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on Financial Development and Growth |
| By: | Mr. Ruy Lama; Mai Hakamada; Ms. Valerie Cerra |
| Abstract: | One of the most puzzling facts in the wake of the Global Financial Crisis (GFC) is that output across advanced and emerging economies recovered at a much slower rate than anticipated by most forecasting agencies. This paper delves into the mechanics behind the observed slow recovery and the associated permanent output losses in the aftermath of the crisis, with a particular focus on the role played by financial frictions and investment dynamics. The paper provides two main contributions. First, we empirically document that lower investment during financial crises is the key factor leading to permanent loss of output and total factor productivity (TFP) in the wake of a crisis. Second, we develop a DSGE model with financial frictions and capital-embodied technological change capable of reproducing the empirical facts. We also evaluate the role of financial policies in stabilizing output and TFP in response to disruptions in financial markets. |
| Keywords: | Medium-term TFP loss; impulse response; investment dynamics; hysteresis effect; aftermath of a financial crises; Total factor productivity; Global financial crisis of 2008-2009; Banking crises; Self-employment; Global |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/170&r= |
| By: | Jean-Louis Combes; Alexandru Minea; Jean-Marc B. Atsebi |
| Abstract: | The “Great Trade Collapse” triggered by the 2008-09 crisis calls for a careful assessment of the trade losses from financial crises. We adopt a more detailed perspective by looking at the response of different types of trade (i.e. agricultural, mining, and manufactured goods, and services) following various types of financial crises (i.e. debt, banking, and currency crises). Estimations performed on the 1980-2018 period using a combination of impact assessment and local projections to capture a causal dynamic effect running from financial crises to the trade activity show that the collapse of total trade is long-lasting and mainly driven by the fall of manufacturing and to some extent services trade. These causal effects are found to operate through three channels: a structural, a demand-side, and a supply-side channel. By contributing to the understanding of the trade effects of financial crises, our analysis provides insightful support for the design and implementation of policies aimed at coping with these effects. |
| Keywords: | trade loss; trade effect; trade activity; losses from financial crises; mining trade; Currency crises; Banking crises; Exports; Imports; Caribbean; Global |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/176&r= |
| By: | Kim Ristolainen (Department of Economics, Turku School of Economics, University of Turku, Finland); Tomi Roukka (Department of Economics, Turku School of Economics, University of Turku, Finland); Henri Nyberg (Department of Mathematics and Statistics, University of Turku, Finland) |
| Abstract: | We show that financial crises are preceded by changes in specific types of narrative information contained in newspaper article titles. Our novel international dataset and the resulting empirical evidence are gathered by integrating information from a large panel of economic news articles in global newspapers between the years 1870 and 2016 with conventional macroeconomic and financial indicators. We find that the predictive information of newspaper article titles that signals coming crisis episodes is substantial over and above the macroeconomic and financial indicators. The new indicators capture common features that have often been discussed as potential causes of specific crises but which have not been incorporated into empirical models. |
| Keywords: | financial crisis, text data, leading indicators, topic model |
| JEL: | G00 G01 N01 C25 C82 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp149&r= |
| By: | Minetti, Raoul (Michigan State University, Department of Economics); Herrera, Ana Maria (University of Kentucky); Schaffer, Matthew (UNC Greensboro) |
| Abstract: | We investigate the effects of financial liberalization on the dynamism of the credit market, as measured by the intensity of credit reallocation across firms. We construct measures of inter-firm credit reallocation in the U.S. states following a methodology akin to Davis and Haltiwanger (1992). We then exploit the staggered deregulation of the credit markets of the states of the eighties as a natural experiment to identify an exogenous shock to the process of credit reallocation. The analysis reveals that the credit market liberalization intensified inter-firm credit reallocation in the states, even within narrowly defined groups of continuing firms, while leaving aggregate credit growth essentially unaltered. The results suggest that, in turn, the increased allocative dynamism of the credit market enhanced the allocation of funds to more productive firms and the TFP growth of the states. |
| Keywords: | Credit Market; Credit Reallocation; Allocative Efficiency; Liberalization |
| JEL: | E44 G20 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2021_004&r= |
| By: | Greg Buchak; Jiayin Hu; Shang-Jin Wei |
