nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒07‒19
thirty papers chosen by
Georg Man

  1. Nexus of Financial Inclusion and Economic Growth: Benchmarking the Performance of Indian States By Yadava, Anup Kumar; Singh, Bhanu Pratap; Yadav, Vishal
  2. State-Owned Commercial Banks By Ugo Panizza
  3. Metropolitan financial agents and the emergence of inter-regional financial linkages in England and Japan, 1760-1860 By Ishizu, Mina
  4. The Growth-at-Risk (GaR) Framework: Implication For Ukraine By Anastasiya Ivanova; Alona Shmygel; Ihor Lubchuk
  5. Unconventional Credit Policy in an Economy under Zero Lower Bound By Jorge Pozo; Youel Rojas
  6. The impact of Covid-19 on productivity By Stephen Millard,; Margarita Rubio; Alexandra Varadi
  7. COVID-19, Credit Risk and Macro Fundamentals By Anna Dubinova; Andre Lucas; Sean Telg
  8. The supply and demand-side impacts of uncertainty shocks. Evidence on advanced and emerging economies By Pagliacci, Carolina
  9. Capital Reallocation and Firm-Level Productivity Under Political Uncertainty By Tut, Daniel; Cao, Melanie
  10. In Search of the Origins of Financial Fluctuations: The Inelastic Markets Hypothesis By Xavier Gabaix; Ralph S. J. Koijen
  11. Remittance micro-worlds and migrant infrastructure: circulations, disruptions, and the movement of money By Cirolia, Liza Rose; Hall, Suzanne; Nyamnjoh, Henrietta
  12. Foreign aid and economic growth: Does non-linearity matter? By Tiamiyu, Kehinde A.
  13. Steady State Growth of Vietnam Economy By Ly Dai Hung
  14. The evolution of Cambodian current account: A dynamic general equilibrium analysis By Kheng, Veasna; Pan, Lei
  15. Foreign direct investment, prices and efficiency: Evidence from India By Ali, Nesma; Stiebale, Joel
  16. International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding By Monika Sztajerowska
  17. The Link between Financial Globalisation and Integration into Global Value Chains and Macroeconomic Impacts By Werner Hölzl
  18. Interactions Between Global Value Chains and Foreign Direct Investment: A Network Approach By Amat Adarov
  19. The Complex Crises Database: 70 Years of Macroeconomic Crises By Manuel Bétin; Umberto Collodel
  20. Analysis of determinants of Morocco's sovereign financial rating By Mohamed El-Qasemy; Lalla Zhor Alaoui Omari
  21. Is Macroprudential Policy Driving Savings? By André Teixeira; Zoë Venter
  22. Shareholder Liability and Bank Failure By Felipe Aldunate; Dirk Jenter; Arthur Korteweg; Peter Koudijs
  23. The carrot and the stick: Bank bailouts and the disciplining role of board appointments By Mücke, Christian; Pelizzon, Loriana; Pezone, Vincenzo; Thakor, Anjan V.
  24. Basel III in Nigeria: making it work By Ozili, Peterson K
  25. Big 4 auditors, bank earnings management and financial crisis in Africa By Ozili, Peterson Kitakogelu
  26. Does Stock Market Listing Boost or Impede Corporate Investment? By Ibrahim Yarba; Ahmet Duhan Yassa
  27. Does Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS) Impact on Youth Entrepreneurship Development in sub-Saharan Africa? Evidence from Nigeria By Elda N. Okolo-Obasi; Joseph I. Uduji
  28. The Effects of Usury Ceilings on Consumers Welfare: Evidence from the Microcredit Market in Colombia By Laura Marcela Capera Romero
  29. Financial Innovation in the 21st Century: Evidence from U.S. Patents By Josh Lerner; Amit Seru; Nick Short; Yuan Sun
  30. Phänomen Fintech: Sichtweisen, Gründe für die Existenz, Chancen und Risiko sowie Ideen für zukünftige Forschung By Treu, Johannes

  1. By: Yadava, Anup Kumar; Singh, Bhanu Pratap; Yadav, Vishal
    Abstract: The study evaluates and benchmarks the performance of Indian states considering the proposed multidimensional financial inclusion index (FII) as input and economic growth as an output variable. The HDI methodology of UNDP is adopted in the construction of supply and demand side FII for 27 Indian states for the period 2004 to 2017. The output-oriented DEA models are used in which supply and demand FIIs are used as an input and real gross state domestic product as an output to measure the technical efficiency of the states. The major findings of the study suggest Maharashtra performs at the frontier and benchmarks for all other states in both CRS and VRS DEA models which is consistent with FII indices of the states. Therefore, structural reforms are warranted in the policy framework to improve financial services in poor and low performing states to spur economic development.
