nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒06‒28
27 papers chosen by
Georg Man

  1. Bank credit and economic growth: a dynamic threshold panel model for ASEAN countries. By Sy-Hoa Ho; Jamel Saadaoui
  2. Financial Integration and Financial System Development in Emerging Market and Developing Countries By Fiskara Indawan
  3. Financial Development, Human Capital Development and Climate Change in East and Southern Africa By Olatunji A. Shobande; Simplice A. Asongu
  4. Economic Growth with Public and Foreign Investment in Vietnam By Ly Dai Hung
  5. The Impact of Infrastructure development on Foreign Direct Investment in Cameroon By Mbiankeu Nguea, Stéphane
  6. Is government debt good or bad for labor productivity? A dynamic panel analysis over 1972-2019 By Carvelli, Gianni; Trecroci, Carmine
  7. The relationship between the US broad money supply and US GDP for the time period 2001 to 2019 with that of the corresponding time series for US national property and stock market indices, using an information entropy methodology By Laurence Lacey
  8. Risk shocks, due loans, and policy options: When less is more! By José R. Maria; Paulo Júlio; Sílvia Santos
  9. Leaning against the wind and crisis risk By Schularick, Moritz; Ter Steege, Lucas; Ward, Felix
  10. Central Bank Policy and the Concentration of Risk: Empirical Estimates By Nuno Coimbra; Daisoon Kim; Hélène Rey
  11. The new gatekeepers of financial claims: States, passive markets, and the growing power of index providers By Fichtner, Jan; Heemskerk, Eelke; Petry, Johannes
  12. Connective Financing - Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries By Bluhm, Richard; Dreher, Axel; Fuchs, Andreas; Parks, Brad; Strange, Austin; Tierney, Michael J.
  13. Investment in OECD Countries: A Primer By Balazs Egert
  14. The Effects of Restrictive Measures on Cross-Border Investment: Evidence from OECD and Emerging Countries By Amara ZONGO
  15. Corporate taxation and firm-level investment in South Africa By Mashekwa Maboshe
  16. Trade Shocks and Credit Reallocation By Federico, Stefano; Hassan, Fadi; Rappoport, Veronica
  19. What Drives Bank Peformance? By Luca Guerrieri; James Collin Harkrader
  20. Fiscal risks and their impact on banks’ capital buffers in South Africa By Konstantin Makrelov; Neryvia Pillay; Bojosi Morule
  21. Mediating Financial Intermediation By Bellon, Aymeric; Harpedanne de Belleville, Louis-Marie; Pinardon-Touati, Noémie
  22. Bankrupt Innovative Firms By Song Ma; Joy Tianjiao Tong; Wei Wang
  23. Economics of Microcredit-From current crisis to new possibilities By Mitoko, Jeremiah
  24. Increased access to finance stakeholder consultation workshop: Final report By Hossain, Shawkat; Rabbani, Zunaed; Ahmed, Shahran
  25. Is Lending Distance Really Changing? Distance Dynamics and Loan Composition in Small Business Lending By Robert M. Adams; Kenneth P. Brevoort; John C. Driscoll
  26. Social Proximity to Capital: Implications for Investors and Firms By Kuchler, Theresa; Li, Yan; Peng, Lin; Ströbel, Johannes; Zhou, Dexin
  27. The Macroeconomics of a Pandemic: A Minimalist Model By Céspedes, Luis Felipe; Chang, Roberto; Velasco, Andrés

  1. By: Sy-Hoa Ho; Jamel Saadaoui
    Abstract: While it is widely recognized that the development of a sound financial system may contribute to foster economic growth, the relation between economic growth and financial activities is complex. In this perspective, our contribution investigates the existence of threshold effects in the relationship between economic growth and bank credit. Our sample of ASEAN countries is examined over the period spanning from 1993 to 2019. We use the approach of Kremer et al. (2013) to estimate threshold effects in a dynamic panel where a group of explanatory variables can be endogenous. Our results do not confirm the vanishing effect of finance on economic growth. We found a threshold of 96.5% (significant at the 5% level) for the credit-to-GDP ratio, the threshold variable. In the short run, for observations inferior or equal to the threshold, the positive effect of bank credit expansion on economic growth is around 0.08 (significant at the 1% level). Whereas, for observations superior to the threshold, the positive effect of bank credit expansion on economic growth is around 0.02 (significant at the 1% level). The role of exporting firms is essential in ASEAN countries as they are more export-oriented than other regions in the world economy. Our results may indicate that the beneficiary of the credit (firms versus households), the structural features (export-led growth), and the regional heterogeneity have to be considered in empirical investigations of threshold effects in the relation between economic growth and bank credit. This empirical evidence may help to formulate sound policy recommendations.
