|
on Financial Development and Growth |
| By: | David Kohn; Fernando Leibovici; Michal Szkup |
| Abstract: | We study the role of financial development on the aggregate and welfare implications of reducing trade barriers on imports of physical capital and intermediate inputs. We document that financially underdeveloped economies feature a slower response of real GDP, consumption, and investment following trade liberalization episodes that improve access to imported production inputs. To quantify the role of financial development, we set up a quantitative general equilibrium model with heterogeneous firms subject to financial constraints and estimate it to match salient features from Colombian plantlevel data. We find that the adjustment to a decline of import tariffs on physical capital and intermediate inputs is significantly slower in financially underdeveloped economies in line with the empirical evidence. These effects reduce the welfare gains from trade liberalization and make them more unequal across agents. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:553&r= |
| By: | Mathias Hoffmann; Toshihiro Okubo |
| Abstract: | We exploit the natural experiment of Japan’s opening to international trade to examine how comparative advantage can shape a country’s long-run path towards financial development. In the late 19th century, many of Japan’s prefectures had a natural comparative advantage in silk reeling. Producing silk for export required access to finance. At the same time, for technological reasons, borrower-quality in the silk reeling industry was notoriously hard to assess. Silk exporters overcame these frictions by forming local cooperative banks. We show that in the ancient silk prefectures, local cooperative banks continued to dominate local banking markets for over a century while bigger, country-wide banks came to dominate in other regions. By the late 20th century, the silk prefectures are indistinguishable from other regions in terms of their general level of financial development. However, our results suggest that they were effectively less financially integrated with the rest of the country. Hence, comparative advantage in silk favored the emergence of a banking-system dominated by small relationship lenders. But due to the local nature of these lenders, it also caused long-term geographical segmentation in banking markets. |
| Keywords: | Comparative advantage, financial development, financial integration, Japan, banking history, trade credit, export finance, silk industry, relationship lending |
| JEL: | F15 F30 F40 G01 N15 N25 O16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:387&r= |
| By: | Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard |
| Abstract: | We build an agent-based model to study how coordination failures, credit constraints and unequal access to investment opportunities affect inequality and aggregate income dynamics. The economy is populated by households who can invest in alternative projects associated with different productivity growth rates. Access to investment projects also depends on credit availability. The income of each household is determined by the output of the project but also by aggregate demand conditions. We show that aggregate dynamics is affected by income distribution. Moreover, we show that the model features a trickle-up growth dynamics. Redistribution towards poorer households raises aggregate demand and is beneficial for the income growth of all agents in the economy. Extensive numerical simulations show that our model is able to reproduce several stylized facts concerning income inequality and social mobility. Finally, we test the impact of redistributive fiscal policies, showing that fiscal policies facilitating access to investment opportunities by poor households have the largest impact in terms of raising long-run aggregate income and decreasing income inequality. Moreover, policy timing is important: fiscal policies that are implemented too late may have no significant effects on inequality. |
| Keywords: | Income inequality; social mobility; credit constraints; coordination failures; effective demand; trickle-up growth; fiscal policy. |
| Date: | 2021–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2021/23&r= |
| By: | Manthos D. Delis; Fulvia Fringuellotti; Steven Ongena |
| Abstract: | Access to credit plays a central role in shaping economic opportunities of households and businesses. Access to credit also plays a crucial role in helping an economy successfully exit from the pandemic doldrums. The ability to get a loan may allow individuals to purchase a home, invest in education and training, or start and then expand a business. Hence access to credit has important implications for upward mobility and potentially also for inequality. Adverse selection and moral hazard problems due to asymmetric information between lenders and borrowers affect credit availability. Because of these information issues, lenders may limit credit or post higher lending rates and often require borrowers to pledge collateral. Consequently, relatively poor individuals with limited capital endowment may experience credit denial, irrespective of the quality of their investment ideas. As a result, their exclusion from credit access can hinder economic mobility and entrench income inequality. In this post, we describe the results of our recent paper which contributes to the understanding of this mechanism. |
| Keywords: | credit constraints; income; business loans; economic mobility; income inequality; regression discontinuity design |
| JEL: | E51 D63 |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:92835&r= |
| By: | Mehdi El Herradi (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Aurélien Leroy (University of Bordeaux, Larefi, bordeaux, France.) |
