nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒02‒21
28 papers chosen by
Georg Man

  1. Financial Access and Value Added in Sub-Saharan Africa: Empirical Evidence from the Agricultural, Manufacturing and Service Sectors By Simplice A. Asongu; Nicholas M. Odhiambo
  2. How global risk perceptions affect economic growth By Jon Danielsson; Marcela Valenzuela; Ilknur Zer
  3. Length of Crises and Financial Development By Clément Mathonnat; Alexandru Minea; Marcel Voia
  4. Early Warning Performance of Univariate Credit-to-GDP Gaps By Zsuzsanna Hosszu; Gergely Lakos
  5. The ICT, Financial Development, Energy Consumption and Economic Growth Nexus in MENA Countries: Panel CS-ARDL Evidence By Mounir Dahmani; Mohamed Mabrouki; Adel Ben Youssef
  6. ICT and financial development: Empirical evidence from ASEAN countries By Tran, Quoc Duy; Huynh, Cong Minh
  7. Nowcasting the state of the Italian economy: the role of financial markets By Donato Ceci; Andrea Silvestrini
  8. Cross-Sectional Financial Conditions, Business Cycles and The Lending Channel By Thiago Revil T. Ferreira
  9. TANK meets Diaz-Alejandro: Household heterogeneity, non-homothetic preferences & policy design By Santiago Camara
  10. The financial accelerator mechanism: does frequency? By Foroni, Claudia; Gelain, Paolo; Marcellino, Massimiliano
  11. Wealth in the Utility Function and Consumption Inequality By Yulei Luo; Jun Nie; Heng-fu Zou
  12. Intangible Assets, Industry Performance and Finance During Crises By Carlo Altomonte; Peter Bauer; Alberto Maria Gilardi; Chiara Soriolo
  13. International bank credit, nonbank lenders, and access to external financing By Jose-Maria Serena; Marina-Eliza Spaliara; Serafeim Tsoukas
  14. National Interests, Spillovers and Macroprudential Coordination By Johannes Matschke
  15. Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle By Anusha Chari; Karlye Dilts Stedman; Kristin J. Forbes
  16. A Macroprudential Perspective on the Regulatory Boundaries of U.S. Financial Assets By David M. Arseneau; Grace Brang; Matt Darst; Jacob M. M. Faber; David E. Rappoport; Alexandros Vardoulakis
  17. Rendemic uncertainties in developing countries: Issues arising from an increased interdependence between banks and the state By Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
  18. Banks' structural power and states' choices over what structurally matters: The geo-economic foundations of state priority towards banking in France, Germany and Spain By Massoc, Elsa Clara
  19. Firm subsidies, financial intermediation, and bank risk By Kazakov, Aleksandr; Koetter, Michael; Titze, Mirko; Tonzer, Lena
  20. Subsidies and innovation in the recent financial crisis By Giebel, Marek; Kraft, Kornelius
  21. The Impact of Bank Lending Standards on Credit to Firms By Lorenzo Ricci; Giovanni Soggia; Lorenzo Trimarchi
  22. Shared Destinies? Small Banks and Small Business Consolidation By Claire Brennecke; Stefan Jacewitz; Jonathan Pogach
  23. Bank Credit and Money Creation on Payment Networks: A Structural Analysis of Externalities and Key Players By Li, Ye; Li, Yi; Sun, Huijun
  24. Nonlinearity of Competition-Stability Nexus: Evidence from Bangladesh By Dutta, Kumar Debasis; Saha, Mallika
  25. Information Sharing and Banking Efficiency in Africa: A Disaggregated Panel Data Analysis By Simplice A. Asongu; Nicholas M. Odhiambo
  26. Inequality and growth: a review on a great open debate in economics By Enea Baselgia; Reto Foellmi
  27. Do natural resources and FDI tend to erode or support the development of national institutions? By Grivas Chiyaba; Carl Singleton
  28. Toward a green economy: the role of central bank's asset purchases By Alessandro Ferrari; Valerio Nispi Landi

  1. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This research assesses the importance of financial access on value added in three economic sectors in 25 countries in Sub-Saharan Africa using data for the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. Financial access is measured with private domestic credit, while the three outcome variables are: value added in the agricultural, manufacturing, and service sectors, respectively. Enhancing financial access does not significantly improve value added in the agricultural and manufacturing sectors, while enhancing financial access improves value added in the service sector.An extended analysis shows that in order for the positive net incidence of enhancing credit access on value added to the service sector to be maintained, complementary policies are required when domestic credit to the private sector is between 77.50% and 98.50% of GDP. Policy implications are discussed.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2022–01
  2. By: Jon Danielsson; Marcela Valenzuela; Ilknur Zer
    Abstract: The global crisis in 2008 reminded us of the importance of the financial sector for the macroeconomy, a lesson many had forgotten in the decades after the previous global crisis, the Great Depression. Financial risk matters. It is necessary for investment and growth, while also driving uncertainty, inefficiency, recessions, and crises.