    Keywords: Bank Credit, Economic Growth, Dynamic Threshold Estimation, ASEAN.
    JEL: C23 G21 O41
    Date: 2021
  2. By: Fiskara Indawan
    Abstract: The paper is investigating the relationship between financial integration proxied by composition of capital inflows and financial development inemerging economies. The composition of capital inflows are FDI inflow, external debt inflow and portfolio equity inflow, whereas the indicators of financial development are nine indices of new measure of financial development constructed by IMF that include financial development, financial institutions (banks), financial market (stock and debt market) as well as its depth, access and efficiency. Using dynamic panel data GMM estimation from 79 countries in emerging economies, the estimation results find that composition of capital inflow have positive and statistically significant in developing all aspect of financial development in emerging economies. Specifically, FDI inflow as the largest portion of capital inflow in emerging economies is closely associated with financial institutions depth, access and efficiency, and financial market depth and access. External debt inflow is positively effect financial institutions efficiency and financial market depth and efficiency. Moreover, portfolio equity inflow which hold the smallest portion among other inflow is closely related to financial institution depth, access and efficiency, and financial market depth and access. In general,those three composition of capital inflows are significantly increase the development of financial institutions and market, hence the deepening of financial system in emerging economies.
    Keywords: financial integration, financial development, capital inflow, financial institutions
    JEL: F36 F63 F32 N20
    Date: 2020
  3. By: Olatunji A. Shobande (Business School, University of Aberdeen, UK); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Africa is currently experiencing both financial and human development challenges. While several continents have advocated for financial development in order to acquire environmentally friendly machinery that produces less emissions and ensures long-term sustainability, Africa is still lagging behind the rest of the world. Similarly, Africa's human development has remained stagnant, posing a serious threat to climate change if not addressed. Building on the underpinnings of the Environmental Kuznets Curve (EKC) hypothesis on the nexus between economic growth and environmental pollution, this study contributes to empirical research seeking to promote environmental sustainability as follows. First, it investigates the link between financial development, human capital development and climate change in East and Southern Africa. Second, six advanced panel techniquesare used, and they include: (1) cross-sectional dependency (CD) tests; (2) combined panel unit root tests; (3) combined panel cointegration tests; (4) panel VAR/VEC Granger causality tests and (5) combined variance decomposition analysis based on Cholesky and Generalised weights. Our finding shows that financial and human capital developments are important in reducing CO2 emissions and promoting environmental sustainability in East and Southern Africa.
    Keywords: Financial Development; Human Capital; East and Southern Africa; Climate Change
    JEL: G21 I21 I25 O55 Q54
    Date: 2021–01
  4. By: Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam)
    Abstract: We analyze the economic growth under impact of public and foreign investment by a vector autogressive model (VAR) on a quarterly sample of Vietnam economy over 2008-2020. The method stresses the role of exchange rate and liquidity supply on context of open economy. The evidence records that there exists a synergy of public and foreign investment on raising economic growth, reducing inflation and evaluating domestic currency. Moreover, the public investment is crucial to combat economic recession, especially during the current pandemic Covid-19.
    Keywords: Economic Growth,Public Investment,Foreign Investment,Vector Autoregression (VAR) model
    Date: 2021–05
  5. By: Mbiankeu Nguea, Stéphane
    Abstract: Better access to improved infrastructure services is one of the components of a favourable investment climate for foreign investors and an important engine for sustainable economic growth. This study investigates the impact of communication, energy and transport infrastructure development on Foreign Direct Investment (FDI) in Cameroon over the period 1984-2014. Auto Regressive Distributed Lags (ARDL) bounds test approach to cointegration has been applied to analyse the annual time series data coming from United Nations Conference on Trade and Development (UNCTAD) and World Development Indicators (WDI). The results show that communication infrastructure exerts a positive and significant impact on FDI inflows. In addition, energy infrastructure reduces the volume of FDI inflows, while transport infrastructure is not relevant in attracting FDI inflows. According to these findings, this study recommends that the government of Cameroon pay further attention to improving the quality of infrastructure in order to attract more FDI.
