an evaluation of macro policy. Resource constraints, heterogeneity, general equilibrium effects, obstacles to trade, dynamics, and returns to scale can all play key roles. A synthesis for macro development is well under way. |
| JEL: | O1 O11 O12 O2 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28423&r=all |
| By: | Valerie Cerra; Ruy Lama; Norman Loayza |
| Abstract: | Is there a tradeoff between raising growth and reducing inequality and poverty? This paper reviews the theoretical and empirical literature on the complex links between growth, inequality, and poverty, with causation going in both directions. The evidence suggests that growth can be effective in reducing poverty, but its impact on inequality is ambiguous and depends on the underlying sources of growth. The impact of poverty and inequality on growth is likewise ambiguous, as several channels mediate the relationship. But most plausible mechanisms suggest that poverty and inequality reduce growth, at least in the long run. Policies play a role in shaping these relationships and those designed to improve equality of opportunity can simultaneously improve inclusiveness and growth. |
| Date: | 2021–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/068&r=all |
| By: | Alvaro Aguirre; Matias Tapia; Lucciano Villacorta |
| Abstract: | The ability of firms to accumulate wealth and build collateral is key to overcome financial frictions. The strength of this self-financing channel depends on the productivity process faced by firms and the parameters associated with the production function, and may be quantified by the elasticity of wealth accumulation to productivity shocks. We propose a framework to jointly estimate the production function, the productivity process, and the wealth accumulation process that is robust to financial frictions. We show that standard methods (e.g. Olley-Pakes) fail under financial frictions: they overestimate the labor elasticity and underestimate the capital elasticity of the production function, and underestimate the persistence and dispersion of the productivity process. We apply our method to the universe of Chilean firms and confirm these predictions, with factor elasticities varying around 25%, and productivity volatility more than doubling. We find evidence that is in line with the self-financing channel: (i) the reaction of investment to productivity shocks is contingent on the stock of collateral, with larger responses from unconstrained firms; (ii) highly productive firms accumulate wealth after positive and persistent productivity shocks, with a larger effect in wealthpoor firms. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:904&r=all |
| By: | Randall Morck |
| Abstract: | Because positive spillovers give investment in innovation a social rate of return several times higher than its internal rate of return to innovators, innovation is chronically underfunded. Recurrent manias, panics and crashes in stock markets inundate “hot” new technologies with capital. To the extent that manias compensate for chronic underinvestment in innovation, competition at the economy-level may favor institutions and behavioral norms conducive to innovation-related bubbles despite ultimately low returns to the hindmost investors. |
| JEL: | G01 G02 G4 N2 O16 O3 O33 O4 P1 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28411&r=all |
| By: | Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer; Stephen J. Terry |
| Abstract: | We incorporate diagnostic expectations, a psychologically founded model of overreaction to news, into a workhorse business cycle model with heterogeneous firms and risky debt. A realistic degree of diagnosticity, estimated from the forecast errors of managers of US listed firms, creates financial fragility during good times. This mechanism produces countercyclical credit spreads and yields two key features of observed credit cycles. First, it generates boom-bust dynamics at the firm and aggregate levels: cheap credit predicts future increases in spreads, low bond returns, and investment drops. Second, it produces the spike in spreads observed in 2008-9 from modest negative TFP shocks. Diagnostic expectations offer a parsimonious mechanism generating realistic financial reversals in conventional business cycle models. |
| JEL: | E03 E32 E44 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28416&r=all |
| By: | Berger, Tino; Richter, Julia; Wong, Benjamin |
| Abstract: | We jointly estimate the U.S. business and financial cycle through a unified empirical approach while simultaneously accounting for the role of financial factors. Our approach uses the Beveridge-Nelson decomposition within a medium-scale Bayesian Vector Autoregression. First, we show, both in reduced form and when we identify a structural financial shock, that variation in financial factors had a larger role post-2000 and a more modest role pre-2000. Our results suggest that the financial sector did play a role in overheating the business cycle pre-Great Recession. Second, while we document a positive unconditional correlation between the credit cycle and the output gap, the correlation of the lagged credit cycle and the contemporaneous output gap turns negative when we condition on a financial shock. The sign-switch suggests that the nature of the underlying shocks may be important for understanding the relationship between the business and financial cycles. |
| Keywords: | Business Cycle,Financial Cycle,Financial shocks |
| JEL: | C18 E51 E32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:415&r=all |
| By: | Stephanie E. Curcuru; Mohammad R. Jahan-Parvar |