    Date: 2022–02–03
  3. By: Clément Mathonnat; Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Marcel Voia
    Abstract: A large literature looks at the influence of financial development on the costs in terms of output of crises. Our contribution takes a somewhat different path, by looking at the impact of financial development on the length of banking crises. Using a large database spanning over almost found decades, our estimations show that on average the length of crises is statistically higher in countries with higher financial development. Confirmed by various robustness tests, this finding exhibits various heterogeneities related, among others, to the time period or countries' economic development level.
    Abstract: Une littérature abondante analyse l'influence du développement financier sur les coûts en termes de sortie de crises. Notre contribution emprunte un chemin quelque peu différent, en examinant l'impact du développement financier sur la longueur des crises bancaires. En utilisant une base de données couvrant plusieurs décennies, nos estimations montrent qu'en moyenne la durée des crises est statistiquement plus longue dans les pays ayant un développement financier plus élevé. Confirmé par divers tests de robustesse, ce résultat présente diverses hétérogénéités liées, entre autres, à la période étudiée ou au niveau de développement économique des pays.
    Keywords: pays en développement,crises,développement financier
    Date: 2021–07
  4. By: Zsuzsanna Hosszu (Magyar Nemzeti Bank (Central Bank of Hungary)); Gergely Lakos (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: We use European and simulated Hungarian data to search for the univariate one-sided credit-to-GDP gap that predicts systemic banking crises most accurately. The credit-to-GDP gaps under review are optimized along four dimensions: (1) definition of outstanding credit, (2) forecasting method for extending credit-to-GDP time series, (3) filtering method and (4) maximum cycle length. Based on European data, we demonstrate that credit-to-GDP gaps calculated with narrow definition of outstanding credit and up to 1-year forecasts of credit-to-GDP outperform other specifications significantly and robustly. Regarding the other two dimensions, the Hodrick–Prescott filter with long cycles (popular in regulatory practice), the Christiano–Fitzgerald filter with medium-term cycles and the wavelet filter with short cycles prove to be the best. All three should be applied to credit-to-GDP time series calculated with narrow credit, and with no credit-to-GDP forecast, except the wavelet filter with short-term forecast. Credit-to-GDP gaps with most informative early warning signals exhibit the highest degree of comovement with the financial cycle, but not the lowest level of endpoint uncertainty. Analysis of Hungarian credit-to-GDP time series extended by ARIMA simulations reinforces the early warning quality of the Hodrick–Prescott credit gap and the wavelet credit gap to a lesser extent.
    Keywords: financial cycle, crises, early warning, univariate filtering methods
    JEL: C20 C52 E32 G28
    Date: 2022
  5. By: Mounir Dahmani (Université de Gafsa, Tunisie); Mohamed Mabrouki (Université de Gafsa, Tunisie); Adel Ben Youssef (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: This paper analyzes the nexus between consumption of renewable and non-renewables energies, financial development, diffusion of information and communication technology (ICT) and economic growth in the MENA countries. We employ a cross-section augmented autoregressive distributed lag (CS-ARDL) modeling approach to analyze the effect of our explanatory variables on economic growth. We find a positive impact of renewable and non-renewable energies on economic growth. Financial development is related negatively to economic growth which may be explained among other things, by a weak financial sector, macroeconomic volatility and financial crises, or the existence of non-linear relationships. We find a positive and statistically significant influence of ICT on GDP. Renewable energies and diffusion of ICT can be considered important determinants of improved economic activity, job creation and create jobs and a better environment.
    Keywords: ICT, financial development, renewable and non-renewable energy consumption, MENA, dynamic panel, CS-ARDL
    Date: 2021–12
  6. By: Tran, Quoc Duy; Huynh, Cong Minh
    Abstract: This paper empirically investigates the impact of Information and Communication Technology (ICT) on financial development proxied by Domestic credit/GDP and Money supply/GDP in ten ASEAN countries over the period 2000-2020. Results from fixed effects for panel data show that ICT stimulates financial development by both proxies. Remarkably, the impact of ICT on financial development proxied by Money supply/GDP is stronger than that proxied by Domestic credit/GDP, implying the important channel of Money supply/GDP through which ICT can stimulate financial development. In addition, other important determinants of financial development are confirmed in the context of ASEAN countries, including economic growth, trade openness, and urbanization. The findings consolidate the utilization of ICT to boost financial development in ASEAN countries.
