nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒08‒23
28 papers chosen by
Georg Man

  1. Financial Integration and Growth Outcomes in Africa: Experience of the Trade Blocs By Ibrahim A. Adekunle; Abayomi T. Onanuga; Ibrahim A. Odusanya
  2. Remittances and the Future of African Economies By Ibrahim A. Adekunle; Sheriffdeen A. Tella
  3. Optimum Size of the Informal Credit Market - A Political Economy Perspective By Sugata Marjit; Suryaprakash Mishra
  4. Strengthening development finance in fragile contexts By Sacchetto, Camilla; Logan, Sarah; Collier, Paul; Kriticos, Sebastian
  5. Foreign Direct Investment and Labor Productivity in Regional Manufacturing Industry By Erick Rangel González; Luis Fernando López Ornelas
  6. Does foreign investment hurt job creation at home? The geography of outward FDI and employment in the USA By Crescenzi, Riccardo; Ganau, Roberto; Storper, Michael
  7. Stock Market Liberalizations and Export Dynamics By Melise Jaud; Madina Kukenova; Martin Strieborny
  8. Financial Dependence and Intensive Margin of Trade By Melise Jaud; Madina Kukenova; Martin Strieborny
  9. Good Connections: Bank Specialization and the Tariff Elasticity of Exports By Berthou Antoine,; Mayer Thierry,; Mésonnier Jean-Stéphane.
  10. Private equity buyouts and firm exports: evidence from UK firms By Paul Lavery; José María Serena Garralda; Marina-Eliza Spaliara
  11. Liquidity Provision and Financial Stability By William Chen; Gregory Phelan
  12. Should Monetary Policy Target Financial Stability? By William Chen; Gregory Phelan
  13. Welfare-Based Optimal Macroprudential Policy with Shadow Banks By Gebauer Stefan
  14. Statedependent fiscal multipliers and financial dynamics An impulse response analysis by local projections for South Africa By Serena Merrino
  15. Procyclical Fiscal Policy and Asset Market Incompleteness By Andrés Fernández; Daniel Guzman; Ruy E. Lama; Carlos A. Vegh
  16. Global Contagion and IMF Credit Cycles: A Lender of Partial Resort? By Stephen Kaplan; Sujeong Shim
  17. The evolution of bank-state ties under economic adjustment programmes: the case of Greece By Papalexatou, Chrysoula
  18. Financial Instability and Income Inequality: why the connection Minsky-Piketty matters for Macroeconomics By Filippo Gusella; Anna Maria Variato
  19. Bank Seigniorage in a Monetary Production Economy By Biagio Bossone
  20. Paradox of Monetary Profit, Shortage of Money in Circulation & Financialisation By Javidanrad, Farzad
  21. معدلات التضخم المحفزة للنمو الاقتصادي : مقاربة نموذج العتبة من الجزائر By Khouiled, Brahim; Sellami, Ahmed; Saheb, Oualid
  22. Interaction entre la croissance économique, l’inflation et le taux de change au kenya By Nansha, Kevin
  23. Central bank mandates, sustainability objectives and the promotion of green finance By Dikau, Simon; Volz, Ulrich
  24. Green Quantitative Easing as Intergenerational Climate Justice: On Political Theory and Pareto Efficiency in Reversing Now Human-Caused Environmental Damage By Josep Ferret Mas; Alexander Mihailov
  26. Business Groups: Panics, Runs, Organ Banks and Zombie Firms By Asli M. Colpan; Randall Morck
  27. Money or Power? Financial Infrastructure and Optimal Policy By Susanna B. Berkouwer; Pierre E. Biscaye; Eric Hsu; Oliver W. Kim; Kenneth Lee; Edward Miguel; Catherine Wolfram
  28. Wealth and Insurance Choices: Evidence from US Households By Michael J. Gropper; Camelia M. Kuhnen

  1. By: Ibrahim A. Adekunle (Babcock University, Nigeria); Abayomi T. Onanuga (Olabisi Onabanjo University, Ogun State, Nigeria); Ibrahim A. Odusanya (Olabisi Onabanjo University, Ogun State, Nigeria)
    Abstract: In this study, we examine the benefits of financial integrations in four of Africa regional trade blocs: COMESA, ECCAS, CEN-SAD and ECOWAS. We regress de-jure and de-facto indices of financial integration on growth outcome using the dynamic system generalised method of moment and pooled mean group estimation procedure. Findings revealed that total foreign asset and liabilities and foreign liabilities as a percentage of GDP are inversely related to growth outcomes in COMESA. In CEN-SAD, we found that foreign liabilities as a percentage of GDP hurts growth. In ECCAS, growth-financial integration relationship showed that foreign liabilities as a percentage of GDP inhibit real per capita GDP in the long run. In ECOWAS, foreign liabilities as a percentage of GDP is inversely related to real per capita GDP in the long run. Policy implications of our findings were discussed.