| Abstract: | A binding interest rate cap on household savings is a common form of financial repression in developing economies and typically benefits banks. Using proprietary data from a leading Chinese FinTech company, we study Fintech's role in ending financial repression in China through the introduction of a money market fund with deposit-like features available through an already widely-adopted household payment platform. Cities and banks whose depositor base is more exposed to FinTech see greater deposit outflows. Importantly, exposed banks respond to FinTech competition by offering competing products with market interest rates. FinTech thus facilitates a bottom-up interest rate liberalization. |
| JEL: | E21 E42 E43 E44 E52 E58 G21 G28 G51 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29448&r= |
| By: | Margarita Lopez Forero (Université d'Evry and Université Paris-Saclay, France) |
| Abstract: | We link the Lucas' Paradox to the interaction between sector and countrylevel financial frictions. First, we compute proper measures of the aggregate marginal product of capital (MPK), accounting for natural capital and relative capital prices, for a panel of 50 developed and developing countries over 1995-2008. Our aggregate MPK measures imply there are little incentives for capital to flow to capital-poor economies over the sample period. Next, we examine how sector and country-level financial frictions interact to shape the aggregate MPK of a country. To do so, we use industry-level data to construct an annual country-level measure of external financial dependence and assess its effects on aggregate MPK conditional on the level of financial development and alternatively, on legal origins, our instrumental variable. We find that external financial dependence positively relates to MPK in developed countries, regardless of their level of financial development while it negatively relates to MPK in developing economies. Financial development appears to be a necessary condition in order for production in financially dependent sectors to positively affect aggregate MPK in developing countries. Our results taken altogether suggest that sector and country level financial frictions act as inefficiencies precluding improvements of MPK in developing economies despite large differences in capital-to-labor rations with respect to developed countries. |
| Keywords: | Financial Dependence, Financial Development, Marginal Product of Capital, Financial Frictions, Legal Origins, Lucas Paradox |
| JEL: | E22 F11 F21 F32 F41 F63 O11 O16 O47 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:eve:wpaper:21-03&r= |
| By: | Alassane Drabo |
| Abstract: | The three main financial inflows to developing countries have largely increased during the last two decades, despite the large debate in the literature regarding their effects on economic growth which is not yet clear-cut. An emerging literature investigates the dependence of their effects on some country characteristics such as human and physical capital constraint, macroeconomic policy and institutional capacity. This paper extends the literature by arguing that climate shocks may undermine the effect of Foreign Direct Investment (FDI), official development assistance (ODA) and migrants’ remittances on economic expansion. Based on neoclassical growth framework, the theoretical model indicates that FDI, ODA, and remittances improve economic growth, and the size of the effect increases with good absorptive capacity. However, climate shocks reduce this positive effect of financial flows in developing countries. Using a sample of low and middle-income countries from 1995 to 2018, the empirical investigation confirms the theoretical conclusions. Developing countries should build strong resilience to climate change. Actions are also needed at global level to reduce greenhouse gases emissions, and build strong structural resilience to climate shocks especially in developing countries. |
| Keywords: | inflows-economic growth nexus; effect of ODA; income group; role of Climate; effect of foreign direct investment; Climate change; Absorptive capacity; Foreign direct investment; Human capital; Middle East; East Asia; Asia and Pacific; North Africa; South Asia; Global |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/193&r= |
| By: | Tengstam, Sven (Högskolan Väst); Isaksson, Ann-Sofie (Research Institute of Industrial Economics (IFN)) |
| Abstract: | In this study, we derive a poverty-minimizing allocation rule, based on which we assess the poverty-efficiency of actual aid allocations, with a special focus on the comparative impact of new donors and new non-aid flows. The results suggest a substantial misallocation of aid. Our benchmark estimates indicate that donors should reallocate nearly half the total aid budget from aid darlings (countries receiving more aid than the allocation rule specifies) to aid orphans (countries receiving less aid than the allocation rule specifies). The estimated poverty-reducing efficiency varies considerably across donors. In terms of average poverty reduction per aid dollar, new global actors such as the Gates foundation perform well above average, whereas the non-DAC bilateral donors perform clearly worse. Overall, neither the new donors nor the new financial flows alleviate the observed misallocation of aid. While the new donors stand for a non-negligible share of overall poverty reduction, together they perform below average in terms of poverty reduction per aid dollar. Similarly, rather than counteracting the relative neglect of countries identified as particularly underfunded in terms of aid, the non-aid financial flows add to the inequitable distribution. For the countries that we identify as ‘aid orphans’, these flows are not significant enough to substitute for the lack of aid. |