    Keywords: ASEAN countries; Financial development; ICT
    JEL: L96 O16 O32 O33
    Date: 2022–01–11
  7. By: Donato Ceci (Bank of Italy); Andrea Silvestrini (Bank of Italy)
    Abstract: This paper compares several methods for constructing weekly nowcasts of recession probabilities in Italy, with a focus on the most recent period of the Covid-19 pandemic. The common thread of these methods is that they use, in different ways, the information content provided by financial market data. In particular, a battery of probit models are estimated after extracting information from a large dataset of more than 130 financial market variables observed at a weekly frequency. The predictive accuracy of these models is explored in a pseudo out-of-sample forecasting exercise. The results demonstrate that nowcasts derived from probit models estimated on a large set of financial variables are, on average, more accurate than standard probit models estimated on a single financial covariate, such as the slope of the yield curve. The proposed approach performs well even compared with probit models estimated on single time series of real economic activity, such as industrial production, or on composite PMI indicators. Overall, the financial indicators used in this paper can be easily updated as soon as new data become available on a weekly basis, thus providing a reliable real-time dating of the Italian business cycle.
    Keywords: financial markets, probit models, factor-augmented probit models, model confidence set, penalized likelihood, forecast evaluation
    JEL: C22 C25 C53 E32
    Date: 2022–02
  8. By: Thiago Revil T. Ferreira
    Abstract: I document business cycle properties of the full cross-sectional distributions of U.S. stock returns and credit spreads from financial and nonfinancial firms. The skewness of returns of financial firms (SRF) best predicts economic activity, while being a barometer for lending conditions. SRF also affects firm-level investment beyond firms' balance sheets, and adverse SRF shocks lead to macroeconomic downturns with tighter lending conditions in vector autoregressions (VARs). These results are consistent with a lending channel in which cross-sectional financial firms' balance sheets play a prominent role in business cycles. I rationalize this argument with a model that matches the VAR evidence.
    Keywords: Cross-Sectional; Skewness; Business Cycles; Lending Channel
    JEL: E32 E37 E44
    Date: 2022–02–04
  9. By: Santiago Camara
    Abstract: This paper studies the role of households' heterogeneity in access to financial markets and the consumption of commodity goods in the transmission of foreign shocks. First, I use survey data from Uruguay to show that low income households have poor to no access to savings technology while spending a significant share of their income on commodity-based goods. Second, I construct a Two-Agent New Keynesian (TANK) small open economy model with two main features: (i) limited access to financial markets, and (ii) non-homothetic preferences over commodity goods. I show how these features shape aggregate dynamics and amplify foreign shocks. Additionally, I argue that these features introduce a redistribution channel for monetary policy and a rationale for "fear-of-floating" exchange rate regimes. Lastly, I study the design of optimal policy regimes and find that households have opposing preferences a over monetary and fiscal rules.
    Date: 2022–01
  10. By: Foroni, Claudia; Gelain, Paolo; Marcellino, Massimiliano
    Abstract: We use mixed-frequency (quarterly-monthly) data to estimate a dynamic stochastic general equilibrium model embedded with the financial accelerator mechanism à la Bernanke et al. (1999). We find that the financial accelerator can work very differently at monthly frequency compared to the quarterly frequency, i.e. we document its inversion. That is because aggregating monthly data into quarterly leads to large biases in the estimated quarterly parameters and, as a consequence, to a deep change in the transmission of shocks. JEL Classification: C52, E32, E52
    Keywords: DSGE models, financial accelerator, mixed-frequency data
    Date: 2022–02
  11. By: Yulei Luo; Jun Nie; Heng-fu Zou
    Abstract: Wealth in the utility function (WIU) has been increasingly used in macroeconomic models and this specification can be justified by a few theories such as Max Weber’s (1904-05, German; 1958) theory on “spirit of capitalism.” We incorporate the WIU into a general equilibrium consumption-portfolio choice model to study the implications of the WIU for consumption inequality, equilibrium interest rate, and equity premium—an unexplored area in the literature. Our general equilibrium framework features recursive exponential utility, uninsurable labor risks, and multiple assets and can deliver closed-form solutions to help disentangle the effects of the WIU in driving the key results. We show a stronger preference for wealth lowers the risk-free rate but increases the consumption inequality and equity premium in the equilibrium. We show these properties improve the model’s performance in explaining the data. We also compare the WIU with a closely related hypothesis, habit formation, and find that they have opposite effects on equilibrium asset returns and consumption inequality.