    Keywords: Financial Integration; Economic Growth; system GMM; Pooled Mean Group; Regional Trade Bloc; Africa
    JEL: F36 F43 O47
    Date: 2021–01
  2. By: Ibrahim A. Adekunle (Babcock University, Nigeria); Sheriffdeen A. Tella (Olabisi Onabanjo University, Ago-Iwoye, Nigeria)
    Abstract: African nations have in time, passed over-relied on remittances inflow to augment domestic finances needed for growth. Despite the volume and magnitude of remittances that have to serve as an alternative source of investment financing, African remains mostly underdeveloped. The altruistic motives of sending remittances to Africa are likely to fade with time. In this study, we argued that the altruistic connection that has been the bedrock of sending money to African countries would eventually fade when the older generation passes away. To lean empirical credence to this assertion, we examine the structural linkages and the channels through which remittances predicts variations in financial developmentas a threshold for gauging the future of African economies. We gathered panel data on indices of remittances and financial development for thirty (30) African countries from 2003 through 2017. We employed the dynamic panel system generalised method of moment (dynamic system GMM) estimation procedure to establish a baseline level relationship between the variables of interest. We adjusted for heterogeneity assumptions inherent in ordinary panel estimation and found a basis for the strict orthogonal relationship among the variables. Findings revealed that a percentage increase in remittances inflow has a short-run, positive relationship with financial development in Africa. The result further revealed that the exchange rate negatively influences financial development in Africa. Based on the findings, it is suggested that, while attracting migrants' transfers which can have significant short-run poverty-alleviating advantages, in the long run, it might be more beneficial for African governments to foster financial sector development using alternative financial development strategies in anticipation of a flow of remittance that will eventually dry up.
    Keywords: Remittance; Financial Development; African Economies; System GMM; Africa
    JEL: F37 G21
    Date: 2021–01
  3. By: Sugata Marjit; Suryaprakash Mishra
    Abstract: Informality of markets is largely perceived as undesirable. Yet, ample evidence suggests that the informal sector contributes substantially in terms of income and employment in the entire developing world. In this paper, tax evaded income is invested in the informal credit market which in turn determines demand for labor in the informal sector and hence income of informal workers. Political authority cares about lost tax revenue due to evasion but is also concerned with politically adverse consequence of lower income of informal labor due to lack of investment in the informal sector. This trade off determines an optimum size of the informal credit market and the informal economy. The size is sensitive and non–monotonic with respect to changes in the tax rate and size of the labor force, depending on the tax revenue effect of tax policy, labor demand political sensitivity of the govt. towards lower wage in the informal sector.
    Keywords: tax evasion, underreporting of income, informal credit market, political economy perspective
    JEL: D78 H25 H26 H32 I18 O17 P48
    Date: 2021
  4. By: Sacchetto, Camilla; Logan, Sarah; Collier, Paul; Kriticos, Sebastian
    JEL: N0 E6
    Date: 2021–03–22
  5. By: Erick Rangel González; Luis Fernando López Ornelas
    Abstract: Foreign Direct Investment (FDI) is often identified as a driver of economic growth, although there is no consensus on this topic in the international empirical evidence regarding its effect on labor productivity. This document analyzes the effects of Foreign Direct Investment on labor productivity in the manufacturing sector in Mexico during the 2007-2015 period by using panel data and federative entities as unit of analysis. The estimates are calculated by the generalized method of moments, which allows to consider for possible endogeneity problems. The results indicate a positive and statistically significant effect of FDI as a proportion of manufacturing GDP on the growth rate of labor productivity when the latter is estimated with the Manufacturing Labor Productivity Index published by INEGI. Similar results are found if growth in labor productivity is estimated by using manufacturing GDP per worker, although the latter have less statistical power in some specifications.