| Keywords: | Aid allocation; Poverty; Donors; Official development assistance; Other official flows |
| JEL: | D63 E61 F35 O11 |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1415&r= |
| By: | Zhao, Yongzhi; Chen, Yangfen |
| Keywords: | Agricultural Finance, International Development |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315913&r= |
| By: | Saungweme; Odhiambo |
| Abstract: | This paper examines the relationship between inflation and economic growth in Kenya from an analytical and empirical standpoint. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach and the multivariate Granger-causality test using time series data covering 1970-2019. Structural breaks in the time series were also conducted using the Perron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporating structural breaks into time series increases statistical inference's overall validity. Inflation and economic growth in Kenya were found to have structural breaks in 1995 and 1991. These years are marked by Kenya's economic, financial, public sector and institutional reforms. The other findings of the study revealed that inflation has a statistically significant negative influence on long-term economic growth. The multivariate Granger-causality results showed a distinct short-run unidirectional causality from economic growth to inflation in Kenya. In order to mitigate the negative consequences of inflation and the coronavirus on the economy and welfare, the study recommends that Kenya's government should pursue prudent monetary, financial, and fiscal policies. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:afa:wpaper:aeri0421&r= |
| By: | Daniel Carvalho (Banco de Portugal); Etienne Lepers (Organisation for Economic Co-operation and Development); Rogelio Jr Mercado (Asian Development Bank) |
| Abstract: | An important channel through which capital flows may lead to financial vulnerabilities is by fuelling domestic credit booms, the so-called "capital flows-credit growth nexus". This paper makes two important contributions to the study of this nexus (i) it adopts a sectoral approach to the relationship between cross-border capital flows and domestic credit growth and (ii) it studies how di erent macroprudential and financial policies affect that relationship. Using novel datasets on both sectoral flows and policy measures for 36 emerging economies for the 2000-2018 period, the results not only underscore the importance of a granular sectoral approach to identify the full range of connections between capital flows and credit growth, but also regarding the appropriate policy response. While, in general, macroprudential policies and foreign currency-based measures are more suited to mitigate the impact of banking sector flows, capital controls may be e ective in the presence of non-financial corporates (NFC) and other financial corporates flows. Breaking by borrowing sectors, within macroprudential measures, lending standards and measures targeted at household credit weaken the impact of inflows on household credit and measures aimed at household credit actually strengthen the relationship between NFC flows and NFC credit suggesting a potential shift in composition. |
| Keywords: | capital flows, domestic credit, sectors |
| JEL: | E51 F32 G15 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0921&r= |
| By: | Banti, Chiara; Bose, Udichibarna |
| Abstract: | This paper documents the emergence of a regional financial cycle in Asia, evidenced by commonality in regional bank flows, and its impact on domestic credit. Using a dataset of 24,169 non-financial Indian firms for the period 2001-2019, we establish that the regional financial cycle has a positive and significant impact on domestic corporate debt, as opposed to an insignificant effect on foreign currency corporate debt, after controlling for the global financial cycle. We find that both interbank markets and monetary policy conditions in the region act as transmission channels for this effect. We show that transparent firms which have lower monitoring costs are relatively more exposed to the regional financial cycle, suggesting that affiliates of foreign banks play an important role. However, the exposure of domestic credit markets reduces once regulators institute more stringent policy actions such as macroprudential policies, selective capital controls and floating currency regimes. |
| Keywords: | Regional financial cycle; domestic credit markets; macroprudential policies; capital controls; emerging markets |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:31556&r= |
| By: | Agustin S. Benetrix (Department of Economics, Trinity College Dublin); Beren Demirolmez (Department of Economics, Trinity College Dublin); Martin Schmitz (European Central Bank) |
| Abstract: | We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix, Gautam, Juvenal, and Schmitz (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs' external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks. |
| Keywords: | Currency composition, international investment position, foreign currency exposures, valuation effects, global imbalances |
| JEL: | F21 F31 F32 F41 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0421&r= |
| By: | Katya Kartashova; Xiaoqing Zhou |