    Keywords: Financial inclusion; Multidimensional Index; Data Envelopment Analysis, Benchmarking, Economic Growth
    JEL: G0 O10 O40
    Date: 2021
  2. By: Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper builds a new dataset on bank ownership and reassesses the links between state-ownership of banks and each of financial development, economic growth, financial stability, bank performance, liquidity creation, and lending cyclicality. Using panel data to estimate the short-and medium-term relationship between state-ownership and financial depth, the paper shows that there is no robust correlation between these two variables. The paper also finds no evidence of a negative correlation between state-ownership of banks and economic growth (if anything, the relationship is positive but rarely statistically significant). Looking at financial instability, the paper finds that banking crises predict increases in state-ownership but that there is no evidence that high state-ownership predicts banking crises. Focusing on bank performance, the paper shows that data for the period 1995-2009 are consistent with existing evidence that state owned banks are less profitable than their private counterparts in emerging and developing economies. However, more recent data show no difference between the profitability of private and public banks located in emerging and developing economies. The paper also corroborates the existing literature which shows that in emerging and developing economies lending by state-owned banks is less procyclical than private bank lending. Exploring the role of fiscal fundamentals, the paper does not find any difference in countercyclicality between high and low debt countries, but it finds that countercyclical lending by state-owned banks substitutes, rather than complement, countercyclical fiscal policy. It also finds that lending by state-owned banks helps smoothing production in labor intensive industries and in industries with a large share of small firms.
    Keywords: Banking; State-owned banks; Financial stability
    JEL: G21 H11 O16
    Date: 2021–07–01
  3. By: Ishizu, Mina
    Keywords: financial agents; inter-regional financial relatinships; provincial towns; early industrialisation
    JEL: N20 N23 N25 N83 N85
    Date: 2021–06
  4. By: Anastasiya Ivanova (National Bank of Ukraine); Alona Shmygel (National Bank of Ukraine); Ihor Lubchuk (National Bank of Ukraine)
    Abstract: Using data for the Ukrainian economy, we applied and adapted the growth-at-risk (GaR) framework to examine the association between financial conditions, credit and sectors' activity, and external conditions and the probability distribution of GDP growth in Ukraine. We applied CSA and PCA approaches to construct indices of these partitions. We further derived GDP growth distributions and explored their behavior under different scenarios. Results from the model with PCA indices suggest that the relationships between financial conditions as well as external conditions indices and economic activity are inverse regardless of quantile of GDP distribution. Moreover, we found that the financial conditions index has the largest effect on the GDP growth on the lower quantiles, which could generate significant downside risk to the economy.
    Keywords: Quantile regression; economic growth; GDP; principal component analysis; GDP growth distribution
    JEL: C31 C53 E17
    Date: 2021–07–01
  5. By: Jorge Pozo (Central Reserve Bank of Peru); Youel Rojas (Central Reserve Bank of Peru)
    Abstract: In this paper we develop a simple two-period model that reconciles credit demand and supply frictions. In this stylized but realistic model credit and deposit markets are interlinked and credit demand and credit supply frictions amplify each other in such a way that produces in equilibrium very low levels of credit and stronger reductions of the real and nominal interest, so an economy is much closer to the ZLB. However, an unconventional credit policy, that consists on central bank loans to firms that are guaranteed by the government, can undo partially the effects of the credit frictions and prevents the economy from reaching the ZLB. Since central bank loans are not subject to the moral hazard problem between bankers and depositors and are government-guaranteed, credit market interventions rise aggregate credit supply and positively affect the aggregate credit demand, respectively. However, once the economy is at the ZLB the effect of a credit policy is reduced due to a relatively stronger inflation reduction, which in turn reduces entrepreneurs' incentives to demand bank loans.
    Keywords: Unconventional credit policy; asymmetric information; moral hazard; zero Lower bound
    JEL: G21 G28 E44 E5
    Date: 2021–07–01
  6. By: Stephen Millard,; Margarita Rubio; Alexandra Varadi
    Abstract: We use a DSGE model with financial frictions, leverage limits on banks, loan-to-value limits and debt- service ratio (DSR) limits on mortgage borrowing, to examine: i) the effects of different macroprudential policies on key macro aggregates; ii) their interaction with each other and with monetary policy; and iii) their effects on the volatility of key macroeconomic variables and on welfare. We find that capital requirements can nullify the effects of financial frictions and reduce the effects of shocks emanating from the financial sector on the real economy. LTV limits, on their own, are not sufficient to constrain house- hold indebtedness in booms, though can be used with capital requirements to keep debt-service ratios under control. Finally, DSR limits lead to a significant decrease in the volatility of lending, consumption and inflation, since they disconnect the housing market from the real economy. Overall, DSR limits are welfare improving relative to any other macroprudential tool.