    JEL: J01 J24 Q29 R11
    Date: 2021–08
  6. By: Crescenzi, Riccardo; Ganau, Roberto; Storper, Michael
    Abstract: Rising political skepticism on the benefits of global economic integration has increased public scrutiny of the foreign activities of domestic firms in virtually all advanced economies. Decisions to invest in new activities abroad are seen by some commentators as potentially detrimental to domestic employment. We contribute to this debate by scrutinizing the relationship between outward ‘greenfield’ Foreign Direct Investments (FDI) and local employment levels. The analysis, at the scale of USA Economic Areas, finds a generally positive link between outward investment and local employment, but with an important range of differences across regions and sectors. Less developed regions benefit the most from the positive returns of outward FDI, and, particularly, from outward FDI if it is undertaken by firms in high-tech manufacturing and services industries. But there is a downside, in the form of increasing intra-regional inequalities between high-skilled and low-skilled workers in these areas.
    Keywords: internationalization; outward FDI; employment; economic areas; USA; The research leading to these results has received funding from the European Research Council under the European Union Horizon 2020 Programme H2020/2014-2020 (Grant Agreement n 639633-MASSIVE-ERC-2014-STG); OUP deal
    JEL: R14 J01
    Date: 2021–04–30
  7. By: Melise Jaud; Madina Kukenova; Martin Strieborny
    Abstract: We find that foreign investors facilitate efficiency-enhancing structural change in the recipient countries. After countries liberalize their stock markets and allow foreign investors to acquire equity stakes in domestic firms, products that do not correspond to the liberalizing countries' comparative advantage disappear disproportionately faster from their export portfolios. At the same time, the overall long-term export performance of the liberalizing countries improves. Domestic stock market development does not play the same disciplining role in forcing termination of inefficient exports, suggesting a unique role for foreign investors in improving resource allocation in the real economy.
    Keywords: financial liberalization and structural change, disciplining role of foreign investors, export dynamics
    JEL: G15 F65 O16
    Date: 2021–08
  8. By: Melise Jaud; Madina Kukenova; Martin Strieborny
    Abstract: This paper examines the transmission process from finance to the real economy in the context of product-level export survival. We find that conditional on the specific financial needs of exported products, banks and stock markets play distinctive roles in helping exporters survive in foreign markets. Stock markets rather than banks help exporters who lack easily collateralizable tangible assets. Active rather than large stock markets facilitate exports of products requiring high levels of working capital. And the trade credit can act as a substitute only for bank financing and only in the presence of well-established export links.
    Keywords: finance and export survival, transmission from finance to real economy, banks versus stock markets
    JEL: F14 G10 G21
    Date: 2021–08
  9. By: Berthou Antoine,; Mayer Thierry,; Mésonnier Jean-Stéphane.
    Abstract: In this paper, we show that exporters react more strongly to a cut in tariffs by a distant country when their banks have already been specializing in funding exports to this country. To make our case, we build upon a theoretical model where an informational advantage provided by the exporter's bank results in a lower distribution cost in the destination country. We test the implications of this model for French exporters using the 2011 free trade agreement between the European Union and South-Korea as a quasi-natural experiment. We measure a bank's specialization in Korea using granular information on bank-firm credit lines and firm-level exports in the years preceding the agreement. We assess how customers of different banks react to this trade liberalization episode using detailed information on the bilateral tariff cuts and disaggregated data on French export flows at the firm-product level. We find robust evidence that the specialized lenders help exporters to respond more strongly to changes in tariffs. The effect is strong for all firms along the extensive margin, but only for less productive exporters along the intensive margin.
    Keywords: Trade Elasticities, Bank Specialization, Trade Liberalization.