| Abstract: | How do banking crises a ect rich, middle-class and poor households? This paper quanti es the distributional implications of banking crises for a panel of 140 economies over the 1970-2017 period. We rely on di erent empirical settings, including an instrumental variable approach, that exploit the geographical di usion of banking crises across borders. Our results show that banking crises systematically reduce the income share of rich households and positively a ect middle-class households. We also nd that income inequality increases during periods preceding the triggering of a banking crisis. |
| Keywords: | banking crises, income distribution, Inequality |
| JEL: | G01 D33 D63 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2136&r= |
| By: | Vladimir Asriyan; Luc Laeven; Alberto Martin; Alejandro Van der Ghote; Victoria Vanasco |
| Abstract: | What is the e ect of declining interest rates on the eciency of resource allocation and overall economic activity? We study this question in a setting in which entrepreneurs with di erent productivities invest in capital, subject to financial frictions. We show that a fall in the interest rate has an ambiguous e ect on aggregate output. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, this higher demand for capital raises its price and crowds out investment by the more productive entrepreneurs. When this crowding-out e ect is strong enough, a fall in the interest rate becomes contractionary. Moreover, in a dynamic setup, such reallocation e ects among entrepreneurs can interact with the classic balance-sheet channel, giving rise to a boom-bust impulse response of output to a fall in the interest rate. We provide evidence in support of our mechanism using data from the US and Spain. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1784&r= |
| By: | Ludwig Straub (Harvard University); Robert Ulbricht (Boston College) |
| Abstract: | We develop a theory of endogenous uncertainty in which the ability of investors to learn about firm-level fundamentals is impaired during financial crises. At the same time, higher uncertainty reinforces financial distress. Through this two-way feedback loop, a temporary financial shock can cause a persistent reduction in risky lending, output, and employment that coincides with increased uncertainty, default rates, risk premia and disagreement among forecasters. We embed our mechanism into a standard real business cycle model and show how it manifests as an endogenous and highly internally persistent process for aggregate productivity. |
| Keywords: | Endogenous uncertainty, financial crises, internal persistence |
| JEL: | D83 E32 E44 G01 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1036&r= |
| By: | Cristiana Benedetti-Fasil (European Commission - JRC); Giammario Impullitti (School of Economics, University of Nottingham); Omar Licandro (School of Economics, University of Nottingham); Petr Sedlacek (Department of Economics, Oxford University) |
| Abstract: | Growth and business cycles have a long tradition of being studied separately. However, events such as the Great Recession raise concerns that severe downturns may have detrimental implications for growth. If so, what policies may help alleviate such long-lasting effects of large recessions? To study these questions, we develop a tractable general equilibrium model of endogenous growth featuring heterogeneous firms, financial constraints and a range of innovation policies. A preliminary analysis suggests that counter-cyclical tax credits may serve as a powerful automatic stabilizer alleviating the long-lasting negative effects of severe cyclical downturns. |
| Keywords: | Firm dynamics, innovation policy, endogenous growth, business cycles |
| JEL: | F12 F13 O31 O41 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:termod:202104&r= |
| By: | Maximilian Böck (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | This paper studies how non-rational risk shocks affect the macroeconomy. Using a novel identification design which exploits survey data on expectations of financial executives in the US, I identify non-rational risk shocks via distortions in beliefs. Belief distortions are measured through surprises in beliefs of credit spreads, defined as the difference between subjective and objective forecasts. They are then used as a proxy for exogenous variation in the risk premium. Belief distortions elicit due to overreaction of credit spreads, eventually leading to exaggerated beliefs on financial markets. Results indicate that the constructed shocks have statistically and economically meaningful effects. This has sizeable consequences for the U.S. economy: A positive non-rational risk shock moves credit spreads remarkably while real activity and the stock market decline. |
| Keywords: | Business Cycles, Risk Shocks, Belief Distortions |
| JEL: | C32 E32 E44 E71 G41 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp314&r= |
| By: | Simmons, Richard; Dini, Paolo; Culkin, Nigel; Littera, Giuseppe |
| Abstract: | ‘Financial crisis’ is sometimes regarded as synonymous with ‘economic crisis’, but this is an oversimplification and risks missing the feedback loops between the financial and real economies. In this paper, the role of money is revisited in the context of distinguishing the real economy from the financial economy. A theoretical framework is developed to explain how endogenous (bank credit) and central bank exogenous (quantitative easing, QE) money creation feed into the real and financial economies. It looks at how the velocity of monetary circulation varies between the two economies and across asset types within the financial economy. Monetary transmission mechanisms are set into a framework that helps explain how QE stimulus risks combining asset price bubbles with poor growth in the real economy. The real economy transmission mechanism of ‘helicopter money’ is given context, enabling an assessment of the efficacy of both the QE and helicopter money policy routes. Finally, we present a new type of monetary transmission, ‘Smart Helicopter Money’, to deliver monetary stimulus to innovators, SMEs and high-growth firms via both complementary currencies and a modified form of QE in order to achieve proportionally greater impact on the real economy. |