| Abstract: | The global financial crisis of 2008-09 (GFC) followed an extended period of growth in non-financial corporate (NFC) sector debt. NFC corporate debt resumed its climb a few years after the GFC, and the pace of growth picked up in 2020, as firms took on debt to cover revenue lost during the pandemic or to build up precautionary liquidity buffers. |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2021-03-19-1&r=all |
| By: | Anna Belianska (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); Aurélien Eyquem (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, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche); Céline Poilly (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, CEPR - Center for Economic Policy Research - CEPR, DIW Berlin - German Institute for Economic Research) |
| Abstract: | Higher uncertainty about government spending generates a persistent decline in the economic activity in the Euro Area. This paper emphasizes the transmission channels explaining this empirical fact. First, a Stochastic Volatility model is estimated on European government consumption to build a measure of government spending uncertainty. Plugging this measure into a SVAR model, we stress that government spending uncertainty shocks have recessionary, persistent and humped-shaped effects. Second, we develop a New Keynesian model with financial frictions applying to a portfolio of equity and long-term government bonds. We argue that a portfolio effect-resulting from the imperfect substitutability among both assets-acts as a critical amplifier of the usual transmission channels. |
| Keywords: | government spending uncertainty,stochastic volatility,portfolio adjustment cost |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03160370&r=all |
| By: | Alp Simsek |
| Abstract: | I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about worst-case scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare. |
| JEL: | E00 E12 E21 E22 E32 E44 E50 E70 G00 G01 G11 G12 G40 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28426&r=all |
| By: | Mayssa Mhadhbi; Mohamed Gallali; Stéphane Goutte (Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines, VNU - Vietnam National University [Hanoï]); Khaled Guesmi |
| Abstract: | It has been widely documented in the literature that financial development drives up the impact of CO2 emissions through increases in real economic activities and the consumption of polluting fossil fuel energy. However, when dealing with stock market development, such upward effects on economic growth, energy efficiency, and carbon emissions seems to give away to a positive impact especially in emerging markets. This paper contributes to this debate by exploring both the symmetric and asymmetric responses of CO2 emission to changes in stock market development indicators. In particular, using both the panel linear and nonlinear ARDL, our results demonstrate the asymmetric effects of stock market development indicators on carbon emissions in the context of emerging markets. In particular, the long-run elasticities results suggest that positive and negative shocks on stock market indicator decreases environmental quality by increasing carbon emissions. Based on these empirical findings, this study offers some crucial policy implications. |
| Keywords: | Stock market development,Carbon emissions,Energy efficiency,Asymmetric relationship,NARDL model,JEL Classification: Q 43,G28,E44,F64 |
| Date: | 2021–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03169689&r=all |
| By: | Henri Njangang (University of Dschang , Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon); Yann Nounamo (University of Douala, Douala, Cameroon) |
| Abstract: | This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries. |
| Keywords: | Financial development, Economic complexity, Panel data analysis, Africa |
| JEL: | G20 G24 E02 P14 O55 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/018&r=all |
| By: | Giorgio Barba Navaretti (University of Milan); Anna Rosso (University of Milan) |
| Abstract: | We examine the geography of productivity leaders and laggards in the population of Italian joint stock manufacturing companies between 2007 and 2017 and analyse how far such patterns can be related to their financial structure and the provision of financial services in the Italian provinces. To do so we exploit the reform of the Italian banking system in the mid-Nineties as an exogenous shock on the structure of local banking markets and examine whether this shock affects productivity patterns at the firm level. We find a robust descriptive evidence of a widening of the leader-laggard gaps, with a very sizeable productivity divide between the North and the South of the country. Leaders are concentrated in the North. Leaders, especially in the North are also more likely to have access to capital markets. Firms in the South, instead, also those at the frontier, are more reliant on bank lending. The liberalization of the banking market in the mid 90s and the growth of joint stock banks at the provincial level positively affected firms’ productivity outcomes, possibly through an improvement of firms’ financial structure. We also use a firm specific measure of core-periphery based on distance from airport hubs and find that the likelihood of activating a virtuous capital market productivity link declines with distance from core areas. |
| Keywords: | Productivity, Bank Liberalization, Core-periphery Dynamics |
| JEL: | R1 O4 G21 |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:csl:devewp:469&r=all |
| By: | Isil R. Yavuz (Bryant University); Berrak Bahadir (Department of Economics, Florida International University) |