    Keywords: Infrastructure, ARDL, FDI, Cameroon
    JEL: F21 H41 R42
    Date: 2021–06–20
  6. By: Carvelli, Gianni; Trecroci, Carmine
    Abstract: In this paper we provide new insights on the nexus between public debt and economic growth, focusing on the growth of debt rather than its level. By exploiting updated macroeconomic time series for 75 countries (37 OECD and 38 non-OECD) over the period 1972-2019 and using the system-GMM technique, we estimate the impact of the growth of public debt per worker on labor productivity growth. We find evidence of a significant adverse effect of the growth of public debt per worker on labor productivity growth, as proxied by the growth of output per worker. Similar results arise when we consider the growth of public debt per capita and the growth of real GDP per hours worked.
    Keywords: Public debt, Labor productivity, Growth.
    JEL: C33 E6 E62 H6 H63 O4 O47
    Date: 2021–06–16
  7. By: Laurence Lacey
    Abstract: The primary objective of this paper was to investigate whether the growth in the major US asset indices could be a function of the US broad money supply and/or US GDP, over the time period 2001 to 2019, using an information entropy methodology. The four US asset indices investigated were: (1) US National Property index; (2) Russell 2000 index; (3) S&P 500 index; and (4) NASDAQ index. Notwithstanding the financial crisis of 2007-2008, US real GDP increased exponentially over the period 2001 to 2019, with an average annual growth rate of approximately 2%. However, over this time period, the average annual rate of growth of US GDP was considerably lower than the average annual rate of growth of the US broad money supply (5.7%). The main determinant of the average growth rate for all four US asset indices studied would appear to be the growth rate in the US broad money supply. In addition, the growth rate in the US Russell 2000 stock index and the NASDAQ index would appear to be a function of the combined positive effects of both the growth rate in the US Broad Money Supply and the growth rate of US GDP.
    Date: 2021–06
  8. By: José R. Maria; Paulo Júlio; Sílvia Santos
    Abstract: We use a dynamic stochastic general equilibrium model endowed with a complex banking system—in which due loans, occasionally binding credit restrictions, a cost of borrowing channel, and regulatory (capital and impairment) requirements coexist—to analyze the performance of various policy options impacting impairment recognition by banks. We discuss how looser or tighter policy designs affect output and welfare—both in the steady state and alongside dynamics—and the main driving forces that lie beneath the effects. The holding cost of due loans, restrictions to credit, dividend strategy, and the cure rate are key components of the driveshaft propelling policies to outcomes. We find that looser policies outperform tighter ones only if reflected into higher capital buffers (extra income is retained and not distributed as dividends) and for sufficiently low values of the holding cost. Higher cure rates increase the effectiveness of looser policies—they dominate for a wider range of holding costs—by raising the benefits of delaying impairment recognition. A policy targeting impairment recognition seems to take the upper edge due to its combined steady-state and business-cycle effects, but a policy that allows the regulatory impairment recognition to respond to the cycle is more effective from a business-cycle stabilization standpoint. Occasionally binding credit restrictions boost the effectiveness of looser policies during recessions due to its asymmetric effects over the cycle, pushing the mean output upwards.
    JEL: E32 E44 H62
    Date: 2021
  9. By: Schularick, Moritz; Ter Steege, Lucas; Ward, Felix
    Abstract: Can central banks defuse rising stability risks in financial booms by leaning against the wind with higher interest rates? This paper studies the state-dependent effects of monetary policy on financial crisis risk. Based on the near-universe of advanced economy financial cycles since the 19th century, we show that discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.