| Keywords: | monetary policy; financial crisis; helicopter money; real economy; financial economy; quantitative easing; complementary currency; velocity of circulation; innovation; economic growth; Development Economics Research Group |
| JEL: | F3 G3 J1 |
| Date: | 2021–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:110904&r= |
| By: | Oyegoke, Ebunoluwa O.; Aras, Osman Nuri |
| Abstract: | In most developing countries, Foreign Direct Investment (FDI) serves as a means of earning foreign reserves via investments, businesses and foreign aids from advanced countries. FDI is considered a valuable source of finance and capital formation, Technology-Transfer and know-how, as well as a viable medium for trade among countries. The Spillover effect also allows for the transfer of innovations and invention to the receiving countries, one of which Nigeria belongs. According to the requirement for accelerated growth in association with the Sustainable Development Goals is not completely clear, however, for economies to experience sustainable and inclusive development, cross-border trade is paramount. Presently, Nigeria is the first host economy of FDI in Sub-Saharan Africa, and the third in the continent. Recently, Nigeria has witnessed several trade policies which aim at diversifying the economy away from oil revenue. These policies are focused on improving the industrial sector, and of course, results in austerity. In 2018, the total FDI inflow to the country was around USD 1.9 billion, while in 2017, FDI inflow was around USD 3.5 billion, showing a decrease due to the consequence of the austerity measures imposed in 2018. At the third quarter of 2019, the FDI was only 3.37% (USD 200.08 million) of the total capital inflow for the period. Traditionally, FDI is designed to improve the recipient economies thereby enhancing economic growth and development, it is in this view that many developing countries attract foreign investors with the hope of strengthening their economy by increasing the foreign investment portfolio. However, most empirical analysis of the impact of FDI on economic growth advises otherwise, hence, a controversy. According to the existing literature, some empirical results found a negative relationship between FDI and economic growth, while others opined that as FDI increases, it results in a boost of output productivity, hence a positive relationship between the variables. Therefore, this study contributes to the existing literature by investigating the effects of FDI both on the owner, and the host country, using Nigeria as a case study. |
| Keywords: | Foreign Direct Investment, Economic Growth, Sustainable Development Goals, Nigeria. |
| JEL: | F63 |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108348&r= |
| By: | Mkadmi, Jamel Eddine; Bakari, Sayef; Othmani, Ameni |
| Abstract: | The aim of this work is to study the impact of tax revenues and domestic investments on social and economic well-being in Tunisia over the period 1976 – 2018. This study is based on co-integration analysis and Vector Error Correction Model. Empirical results indicate that in the long run domestic investment has a negative impact on economic growth, while the impact of tax revenues is positive. Also, results indicate that domestic investment and economic growth influence positively tax revenues. However, Tax revenue and economic growth don’t have any effect on domestic investment in the long run. It is seen that in Tunisia the strategy policy of tax revenue is not safe for domestic investment and the strategy policy of domestic investment is not safe for economic growth. Therefore, we should encourage immediate intervention to take the necessary measures before the situation causes a greater disaster. |
| Keywords: | Tax revenue; Domestic investment; Economic growth, Tunisia |
| JEL: | E62 H21 H26 O47 O55 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108387&r= |
| By: | Hassan Rashid; Miguel D. Ramirez (Department of Economics, Trinity College) |
| Keywords: | Cointegration analysis, Granger Block causality, infant mortality rates, remittances, Zivot-Andrews test. |
| JEL: | C22 F24 O53 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:2102&r= |
| By: | Takatoshi Sasaki (Bank of Japan); Tomoya Sakata (Bank of Japan); Yui Mukoyama (Bank of Japan); Koichi Yoshino (Bank of Japan) |
| Abstract: | This study estimates the growth rate of China's economy until 2035 based on the assumption that productivity will continue converging to that of frontier economies and assesses the feasibility of such an outcome. Our estimates imply that the size of China's economy can potentially double by 2035 as long as the country follows the "catch-up" process achieved by other East Asian economies. However, given the circumstances that China faces, such as the need to maintain agricultural output levels, limits to the growth of its export-dependent manufacturing industry, and the aging of the population, the obstacles to following the other East Asian economies' catch-up process are substantial. To overcome these obstacles and proceed with catch-up, China will need to boost TFP growth by promoting innovation and making steady progress in addressing institutional and resource allocation issues. |
