nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒02‒07
twenty papers chosen by
Georg Man

  1. Foreign institutional investors and the great productivity slowdown By Schain, Jan Philip
  2. Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification By Pablo Ottonello; Wenting Song
  3. The of role economic growth in modulating mobile connectivity dynamics for financial inclusion in developing countries By Simplice A. Asongu; Nicholas M. Odhiambo
  4. Exchange rate depreciations and local business cycles: The role of bank loan supply By Beck, Thorsten; Bednarek, Peter; te Kaat, Daniel Marcel; von Westernhagen, Natalja
  5. On the International Spillover Effects of Country-Specific Financial Sector Bailouts and Sovereign Risk Shocks By Matthew Greenwood-Nimmo; Viet Hoang Nguyen; Eliza Wu
  6. American Treasure and the Decline of Spain: An Augmented Synthetic Control Approach By Carlos J. Charotti; Nuno Palma; João Pereira dos Santos
  7. Macroeconomic Implications of Student Debt: A State-Level Analysis By Berrak Bahadir; Dora Gicheva
  8. Intermediation via Credit Chains By Zhiguo He; Jian Li
  9. The Financial Network Channel of Monetary Policy Transmission: An Agent-Based Model By Michel Alexandre; Gilberto Tadeu Lima, Luca Riccetti, Alberto Russo
  10. An Equilibrium Model of the Market for Bitcoin Mining By Julien Prat; Benjamin Walter
  11. Collateral, Household Borrowing, and Income Distribution By Luisa Corrado; Aicha Kharazi
  12. Relevance of the collateral constraint form in the analysis of financial crisis interventions By Carmiña O. Vargas; Julian A. Parra-Polania
  13. Bank specialization and zombie lending By Olivier De Jonghe; Klaas Mulier; Ilia Samarin
  14. Low Interest Rates and Banks' Interest Margins: Does Deposit Market Concentration Matter? By Nimrod Segev; Sigal Ribon; Michael Kahn; Jakob De Haan
  15. What drives the risk of European banks during crises? New evidence and insights By Ion LAPTEACRU
  16. Do words create reality? The development of fintech-banking as seen in financial reports By Lilah Shema Zlatokrilov
  17. Why Do Some Significant Banks Fall Behind? By Bertay, Ata; Huizinga, Harry
  18. Financing renewable energy generation in SSA: Does financial integration matter? By Herve Kaffo Fotio; Tii N. Nchofoung; Simplice A. Asongu
  19. Venture Capital Financing and Green Patenting By Andrea Bellucci; Serena Fatica; Aliki Georgakaki; Gianluca Gucciardi; Simon Letout; Francesco Pasimeni
  20. Firms in (Green) Public Procurement: Financial Strength Indicators’ Impact on Contract Awards and Its Repercussion on Financial Strength By Christopher F. Baum; Arash Kordestani; Dorothea Schäfer; Andreas Stephan

  1. By: Schain, Jan Philip
    Abstract: This article analyzes the impact of institutional investors on firm productivity duringthe financial crisis 2008/09 across European manufacturing industries. Using propen-sity score matching combined with a difference in differences estimator I find a positivesignificant effect of 2% of foreign institutional ownership. Employing a variety of prox-ies for financial constraints, the article shows that the effect is driven by industries,countries, and firms that are more financially constrained indicating that foreign insti-tutional ownership prevents the known productivity slowdown during the financial crisisby alleviating financial constraints.
    Keywords: Institutional Investors,Financial Crisis,Productivity,Financial Constraints
    JEL: F61 G23 G32 G01 L25 D22 D24
    Date: 2022
  2. By: Pablo Ottonello; Wenting Song
    Abstract: We provide empirical evidence of the causal effects of changes in financial intermediaries' net worth in the aggregate economy. Our strategy identifies financial shocks as high-frequency changes in the market value of intermediaries' net worth in a narrow window around their earnings announcements, based on U.S. tick-by-tick data. Using these shocks, we estimate that news of a 1-percent decline in intermediaries' net worth leads to a 0.2-0.4 percent decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity and when the aggregate net worth of intermediaries is low.