    Keywords: Financial Stability; local projections; monetary policy
    JEL: E44 E50 G01 G15 N10
    Date: 2020–05
  10. By: Nuno Coimbra; Daisoon Kim; Hélène Rey
    Abstract: Before the 2008 crisis, the cross-sectional skewness of banks’ leverage went up and macro risk concentrated in the balance sheets of large banks. Using a model of profit-maximizing banks with heterogeneous Value-at-Risk constraints, we extract the distribution of banks’ risk-taking parameters from balance sheet data. The time series of these estimates allow us to understand systemic risk and its concentration in the banking sector over time. Counterfactual exercises show that (1) monetary policymakers confront the trade-off between stimulating the economy and financial stability, and (2) macroprudential policies can be effective tools to increase financial stability.
    JEL: E0 E5 F3 G01
    Date: 2021–06
  11. By: Fichtner, Jan (University of Amsterdam); Heemskerk, Eelke; Petry, Johannes
    Abstract: Since the financial crisis there has been a massive shift from actively managed funds to passive funds that merely replicate financial indexes. Instead of active investors influencing states through their investment decisions, in this new economic reality the locus of agency is shifting from investors towards index providers as they decide which companies and countries are included into key benchmark indexes. We argue that the major index providers (MSCI, S&P Dow Jones and FTSE Russell) exercise growing private authority as they steer capital via their indexes. Index providers have become crucial intermediaries in the relationship between states and investors. Through producing widely used indexes, index providers essentially provide a crucial infrastructure that enables the creation and trading of increasingly passively allocated financial claims. Through the infrastructural power they derive from this gatekeeper position, index providers are able to ‘standardise’ the issuers of capital claims and the countries in which these issuers reside through determining the criteria that corporations and states, especially emerging markets, have to fulfil to qualify for index membership – and consequently asset allocation. This chapter therefore investigates the relationship between states and index providers and the latter’s influence on issues of domestic financial regulation, investor access and international capital flows.
    Date: 2021–06–16
  12. By: Bluhm, Richard; Dreher, Axel; Fuchs, Andreas; Parks, Brad; Strange, Austin; Tierney, Michael J.
    Abstract: This paper studies the causal effect of transport infrastructure on the spatial concentration of economic activity. Leveraging a new global dataset of geo-located Chinese government-financed projects over the period from 2000 to 2014 together with measures of spatial inequality based on remotely-sensed data, we analyze the effects of transport projects on the spatial distribution of economic activity within and between regions in a large number of developing countries. We find that Chinese-financed transportation projects reduce spatial concentration within but not between regions. In line with land use theory, we document a range of results which are consistent with a relocation of activity from city centers to their immediate periphery. Transport projects decentralize activity particularly strongly in regions that are more urbanized, located closer to the coast, and less developed.
    Keywords: China; Development finance; foreign aid; infrastructure; spatial concentration; transport costs
    JEL: F15 F35 O18 O19 P33 R11 R12
    Date: 2020–05
  13. By: Balazs Egert
    Abstract: Aggregate business investment is a major driver of long-term economic growth. It has been weak in many advanced economies over the last decade, partly due to cyclical demand-side effects. Nevertheless, a number of structural factors and policies interact with and have an effect on business investment. This paper provides a survey of the literature on the main policy drivers of business investment such as finance (including bank and market finance, venture capital and the debt bias in corporate taxation), tax policies, foreign direct investment, product and labour market and environmental regulations, the importance of an efficient insolvency regime, the negative impact of (regulatory) uncertainty and the role of infrastructure investment as a support for business investment.
    Keywords: aggregate investment, capital deepening, structural policy, product market regulation, labour market regulation, OECD
    JEL: E24 C13 C23 C51 L43 L51
    Date: 2021
  14. By: Amara ZONGO
    Abstract: This paper investigates the effects of global and sectoral restrictive measures on cross-border FDI among 49 advanced and emerging countries. We use a gravity model with panel data from 2010 to 2019 and the FDI Restrictiveness Index of the OECD that quantifies the level of restriction in FDI. Our results suggest that global restrictive measures do not significantly affect cross-border FDI in OECD countries, while restrictions in the service sector have negative and significant effects on FDI. Moreover, the overall restrictive measures and those in the service sector negatively impact inward FDI among OECD and big emerging countries. In addition, restrictions in the services sector impede inward FDI in African countries. Interestingly, restrictions in the secondary sector boost FDI between advanced and African countries, with larger effects for inward investments in African countries. The analysis of disaggregated sectoral restrictive measures shows that restrictions in business and other financial services are negatively associated with intra-OECD FDI, while restrictions in the banking sector have a significant positive impact on FDI. We also find that restrictions in the manufacturing sector have restrictive impacts on inwrad FDI in big emerging countries, and those in the mining, quarrying, and oil extraction sector hinder inward FDI in African countries. Reforms to liberalize sectoral restrictions by country have positive effects on FDI, but deregulation of the services sector has beneficial effects on inward FDI in all countries.