| Abstract: | Wealth inequality in the U.S., measured by the top 1% wealth share, experienced dramatic changes in the first year of the COVID-19 pandemic. Economic theory suggests that the key to understanding wealth inequality is heterogeneity in the return to net worth across households. To understand the dynamics of wealth inequality during the COVID-19 pandemic, we develop a novel methodology that allows us to estimate the returns to net worth for different groups of households at relatively high frequency. We show that portfolio heterogeneity and asset price movements are the main determinants of wealth returns and inequality, whereas saving-rate heterogeneity and within-class return differences played a minor role. As the stock market continued to outperform the housing market, the return of the wealthy has risen faster than that of other households, reinforcing the wealth concentration at the top. We also document a widening racial return gap between white and black households later in the pandemic. Nearly all of the racial differences in the wealth return, however, are explained by the differences in wealth, not by race itself. Whereas the previous literature has evaluated return heterogeneity and its implications for long-run wealth inequality in low-frequency data, our analysis suggests that return heterogeneity together with large asset price movements is also key to understanding short-run dynamics in wealth inequality. |
| Keywords: | COVID-19; wealth inequality; asset prices; returns to wealth; heterogeneity; racial wealth gap |
| JEL: | D31 E21 G11 G51 |
| Date: | 2021–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:93383&r= |
| By: | Joseph Kopecky (Department of Economics, Trinity College Dublin); Alan M. Taylor (Department of Economics and Graduate School of Management, University of California, Davis) |
| Abstract: | Population aging has been linked to global declines in real interest rates. A similar trend is seen for equity risk premia, which are on the rise. An existing literature can explain part of the declining trend in safe rates using demographics, but has no mechanism to speak to trends in relative returns on different assets. We calibrate a heterogeneous agent life-cycle model with equity markets and aggregate risk, and we show that aging demographics can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing the return premium attached to risky assets. This is because the life-cycle savings dynamics that have been well documented exert less pressure on risky assets as older households shift away from risk. Under reasonable calibrations we find declines in the safe rate that are considerably larger than most existing estimates between the years 1990 and 2017. We are also able to account for most of the rise in the equity risk premium. Projecting forward to 2050 we show that persistent demographic forces will continue to push the risk free rate further into negative territory, while the equity risk premium remains elevated. |
| Keywords: | life-cycle model, demographics, rates of return, safe assets, risky assets, secular stagnation |
| JEL: | E21 E43 G11 J11 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1220&r= |
| By: | Marcin Pietrzak |
| Abstract: | This paper shows how the role of Financial Soundness Indicators (FSIs) in financial surveillance can be usefully enhanced. Drawing from different statistical techniques, the paper illustrates that FSIs generate signals that can accurately detect, with 4 to 12 quarters lead, emerging financial distress—as measured by tight financial conditions. |
| Keywords: | LV crises dataset; ROC curve; LD crises dataset; tight financial conditions; LV crisis; Financial soundness indicators; Capital adequacy requirements; Banking crises; Early warning systems; Global |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/197&r= |
| By: | Fabrizio Ferriani (Bank of Italy); Andrea Gazzani (Bank of Italy) |
| Abstract: | We compare different approaches to constructing financial condition indices (FCIs) for major emerging market economies (EMEs). We further test whether measures of web-search intensity for keywords related to financial tensions can complement the information content of traditional financial variables. We find that an index constructed as a simple average of key financial variables augmented with data from Google searches outperforms several alternative definitions of FCIs in explaining business cycle fluctuations and capital flows episodes. These results hold true when controlling for proxies of the global financial cycle, highlighting that local financial market conditions are important for the macroeconomic performance of EMEs |
| Keywords: | financial condition index, emerging markets, Google search, principal component analysis, VAR, quantile regressions |
| JEL: | C51 E44 F30 G01 G15 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_653_21&r= |
| By: | Paul H. Kupiec (American Enterprise Institute) |
| Abstract: | Banking system stress tests are a key component of IMF/World Bank financial stability assessments. |
| Keywords: | Bank Regulation, Banking Crisis, Financial Stability, Macroeconomics, Monetary Policy, Stress Tests |
| JEL: | A |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:008586461&r= |
| By: | Mr. Fabio Comelli; Ms. Sumiko Ogawa |