    JEL: E30 E5 G01 G2
    Date: 2022–01
  3. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study establishes economic growth needed for supply-side mobile money drivers in developing countries to be positively related to mobile money innovations in the perspectives of mobile money accounts, the mobile phone used to send money, and the mobile phone used to receive money. The empirical evidence is based on Tobit regressions. For the negative net relationships that are computed, minimum economic growth thresholds are established above which the net negative relationships become net positive relationships. The following minimum economic growth rates are required for nexuses between supply-side mobile money drivers and mobile money innovations to be positive: (i) 6.109% (6.193%) of GDP growth for mobile connectivity performance to be positively associated with the mobile phone used to send (receive) money and (ii) 4.590 % (4.259%) of GDP growth for mobile connectivity coverage to be positively associated with the mobile phone used to send (receive) money.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2022–01
  4. By: Beck, Thorsten; Bednarek, Peter; te Kaat, Daniel Marcel; von Westernhagen, Natalja
    Abstract: This paper uses matched bank-firm-level data and the 2014 depreciation of the euro to show that exchange rate depreciations lead to increased bank loan supply of large banks with significant net foreign asset exposure. This increase in lending can be explained by a shift in credit towards both export-intensive firms and small banks without foreign asset exposure that have a higher share of exporting firms in their credit portfolio. We also find that German regions where these reallocation effects are stronger experience higher output growth. In economic terms, we show that such regions grow by 1.2 percentage points more than less exposed regions, cumulatively, in the two years after the depreciation relative to the two pre-depreciation years.
    Keywords: Exchange Rates,Bank Lending,Interbank Markets,Real Effects,Regional Business Cycles,Germany
    JEL: E44 E52 G21 O40
    Date: 2021
  5. By: Matthew Greenwood-Nimmo (Department of Economics, The University of Melbourne; Centre for Applied Macroeconomic Analysis, Australian National University); Viet Hoang Nguyen (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Eliza Wu (University of Sydney Business School; Centre for Applied Macroeconomic Analysis, Australian National University)
    Abstract: We use sign-identified macroeconomic models to study the interaction of financial sector and sovereign credit risks in Europe. We find that country-specific financial sector bailout shocks do not generate strong international spillovers, because they primarily transfer private sector risk onto the local sovereign. By contrast, sovereign risk shocks generate substantial spillovers onto the global financial sector and for international sovereign debt markets. We conclude that any financial sector bailout policy that undermines the creditworthiness of the affected sovereign is likely to exacerbate global credit risk. Our findings highlight the unintended global consequences of country-specific financial sector bailout programmes.
    Keywords: Financial sector bailouts; sovereign risk shocks; international spillovers; structural shocks; sign restrictions
    JEL: C58 E61 F42
    Date: 2020–11
  6. By: Carlos J. Charotti; Nuno Palma; João Pereira dos Santos
    Abstract: Spain was one of the world's richest countries and a first-rank European power around 1500. Two centuries later this was no longer the case, and it would become of the poorest countries in Western Europe. In this paper, we study the long-run impact of the influx of silver from the New World since 1500 for the economic development of Spain. Compared with a synthetic counterfactual, the price level in Spain increased by up to 200% more by the mid-seventeenth century. Spain's GDP per capita outperformed other European nations for around a century: by 1600, it was close to 40% higher than in its synthetic counterfactual. However, this effect was reversed in the following 150 years: by 1750, GDP per capita was 40% lower than it would have been if Spain had not been the first-wave receiver of the American treasure.
    JEL: N13 O11 O57
    Date: 2022–01
  7. By: Berrak Bahadir (Department of Economics, Florida International University); Dora Gicheva (Department of Economics, University of North Carolina at Greensboro)
    Abstract: This paper investigates the macroeconomic implications of the rise in outstanding student debt in the United States using state-level data for the 2003–2019 period. We show that an increase in the state-level student debt-to-income ratio contributes to lower consumption growth in the medium run. The estimated effects are larger when we use an instrumental variable approach relying on exogenous policy changes including variations in state appropriations for higher education, increases in annual limits for subsidized federal student loans, and federal loan interest rate changes. The instrumental variable results show the hypothetical impact of an increase in student debt without an associated increase in educational attainment. We also find suggestive evidence that expansions in student loans lead to subsequent increases in credit card debt.