    Keywords: International Trade, FDI stocks, FDI restrictions, Gravity model
    JEL: D25 F10 F14 L51
    Date: 2021
  15. By: Mashekwa Maboshe
    Abstract: This paper investigates the responsiveness of firm-level investment to corporate tax changes in South Africa over the period 1999 to 2012. The study exploits rare changes in corporate tax policy to assess the responsiveness of firm-level investment among Johannesburg Stock Exchange listed non-financial firms. Our estimation of a neoclassical investment model using GMM techniques shows that although changes in corporate tax policy reduced the tax-adjusted marginal cost of capital over time, the reductions did not translate into significant investments in fixed assets. We speculate that the well-documented financial frictions in the capital markets could explain the failure of neoclassical investment theory in South Africa. Our findings are similar to those in other developing countries and crucially suggest that investment policies should look beyond the use of corporate tax incentives.
    Keywords: corporate taxation, capital investment, user cost of capital
    JEL: E22 H32 C23
    Date: 2021–06
  16. By: Federico, Stefano; Hassan, Fadi; Rappoport, Veronica
    Abstract: This paper shows that there are endogenous financial constraints arising from trade liberalization. Banks with a large share of loans on firms exposed to competition from China suffer an increase in non-performing loans and reduce their credit capacity. The drop in credit supply affects both firms directly exposed to import-competition from China, and firm expected to expand upon trade liberalization, with economically relevant implications in terms of employment, investment, and output. This financial spillover between losers and winners from trade retards the reallocation of factors of production between firms and sectors, crucial to the welfare implication of trade liberalization.
    JEL: F61 F62 G21
    Date: 2020–05
  17. By: Solikin M. Juhro; Reza
    Abstract: This paper studies the role of macroprudential policy in the insulation properties of flexible exchangerates. To this end, we build a small open economy New Keynesian DSGE model with a bankingsector where, in the model economy, entrepreneurs may take foreign loans, and the exchange rateintervention is undertaken via a modified Taylor-rule. We also add a macroprudential measure,which limits the entrepreneurs’ foreign to domestic loan ratio. From the analysis, three significantresults emerge. First, the responses of aggregate output, consumption, investment, and inflation varywidely concerning the type of foreign shocks and the combinations of macroprudential policy andexchange rate intervention. Second, the flexible exchange rate’s insulation properties seem to dependon the foreign shock hitting the economy. Under a foreign interest rate shock, a higher exchange rateintervention destabilizes output. Whereas under a risk premium shock, it stabilizes output. Finally, under the foreign shocks, tightening the macroprudential measure does not necessarily stabilize output in the economy.
    Keywords: exchange rate, macroprudential policy, credit frictions, external shocks
    JEL: E30 E32 E44 E51 E52 G21 G28
    Date: 2020
  18. By: Ferry Syarifuddin
    Abstract: This paper examines the spatial dependence of foreign portfolio investment (FPI) inflows between ASEAN countries from 2002Q1-2018Q4 utilizing the spatial econometric approach. In particular, to enrich the resultsof our research we also review the relationship between exchange rates and macroeconomic factors on the FPI in Indonesia. The empirical results show that there is a competitive relationship in FPI between ASEAN countries that indicates crowding out of FPI in the host country is most likely to occur when third-country experiences crowding in its FPI inflow. We also show that the exchange rate dynamics in the host and third country do not significantly affect FPI in the host country. Furthermore, the results indicate that interest rate differential, inflation, economic growth, and government debt rating in host countries, also inflation, economic growth, and government debt rating in neighboring countries are responsible for the inflow of FPI into host countries in ASEAN. In the Indonesia case study, our empirical results show that exchange rates affect bond and equity inflows, and also exchange rate volatility affects foreign equity markets and total portfolio inflows inIndonesia. In addition, we find the importance of interest rate differential and the VIX index for Indonesia's portfolios market
    Keywords: foreign portfolio investment, exchange rates, macroeconomics, spatial panel econometrics, spillover effects
    JEL: F21 F31 F41 C21 R12
    Date: 2020
  19. By: Luca Guerrieri; James Collin Harkrader
    Abstract: Focusing on some key metrics of bank performance, such as revenues and loan charge-off rates, we estimate the fraction of the observed variation in these metrics that can be attributed to changes in economic conditions. Macroeconomic factors can explain the preponderance of the fluctuations in charge-off rates. By contrast, bank-specific, idiosyncratic factors account for a sizable share of the variation in bank revenues. These results point to importance of bank-specific business models as a driver of performance.