    Keywords: Macroprudential Policy, Monetary Policy, Leverage Ratio, Affordability Constraint, Col-lateral Constraint.
    Date: 2020
  7. By: Anna Dubinova (Vrije Universiteit Amsterdam); Andre Lucas (Vrije Universiteit Amsterdam); Sean Telg (Vrije Universiteit Amsterdam)
    Abstract: We investigate the relationship between macro fundamentals and credit risk, rating migrations and defaults during the start of the COVID-19 pandemic. We find that credit risk models that use macro fundamentals as covariates overestimate credit risk incidence due to the unprecedented drops in economic activity in the first lockdowns. We argue that this break in the macro-credit linkage is less affected if we take an unobserved components modeling framework, both at shorter and longer credit risk horizons.
    Keywords: COVID-19, credit risk, macro fundamentals, frailty factors, dynamic latent factors
    JEL: G21 C22
    Date: 2021–06–28
  8. By: Pagliacci, Carolina
    Abstract: Uncertainty has broad impacts on the economy, but it is unclear whether it affects only aggregate demand or both sides of the market. Using available uncertainty measures, this paper aims to quantify the impact of uncertainty shocks on output growth and inflation through their effects on aggregate supply and demand. The empirical strategy, applied to 19 advanced and 15 emerging countries, involves two steps. First, identifying in each country the parts of GDP-growth and GDP-inflation that are explained by shifts in aggregate supply and demand curves respectively. Second, estimating the country-effects of two (financial and non-financial) uncertainty shocks on the supply/demand components for growth and inflation. Considerations on reverse causality and identification of uncertainty types are made. Results show that in advanced and emerging economies, financial uncertainty shocks affect both sides of the market. When faced with greater uncertainty, consumers demand fewer goods, but producers reduce their supply as well, cutting back production and attempting to raise prices. Since the demand-side are larger than the supply-side effects, these shocks end up reducing inflation in all countries. Alternatively, non-financial uncertainty shocks’ impacts on output are rather small.
    Keywords: uncertainty, aggregate demand, aggregate supply, inflation, output growth
    JEL: C18 D8 E3
    Date: 2021–03
  9. By: Tut, Daniel; Cao, Melanie
    Abstract: Does policy uncertainty affect productivity? Policy uncertainty creates delays as firms await new information about prices, costs and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. First, we find that economic policy uncertainty has a negative impact on firm-level productivity. Second, debt magnifies the adverse effects of policy uncertainty on productivity, but access to external financing during periods of significant policy uncertainty shocks has a positive impact on firm� level productivity. Third, Policy uncertainty is positively related to cash holdings but this effect is mostly driven by highly productive firms and by firms with higher levels of irreversible investments since these firms face higher opportunity costs in future states. The three findings are robust to various specifications and provide an affirmative answer to the opening question.
    Keywords: Policy Uncertainty, Capital Reallocation, TFP, Leverage, Cash, Business Cycles
    JEL: G0 G2 G28 G3 G31 G32 G38
    Date: 2021–06–28
  10. By: Xavier Gabaix; Ralph S. J. Koijen
    Abstract: We develop a framework to theoretically and empirically analyze the fluctuations of the aggregate stock market. Households allocate capital to institutions, which are fairly constrained, for example operating with a mandate to maintain a fixed equity share or with moderate scope for variation in response to changing market conditions. As a result, the price elasticity of demand of the aggregate stock market is small, and flows in and out of the stock market have large impacts on prices. Using the recent method of granular instrumental variables, we find that investing $1 in the stock market increases the market's aggregate value by about $5. We also develop a new measure of capital flows into the market, consistent with our theory. We relate it to prices, macroeconomic variables, and survey expectations of returns. We analyze how key parts of macro-finance change if markets are inelastic. We show how general equilibrium models and pricing kernels can be generalized to incorporate flows, which makes them amenable to use in more realistic macroeconomic models and to policy analysis. Our framework allows us to give a dynamic economic structure to old and recent datasets comprising holdings and flows in various segments of the market. The mystery of apparently random movements of the stock market, hard to link to fundamentals, is replaced by the more manageable problem of understanding the determinants of flows in inelastic markets. We delineate a research agenda that can explore a number of questions raised by this analysis, and might lead to a more concrete understanding of the origins of financial fluctuations across markets.