    Keywords: Wealth; Spirit of Capitalism; Risk free rates; Risk premia; Savings; Consumption inequality; Wealth inequality
    JEL: C61 D81 E21
    Date: 2021–12–22
  12. By: Carlo Altomonte; Peter Bauer; Alberto Maria Gilardi; Chiara Soriolo
    Abstract: We take the global financial crisis (GFC), as an example of major crises, to study the trends of intangible investment, the link between industrial performance and intangible assets, and the differences of financing of intangible versus tangible assets during crises. We find an upward trend in investment intensities (investment-to-value added) for several kinds of intangible assets in almost all advanced EU countries, and in almost all sectors based on industry-level data. This trend started well before the GFC and the crisis had little impact on it, in contrast to tangible investment intensities, which declined a lot. Then we explore the potential role that intangible assets may play in weathering the negative effects of major crises using industry-level data. One of the main results about industrial performance is that pre-crisis R&D investment is robustly associated with economic resilience during the GFC, and higher productivity growth in the aftermath. Finally, we investigate how a financial turmoil may affect the financing of different assets. We combine insights from a macro (industry-level) and a micro (firm-level) approach to shed light on the importance of financial shocks in intangible investment. We find differences from tangible investment, mainly that tangibles are more sensitive to demand shocks, while intangible investment is more vulnerable to financial shocks. For the latter, our main explanation is that tight credit conditions create a trade-off between tangible and intangible investment financing.
    Keywords: productivity, financial crisis, resilience, intangible assets
    JEL: G01 D22 D24 G31
    Date: 2022
  13. By: Jose-Maria Serena; Marina-Eliza Spaliara; Serafeim Tsoukas
    Abstract: Using a cross-country firm-bank dataset, we examine how an unexpected increase in bank capital requirements by the European Banking Authority (EBA) affects firms' financial choices. Our results first suggest that the regulatory shock implies a reduction in the supply of bank credit, with US firms affected the most. Yet, following the capital exercise, US firms are able to tap into the public bond markets and secure credit lines from nonbank financial institutions. This has implications for their capital structure and their real outcomes. These results suggest that diversified domestic loan markets, in which banks and nonbank financial institutions lend to corporations, can help overcome reductions in cross-border bank funding.
    Keywords: International bank credit, nonbank lenders, external financing
    JEL: G32 E22 F32 D22
    Date: 2022–01
  14. By: Johannes Matschke
    Abstract: This paper presents a simple two-region banking model of liquidity mismatch to study the strategic interactions between national regulators. I show that banks hold insufficient liquidity, which has repercussions for other banks in an international financial market. The model justifies coordinated prudential liquidity regulation due to an international fire-sale externality. However, I theoretically and empirically argue that domestically oriented regulators from jurisdictions with a smaller banking sector do not internalize the global benefits of regulation and therefore do not adhere to international standards. The model justifies capital controls if countries do not cooperate. Although capital controls improve the welfare of regulating economies, they also align the interest of free-riding countries with international regulation.
    Keywords: International liquidity regulation; Capital controls; Welfare
    JEL: D62 F36 F42 G15 G21
    Date: 2021–11–17
  15. By: Anusha Chari; Karlye Dilts Stedman; Kristin J. Forbes
    Abstract: Evidence suggests that macroprudential policy has small and insignificant effects on the volume of portfolio flows. We show, however, that these minor effects mask very different relationships across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on bond and equity flows—increasing outflows by significantly more during risk-off episodes and increasing inflows significantly more during risk on episodes. These amplification effects are more prominent at the “extremes,” especially for extreme risk-off periods, and are larger for regulations that target specific risks (such as currency or housing exposures) than those which strengthen generalized cyclical buffers (such as the CCyB). This paper estimates these relationships using a policy-shocks approach that corrects for reverse causality by combining high-frequency risk measures with weekly data on portfolio investment and a new measure of macroprudential regulations that captures the intensity of policy stances. Overall, the results support a growing body of evidence that macroprudential regulation can reduce the volume and volatility of bank flows but shift risks in ways that aggravate vulnerabilities in other parts of the financial system.