| Keywords: | China; Catch-up Process (Convergence); Aging of the Population; Savings Rate; Total Factor Productivity (TFP) Growth |
| JEL: | E21 E22 J11 O11 O47 |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp21e07&r= |
| By: | Carol Corrado (The Conference Board); Chiara Criscuolo (OECD); Jonathan Haskel (Imperial College); Alexander Himbert (OECD); Cecilia Jona-Lasinio (LUISS Guido Carli) |
| Abstract: | This paper presents new evidence on the impact of intangible capital on productivity dispersion within industries. It first shows that rise in productivity dispersion after 2000 is more pronounced in intangible-intensive industries; then analyses the link between intangible capital intensity and productivity dispersion both at the top and at the bottom of the productivity distribution, and in different industries. The findings suggest that industries that have experienced a stronger increase in intangible investment have also seen a steeper rise in productivity dispersion both at the top and at the bottom of the productivity distribution. While the results at the top seem to be associated with the scalability of intangible capital – which is likely to disproportionally benefit high-productivity firms and incumbents – dispersion at the bottom appears to be linked to complementarities between intangible investment and factors like digital intensity, trade openness and venture capital. |
| Keywords: | Innovation, Investment, Science and Technology |
| Date: | 2021–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaaa:2021/10-en&r= |
| By: | Etienne Lepers (OECD); Rogelio Mercado (Asian Development Bank) |
| Abstract: | This paper assembles a comprehensive sectoral capital flows dataset for 64 advanced and emerging economies from 2000-18. This includes direct, portfolio and other investments to and from five sectors: central banks (CB), general government (GG), banks (BKs), non-financial corporates (NFCs) and other financial corporates (OFCs) and a corresponding dataset on capital controls imposed on these sectors. The paper uses this data to examine the usefulness of a sectoral approach in assessing capital flow covariates, co-movements, and the effectiveness of capital controls. The findings show that: 1) private sectoral flows have varying sensitivities to global financial conditions and different cyclicality with respect to output growth. For instance, unlike other flows, NFCs respond to global commodity prices but not global risk aversion and, unlike banks, OFCs cut foreign investment in periods of domestic investment; 2) co-movements of resident and non-resident OFC sectoral flows add to the observed positive correlation between gross inflows and outflows; and, 3) the tightening of capital controls on NFCs and OFCs appear effective in reducing the volume of flows to these sectors. |
| Keywords: | capital controls, capital flows correlations, sectoral capital flows |
| JEL: | F21 F38 F41 G20 |
| Date: | 2021–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaaa:2021/04-en&r= |
| By: | Koutchogna Kokou Assogbavi (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4) |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03258293&r= |
| By: | Salvador Gil-Pareja (Dep. Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain). INTECO Research Unit); Rafael Llorca-Vivero (Dep. Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain). INTECO Research Unit); Jordi Paniagua (Dep. Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain)) |
| Abstract: | Headquarters (HQs) provide a wide range of services, playing a fundamental role in Foreign Direct Investment (FDI). We use the structural gravity equation to investigate the effect of regional HQs on three dimensions of FDI (number of foreign firms, capital investment, and jobs) at the country-pair- sector level. Furthermore, we explore two underlying mechanisms that help explain this relationship: financial constraints and informational costs and uncertainty. We find a positive effect of regional HQs on FDI, as well as inter-country and inter-sector spillovers. Our results are robust, accounting for HQ intensity, domestic investment flows in the three dimensions and endogeneity tests. |
| Keywords: | FDI; headquarters; spillovers; intangible capital; credit constraints; structural gravity |
| JEL: | F20 F21 F23 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:2107&r= |
| By: | Camille Baulant (GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - Institut National de l'Horticulture et du Paysage); Nivine Albouz (GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - Institut National de l'Horticulture et du Paysage) |
| Abstract: | This study aims to investigate whether the returns and volatility of the Brazilian equity market adjust quickly to the announcements of the Sovereign Rating and whether direct finance (by international investors) helps to create a better allocation of resources in Brazil. For the financial profitability and the stock volatility, our paper analyzes the role of ratings changes, not anticipated by the markets, on the performance of the Brazilian Stock Market Index by examining if the hypothesis of the EMH of the economist Fama (1965) is hold. We will then analyze the allocative efficiency of capital inflows into Brazil by questioning whether these capital inflows have allowed this country to accelerate its growth and raise its standard of living. We will particularly investigate whether the inflows of FDIs have upgraded the Brazil's specialization in order to make this emerging country less dependent on the international markets. |