| Abstract: | This paper examines the moderating influence of home country ethnic diversity in the relationship between migrant remittances and new business creation in developing countries. By employing the theories of transaction cost, social network, social identity, and trust, we argue that ethnic diversity is negatively associated with new business creation; nevertheless, it strengthens the positive association between migrant remittances and new business creation in developing countries. We test our hypotheses on 64 developing countries over an 11-year period (2006-2016). This paper contributes to entrepreneurship literature by emphasizing the importance of home country ethnic diversity in channeling migrants’ remittances to new business creation in developing countries. |
| Keywords: | Migrant Remittances, New Business Creation, Ethnic Diversity, Developing Countries |
| JEL: | L26 M13 J15 F24 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:2110&r=all |
| By: | Koutchogna Kokou Edem ASSOGBAVI |
| Abstract: | Since the Global Financial Crisis (GFC), the large current account surpluses in some countries have become an important topic of discussion in international fora. In this paper, we empir-ically assess the factors that could potentially explain the persistence of global imbalances in selected advanced and emerging countries. We adopt a panel-regression approach on a sample covering 56 countries, allowing us to assess the medium-term determinants of current accounts. First, we perform benchmark estimations and break down our estimations between pre- and post- GFC samples using two different approaches. Second, we specify more comprehensive models in order to better understand current account dynamics. Our results show that the GFC did not imply any structural break in the determination of current accounts. Moreover, financial development, openness, and institutional variables appear as the main factors impacting cur-rent account dynamics through the effects that they have on investment and saving behaviors. Finally, we use our estimates to predict the equilibrium current accounts and compute the con-tribution of underlying factors. Despite some uncertainty around the estimates, our models are able to explain most of the observed current account configuration, showing only some excess surplus compared to equilibrium in the case of China and more recently Germany. In the case of the U.S., however, larger uncertainty ranges prevent us from precisely estimating equilibrium current account levels. |
| Keywords: | current accounts; financial development; financial crisis; capital flows |
| JEL: | F21 F32 F41 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:grt:bdxewp:2021-06&r=all |
| By: | Hung Ly-Dai (Vietnam Institute of Economics, Hanoi, Vietnam); Hai Anh Bui Thi; Thanh Vo Tri |
| Abstract: | We characterize the determinants of the pattern of cross-border debts flows, using a cross-section regression over a sample of 149 economies over 1990-2019. The net debts inflows is associated with a higher sovereign debts rating, a lower fiscal balance or a higher productivity growth. Thus, the flows of debts are underlined by the store of wealth accumulation across economies. Moreover, in comparison with the prediction by the empirical model, the case studies uncover that Vietnam receives more net debts inflows while Thailand and Japan receives less net debts inflows. |
| Keywords: | Net Debts Inflows,Safe Assets,Productivity Growth |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03129122&r=all |
| By: | Rodrigo Caldeira de Almeida Martins (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra); Jorge Cerdeira (ISCTE Business Research Unit); Miguel Fonseca (University of Porto, Faculty of Economics and Management and University of Lisbon, Centre for African and Development Studies, CESA, Lisbon School of Economies of Management); Mohamed Barrie (University of Porto, Faculty of Economics and Management) |
| Abstract: | This paper analyzes the main determinants of Foreign Direct Investment (FDI) in the member countries of Mano River Union: Côte d’Ivoire, Guinea, Liberia and Sierra Leone. We use both data at the firm level and at the country level - and employ OLS and ARDL techniques - in order to examine the differences and similarities in FDI drivers across these four countries. Our results show that international trade, investment in infrastructures and access to credit have a positive impact on FDI. While credit and trade have a similar influence across countries, the effect of investment is distinct across Mano River members, which raises political implications for policy coordination among states. We also conclude that policies aimed to boost human capital, as well as political and economic stability, are relevant, as they augment FDI inflows. |
| Keywords: | Foreign Direct Investment; FDI determinants; Mano River Union; West Africa. |
| JEL: | C10 F21 F23 O55 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2021-02&r=all |
| By: | Paul Mizen; Frank Packer; Eli Remolona; Serafeim Tsoukas |
| Abstract: | In this paper, we focus on the surprising phenomenon in which firms face difficulty issuing in domestic currency even in the home market, especially in emerging markets. Could this be due to "original sin" which has been familiar to sovereign bond issuance? In its new incarnation, original sin refers to the difficulty firms in many emerging markets have in borrowing domestically long-term, even in the local currency. We infer the nature of original sin from 5,901 financing decisions by firms in seven Asian emerging markets over a period of 20 years. Our sample period covers an episode when bond issuers had a choice between a less developed but growing onshore market, which varied across countries in the level of development, and a deep and liquid offshore market. We find that even in countries with onshore markets, it is often easier for unseasoned firms to issue offshore (in foreign currency) than to issue onshore, but changes in market development reverses this effect. In addition, once such a firm becomes a seasoned issuer, it is absolved from domestic original sin and is then able to act opportunistically and go to the market favored by interest differentials. |