    Keywords: Macroprudential regulation
    JEL: F32 F34 F38 G15 G23 G28
    Date: 2021–12–17
  16. By: David M. Arseneau; Grace Brang; Matt Darst; Jacob M. M. Faber; David E. Rappoport; Alexandros Vardoulakis
    Abstract: This paper uses data from the Financial Accounts of the United States to map out the regulatory boundaries of assets held by U.S. financial institutions from a macroprudential perspective. We provide a quantitative measure of the regulatory perimeter—the boundary between the part of the financial sector that is subject to some form of prudential regulatory oversight and that which is not—and show how it has evolved over the past forty years. Additionally, we measure the boundaries between different regulatory agencies and financial institutions that operate within the regulatory perimeter and illustrate how these boundaries potentially become blurred in the face of regulatory overlap. Quantifying the regulatory perimeter and the boundaries for macroprudential regulators within the perimeter is informative for assessing financial stability risks over the credit cycle.
    Keywords: Regulation; Regulatory reach; Boundary problem; Financial institutions
    JEL: E58 G18 G28
    Date: 2022–01–14
  17. By: Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
    Abstract: An increased recourse to financing from the domestic banking sector has proved to be an important source of resilience for many developing countries in their efforts to face expenditures generated by the Covid-19 crisis. The second issue of MacroDev Semestrial Panorama offers an analysis of the consequences of an increase in sovereign indebtedness to the local financial sector and of the risks associated with this closer interconnection between states, central banks and commercial banks. Ten brief country surveys complement the issue and, through a summary of the main economic and financial challenges faced by these countries, illustrate the stakes of financing in developing economies.
    Keywords: Cameroun, Éthiopie, Ghana, Kenya, Togo, Brésil, Costa Rica, Indonésie, Liban, République dominicaine
    JEL: E
    Date: 2022–02–02
  18. By: Massoc, Elsa Clara
    Abstract: Since the 2008 financial crisis, European largest banks' size and business models have largely remained unchallenged. Is that because of banks' continued structural power over States? This paper challenges the view that States are sheer hostages of banks' capacity to provide credit to the real economy - which is the conventional definition of structural power. Instead, it sheds light on the geo-economic dimension of banks' power: key public officials conceive the position of "their own" market-based banks in global financial markets as a crucial dimension of State power. State priority towards banking thus result from political choices over what structurally matters the most for the State. Based on a discourse analysis of parliamentary debates in France, Germany and Spain between 2010 and 2020 as well as on a comparative analysis of the implementation of a special tax on banks in the early 2010s, this paper shows that State's Finance ministries tend to prioritize geo-economic considerations over credit to firms. By contrast, Parliaments tend to prioritize investment. Power dynamics within the State thus largely shape political priorities towards banking at the domestic and international levels.
    Keywords: structural power,States,banks,geo-economics,institutions
    Date: 2022
  19. By: Kazakov, Aleksandr; Koetter, Michael; Titze, Mirko; Tonzer, Lena
    Abstract: We study whether government subsidies can stimulate bank funding of marginal investment projects and the associated effect on financial stability. We do so by exploiting granular project-level information for the largest regional economic development programme in Germany since 1997: the Improvement of Regional Eco-nomic Structures programme (GRW). By combining the universe of subsidised firms to virtually all German local banks over the period 1998-2019, we test whether this large-scale transfer programme destabilised regional credit markets. Because GRW subsidies to firms are destabilised at the EU level, we can use it as an exogenous shock to identify bank responses. On average, firm subsidies do not affect bank lending, but reduce banks' distance to default. Average effects conflate important bank-level heterogeneity though. Conditional on various bank traits, we show that well capita-lised banks with more industry experience expand lending when being exposed to subsidised firms without exhibiting more risky financial profiles. Our results thus indicate that stable banks can act as an important facilitator of regional economic development policies. Against the backdrop of pervasive transfer payments to mitigate Covid-19 losses and in light of far-reaching transformation policies requiredto green the economy, our study bears important implications as to whether and which banks to incorporate into the design of transfer programmes.
    Keywords: bank stability,financial intermediation,government subsidies
    JEL: G21 G28 H25
    Date: 2022
  20. By: Giebel, Marek; Kraft, Kornelius
    Abstract: We analyze the impact of subsidies on R&D expenditures in the financial crisis and beyond. The financial crisis has led to considerable turmoil in financing and, as a result, to restrictions of firms' access to external financing. Utilizing this fact, we identify and analyze financing constraints in two ways. First, firm financing constraints are determined via their credit rating and second, restrictions from the supply side are identified via the firm's main banks capital reserves. The results of our empirical test imply that R&D investments of non-subsidized firms decrease during the crisis. This effect is particularly pronounced for firms that are affected by financing constraints on the firm or bank side. Finally, our results imply that subsidies can at least partially compensate for these negative effects.