    JEL: E7 G1 G32 G4
    Date: 2021–06
  11. By: Cirolia, Liza Rose; Hall, Suzanne; Nyamnjoh, Henrietta
    Abstract: Remittances are increasingly central to development discourses in Africa. The development sector seeks to leverage transnational migration and rapid innovations in financial technologies (fintech), to make remittance systems cheaper for end-users and less risky for states and companies. Critical scholarship, however, questions the techno-fix tendency, calling for grounded research on the intersections between remittances, technologies, and everyday life in African cities and beyond. Building on this work, we deploy the concepts of ‘micro-worlds’ and ‘migrant infrastructure’ to make sense of the complex networks of actors, practices, regulations, and materialities which shape remittance circulations. To ground the work, we narrate two vignettes of remittance service providers who operate in Cape Town, South Africa, serving the Congolese diaspora community. We showcase the important role of logistics companies in the ‘informal’ provision of remittance services and the rise of fintech companies operating in the remittance space. These vignettes give substance to the messy and relational dynamics of remittance micro-worlds. This relationality allows us to see how remittances are circulations, not unidirectional flows; how they are not split between formal and informal, but in fact intersect in blurry ways; how digital technologies are central to the story of migrant infrastructures; and how migrants themselves are compositional of these networks. In doing so, we tell a more relational story about how remittance systems are constituted and configured.
    Keywords: remittances; mobile money; regulation; migrant infrastructure; micro-worlds
    JEL: R14 J01
    Date: 2021–05–12
  12. By: Tiamiyu, Kehinde A.
    Abstract: The age-long consensus, in the literature, that lower level of foreign aid contributes positively to growth while higher level contributes negatively due to diminishing return and absorptive capacity issues brings to the fore the need; to investigate the possible non-linear relationship between foreign aid and growth over the period of 1981 and 2017 using threshold analysis approach; and to determine optimal foreign aid threshold for Nigeria. The conventional Augmented Dickey-Fuller (ADF) and Break-point unit root tests were both employed and compared for consistence. The overall findings showed that there exists one threshold upon which growth impact of aid can be felt, implying that the impact of net foreign aids received depends on the level of foreign aids. This therefore justifies the existence of a non-linear relationship between net foreign aids received and economic growth. Specifically, this is attributed to the fact that productive sectors of economy are not armed with enough liquidity and by implication the role of domestic investment in output growth is undermined. Similarly, results showed that the only significant determinant of growth in Nigeria is government final consumption expenditure, implying that government spending boosts aggregate demand with positive multiplier effect on output in line with the Keynesian theory. The policy implication from this study: optimal levels of foreign aids above 0.11% of GDP should be considered effective for growth, generated, adhered to, and directed to productive sector of the economy; strong institution, robust financial sector and conducive macroeconomic environment should be built to attract and make efficient use of higher aid flows. Besides, government spending should be biased towards stimulating the productiveness of the non-oil sector in the Nigerian economy.
    Keywords: Foreign aid, Economic growth, and Threshold
    JEL: F3 F35
    Date: 2019–12
  13. By: Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam)
    Abstract: The paper estimates the steady state economic growth rate of Vietnam, defined as the equilibirum that the economy converge without new shocks. The method employs a bayesian structural vector autoregressive model (BSVAR) which captures the Triffin policy trilemma at international financial integration. On a quarterly sample over Q2/2008-Q4/2019, the evidence records that the steady state growth based on Minnesota prior is 6.13%. This result is robust by normal-diffuse prior, normal-wishart prior and timely average method. For policy implication, the Vietnam government's objective of annual growth rate at 7.0% over 2021-2030 can only be attained for economic expansion periods.
    Keywords: Economic Growth,Vector Autoregression,Vietnam Economy
    Date: 2021–06
  14. By: Kheng, Veasna; Pan, Lei
    Abstract: This paper develops and estimates a small open economy real-business cycle model to study the dynamics of Cambodian current account. Differing from previous studies, we include net unilateral transfers and net foreign direct investment (FDI) as additional sources of macroeconomic fluctuations. We show that these two sources explain the variations in current account better than the shocks that are widely identified in the literature (i.e. productivity and interest rate). Our model captures Cambodia’s saving-and investment behaviour and matches well the evolution of its current account. Specifically, the measurement error is nearly 4% and the correlation between data and model is around 0.93. As a step further, using our well-fitted model, we predict the future trend of Cambodian current account in the context of negative shocks in productivity, remittance, FDI and COVID-19 pandemic.