    JEL: F14 G21
    Date: 2021
  10. By: Paul Lavery; José María Serena Garralda; Marina-Eliza Spaliara
    Abstract: This paper examines the impact of private equity buyouts on the export activity of target firms. We exploit data on UK firms over the 2004-2017 period, and use difference-in-differences estimations on matched target versus non-target firms. Following private equity buyouts, non-exporting firms are more likely to begin exporting, and target firms are likewise more likely to increase their value of exports and their export intensity. Evidence from split-sample analysis further suggests that these patterns are consistent with private equity investors relaxing financial constraints and inducing productivity improvements.
    Keywords: private equity buyouts, exporting, financial constraints, transactions
    JEL: G34 G32
    Date: 2021–08
  11. By: William Chen (Department of Economics, Massachusetts Institute of Technology); Gregory Phelan (Department of Economics, Williams College)
    Abstract: When financial intermediaries’ key characteristic is provision of liquidity through their liabilities, with financial frictions the financial sector in the aggregate is likely to over-accumulate equity, thus decreasing liquidity provision and household welfare. Aggregate household welfare is therefore decreasing in the level of aggregate intermediary equity even though the individual value of intermediaries is increasing in equity, which is why intermediaries over-accumulate equity. Subsidizing intermediary dividends can improve welfare by encouraging earlier payout and decreasing aggregate equity in the financial sector. This policy increases the likelihood that intermediaries provide more liquidity and improves the stability of the economy, even though asset prices fall.
    Keywords: Financial stability, Macroeconomic instability Macroprudential policy, Banks
    JEL: E44 E52 E58 G01 G12 G20 G21
    Date: 2021–08–03
  12. By: William Chen (Department of Economics, Massachusetts Institute of Technology); Gregory Phelan (Department of Economics, Williams College)
    Abstract: Monetary policy can promote financial stability and improve household welfare. We consider a macro model with a financial sector in which banks do not actively issue equity, output and growth depend on the aggregate level of bank equity, and equilibrium is inefficient. Monetary policy rules responding to the financial sector are ex-ante stabilizing because their effects on risk premia decrease the likelihood of crises and boost leverage during downturns. Stability gains from monetary policy increase welfare whenever macroprudential policy is poorly targeted. If macroprudential policy is sufficiently well-targeted to promote financial stability, then monetary policy should not target financial stability.
    Keywords: Central bank mandate, Leaning against the wind, Fed Put, Macroprudential policy, Banks, Liquidity
    JEL: E44 E52 E58 G01 G12 G20 G21
    Date: 2021–08–04
  13. By: Gebauer Stefan
    Abstract: In this paper, I show that the existence of non-bank financial institutions (NBFIs) has implications for the optimal regulation of the traditional banking sector. I develop a New Keynesian DSGE model for the euro area featuring a heterogeneous financial sector allowing for potential credit leakage towards unregulated NBFIs. Introducing NBFIs raises the importance of credit stabilization relative to other policy objectives in the welfare-based loss function of the regulator. The resulting optimal policy rule indicates that regulators adjust dynamic capital requirements more strongly in response to macroeconomic shocksdue to credit leakage. Furthermore, introducing non-bank finance not only alters the cyclicality of optimal regulation, but also has implications for the optimal steady-state level of capital requirements and loan-to-value ratios. Sector-specific characteristics such as bank market power and risk affect welfare gains from traditional and NBFI credit.
    Keywords: Macroprudential Regulation, Monetary Policy, Optimal Policy, Non-Bank Finance,Shadow Banking, Financial Frictions.
    JEL: E44 E61 G18 G23 G28
    Date: 2021
  14. By: Serena Merrino
    Abstract: State-dependent fiscal multipliers and financial dynamics: An impulse response analysis by local projections for South Africa
    Date: 2021–08–16
  15. By: Andrés Fernández; Daniel Guzman; Ruy E. Lama; Carlos A. Vegh
    Abstract: To explain the fact that government spending and tax policy are procyclical in emerging and developing countries, we develop a model for the joint behavior of optimal tax rates and government spending over the business cycle. Our set-up relies on financial frictions, which have been shown to be critical features of emerging markets, captured by various degrees of asset market incompleteness as well as varying levels of debt-elastic interest rate spreads. We first uncover a novel theoretical result within a simple static framework: incomplete markets can account for procyclical government spending but not necessarily procyclical tax policy. Explaining procyclical tax policy also requires that the ratio of private to public consumption comoves positively with the business cycle, which leads to larger fluctuations in the tax base. We then show that the procyclicality of tax policy holds in a more realistic DSGE model calibrated to emerging markets. Finally, we illustrate how larger financial frictions, which amplify the business cycle through more procyclical fiscal policies, have sizeable Lucas-type welfare costs.