| Abstract: | L'objet du travail présenté est de savoir si les rendements et la volatilité du marché brésilien des actions s'ajustent rapidement aux annonces du rating souverain et si la finance directe (par les investisseurs internationaux) permet de créer une meilleure allocation des ressources au Brésil. Pour la rentabilité financière et la volatilité des actions, notre travail analyse le rôle des changements de notations, non anticipés par les marchés, sur le rendement de l'indice boursier brésilien en nous demandant si l'hypothèse de l'EMH de l'économiste Fama (1965) est vérifiée. Nous analysons ensuite l'efficience allocative des entrées de capitaux au Brésil, en nous demandant si ces entrées de capitaux ont permis à ce pays d'accélérer sa croissance économique et d'augmenter son niveau de vie. On sedemandera en particulier si les IDE entrants ont permis de rendre la spécialisation du Brésil moins dépendant des marchés internationaux |
| Keywords: | Brazil,semi-strong efficiency,allocative efficiency,volatility,FDI,standard of living |
| Date: | 2021–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03258994&r= |
| By: | Isaac K. Ofori (University of Insubria, Varese, Italy); Mark K. Armah (University of Cape Coast, Cape Coast, Ghana); Emmanuel E. Asmah (University of Cape Coast, Cape Coast, Ghana) |
| Abstract: | Policy recommendations for building resilient and all-inclusive societies post COVID-19 pandemic continue to dominate the media and research landscapes. However, rigorous empirical content backing such claims, particularly, on both poverty and income inequality, is hard to find. Motivated by the bleak outlook of the Middle East and North Africa (MENA) region, as driven primarily by the floundering hydrocarbon sector, vulnerable employment, and low foreign direct investment, we analyse the poverty and income inequality effects of globalisation and resource allocation in the region. Using data from the World Bank’s Poverty and Equity Database for the period 1990–2019, we provide estimates robust to several econometric techniques the pooled least square, fixed effect, random effect, and the system generalized method of moments estimators to show that: (1) while economic globalisation reduces both poverty and income inequality, social globalisation matters only for income inequality in MENA; (2) economic globalisation is remarkable in reducing income inequality through resource allocation. Policy recommendations are provided in the light of the geopolitical fragility and rise in social globalisation of the region. |
| Keywords: | Economic Integration, Financial Deepening, GMM, MENA, Globalisation, Inequality, Poverty |
| JEL: | F14 F15 F6 I3 O53 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/043&r= |
| By: | Stefan Kawalec |
| Abstract: | The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West. |
| Keywords: | banking sector, mortgages loans, credits, interest rates, Poland, CHF |
| JEL: | G21 |
| Date: | 2021–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:sec:mbanks:0168&r= |
| By: | Ajay Chhibber (George Washington University) |
| Abstract: | India's financial system has never collapsed - unlike many other emerging economies. But it suffers from a deep and expanding silent crisis, which has made it one of the most inefficient and non-inclusive financial systems in the world. This paper unravels the reasons for this deep crisis - who is responsible - the regulators, populist politicians, crony capitalists and India's fiscal dominance. It shows that all the above are culpable. It lays out the major reforms needed and argues that if deep surgery is not performed India cannot emerge as a global economic powerhouse in the 21st century and will remain stuck in a low middle-income trap. |
| Keywords: | Financial Crisis; Public Sector Banks; Financial Inclusion; Banking Reform |
| JEL: | G00 G01 G18 G21 G32 G33 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:gwi:wpaper:2021-09&r= |
| By: | Marie Daumal (UP8 - Université Paris 8 Vincennes-Saint-Denis) |
| Abstract: | In 2008, the financial system of the United States teetered on the brink of collapse. Major banks failed or would have failed had it not been for financial support from the U.S. government. A vast literature composed of official reports, books, and academic papers cites multiple reasons why it occurred: inappropriate deregulation, weak supervision, excessive risk and leverage, growing inequality, etc. Reviewing the report by the Financial Crisis Inquiry Commission and other research, my purpose is to list and to synthesize the most commonly cited major causes. In a first part, this paper gives a short overview of the economic causes of the U.S. financial crisis. The second part deals with the political causes of the financial crisis. Indeed, since the 1980s, there was a remarkable bipartisan consensus in Washington in favor of deregulation, which, in turn, led to the financial crisis. I provide a few hypotheses and qualitative data to explain this consensus. Ideology, campaign contributions by private firms, lobbying, and the system of revolving doors between Wall Street and Washington might explain the past and current political decisions in favor of deregulation. This paper shows that the financial crisis was partly due to inappropriate deregulation, which might have been the result of flaws in the political system of the United States. |
| Keywords: | Financial Crisis,Campaign Contributions,Lobbying |
| Date: | 2021–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03261070&r= |
| By: | Saka, Orkun; Ji, Yuemei; De Grauwe, Paul |
| Abstract: | We first present a simple model of post-crisis policymaking driven by both public and private interests. Using a novel dataset covering 94 countries between 1973 and 2015, we then establish that financial crises can lead to government interventions in financial markets. Consistent with a public interest channel, we find post-crisis interventions occur only in democratic countries. However, by using a plausibly exogenous setting -i.e., term limits- muting political accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that may promote (obstruct) private (public) interests. |