    Keywords: student loans, household credit, consumption, credit card debt
    JEL: E21 G51 I22
    Date: 2021–12
  8. By: Zhiguo He; Jian Li
    Abstract: The modern financial system features complicated financial intermediation chains, with each layer performing a certain degree of credit/maturity transformation. We develop a dynamic model in which an entrepreneur borrows from overlapping-generation households via layers of funds, forming a credit chain. Each intermediary fund in the chain faces rollover risks from its lenders, and the optimal debt contracts among layers are time invariant and layer independent. The model delivers new insights regarding the benefits of intermediation via layers: the chain structure insulates interim negative fundamental shocks and protects the underlying cash flows from being discounted heavily during bad times, resulting in a greater borrowing capacity. We show that the equilibrium chain length minimizes the run risk for any given contract and find that restricting credit chain length can improve total welfare once the available funding from households has been endogenized.
    JEL: D85 E44 E51 G21 G23 G33
    Date: 2022–01
  9. By: Michel Alexandre; Gilberto Tadeu Lima, Luca Riccetti, Alberto Russo
    Abstract: The purpose of this paper is to contribute to a further understanding of the impact of monetary policy shocks on a financial network, which we dub the “financial network channel of monetary policy transmission†. To this aim, we develop an agent-based model (ABM) in which banks extend loans to firms. The bank-firm credit network is endogenously time-varying as determined by plausible behavioral assumptions, with both firms and banks being always willing to close a credit deal with the network partner perceived to be less risky. We then assess through simulations how exogenous shocks to the policy interest rate affect some key topological measures of the bank-firm credit network (density, assortativity, size of largest component, and degree distribution). Our simulations show that such topological features of the bank-firm credit network are significantly affected by shocks to the policy interest rate, and this impact varies quantitatively and qualitatively with the sign, magnitude, and duration of the shocks.
    Keywords: Financial network; monetary policy shocks; agent-based modeling.
    JEL: C63 E51 E52 G21
    Date: 2022–01–19
  10. By: Julien Prat (CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Benjamin Walter
    Date: 2021–08–01
  11. By: Luisa Corrado (University of Rome Tor Vergata, Italy); Aicha Kharazi (Free University of Bozen-Bolzano, Italy)
    Abstract: In this article, we integrate a collateral constraint into a model with heterogeneous agents to study the effect of collateral on wealth inequality. We use estimates from US microeconomic data and the simulated time series from our macro model to predict the wealth accumulation response at the top and bottom of the personal income distribution. Debt is modelled as collateral-dependent and its concentration poses a serious concern. Our results indicate that high collateral requirements benefit high-income more than low-income households.
    Keywords: Income distribution, household loans, collateral, inequality.
    JEL: E21 E25 D31 H31
    Date: 2022–01
  12. By: Carmiña O. Vargas; Julian A. Parra-Polania
    Abstract: We combine two modifications to the standard (current and total income) collateral constraint that has been commonly used in models that analyze financial crisis interventions. Specifically, we consider an alternative constraint stated in terms of future and disposable income. We find that in this case a state-contingent debt tax (effective during crisis only, as opposed to a macroprudential tax) increases debt capacity and lowers the probability of crisis. This shows one more instance to call the attention of academics and policymakers to the fact that the specific form of the borrowing constraint is crucial in determining the appropriate crisis intervention. **** RESUMEN: Combinamos dos modificaciones a la restricción crediticia estándar (i.e., en términos de los ingresos corrientes y totales) que se ha utilizado comúnmente en los modelos que analizan las intervenciones en crisis financieras. Específicamente, consideramos una restricción alternativa expresada en términos de ingresos futuros y disponibles. Encontramos que, en este caso, un impuesto a la deuda dependiente del estado de la economía (efectivo solo durante las crisis, a diferencia de un impuesto macroprudencial) aumenta la capacidad de endeudamiento y reduce la probabilidad de crisis. Este resultado representa un ejemplo más para llamar la atención de académicos y formuladores de políticas sobre el hecho de que la forma específica de la restricción de endeudamiento es crucial para determinar la intervención de crisis adecuada.