    Keywords: Pre-provision net revenues; Backcasting; Banking factors; Charge-offs; Macroeconomic factors; Principal components
    JEL: E30 G21
    Date: 2021–02–16
  20. By: Konstantin Makrelov; Neryvia Pillay; Bojosi Morule
    Abstract: South Africa’s fiscal balances have deteriorated significantly over the last decade, while the economy has been recording disappointing economic growth rates even prior to the COVID-19 crisis. In this paper, we estimate a series of equations using the Arellano and Bond (1991) estimator to test how sovereign risk premia affect capital buffers, while controlling for variables identified in the literature, such as size of banks, the economic cycle, competition and equity prices. Unlike other studies, we use actual capital buffers provided by the South African Prudential Authority. We show that these are substantively different to the proxy buffers calculated using the common approach in the literature, indicating that results based on proxy measures should be interpreted with caution. Our overall results show a positive relationship between the sovereign risk premium and capital buffers, and the results are robust across different specifications. This suggests that banks are accumulating capital to mitigate against fiscal and other domestic policy risks, and the related financial stability issues. It is likely that this is contributing to higher lending rates.
    Keywords: fiscal policy, capital buffers, Financial Regulation, sovereign-bank nexus, South Africa
    JEL: C23 E62 H32 G28
    Date: 2021–06
  21. By: Bellon, Aymeric; Harpedanne de Belleville, Louis-Marie; Pinardon-Touati, Noémie
    Abstract: This paper studies the resolution of disputes between firms and their lenders through external mediators, who suggest a non-legally binding solution to resolve a disagreement after communicating with all parties. We exploit an administrative database on firms’ outcomes matched to the French credit registry and plausible exogenous variation in eligibility to public mediators across counties for identification. Credit, employment and investment increase following the mediation, causing an overall reduction in firms’ liquidation of 34.6 percentage points. All the effects are driven by firms that borrow from more than one financial institution, supporting the view that mediators solve coordination problems between lenders.
    Keywords: Mediation, credit, asymmetric information, coordination of creditors, informal restructuring, financial constraints, debt overhang, bankruptcy, employment, investment, judge instrument, borders
    JEL: D82 G21 G28 H81 H89
    Date: 2021–06–17
  22. By: Song Ma; Joy Tianjiao Tong; Wei Wang
    Abstract: This paper studies how innovative firms manage their innovation portfolios after filing for Chapter 11 reorganization using three decades of data. We find that they sell off core (i.e., technologically critical and valuable), rather than peripheral, patents in bankruptcy. The selling pattern is driven almost entirely by firms with greater use of secured debt, and the mechanism is secured creditors exercising their control rights on collateralized patents. Creditor-driven patent sales in bankruptcy have implications for technology diffusion—the sold patents diffuse more slowly under new ownership and are more likely to be purchased by patent trolls.
    JEL: G33 O32 O34
    Date: 2021–05
  23. By: Mitoko, Jeremiah
    Abstract: Following the United Nations declaration of 2005 as the International Year of Microcredit, international organizations began to promote a tighter regulatory and supervisory framework for the microcredit industry. In this paper, I review the theoretical basis of this development considering recent empirical findings that microcredit programs tend to have initial success yet demonstrate few significant benefits beyond two years. I utilize an agent-based simulation as an ex-ante policy assessment tool to examine a tighter regulatory strategy. My findings for Kenya, with possible application to other developing countries and regions, suggest that a less rigid regulatory framework is more likely to lead to more sustained positive impacts than this emulation strategy.