| JEL: | G01 G28 P11 P16 |
| Date: | 2021–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2021_010&r= |
| By: | Timothy E. Dore (Federal Reserve Board); Tetsuji Okazaki (Faculty of Economics, The University of Tokyo); Ken Onishi (Federal Reserve Board); Naoki Wakamori (Faculty of Economics, The University of Tokyo) |
| Abstract: | We study how government loan programs affect the growth of small businesses by examin-ing a unique policy-based small business lending program in Japan. Combining the loan-level program data with a financial statement database, we find that small business bor-rowers increase employment and asset levels after receiving the loan and that these effectspersist for several years. Differences in debt levels are persistent over time, cash holdings ofloan recipients fall in the long run, and the effects on asset levels are larger in magnitudethan those on employment. In addition, the effects are larger in magnitude for firms iden-tified as financially constrained. These results suggest that the government loan programis successful in relaxing binding financial constraints for small businesses that participatein the program. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2021cf1170&r= |
| By: | Aparicio, Gabriela (IDB Invest); Bobic, Vida (George Washington University); De Olloqui, Fernando (Inter-American Development Bank); Carmen, María (Inter-American Development Bank); Diez, Fernández (Inter-American Development Bank); Gerardino, Maria Paula (Inter-American Development Bank); Mitnik, Oscar A. (Inter-American Development Bank); Macedo, Sebastian Vargas (Inter-American Development Bank) |
| Abstract: | This paper evaluates the effectiveness of easing credit constraints for rural producers in Mexico through loans provided by a national public development finance institution (DFI). In contrast to most of the existing literature, the study focuses on the effect of medium-sized loans over a two- to four-year time horizon. This paper looks at the effects of such loans on production and investment decisions, input use, and yields. Using a multiple treatment methodology, it explores the differential impacts of providing liquidity for working capital versus providing credit for investments in fixed assets. It finds that loans increased the likelihood that producers grow and sell certain key annual crops, in particular among recipients of working capital loans. It also finds significant effects on production value and sales (per hectare), with similar impacts for recipients of both types of loans, with gains in yields driven by changes in labor quality and more intensive use of key inputs. There is no evidence of significant effects on the purchase of large machinery, but there are impacts on the acquisition of cattle. Overall, the results reported in this paper suggest that lack of liquidity is at least as important as lack of funding for new investment in capital for rural producers in Mexico. Producers benefit from easing their credit constraints, regardless of the type of loan used for that purpose. |
| Keywords: | agricultural finance, credit constraints, development finance institutions, investment capital, working capital |
| JEL: | G21 O13 O16 Q14 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14477&r= |
| By: | Anabela Marques Santos; Michele Cincera |
| Abstract: | Using a recursive bivariate probit model and survey data covering the period 2014–2018, the present paper aims to assess which factors in the financial market (supply side) have a higher impact on firms’ likelihood to be financially constrained. The results show that after controlling for potential endogenous bias due to unobservable firm characteristics, being an innovative firm increases the probability of being financially constrained between 21 and 32%. The nature of the innovation strategy also seems to influence the severity of financing constraints. For financially constrained firms, the main factors that limit future financing for growth ambitions are the lack of collateral, bureaucracy, and too high a price. Findings also indicate that measures to facilitate equity investments and making existing public measures easier are the most important factors for future financing while tax incentives only play a minor role. |
| Keywords: | European Union; Financing; Innovation |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/319161&r= |
| By: | Marina-Eliza Spaliara; Serafeim Tsoukas; Paul Lavery |
| Abstract: | Using firm-level data from 16 euro-area countries over 2008-2014, we investigate how the growth and investment of bank-affiliated private equity-backed companies evolve after the European Banking Authority (EBA) increases capital requirements for their parent banks. We find that portfolio companies connected to affected banks reduce their investment, asset growth, and employment growth following the capital exercise. We further show that the effect is stronger for companies likely to face financial constraints. Finally, the findings indicate that the negative effect of the capital exercise is muted when the private equity sponsor is more experienced. |
| Keywords: | Private equity buyouts; bank capital requirements; financial constraints; company performance |
| JEL: | G32 G34 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2021_11&r= |
| By: | Francesco Marchionne (Indiana University); Michele Fratianni (Kelley School of Business, Bloomington, Indiana, USA and Universita' Politecnica delle Marche, Ancona, Italy); Federico Giri (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche, Ancona, Italy); Luca Papi (Di.S.E.S. - Universita' Politecnica delle Marche) |