    Keywords: Collateral constraint, financial crises, macroprudential tax, ex-post intervention, restricción crediticia, crisis financieras, impuesto macroprudencial, intervención ex post
    JEL: E44 F34 F41 G01 H21
    Date: 2022–01
  13. By: Olivier De Jonghe (National Bank of Belgium and Tilburg University); Klaas Mulier (Ghent University); Ilia Samarin (National Bank of Belgium and Ghent University)
    Abstract: Bank specialization leads to expertise, including knowledge on zombie borrowers and the negative impact they exert on healthy borrowers. This induces specialized banks to reduce zombie lending. The reduction in zombie lending is larger when the scope and opportunity cost of negative spillovers to healthy borrowers is larger; namely, when the fraction of sectoral labor stuck in zombie firms is larger or when the sector is expected to grow faster. Additionally, specialized banks reduce zombie lending less in sectors with higher asset specificity, as zombie firms’ default (and potential asset fire sales) could trigger reductions in healthy borrowers’ collateral values.
    Keywords: : Credit misallocationZombie lendingBank specializationSoft information
    JEL: G21 G3 L2
    Date: 2021–11
  14. By: Nimrod Segev (Bank of Israel); Sigal Ribon (Bank of Israel); Michael Kahn (Bank of Israel); Jakob De Haan (University of Groningen and CESifo)
    Abstract: Using a sample of 7,919 banks from 30 OECD countries over 1995â2019, we examine the impact of low interest rates on banks' net interest margins. Our results confirm a positive relationship between interest rates and interest margins, which is stronger in a low interest rate environment. In more concentrated markets, however, interest margins are less sensitive to the level of interest rates as income and expense interest rate sensitivities closely match. But our results also suggest that the effect of market concentration on the link between interest ratesand interest margins is weaker when interest rates approach zero.
    Date: 2021–10
  15. By: Ion LAPTEACRU
    Abstract: Based on an extensive dataset of 1,156 European banks over the 1995-2015 period, we aim to provide new insights on the determinants of European banks’ risk-taking during crisis events, employing a novel asymmetric Z-score. Our results suggest that more capital, lower ratios of loans to deposits and of liquid assets to total assets and lower share of non-deposit and short-term funding in total funding are associated with lower bank risk and this relationship is stronger during the crises. Moreover, having low costs compared to their revenues reduces the risk of European banks in normal times and has the same impact during the crises. Being involved in non-interest-generating activities makes banks riskier. Finally, being large and having higher net interest margin make banks more stable, but this positive effect is diminished for the size and vanished for the profitability during crisis times. And some differences are observed between Western and Eastern European countries. countries exhibit less regulatory intensity than developed countries. This result suggests that it will require more technical and financial resources for developing countries to comply with measures imposed by developed countries that adopt more stringent technical measures than they do.
    Keywords: European banking; bank risk; financial crisis; Z-score
    JEL: G21
    Date: 2022
  16. By: Lilah Shema Zlatokrilov (Bank of Israel)
    Abstract: In this work, we propose a way to examine the development of fintech banking in the previous decade (2010â2020) through a new index that measures innovation tendency. The index is based on textual analysis of financial statement relying on a sample of 127 banks from 18 countries for the years 2012â2019. The results were compared to the expected trends in the market as may be predicted by the "disruptive innovation" model, given that "fintech" represents the phenomenon known as technologically innovative disorder. The comparison indicates that the proposed index can explain the variance between banks and countries in terms of the development of innovation in banks. The index was found to be significant positively correlated with the granting of a regulatory license to a digital bank without branches. Thus a digital bank may have the effect of innovative disruption to traditional banking in the country in which it was established. While the index reflects a past situation, it shows that banks that have identified the introduction of the innovative disruption have preceded others by using "innovative" terms in their financial statements, so tracking the development of financial statements is of material forecasting value. Based on the literature on the subject, it can be said that if banksâ propensity for innovation increases as fintech becomes more established in the country, an innovation - supporting banking regulation is an important factor in maintaining the competition in banking services a head of the entry of the large technology companies, since the tendency of a regulated market is to wait for the regulator's instructions.