    Keywords: real business cycle; current account; FDI; unilateral transfer; COVID-19
    JEL: F3 F41
    Date: 2021
  15. By: Ali, Nesma; Stiebale, Joel
    Abstract: This paper uses a rich panel data set of Indian manufacturing firms to analyze the effects of foreign direct investment (FDI) on various outcomes of domestic firms. We apply recent methodological advances in the estimation of production functions together with detailed product-level information on prices and quantities to estimate physical productivity, markups and marginal costs. Our results indicate the importance of price adjustments which stem from competitive pressure and a pass-through of cost savings to consumers. In line with the previous literature, we find little evidence for spillovers based on commonly used measures of revenue productivity. In contrast, we measure sizable efficiency gains using measures that are not affected by pricing heterogeneity, such as marginal costs and physical productivity. Exploiting exogenous variation from India's FDI liberalization, we provide evidence that the relationship between exposure to FDI and efficiency is causal. Our results suggest that knowledge spills over across product categories within industries and mainly benefits producers of high-quality products. We also provide evidence that FDI spillovers are stronger for joint ventures and when foreign investors enter via acquisitions.
    Keywords: Foreign Direct Investment,Spillovers,Productivity,Marginal Costs,Prices,Markups,Multi-Product Firms
    JEL: F61 F23 G34 L25 D22 D24
    Date: 2021
  16. By: Monika Sztajerowska (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: There are close to 3,000 international investment agreements (IIAs) that aim to protect and promote cross-border investment. Do they achieve their main purpose? This paper provides novel firm-level evidence on the effects of IIAs on location decisions of multinational enterprises (MNEs) in a multi-country context. It uses unique micro-level data on the location of MNEs' affiliates globally and country-pair data on the coverage and content of treaties over a twenty-year period (1990-2010). It finds that IIAs, in particular those with the investor state dispute settlement (ISDS), increase the probability of MNEs' first foreign entry when they are accompanied by a double-taxation treaty. This interaction between investment and tax treaties can have important policy implications.
    Keywords: Double Taxation Treaties,Bilateral Investment Agreements,Multinational Enterprises,Double Taxation Treaties Multinational Enterprises,Double Taxation Treaties F23,F14,F15,F53
    Date: 2021–06
  17. By: Werner Hölzl
    Abstract: This paper examines the association between participation in global value chains and financial globalisation measured by international net and capital flows. The results show that financial globalisation and the rise of global value chains are related but not two sides of the same coin. In fact, we find that GVC participation is positively associated with equity capital flows but negatively associated with debt capital flows. We also study the association of GVC participation and capital flows with aggregate economic outcomes. The findings show that both GVC participation and equity flows affect the share of mortgage and business credit. But we uncover also important differences in the impact of capital flows between advanced and emerging countries. Regarding changes in the economic structure our results suggest a positive association of both GVC participation and equity inflows on the manufacturing share, while debt inflows are primarily associated with a growth of the service sector in advanced economies, but not in emerging and developing countries. The finding that there is no strong association between the globalisation indicators and innovation suggests that the fragmentation of value chains leads to functional specialisation in tasks and tends to weaken the link between innovation and production at country level. We find in addition that a higher GVC participation is weakly associated with a higher growth of government revenue, as are debt flows but only in advances countries. This finding suggests also that debt flows were redirected primarily into safe countries in advanced countries.
    Keywords: Globalisation, Financial Flows, Global Value Chains, Structural Change, Innovation
    Date: 2021–07–05
  18. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The world economy is increasingly shaped by cross-border production and investment activity. The paper uses complex network analysis along with panel data econometric techniques to study the structure and interactions between the networks of global value chains (GVC) and foreign direct investment (FDI). The analysis reveals that both FDI and GVC networks have a distinct core-periphery structure dominated by a relatively small number of countries with the USA constituting the global hub interlinked with regional European and Asian clusters, which, in turn, are centered around regional hub countries like China and Germany. Simultaneous equation model regressions using three-stage least squares suggest that FDI centrality facilitates GVC centrality of countries. However, FDI centrality is driven to a large extent by the FDI statutory restrictions and tax offshore regulations, rather than GVC connectivity.
    Keywords: global value chains; foreign direct investment; network analysis; cross-border connectivity; simultaneous equation model
    JEL: F10 F14 F15 F21
    Date: 2021–07
  19. By: Manuel Bétin (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Umberto Collodel (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: While the recent empirical literature on macroeconomic crises focused on a limited subset of events (e.g. banking, currency and sovereign), macroeconomic crises are usually characterized by large scale domino effects that involve a much wider and heterogeneous array of sectors and transform them into highly complex events. This data limitation, in turn, hampers the understanding of these chaotic and painful episodes for researchers and policymakers alike. After building a raw corpus of roughly 23,000 International Monetary Fund country reports, we harness the power of text mining to produce a new database on crises discussion: the database covers 20 different types of economic, financial and non economic events for a sample of 181 countries over the period 1950-2019. We document a substantial rise in complexity of macroeconomic crises throughout the X X and X X I t h century and a higher centrality of the non-fundamental channel in the system.