| Abstract: | We examine how banking supervisors affect credit at the local level by charging fines to individual banks. Using a macro approach to capture the direct effect on the fined bank and the indirect effect on the other banks operating in the local credit market, we estimate reputational, reallocation and balance sheet effects on Italian provinces over the period 2005-2016 by a fixed effects model and instrumental variables. Provincial gross bank loans expand after a fine independently of its size. The impact of fine frequency depends on the size of the provincial banking sector, but neither on bank governance/ownership nor crises. No statistically significant evidence supports reputational or balance sheet effects. Instead, our results suggest that it would behoove bank supervisors to favor frequency over size of bank fines. Bank fines seem to work more like a good housekeeping seal of approval, enhancing transparency and effective banking practices. |
| Keywords: | fine frequency, fine size, bank credit, local markets, supervision |
| JEL: | G01 F14 F18 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:169&r= |
| By: | Maurizio Trapanese (Banca d'Italia) |
| Abstract: | This paper presents an overall analysis of the economics of non-bank financial intermediation, and argues that the financial stability concerns stemming from this sector support the need to fill the regulation gap that exists with respect to other segments. It examines the structure of markets, the economic incentives of the agents involved, and the institutional aspects characterizing this form of intermediation as compared with that performed by banks. The policy framework developed so far has been based mainly on micro-prudential tools, looking at individual institutions and activities. The focus of the regulatory actions should not be (or should not only be) the stability of individual entities. Financial regulators should pay more attention to the effects that the collective actions and activities of non-bank financial entities may have on the financial system as a whole and on the real economy. I find that the effectiveness of micro-prudential tools is strengthened if they are accompanied by a framework containing policy measures to address systemic risk. |
| Keywords: | financial crises, international regulation |
| JEL: | F53 G01 G20 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_625_21&r= |
| By: | Orlando Joaqui-Barandica (Universidad del Valle, Faculty of Engineering, School of Industrial Engineering, Colombia.); Diego F. Manotas-Duque (Universidad del Valle, Faculty of Engineering, School of Industrial Engineering, Colombia.); Jorge M. Uribe-Gil (Faculty of Economics and Business, Open University of Catalonia and Riskcenter, University of Barcelona, Spain.) |
| Abstract: | We study banks’ profitability in the US economy by means of dynamic factor models. Our results emphasize the importance of a few common cyclical market factors that greatly determine banking profitability. We conduct exhaustive regressions in a big data set of macroeconomic variables aiming to gain interpretability of our statistical factors. This allows us to identify three main macroeconomic factors underlying banking profitability: the financial burden of households and economic activity; household income and net worth and, in the case of ROA and ROE, corporate indebtedness. We also provide an integrated perspective to analyse banks’ profitability dynamically and to inform policymakers concerned with financial stability issues, for which banks’ profitability is fundamental. Our models allow us to provide several rankings of vulnerable financial institutions considering the common market forces that we estimate. We emphasize the usefulness of such an exercise as a market-monitoring tool. |
| Keywords: | Banks’ ROA, Indebtedness, Dynamic factors, Financial cycles. JEL classification: E44, G20, G21. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202113&r= |
| By: | Toni Ahnert; David Martinez-Miera |
| Abstract: | We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility. Therefore, perfect competition is not socially optimal. We also propose a theory of bank opacity. The cost of opacity is more withdrawals from a solvent bank, lowering bank profits. The benefit of opacity is to deter the entry of a competitor, increasing future bank profits. The excessive opacity of incumbent banks rationalizes transparency regulation. |
| Keywords: | Financial institutions; Financial markets; Financial stability; Financial system regulation and policies; Wholesale funding |
| JEL: | G21 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-30&r= |
| By: | Enrique Bátiz-Zuk; José Luis Lara Sánchez |
| Abstract: | This paper analyzes the monthly evolution of bank competition in Mexico from 2008 to 2019 using different measures. Subsequently, we analyze whether the 2014 financial reform had an effect on some of our competition measures. We use ordinary and quantile regression techniques and Markov switching models to identify changes in regimes. We find partial empirical evidence supporting the idea that the reform had a positive average effect and increased banks competition intensity during a few years. However, we also document heterogeneity as some large banks benefited from an increase in their market power. We perform several robustness tests and report that our measures lead to values that are congruent and similar to those available in the literature. The main policy lesson of our research is that regulators could benefit from the monitoring of competition evolution using a finer time frequency. |
| JEL: | D40 G21 G28 L10 L11 L50 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2021-06&r= |
| By: | Beni Kouevi Gath |