    JEL: F41 F44 H21 H30
    Date: 2021–08
  16. By: Stephen Kaplan (George Washington University); Sujeong Shim (University of Wisconsin-Madison)
    Abstract: The International Monetary Fund (IMF) has an incomplete governance architecture characterized by insufficient resources to fulfill its global financial stability mandate. We argue this institutional incompleteness influences how the IMF balances tensions between systemic risks and moral hazard, and when it surprisingly exits lending relationships. During high global contagion periods, the IMF targets stabilizing systemic risks to fulfill its mandate, granting large loans and overlooking non-compliance with conditionality. However, when the IMF perceives minimal contagion risk, it focuses on moral hazard, extending smaller loans with stricter conditionality, and willingly cuts financial ties to preserve its reputation and resources for future crises. Employing a comparative case analysis of IMF decision-making for Argentina (1998-2001) and Greece (2010-2015), we find evidence supporting our theoretical priors from content analysis of IMF executive board meeting minutes, complementary archival evidence, and field research interviews. These findings have important implications for the IMF, institutionalism, and development.
    Keywords: IMF; lender of last resort; financial crises; international financial risk; contagion risk; Argentina; Greece
    JEL: O1 O16 O19 F21 F33 F34 F42 F49 F50 F55 F60 F65
    Date: 2021
  17. By: Papalexatou, Chrysoula
    JEL: E6 N0
    Date: 2021–08
  18. By: Filippo Gusella; Anna Maria Variato
    Abstract: In recent years the names of Minsky and Piketty gained increasing notoriety to researchers because the two authors investigated issues of financial instability and income inequality, which represent both two unsolved macroeconomic problems of the new millennium, and evidence contradicting the long†run implications of mainstream macroeconomics. By combining these two names we set ourselves an ambitious goal, going beyond the technical aspects of the model presented in the paper. Indeed, not only we want to contribute directly to the debate meant at clarifying the controversial relationship between financial instability and income inequality; we also aim at addressing a broader issue which is the explanation of the reasons why a theoretical revolution in macroeconomics has not yet occurred, and why financial aspects still play a subordinate role to real factors in the explanation of growth and cycles. In this broader perspective Minsky and Piketty are assumed as extreme examples of the opposite poles of heterodoxy and orthodoxy. Both target and argumentative line of the contribution are quite unconventional, as usually financial instability and income inequality, are treated as separate if not independent issues of inquiry; and methodological reflection is no longer a customary explicit part of technical papers. We discuss possible reasons why these two circumstances happen. The theoretical framework proposed in this paper builds on Ferri (2016), who presents a class of demandled models in a medium†run time horizon. This class of models is not conventional too, though it belongs to “pedagogical models†, we consider especially relevant tool for macroeconomics. Among the different specifications investigated by the author, we select the nearest to possible comparison with Piketty (2014) and then we introduce corporate debt into the financial account of firms. Because of the non†linearity of the model, we explore its dynamic properties with numerical simulations. Such simulations are also performed to assess the parameters enabling to support the Financial Instability Hypothesis. Aiming at deepening the comprehension of robustness properties, we also consider analytic results from a linearized version of the model. Obviously, the criticism addressed to Piketty with respect to the definition and measurement of inequality can be extended to our model too, as we use the same expedient to check the evolution of inequality. This leads to emphasize the relevance of the issue of measurement as a critical one for future developments. Nevertheless, this does not impinge on the achievement of our purpose. Indeed, our analysis confirms the utility of pedagogical models. Furthermore, it underlines the need of a change of economic vision such that complexity comes as a substantial part of representation. In terms of future perspectives these considerations point out the need for macroeconomic epistemology to resume constructive dialectics: a mixture of plural narratives and foundations for new visions of economic policy. Those just proposed at the end of the paper differ from orthodox ones as they call for financial regulation, they underline qualitative aspects and heterogeneity; but such embryonal policy suggestions stem from the overall perspective described in the paper, a perspective rooted into Ferri’s notion of medium†run, and qualified by Minsky through an eclectic approach leading to networks of balance†sheets: two ways highly overlapping though not totally equivalent to represent the reality of and endogenously unstable capitalism lying at the edge of chaos.