    Keywords: Microcredit Financial Development Agent-based Models Financial Crises – Causes of Financial Crises – Research Government Policy and Regulation
    JEL: E5 F63 G01 G21 O23 O55
    Date: 2021–06–21
  24. By: Hossain, Shawkat; Rabbani, Zunaed; Ahmed, Shahran
    Abstract: On September 18, 2020, USAID requested IFPRI to conduct 15 stakeholder consultations on three thematic areas across five districts in the Feed the Future Zone of Influence (ZOI) and Zone of Resilience (ZOR): Barishal, Cox’s Bazar, Dhaka, Jashore, and Khulna. The thematic areas are: (1) Increased Access to Finance, (2) Commercialization of Oilseeds and Pulses, and (3) Commercialization of Agricultural Research and Biotechnology. IFPRI agreed to conduct these stakeholder consultations and, on October 21, 2020, USAID approved IFPRI’s Increased Access to Finance concept note.
    Keywords: BANGLADESH; SOUTH ASIA; ASIA; farmers; finance; stakeholders; workshops; banks; loans; credit; agricultural financing; microfinance institutions; access to finance
    Date: 2021
  25. By: Robert M. Adams; Kenneth P. Brevoort; John C. Driscoll
    Abstract: Has information technology improved small businesses' access to credit by hardening the information used in loan underwriting and reducing the importance of proximity to lenders? Previous research, pointing to increasing average lending distances, suggests that it has. But this conclusion can obscure differences across loans and lenders. Using over 20 years of Community Reinvestment Act data on small business lending, we find that while average distances have increased substantially, distances at individual banks remain unchanged. Instead, average distance has increased because a small group of lenders specializing in high-volume, small-loan lending nationwide have increased their share of small business lending by 10 percentage points. Our findings imply that small businesses continue to depend on local banks.
    Keywords: Banks; Credit Card; Small Business Lending
    JEL: R21 G21 G38 L25
    Date: 2021–02–16
  26. By: Kuchler, Theresa; Li, Yan; Peng, Lin; Ströbel, Johannes; Zhou, Dexin
    Abstract: We use social network data from Facebook to show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties. This effect of social proximity on investment behavior is distinct from the effect of geographic proximity. Social connections have the largest influence on investments of small investors with concentrated holdings as well as on investments in firms with a low market capitalization and little analyst coverage. We also find that the response of investment decisions to social connectedness affects equilibrium capital market outcomes: firms in locations with stronger social ties to places with substantial institutional capital have higher institutional ownership, higher valuations, and higher liquidity. These effects of social proximity to capital on capital market outcomes are largest for small firms with little analyst coverage. We find no evidence that investors generate differential returns from investments in locations to which they are socially connected. Our results suggest that the social structure of regions affects firms' access to capital and contributes to geographic differences in economic outcomes.
    Keywords: institutional investors; Social Connectedness Index; Social Networks
    JEL: G2 G3 G4
    Date: 2020–05
  27. By: Céspedes, Luis Felipe; Chang, Roberto; Velasco, Andrés
    Abstract: We build a minimalist model of the macroeconomics of a pandemic, with two essential components. The first is productivity-related: if the virus forces firms to shed labor beyond a certain threshold, productivity suffers. The second component is a credit market imperfection: because lenders cannot be sure a borrower will repay, they only lend against collateral. Expected productivity determines collateral value and, in turn, collateral value can limit borrowing and productivity. Adverse shocks can be subject to large magnification effects, in an unemployment and asset price deflation doom loop. Multiple equilibria may also occur, and pessimistic expectations can push the economy to a bad equilibrium with limited borrowing and low employment and productivity. The model helps select policies to fight the effects of the pandemic. Traditional expansionary fiscal policy has no beneficial effects, while cutting interest rates has a limited effect if the initial real interest rate is low. By contrast, several unconventional policies, including wage subsidies, helicopter drops of liquid assets, equity injections, and loan guarantees, can keep the economy in a full-employment, high-productivity equilibrium. But such policies are fiscally expensive, so their implementation is feasible only with ample fiscal space or emergency financing from abroad.
    Date: 2020–05

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