    Keywords: Financial crises,Narrative Economics,IMF,Text Analysis,Complexity
    Date: 2021–06
  20. By: Mohamed El-Qasemy (UIT - Université Ibn Tofaïl); Lalla Zhor Alaoui Omari (UIT - Université Ibn Tofaïl)
    Abstract: The correlation between the sovereign credit rating granted by credit rating agencies (CRA) and conditions of access to foreign capital leads Moroccan authorities to pay greater attention to ratings obtained by Morocco. Understanding the determinants of Morocco's sovereign rating is critical given its implications for economic policies and structural reforms. In this perspective, this study examines the extent to which Morocco's sovereign rating reflects the performance recorded by its economic fundamentals and accounts for its sovereign risk. The aim is to identify a limited number of factors that can be the subject of the bulk of public action in order to reduce sovereign risk. The study included the case of the sovereign credit rating granted by Standard & Poor's (S&P). Using an ARDL model and monthly data covering the period 1998-2019, our study suggested that the Moroccan's sovereign rates, is determined by nine variables, namely: economic growth, depth of the financial system, inflation, accountability, control of corruption, budget balance, total central government debt, central government external debt and net foreign assets. The relationship between the variables is generally a short-term relationship, with the exception of the variables representing public finances. Moving from "speculative grade" to "investment grade" requires greater effort than what is normally required to move just along the path of "speculative grade". Our results can guide economic policy decisions in terms of the choice of sectors and factors that should primarily benefit from government efforts. Thus, given its long-term relationship and its predominance in the S&P's process of awarding sovereign rating, public finance factors must occupy the central place in economic policy, if Morocco wishes to consolidate its positioning at the Investment Grade, while moving away from the threshold separating it from the speculative grade. To our best knowledge, there are no academic studies that have attempted to examine the determinants of Morocco's sovereign rating. Also, from a methodological point of view, previous empirical studies have not had the opportunity to use an ARDL model to examine this type of relationship, i.e.: financial rating vs its determinants in the case of a specific country. Thus, our study can help demystify sovereign financial rating and its impact on the decision-making process relating to economic policies.
    Abstract: La corrélation existant entre les notes de crédits souverains accordées par les agences de notation de crédits (ANC) et les conditions d'accès aux capitaux étrangers fait que les autorités marocaines prêtent une attention particulière aux notes obtenue par le Maroc. La compréhension des déterminants de la note souveraine du Maroc est critique au vu de ses implications en termes de politiques économiques et de réformes structurelles. Dans cette perspective, cette étude examine dans quelle mesure la note souveraine du Maroc reflète la performance enregistrée par ses fondamentaux économiques et rend compte de son risque souverain. L'objectif est d'identifier un nombre limité de facteurs qui peuvent faire l'objet de l'essentiel de l'action publique afin de réduire le risque souverain. L'étude a retenu le cas de la note financière souveraine accordée par l'agence Standard & Poor's (S&P). En utilisant un modèle ARDL et des données mensuelles couvrant la période 1998-2019, notre étude a conclu que la note financière souveraine accordée par S&P, variable dépendante, est déterminée par neuf variables : croissance économique, profondeur du système financier, inflation, reddition des comptes et voix des citoyens, contrôle de la corruption, solde budgétaire, dette totale de l'administration centrale, dette extérieure de l'administration centrale et avoirs nets extérieurs. La relation entre les variables est globalement une relation de court terme à l'exception des variables représentant les finances publiques. Passer du « Speculative Grade » à l'« Investment Grade » nécessite des efforts plus importants par rapport à ce qui est normalement exigé pour évoluer juste au niveau de la trajectoire du « Speculative Grade ». Nos résultats peuvent orienter les décisions de politique économique en termes de choix des secteurs et facteurs qui doivent bénéficier en priorité des efforts des pouvoirs publics. Ainsi, le domaine des finances publiques, vu sa relation de long terme et sa prédominance dans le processus d'attribution de la note souveraine par l'agence S&P, doit occuper la place centrale dans la politique économique, si le Maroc souhaite consolider son positionnement au niveau de l'« Investment Grade » tout en s'éloignant du seuil le séparant du « Speculative Grade ». À notre meilleure connaissance, il n'y a pas d'études académiques qui se sont attelées à examiner les déterminants de la note financière souveraine du Maroc. Aussi, de point de vue méthodologique, les études empiriques précédentes n'ont pas eu l'occasion d'utiliser un modèle ARDL pour examiner ce type de relation, c.-à-d. : notation financière et ses déterminants dans le cas d'un pays précis. Notre étude peut ainsi contribuer à démystifier la notation financière souveraine et son impact sur le processus de décision relatif aux politiques économiques.