    Date: 2021–10
  17. By: Bertay, Ata (Tilburg University, School of Economics and Management); Huizinga, Harry (Tilburg University, School of Economics and Management)
    Date: 2021
  18. By: Herve Kaffo Fotio (University of Maroua, Cameroon); Tii N. Nchofoung (University of Dschang, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Despite growing attention on the role of renewable energy in promoting economic growth and environmental sustainability, its adoption rate remains uncomfortably low, especially in developing countries. This study attempts to explore the ways to extend the installed capacity of renewable energy in 16 sub-Saharan African (SSA) countries over the period 1980-2017. The results from panel cointegration econometric techniques suggest that policies to enhance financial integration should increase the installed capacity of renewable energy in SSA, though the beneficial effect is only statistically significant in the long run. This effect holds, although disproportionately when the financial integration index is disaggregated into its de facto and de jure aspects. Moreover, the quantile regression analysis reveals that the effect of financial integration on renewable energy capacity is positive but heterogeneous across the conditional distribution of renewable energy capacity. However, the positive effect of financial integration is not enough to ensure the diversification of the energy mix, measured as the share of renewable installed capacity in the total installed capacity. The results show that economic growth is positively linked to renewable energy generation capacity while financial development is negatively associated with renewable energy production. Overall, these findings suggest that policies to increase the openness to foreign capitals are welcomed as far as renewable energy generation is concerned.
    Keywords: Financial integration, Renewable energy, Sub-Saharan Africa, Cointegration
    Date: 2022–01
  19. By: Andrea Bellucci (University of Insubria); Serena Fatica; Aliki Georgakaki; Gianluca Gucciardi (UniCredit Bank); Simon Letout; Francesco Pasimeni (IRENA – International Renewable Energy Agency)
    Abstract: This paper explores the role of green innovation in attracting venture capital (VC) financing. We use a unique dataset that matches information on VC transactions, companies' balance sheet variables and data on patented innovation at the firm level over the period 2008-2017. Taking advance of a novel granular definition of green innovative activities that tracks patents at the firm level, we show that green innovators are more likely to receive VC funding than firms without green patents. Likewise, a larger share of green vs. non-green patents in a firm's portfolio increases the probability of receiving VC finance. Robustness checks and extensions tackling several dimensions of heterogeneity corroborate the view that green patenting is an important driver of VC funding.
    Keywords: Venture capital, Green ventures, Patents, Green technology
    JEL: G24 M13 M21 O35 Q55
    Date: 2022–01
  20. By: Christopher F. Baum; Arash Kordestani; Dorothea Schäfer; Andreas Stephan
    Abstract: We examine whether the financial strength of companies, in particular, small and medium-sized enterprises (SMEs) is causally linked to the award of a public procurement contract (PP), especially in the environmentally friendly “green” area (GPP). For this purpose, we build a combined procurement company data set from the Tenders Electronic Daily (TED) and the SME database AMADEUS, which includes ten European countries. First, we apply probit models to investigate whether the probability of winning the public tender depends on the company's financial strength. We then use the Flexpanel DiD approach to investigate the question of whether the award has an impact on the future financial strength of the successful company. On the one hand, we find that a lower equity ratio and a higher short-term debt ratio increase the probability of being successful in a public tender. On the other hand, the success means that the companies can continue to work after the award with a lower equity ratio than comparable companies without an award, regardless of whether the company was successful in a traditional or a “green” public tender. We conclude from this that the success in a PP is a substitute for one's own financial strength and thus facilitates access to external financing. The estimation results differ depending on whether public procurement in general or the sub-group of “green” public procurement is examined.
    Keywords: Sustainable Finance, Public Procurement, Green Public Procurement, Small and Medium-sized Companies, Innovation, Financial constraints
    JEL: G30 Q56 Q01 O16
    Date: 2021

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