| Keywords: | bond financing, offshore markets, emerging markets, market depth, global credit |
| JEL: | C23 E44 F32 F34 G32 O16 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2021_03&r=all |
| By: | Johannes Herderschee; Ran Li; Abdoulaye Ouedraogo; Luisa Zanforlin |
| Abstract: | Whereas most of the literature related to the so-called “resource curse” tends to emphasize on institutional factors and public policies, in this research we focus on the role of the financial sector, which has been surprisingly overlooked. We find that countries that have financial systems with more depth, as well as those that actively manage their central banks’ balance sheets experience less exchange-rate appreciation than countries that do not. We analyze the relationship between these two findings and suggest that they appear to follow separate mechanisms. |
| Date: | 2021–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/073&r=all |
| By: | Catia Batista; Sandra Sequeira; Pedro C. Vicente |
| Abstract: | We examine the complementarity between access to mobile savings accounts and improved financial management skills on the performance of female-led micro-enterprises in Mozambique. This combined support is associated with a large increase in both short and long-term firm profits and in financial security, when compared to the independent effect of each of these interventions. This support allowed female-headed micro-enterprises to close the gender gap in performance and financial literacy relative to their male counterparts. The main drivers of improved business performance are increased financial management practices (bookkeeping), an increase in accessible savings and reduced transfers to friends and relatives. |
| Keywords: | Microenterprise development, management, gender, mobile money, financial literacy, economic development |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unl:novafr:wp2104-1&r=all |
| By: | Enrico Bernardini (Bank of Italy); Ivan Faiella (Bank of Italy); Luciano Lavecchia (Bank of Italy); Alessandro Mistretta (Bank of Italy); Filippo Natoli (Bank of Italy) |
| Abstract: | In the last few years, the climate changes under way and the transition towards a sustainable economic development model have become of great importance for the financial system, involving central banks as well. The latter, whose interest is demonstrated by the work of the Network for Greening the Financial System (NFGS), are taking on the challenges posed by these events as part of their institutional and investment activities. By means of internal study projects and by taking part in the most important round tables at national and international level, the Bank of Italy is helping to analyse the risks that climate change creates for the economic and financial system. In addition, and in line with the recent developments in sustainable finance, it has also integrated sustainability criteria into its investment decisions. This paper aims to give an account of the evidence collected so far on the risks and opportunities linked to climate change and sustainable finance, highlighting what has already been done and what else can be done to put these issues on the agenda of central banks. |
| Keywords: | Bank of Italy, central banks, climate risks, sustainable finance |
| JEL: | Q54 G21 G28 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_608_21&r=all |
| By: | Klusak, P.; Agarwala, M.; Burke, M.; Kraemer, M.; Mohaddes, K. |
| Abstract: | Enthusiasm for 'greening the financial system' is welcome, but a fundamental challenge remains: financial decision makers lack the necessary information. It is not enough to know that climate change is bad. Markets need credible, digestible information on how climate change translates into material risks. To bridge the gap between climate science and real-world financial indicators, we simulate the effect of climate change on sovereign credit ratings for 108 countries, creating the world's first climate-adjusted sovereign credit rating. Under various warming scenarios, we find evidence of climate-induced sovereign downgrades as early as 2030, increasing in intensity and across more countries over the century. We find strong evidence that stringent climate policy consistent with limiting warming to below 2°C, honouring the Paris Climate Agreement, and following RCP 2.6 could nearly eliminate the effect of climate change on ratings. In contrast, under higher emissions scenarios (i.e., RCP 8.5), 63 sovereigns experience climate-induced downgrades by 2030, with an average reduction of 1.02 notches, rising to 80 sovereigns facing an average downgrade of 2.48 notches by 2100. We calculate the effect of climate-induced sovereign downgrades on the cost of corporate and sovereign debt. Across the sample, climate change could increase the annual interest payments on sovereign debt by US$ 22–33 billion under RCP 2.6, rising to US$ 137–205 billion under RCP 8.5. The additional cost to corporates is US$ 7.2–12.6 billion under RCP 2.6, and US$ 35.8–62.6 billion under RCP 8.5. |
| Keywords: | Sovereign credit rating, climate change, counterfactual analysis, climate-economy models, corporate debt, sovereign debt |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2127&r=all |