| Abstract: | We assess the effect of credit information sharing on bank stability for a sample of 161 banks located in 30 Sub-Saharan African (SSA) countries over 2004-2014. We find that banks become more stable as the quality of credit information sharing institutions improves. Moreover, despite foreign banks having an informational disadvantage with respect to domestic banks due to distance-related information frictions, and hence the assumption that they would benefit more from credit information sharing, the results indicate that both types of banks are affected in the same way. This suggests that foreign banks rely on alternative strategies to compensate for their informational disadvantage in local markets. |
| Keywords: | Information sharing offices; bank stability; credit markets |
| JEL: | G21 G28 D82 |
| Date: | 2021–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/326674&r= |
| By: | Saka, Orkun; Eichengreen, Barry; Aksoy, Cevat Giray |
| Abstract: | We ask whether epidemic exposure leads to a shift in financial technology usage within and across countries and if so who participates in this shift. We exploit a dataset combining Gallup World Polls and Global Findex surveys for some 250,000 individuals in 140 countries, merging them with information on the incidence of epidemics and local 3G internet infrastructure. Epidemic exposure is associated with an increase in remote-access (online/mobile) banking and substitution from bank branch-based to ATM-based activity. Using a machine-learning algorithm, we show that heterogeneity in this response centers on the age, income and employment of respondents. Young, high-income earners in full-time employment have the greatest propensity to shift to online/mobile transactions in response to epidemics. These effects are larger for individuals in subnational regions with better ex ante 3G signal coverage, highlighting the role of the digital divide in adaption to new technologies necessitated by adverse external shocks. |
| Date: | 2021–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:b6nv3&r= |
| By: | Qing Xu (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | Financial digitalization leads to the global payment revolution. M-payment is one of the essential digital payment methods that increase the efficiency of financial and economic activities, especially for developing countries. This chapter presents different development paths and adoption models of m-payment in East Asia & East Africa. China and South Korea are examples of third-party platform-led mobile payment models; Japan is an example of a bank-based mobile payment model; while East African countries implemented originally a mobile operator-led model and then moved toward a hybrid model with more banks and mobile operators involvement. It presents finally some concluding remarks and reflections on other world regions. |
| Keywords: | digitalize payments, mobile payment, mobile payment operational models, East Asia, East Africa |
| JEL: | E42 E44 G23 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2021-26&r= |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/042&r= |
| By: | Shahbaz, Muhammad; Destek, Mehmet Akif; Dong, Kangyin; Jiao, Zhilun |
| Abstract: | Financial development has been widely proved to be a key driver of economic growth; however, its environmental impact is still inconclusive, especially for G-7 countries (i.e. Canada, France, Germany, Italy, Japan, the United Kingdom (UK), and the United State (US)). This paper, therefore, investigates the time-varying impact of financial development on carbon dioxide (CO2) emissions for G-7 countries over a long historical period. The study analyzes historical data from 1870 to 2014 for each country using bootstrap time-varying co-integration (TVC) and bootstrap rolling window estimation approaches. In addition, the polynomial trends of the estimated parameters are obtained to observe the relationship between financial development and carbon emissions. The empirical findings reveal that the impact of financial development on CO2 emissions over a long history is M-shaped in Canada, Japan, and the US; inverted N-shaped in France, Italy, and the UK; and inverted M-shaped (W-shaped) in Germany. This empirical evidence opens new directions for policy makers to design comprehensive economic policy for using the financial sector as an economic tool to keep environmental quality at sustainable levels. |
| Keywords: | Financial Development; CO2 Emissions; Non-linear Analysis; Time-varying Co-integration (TVC); G-7 |
| JEL: | Q5 |
| Date: | 2021–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108375&r= |
| By: | Ricardo Marques; Ana Margarida Carvalho |
| Abstract: | Climate change is a source of risk to financial stability. This article presents a quantification of the exposure of the Portuguese banking system to non-financial corporations (NFCs) sensitive to the risks arising from the transition to a low-carbon economy. The results suggest that about 60% of banks’ exposures to NFCs are in climate-policy-relevant sectors (CPRS), chiefly in the sectors dedicated to construction, transaction and use of buildings and, to a lesser extent, in sectors associated with the production and use of means of transportation and in energy-intensive industries. This article also presents a methodology for estimating direct greenhouse gas (GHG) emissions, by sector of activity, from resident NFCs with bank financing. The calculation of carbon intensity on the basis of these estimates shows that around 60% of banks’ exposures to NFCs is below the median of this indicator. This result is consistent with the higher concentration of exposures in climate-policy-relevant sectors with lower direct GHG emissions. |
| JEL: | G21 Q54 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:o202101&r= |