    Keywords: Sovereign Credit Rating,S&P,Morocco,Economic Policy,ARDL,Notation financière souveraine,Maroc,Politiques économiques
    Date: 2021
  21. By: André Teixeira; Zoë Venter
    Abstract: This paper shows that the recent surge in savings is a result of tighter macroprudential policy. Using a difference-in-differences approach with staggered treatment adoption, we find that households in EU countries that adopted macroprudential policy between 2000 and 2019 increased their savings up to one third more than households in countries without macroprudential policy. Furthermore, our results indicate that the loan-to-value ratio explains most of the variation on savings. Finally, we find that a longer exposure to macroprudential policy exacerbates savings with searing consequences on growth.
    Keywords: Macroprudential policy, savings, growth, difference-in-differences
    JEL: E21 E52 O47
    Date: 2021–06
  22. By: Felipe Aldunate; Dirk Jenter; Arthur Korteweg; Peter Koudijs
    Abstract: Does enhanced shareholder liability reduce bank failure? We compare the performance of around 4,200 state-regulated banks of similar size in neighboring U.S. states with different liability regimes during the Great Depression. The distress rate of limited liability banks was 29% higher than that of banks with enhanced liability. Results are robust to a diff-in-diff analysis incorporating nationally-regulated banks (which faced the same regulations everywhere) and are not driven by other differences in state regulations, Fed membership, local characteristics, or differential selection into state-regulated banks. Our results suggest that exposing shareholders to more downside risk can successfully reduce bank failure.
    Keywords: limited liability, bank risk taking, financial crises, Great Depression
    JEL: G21 G28 G32 N22
    Date: 2021
  23. By: Mücke, Christian; Pelizzon, Loriana; Pezone, Vincenzo; Thakor, Anjan V.
    Abstract: We empirically examine the Capital Purchase Program (CPP) used by the US gov- ernment to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP - the government's ability to ap- point independent directors on the board of an assisted bank that missed six dividend payments to the Treasury - helped attenuate bailout-related moral hazard. Banks were averse to these appointments - the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury led to improved bank performance, lower CEO pay, and higher stock market valuations.
    Keywords: Bank Bailout,TARP,Capital Purchase Program,Dividend Payments,Board Appointments,Bank Recapitalization
    JEL: G01 G2 G28 G38 H81
    Date: 2021
  24. By: Ozili, Peterson K
    Abstract: Basel III is a framework to preserve the stability of the international banking system. Nigeria adopts Basel capital framework for capital regulation in the banking sector. This article is a policy discussion on how to make Basel III work in Nigeria. The significance of Basel III is discussed, and some ideas to consider when implementing Basel III to make it work in Nigeria, are provided. Under Basel III, the Nigerian banking system should expect better capital quality, higher levels of capital, the imposition of minimum liquidity requirement for banks, reduced systemic risk, and a transitional arrangement for transitioning across Basel I and II. This article also emphasizes that (i) there should be enough time for the transition to Basel III in Nigeria, (ii) a combination of micro- and macro- prudential regulations is needed; and (iii) the need to repair the balance sheets of banks, in preparation for Basel III. The study recommends that the Nigerian regulator should enforce strict market discipline and ensure effective supervision under the Basel framework. There should be international cooperation between the domestic bank regulator and bank regulators in other countries. The regulator should have a contingency plan to reassure the public of the safety of their deposits, and there should be emergency liquidity solutions to support the financial system in bad times.
    Keywords: Basel III, Bank Business Models, Bank Performance, Financial Stability, Capital Regulation, Bank Regulation, Nigeria
    JEL: G01 G20 G21 G22 G23 G24 G28 G29
    Date: 2021
  25. By: Ozili, Peterson Kitakogelu
    Abstract: This paper examines whether African banks audited by a Big 4 auditor use loan loss provisions for earnings management purposes before, during and after the global financial crisis. It focuses on income smoothing as a type of earnings management. Using bank data from 21 African countries from 2002 to 2014, the results show that African banks audited by a Big 4 auditor use loan loss provisions to smooth income and the incentive to smooth income is greater during recessionary periods. Also, African banks audited by a Big 4 auditor use income smoothing to lower high earnings during the financial crisis and in the pre-financial crisis period but not in the post-financial crisis period.