    Keywords: Economic Inequality, Financial Instability Hypothesis, Endogenous Cycles
    JEL: B41 D31 E32
    Date: 2021
  19. By: Biagio Bossone
    Abstract: This article speaks to post-Keynesian economists and their fundamental vision of monetary production economies. It focuses on the role of commercial banks as creators of money in monetary production economies and studies the rent-extraction power of banks in the form of "seigniorage." The article examines how the relative size of banks in the payment system combines with their capacity to determine quantities and prices in the market for demand deposits and gives them the power to extract seigniorage from the economy; it clarifies the distinction between seigniorage originating from commercial bank money creation and profits derived from pure financial intermediation; and analyzes how seigniorage affects the economy’s price level and resource distribution. The article draws political-economy and economic-policy implications.
    Keywords: Commercial banks; Interest rate; Money creation; Prices; Resource distribution; Seigniorage
    JEL: E19 E20 E31 E40 E52 E58 E62 G21
    Date: 2021–08
  20. By: Javidanrad, Farzad (University of Warwick)
    Abstract: Over the last four decades, the term “financialisation” has entered economics terminologies to explain the development of capitalist economies in which: a) the rate of profit in the production sector is falling or narrowing relative to that in the financial sector b) profit seeking through financial speculation has grown rapidly among the household and the production sectors; c) public and private debt is rapidly accelerating and its ratio to GDP is increasing swiftly; d) there is an independent and accelerated growth of the financial sector compared to that of the real sector. This paper is a theoretical attempt to shed light on these features through the lens of the paradox of monetary profit and its manifestation in the capitalist economy, i.e. the shortage of money in circulation. The aim of this paper is to show how the paradox of monetary profit provides a theoretical framework to analyse the mechanism by which the capitalist economies move towards financialisation. This theoretical argument shows the connection between the shortage of money in circulation and financialisation. The core idea proposed in this paper is that financialisation is the direct result of the shortage of money in circulation, and that this shortage can be explained through the paradox of monetary profit.
    Keywords: Capitalism, Paradox of Monetary Profit, Financialisation, Monetary production Economy, Marx JEL Classification: B11 ; E11 ; P10
    Date: 2021
  21. By: Khouiled, Brahim; Sellami, Ahmed; Saheb, Oualid
    Abstract: This paper answers the problem of the existence of an inflation rate that stimulates economic growth in Algeria during the period 2000:1-2018:2. We use the TAR model with the brutal transition. The results showed that the rate of inflation stimulating economic growth in Algeria is between 1.688-4.08% annually, a threshold close to that of industrial countries.
    Keywords: Inflation; Economic Growth; Threshold Models; تضخم ; نمو اقتصادي ; نماذج العتبة
    JEL: E31 O49
    Date: 2019–12–25
  22. By: Nansha, Kevin
    Abstract: The issue of the interaction between economic growth, inflation and exchange rate in Kenya, has been the subject of this paper. So,SVAR and ARDL (with bounds test cointegration) models have been used in this study. On time series covering the kenyan economy (1960 to 2020), the Granger causality test has shown that no variable in our study, significantly improves the forecasts of the others. However, the SVAR model has indicated that with theoretical short-term restrictions, a significant depreciation of the kenyan local currency by 10% would cause the kenyan inflation rate to increase by 7.38%. The ARDL model with bounds test cointegration came to a controversial conclusion. In the short run, an appreciation of the kenyan local currency by 10% would lead to a 15.18% increase in the kenyan inflation rate. In the long run, however, a 10% increase in the exchange rate would lead to a small 7.01% increase in the inflation rate in Kenya. In addition, a 10% decrease in past values (lagged by one period) of the inflation rate would cause it to increase by 4.62 % at time "t".