| Abstract: | This paper reviews the approaches to systemic risk analysis in 32 central bank financial stability reports (FSRs). We compare and contrast the systemic risk analysis in FSRs with the IMF Article IV staff reports, noting that Article IV staff reports and FSRs frequently pick up analytical content from each other. All reviewed FSRs include a systemic risk assessment, which has not always been the case in Article IV staff reports. Also, compared to Article IV staff reports, on average, FSRs tend to cover a wider range of financial risks and vulnerabilities and tend to have more extensive discussions of the policy mix to mitigate systemic risk. In these assessments, FSRs utilize sophisticated analytical tools, such as stress tests and growth-at-risk, more frequently than Article IV staff reports. We emphasize that a central bank FSR typically presents a rich resource that IMF country teams can leverage, as already done by some, in forming their independent view about systemic risk. |
| Keywords: | IMF article IV staff report; IMF country team; central bank FSR; IMF article IV surveillance; IMF article IV consultation; Systemic risk; Financial sector stability; Macroprudential policy; Stress testing; Systemic risk assessment; Global; Caribbean |
| Date: | 2021–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/200&r= |
| By: | Maryam Farboodi |
| Abstract: | I study a model of the financial sector in which intermediation among debt financed banks gives rise to an endogenous core-periphery network – few highly interconnected and many sparsely connected banks. Endogenous intermediation generates excessive systemic risk in the financial network. Financial institutions have incentives to capture intermediation spreads through strategic borrowing and lending decisions. By doing so, they tilt the division of surplus along an intermediation chain in their favor, while at the same time reducing aggregate surplus. The network is inefficient relative to a constrained efficient benchmark since banks who make risky investments “overconnect”, exposing themselves to excessive counterparty risk, while banks who mainly provide funding end up with too few connections. |
| JEL: | D85 G20 G21 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29467&r= |
| By: | Marlon Rawlins; Ms. Luisa Zanforlin |
| Abstract: | Policymakers across countries have been seeking to strengthen the institutional framework to control fiscal costs and feedback effects to the real economy generated by bank failures. On a cross-section of countries, we find evidence that suggests that bank supervisors’ intervention in bank failures may be positively associated with some aspects of the administrative and regulatory framework. Our results appear to hold also during times of financial instability. Finally, we find some evidence that the same institutional features may be associated with lower fiscal outlays during banking crises. |
| Keywords: | feedback effect; times authorities; government efficiency; supervisory authority; review authorities; bank insolvency proceeding; CB independence; Banking crises; Distressed institutions; Central bank autonomy; Financial sector stability; South America; Global |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/211&r= |
| By: | Chwieroth, Jeffrey M.; Walter, Andrew |
| Abstract: | How should we understand proliferating government bailouts of financial firms in successive crises since the 1970s and the rise of neoliberal norms opposing such discretionary public assistance? We argue that the relationship between bailouts and neoliberalism is one of mutually reinforcing coexistence. First, a new “bailout coalition” including much of the middle class has emerged in many countries over the past century, pushing governments to deliver extensive bailouts in crises. Second, many actors, including some within the bailout coalition, view neoliberal policy norms as a useful constraint on public assistance to other groups. This is especially visible during foreign crises. Third, governments often manage these conflicting pressures via a strategy of institutional “conversion,” adapting institutions and rules associated with neoliberalism to new purposes. This has generated rising costs, including declining policy coherence, increasing financial fragility, and rising distributional and identity conflict. |
| Keywords: | ES/K002309/1; MD130026; DP140101877; UKRI fund |
| JEL: | F3 G3 N0 |
| Date: | 2021–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:111871&r= |
| By: | Arapi-Gjini, Arjola; Möllers, Judith; Herzfeld, Thomas |
| Keywords: | Food Security and Poverty, Labor and Human Capital |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315346&r= |
| By: | Tito Nícias Teixeira da Silva Filho |
| Abstract: | There has been a global push to decrease the cost of remittances since at least 2009, which has culminated with its inclusion in the Sustainable Development Goals in 2015. Despite this effort and the emergence of new business models, remittance costs have been decreasing very slowly, disproving predictions that sharp declines would be just around the corner. In addition, remitting to poorer countries remains very expensive. Oddly, this situation has not been able to elicit academic interest on the drivers of remittance costs. This paper delved deeply into the remittances ecosystem and found a very complex, heterogenous and unequal environment, one in which costs are driven by a myriad of factors and where there are no easy and quick solutions available, which explains the disappointing outcome so far. Nonetheless, it also shows that while policymakers have limited room to act they still have a very important role to play. |