    Keywords: Loan loss provision, banks, audit quality, Big 4 auditor, income smoothing, financial crisis, earnings management, economic cycles, recession, earnings smoothing
    JEL: G20 G21 G28 M00 M40 M41 M42 M48 M49
    Date: 2021
  26. By: Ibrahim Yarba; Ahmet Duhan Yassa
    Abstract: This paper investigates investment behavior across public and privately held firms using a novel firm-level dataset. We use coarsened exact matching to construct a control group of firms with which we compare listed firms before and after listing in a difference-in-differences framework. Results reveal that stock market listing spurs growth significantly in terms of sales, employment and assets for manufacturing firms. Furthermore, results indicate that manufacturing listed firms invest more than their non-listed counterparts. In addition, their investment decisions are significantly more sensitive to changes in investment opportunities, and they respond more aggressively. These results constitute a rejecting evidence against existence of short-termism for manufacturing listed firms in Turkey. Moreover, these findings provide significant support for the arguments regarding the advantages of public firms in terms of better access to external finance and enhanced corporate structure, which enables them to fulfill growth potential much easily, and highlight the importance of policies that should be implemented to deepen the Turkish capital markets.
    Keywords: Stock market listing, Corporate investment, Firm growth, Short-termism, Coarsened exact matching, Difference-in-differences
    JEL: C23 D22 G31 G32 L25
    Date: 2021
  27. By: Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria); Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria)
    Abstract: Purpose – The purpose of this paper is to critically examine the agri-business/small and medium investment schemes (AGSMEIS) in Nigeria. Its special focus is to investigate the impact of the AGSMEIS on youth entrepreneurship development in Nigeria. Design/methodology/approach – This paper adopts a survey research technique, aimed at gathering information from a representative sample of the population, as it is essentially cross-sectional, describing and interpreting the current situation. A total of 1,200 respondents were sampled across the six geopolitical zones of Nigeria. Findings – The results from the use of a combined propensity score matching (PSM) and logit model indicate that AGSMEIS initiative generates significance gains in empowering youths in enterprise development, and if enhanced will help many young people become entrepreneurs. Practical implications – This suggests that AGSMEIS initiative can facilitate youth’s access to credit and help them become owners of small and medium enterprises. Social implications – It implies that investing in young people for small and medium enterprises could bring Nigeria into the modern economy and lift sub-Saharan Africa out of poverty. Originality/value – This research adds to the literature on youth entrepreneurship development’s debate in developing countries. It concludes that targeting the young people in AGSMEIS should form the foundation of public policy for entrepreneurship, poverty alleviation, and economic development.
    Keywords: Agri-business/small and medium investment schemes (AGSMEIS), youth entrepreneurship development, sub-Saharan Africa
    Date: 2021–01
  28. By: Laura Marcela Capera Romero (Tilburg University)
    Abstract: Interest rate caps, also called usury ceilings, are a widely used policy tool to protect consumers from excessive charges by loan providers. However, they are often cited as a barrier for the advancement of financial inclusion, as they may reduce the incentives to provide loans to lower-income borrowers and and to invest in branching networks, particularly in remote and isolated locations. In this paper, I exploit a change in the usury ceiling applied to micro-loans in Colombia to understand the effects of this policy across geographic markets. To quantify the welfare implications of this policy, I structurally estimate a demand and supply model that incorporates the changes in size and composition of the potential market caused by this policy change, in a context where the distribution of branching networks has a crucial role in the optimal pricing strategies of loan providers. I find that the policy generated an increase in consumer surplus at the national level that is explained by greater credit availability for riskier borrowers and the expansion of branching networks in areas that were previously under-served. A counterfactual exercise reveals that the welfare gains associated to this policy depend greatly on additional investment in branching networks, as the opening of new branches in some locations is needed to compensate the consumer welfare loss associated with the subsequent increase in interest rates after the relaxation of the ceiling.
    Keywords: Microfinance institutions, price ceilings, consumer welfare
    JEL: L11 D43 D61 G21 G28
    Date: 2021–06–28
  29. By: Josh Lerner; Amit Seru; Nick Short; Yuan Sun
    Abstract: We develop a unique dataset of 24 thousand U.S. finance patents granted over last two decades to explore the evolution and production of financial innovation. We use machine learning to identify the financial patents and extensively audit the results to ensure their reasonableness. We find that patented financial innovation is substantial and economically important, with the number of annual grants expanding from a few dozen in the 1990s to over 2000 in the 2010s. The subject matter of financial patents has changed, consistent with the industry’s shift in revenue and value-added towards household investors and borrowers. The surge in financial patenting was driven by information technology firms and others outside of financial sector, which collectively accounted for 69% of the awards. The location of innovation has shifted, with banks moving this activity from regions with tight financial regulation to more permissive ones. High-tech regions have attracted financial innovation by payments, IT, and other non-financial firms. Turning to the source of these ideas, while academic knowledge remained associated with more valuable patents, citations in finance patents to academic papers, especially in those by banks, fell sharply.
    JEL: G20 O31
    Date: 2021–07
  30. By: Treu, Johannes
    Keywords: Fintech,Finanzinnovation,Evolution of Fintech,Finanztechnologie
    JEL: G20 G23 O16 O30 O33
    Date: 2021

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