    Keywords: Keywords: economic growth, inflation, exchange rate, SVAR, ARDL, Kenya
    JEL: C22 E01 E31 F62 O55
    Date: 2021–08–18
  23. By: Dikau, Simon; Volz, Ulrich
    Abstract: This article examines how addressing climate-related risks and supporting mitigation and adaptation policies fit into central bank mandates. We conduct an analysis of mandates and objectives using the IMF's Central Bank Legislation Database and compare these to sustainability-related policies central banks have adopted in practice. Out of 135 central banks, only 12% have explicit sustainability mandates, while 40% are mandated to support the government's policy priorities, which mostly include sustainability goals. However, given that climate risks can directly affect central banks' traditional core responsibilities, all institutions ought to incorporate climate-related physical and transition risks into their policy frameworks to safeguard macro-financial stability.
    Keywords: central bank mandates; central banks; green finance; ES/R009708/1; UKRI fund
    JEL: F3 G3
    Date: 2021–06–01
  24. By: Josep Ferret Mas (Department of Politics and International Relations, University of Reading); Alexander Mihailov (Department of Economics, University of Reading)
    Abstract: The present paper endorses an interdisciplinary approach to the complex and urgent issue of intergenerational climate justice, and proposes a rich menu of policy options, in particular some novel and unconventional ones, to resolve it immediately but flexibly. We incorporate the realistic features of economic growth, nominal interest, expected inflation, and the option for nonrepayment or partial repayment of public debt across generations as well as a central bank institution, or rather the global network of central banks, to implement climate mitigation policy in the stylized model proposed by Sachs (2015). Similarly, but even without repayment, we find such kind of policy, which we label 'green quantitative easing', or 'green QE', to be Pareto-efficient across generations. Differently, we argue that neither the present, nor future generations need to repay the novel greening compensatory transfers (GCTs) to households and firms we envisage to serve as a main financial instrument of central banks in triggering a decisive reversal in environmental deterioration right now, without further delay, given the emergency of the situation. Moreover, and in support of the economic considerations and incentives, we argue from philosophical, legal and political-theory grounds that such a financial scheme intermediated by central banks worldwide serves two types of principles of intergenerational climate justice: (i) principles that tell us to mitigate climate change now and avoid harm for future generations; and (ii) principles that tell us how to share mitigation costs fairly across generations. Our spectrum of suggested pragmatic green QE initiatives includes potential issuance by firms and households of super-long-term coupon bonds to be held by central banks over up to a century, possibly GCT-based only, and allows for much flexibility and complementarity in the practical solutions to be potentially chosen, with voluntary partial repayment or not of the mitigation costs across generations.
    Keywords: green quantitative easing, greening compensatory transfers, central banks, public finance, climate change mitigation policy, intergenerational climate justice, intergenerational social welfare
    JEL: D61 D63 D78 E21 E58 F55 G28 H23 O44 Q54
    Date: 2021–08–10
  25. By: Laetitia Gohlou Diomandé (UICL - CERF - Centre, d’Etudes, de Recherche et de Formation Continue, Sup'management.); Cedric Yao (UICL - CERF - Centre, d’Etudes, de Recherche et de Formation Continue, Sup'management.)
    Abstract: The asymmetry of information, resulting from the agency theory, is an aspect that is much complained about by banks regarding SMEs in Africa; and is one of the main reasons for the lack of financing of which these SMEs are victims. The informal structure of the African SME is the main reason for this information asymmetry. Thus far, banks have been content to require African SMEs to adapt to their operations, such as having financial data that meets legal requirements, but this has only widened the gap between these two actors. This thesis proposes the modeling of an information system that is as well adapted to the constraints of banks as to those of the African SME, in order to promote the permanent sharing of information between these two actors. The modeled system would allow both banks to obtain qualitative and quantitative information on African SMEs and the latter to meet the requirements of banks to obtain the financing they need.