| Keywords: | remittance cost; remittances ecosystem; factors drive remittance; receiving country; remittance price; Remittances; Medium taxpayer office; Global; North America; Central America |
| Date: | 2021–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/199&r= |
| By: | Julia Bersch; Mrs. Esther Perez Ruiz; Mr. Yorbol Yakhshilikov; Jean François Clevy; Naseem Muhammad |
| Abstract: | This paper analyzes the potential for fintech to facilitate cheaper and more efficient remittances, and to enhance financial inclusion in Central America. Digital remittances remain nascent in the region, primarily reflecting behavioral inertia, small cost advantages of digital over traditional channels, and inadequate financial literacy. Through expanded alliances between traditional and fintech operators, digital remittances can further reduce transaction costs and reach those remote, low-income households in a timely and secure manner. A meaningful expansion of fintech remittances necessitates an enabling regulatory environment for digital financial services, and KYC and AML/CFT requirements proportionate to the value of transfers. |
| Keywords: | remittances digitalization; Fintech remittance; remittances corridor; C. remittances cost; remittances' fee; Remittances; Mobile banking; Financial inclusion; Fintech; Global; Central America; Caribbean; South Asia; East Asia |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/175&r= |
| By: | Mr. Yannick Timmer; Mr. Nicola Pierri; Toni Ahnert; Sebastian Doerr |
| Abstract: | This paper analyzes the importance of information technology (IT) in banking for entrepreneurship. To guide our empirical analysis, we build a parsimonious model of bank screening and lending that predicts that IT in banking can spur entrepreneurship by making it easier for startups to borrow against collateral. We provide empirical evidence that job creation by young firms is stronger in US counties that are more exposed to ITintensive banks. Consistent with a strengthened collateral lending channel for IT banks, entrepreneurship increases more in IT-exposed counties when house prices rise. In line with the model's implications, IT in banking increases startup activity without diminishing startup quality and it also weakens the importance of geographical distance between borrowers and lenders. These results suggest that banks' IT adoption can increase dynamism and productivity. |
| Keywords: | technology in banking, entrepreneurship, information technology, collateral, screening; banks' IT adoption; importance of information technology; IT in banking; startup activity; bank screening; Collateral; Self-employment; Employment; Job creation |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/214&r= |
| By: | Paolo Fegatelli |
| Abstract: | The introduction of a general-purpose central bank digital currency (CBDC) carries the risk of bank disintermediation, potentially jeopardizing financial stability and monetary policy transmission through the bank lending channel. By adapting the theoretical framework of Dutkowsky and VanHoose (2018b, 2020) to the euro area, this study clarifies the conditions under which a digital euro could be introduced on a large scale without leading to bank disintermediation or a credit crunch. First, the central bank would need to set up proper mechanisms to manage the volume and the user cost of CBDC in circulation. Second, since some bank deposits will be converted into CBDC, the central bank should continue to facilitate access to its long-term lending facilities in order to provide banks with an alternative funding source at an equivalent cost. Depending on its design, a digital euro could improve bank profitability by absorbing large amounts of idle (and expensive) excess reserves without penalizing lending. A digital euro could also improve banks’ competitive position relative to non-bank lenders and encourage bank digitalization. |
| Keywords: | Central bank digital currency, cash, central bank, monetary policy, excess reserves, reserve requirements, universal central bank reserves, bank deposits, bank profitability, bank credit, inside money, collateral |
| JEL: | E41 E42 E51 E52 E58 G21 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp155&r= |
| By: | Dirk Czarnitzki; Marek Giebel |
| Abstract: | We utilize a new survey experiment to evaluate the existence and degree of financial constraints for R&D in the economy. The experiment does not only allow to deduct the presence of financial constraints, but also to evaluate their economic significance. Using data on German companies, we find that financial constraints for R&D exist but that their relevance might have been overestimated in the literature. Most R&D projects that have not been implemented because of financial constraints turn out to have low expected marginal rates of return. While this findings stands in some contrast to other studies, we also find several results that are in line with the literature: young firms are most constrained and the constraints occur at the intensive margin, i.e. our results do not suggest that non-innovative companies are deterred from innovation. Instead, highly innovative companies are restricted by the capital market. |
| Keywords: | Innovation, Financial Constraints, Survey Experiment |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:ete:msiper:683800&r= |
| By: | António Afonso; M. Carmen Blanco-Arana |
| Abstract: | It has been argued that credit market frictions may contribute to high unemployment. Hence, we assess the relationship between financial development and the labor market in OECD countries during the period 1990–2020. Using a random effects model for a panel dataset, we conclude that an increase in market capitalization and in the volume of shares traded can significantly reduce the unemployment rate. Likewise, inflation and per capita GDP growth are found to have significantly affected the evolution of the unemployment rate during the period under study. |
| JEL: | C23 G10 J60 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02042021&r= |
| By: | Florian LEON (FERDI, Clermont-Ferrand); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We investigate whether the occurrence of elections affect access to credit for firms. We perform an investigation using firm-level data covering 44 developed and developing countries. We find that elections have a detrimental influence on access to credit: firms are more credit-constrained in election years but also in pre-election years. We explain this finding by the fact that elections exacerbate political uncertainty. The negative effect of elections takes place through lower credit demand, whereas the occurrence of elections does not affect credit supply. We further establish that the design of political and financial systems affects how elections influence access to credit. |
| Keywords: | Elections, access to credit, credit constraints. |
| JEL: | G21 D72 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-03&r= |
| By: | Jean-Christophe STATNIK (Université de Lille, Yncréa Lille); Thi-Le Giang VU (Université de Lille); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | There is evidence of a gender gap in access to finance. In this paper, we test the hypothesis that corruption discourages more female than male entrepreneurs from applying for credit. We use data on access to credit and corruption at the firm level for a large dataset of firms from 68 countries worldwide. We demonstrate that female entrepreneurs are more discouraged by corruption to ask for credit than male borrowers. We find evidence for two explanations for the gendered impact of corruption on borrower discouragement: women have less experience in management than men and as such can have less experience to deal with corruption, and gender inequality in society enhances the discouragement of female borrowers. Thus, our findings provide evidence that corruption enhances the gender gap in access to finance, enhancing gender inequality in participation in economic activity. |
| Keywords: | gender, access to credit, borrower discouragement, corruption. |
| JEL: | D73 G21 J16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-05&r= |
| By: | Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg); Nhung Hong LE (International University – Vietnam National University & LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We investigate the impact of family firms on the cost of borrowing in East Asia. We find consistent evidence that family firms pay significantly higher loan spreads than nonfamily firms. This effect is stronger in environments with weaker investor protection. Furthermore, covenants help reduce the cost of debt while collateral is embedded in relatively riskier borrowers. We also find that small, highly leveraged borrowers pay higher loan spreads, while they are lower for firms with more tangible assets and lower probability of default risk. Our results survive several robustness checks related to family firm classification and endogeneity issues. |
| Keywords: | Family firm, loan spread, East Asia. |
| JEL: | G21 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-06&r= |
| By: | Danilo Liberati (Bank of Italy); Giuseppe Marinelli (Bank of Italy) |
| Abstract: | This paper presents a comprehensive study of the ESG (Environmental, Social and Governance) bond market which has experienced a dramatic expansion in the last few years and is about to gain an additional boost due to the forthcoming implementation of the Next Generation plan of the European Union. We use a security-by-security data set comprising a large sample of ESG bonds (15,500) exchanged on the main global security markets, integrated with microdata used in official statistics such as financial accounts and security holdings. First, we describe the most salient features of the global supply of ESG bonds by analyzing the characteristics of issuers and securities, the differences across countries and sectors, and their evolution over time. Second, we shed light on Italian residents' holdings of ESG bonds with a focus on sectoral holdings in the context of the financial accounts statistics. |
| Keywords: | Sustainable finance, ESG bonds, security holdings, financial accounts |
| JEL: | G12 G21 Q56 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_654_21&r= |
| By: | Kristian S. Blickle; Sarah Ngo Hamerling; Donald P. Morgan |
| Abstract: | Not very. We find that weather disasters over the last quarter century had insignificant or small effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal aid. Disasters increase loan demand, which offsets losses and actually boosts profits at larger banks. Local banks tend to avoid mortgage lending where floods are more common than official flood maps would predict, suggesting that local knowledge may also mitigate disaster impacts. |
| Keywords: | hurricanes; wildfires; floods; climate change; weather disasters; FEMA; banks; financial stability; local knowledge |
| JEL: | G21 H84 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93339&r= |