    Abstract: L'asymétrie d'information, issue de la théorie de l'agence est un aspect qui est beaucoup décrié par les banques concernant les PME en Afrique ; et est l'une des causes du manque de financement dont sont victimes ces PME. Le caractère informel de la PME Africaine est la principale cause de cette asymétrie d'informations. Jusqu'à présent les banques se sont contentées d'exiger des PME Africaines qu'elles s'adaptent à leur fonctionnement comme le fait de disposer de données financières répondant aux critères légaux, mais cela n'a fait que creuser un peu plus le fossé entre ces deux acteurs. Cet article propose la modélisation d'un système d'informations aussi bien adaptée aux contraintes des banques qu'à celles de la PME Africaine, afin de favoriser le partage permanent d'informations entre ces deux acteurs. Le système modélisé permettrait à la fois aux banques d'obtenir des informations qualitatives et quantitatives sur les PME Africaines et à ces dernières de répondre aux exigences des banques pour l'obtention des financements dont elles ont besoin.
    Keywords: SME,Bank,Social netork,Informal sector,Financing,Asymétrie of information,information system,Process modeling,Accounting software,système d’information,asymétrie d’information,financement,secteur informel,Banque,PME,modélisation de processus,réseau social,logiciel comptable
    Date: 2021–08–06
  26. By: Asli M. Colpan; Randall Morck
    Abstract: Business groups often contain banks or near banks that can protect group firms from economic shocks. A group bank subordinate to other group firms can become an “organ bank” that selflessly bails out distressed group firms and anticipates a government bailout. A group bank subordinating other group firms can extend loans to suppress their risk-taking to default risk, preserving risk-averse low-productivity zombie firms. Actual business groups can fall between these polar cases. Subordinated group banks magnify risk-taking; subordinating banks suppress risk-taking; yet both distortions promote business group firms’ survival. Limiting intragroup income and risk shifting, severing banks from business groups, or dismantling business groups may mitigate both distortions; but also limits business groups’ internal markets, thought important where external markets work poorly.
    JEL: F65 G01 G21 G23 N2
    Date: 2021–07
  27. By: Susanna B. Berkouwer; Pierre E. Biscaye; Eric Hsu; Oliver W. Kim; Kenneth Lee; Edward Miguel; Catherine Wolfram
    Abstract: In response to the Covid-19 crisis, 186 countries implemented direct cash transfers to households, and 181 introduced in-kind programs that lowered the cost of utilities such as electricity, water, transport, and mobile money. Do cash or in-kind transfers generate greater welfare improvements? And, does a country’s financial infrastructure affect optimal aid disbursement? Through a parallel set of surveys in two urban regions in Africa—with comparable education, cell phone ownership, and electricity connectivity—we show that optimal government aid disbursement hinges on financial infrastructure. In line with economic theory favoring direct cash transfers, in a randomized experiment in Kenya 95% of urban recipients prefer mobile money over electricity transfers of a similar monetary value. But Kenya is an outlier with high mobile money adoption: this increases its value and reduces transaction costs of buying electricity credit. By contrast, in Ghana—where mobile money is less widespread and the transaction costs for buying electricity are higher—half of recipients prefer electricity transfers, and many are willing to forego significant value to receive electricity instead of mobile money. These results have several important policy implications. First, the optimal government policy in response to an economic crisis is not uniform: cash and in-kind transfers have different advantages that make each suitable for specific contexts. Second, the adoption of modern financial technologies will likely increase the efficiency of government cash transfer programs, even as in-kind transfers continue to be preferred in settings where mobile money uptake is slow. Finally, giving recipients a choice harnesses valuable local information that a policy maker may not have access to.
    JEL: G23 O38 Q38
    Date: 2021–07
  28. By: Michael J. Gropper; Camelia M. Kuhnen
    Abstract: Theoretically, wealthier people should buy less insurance, and should self-insure through saving instead, as insurance entails monitoring costs. Here, we use administrative data for 63,000 individuals and, contrary to theory, find that the wealthier have better life and property insurance coverage. Wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, and pricing explain only a small fraction of the positive wealth-insurance correlation. This puzzling correlation persists in individual fixed-effects models estimated using 2,500,000 person-month observations. The fact that the less wealthy have less coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.
    JEL: D14 G22 G51 G52
    Date: 2021–07

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