    Keywords: R&D investment,financing constraints,financial crisis,R&D subsidies
    JEL: G01 G21 G24 G30 O16 O30 O31 O32
    Date: 2021
  21. By: Lorenzo Ricci; Giovanni Soggia; Lorenzo Trimarchi
    Abstract: This paper investigates the impact of idiosyncratic shocks in bank lending standards on firm credit in Italy, using survey data from the Regional Bank Lending Survey to identify bank supply conditions. From 2009 to 2019, we document that a one-standard-deviation tightening in lending standards reduces firm credit growth by 0.21 percentage points and explains 4.3% of the total variation. This effect is driven mainly by liquidity provisionsto firms for credit lines. Examining the extensive margin of the bank-firm relationship, we find that a negative shock significantly impacts the probability of accepting new loan applications and the likelihood of the bank-firm relationship breaking up. We also show firms cannot smooth individual bank shocks by borrowing more from other lenders. Changes to lending standards have sizable and persistent effects on aggregatecredit and production, especially at times of high economic uncertainty.
    Keywords: Credit Growth, Bank Lending Standards, Credit Lines
    Date: 2022–01
  22. By: Claire Brennecke; Stefan Jacewitz; Jonathan Pogach
    Abstract: We identify a new source of bank consolidation in the United States. For decades, both the financial and real sides of the economy have experienced considerable consolidation. We show that banking-sector consolidation is, in part, a consequence of real-sector consolidation; because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on national small-business trends and county-level industry exposure, we show that changes to the real-side demand for small-business credit is partially responsible for the relative decline in small banks’ deposits, income, and loan growth.
    Keywords: Consolidation; Banks and banking; Community banking; Relationship lending; Bartik instrument
    JEL: G21 G34 L25 R12
    Date: 2022–01–14
  23. By: Li, Ye (Ohio State University); Li, Yi (Board of Governors of the Federal Reserve System); Sun, Huijun (Columbia Business School)
    Abstract: This paper documents a strong connection between payment system and credit supply. The dual role of deposits as financing instruments for banks and means of payment for bank customers implies spillover effects of bank lending. After a bank finances loans with new deposits, the deposit holders' payments cause reserves and deposits to flow from the lending bank to the payees' banks. The change in liquidity conditions for both banks and their customers gives rise to two opposing forces that generate respectively strategic complementarity and strategic substitution in banks' lending decisions. We model bank lending through a linear-quadratic game on a random graph of payment flows and structurally estimate the spillover effects using Fedwire data to quantify the probability distribution of payment-flow network. Payment network externalities reduce the average level of aggregate credit supply by 9% while amplify the volatility by 20%. We identify a small subset of banks that have a disproportionately large influence on credit supply due to their special positions in the payment-flow network.
    JEL: E42 E43 E44 E51 E52 G21 G28
    Date: 2021–12
  24. By: Dutta, Kumar Debasis; Saha, Mallika
    Abstract: Financial deregulation since the 1980s has been stimulating fierce competition among banks and influencing financial stability across the world. In pace with this, Bangladesh’s banking industry is also experiencing intense competition since it is composed of many banks. Te empirical evidence on competition and stability widely debate to date, perhaps for not considering the potential nonlinearity. Therefore, our study aims to explore the nonlinear impact of competition on the financial stability of Bangladeshi banks over 2010-2017. For achieving this objective, we compute the Boone indicator and Z-score using bank-level data to measure competition and stability, respectively, and examine the nonlinear dynamics of competition-stability nexus employing threshold analysis in a panel setup. Our findings confirm that the competition-stability relationship is nonlinear and implies that financial stability is more substantial (weaker) in a less (more) competitive market. Our results bear specific policy implications.
    Keywords: Boone’s indicator, competition, fnancial stability, panel threshold analysis
    JEL: G21
    Date: 2020–06–12
  25. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The study assesses the how information sharing by means of mobile phones affects banking system efficiency in Africa with particular emphasis on income levels (Middle income versus Low income countries) and legal origins (English Common law versus French Civil law countries). The focus is on 53 African countries with data for the period 1996-2019 and the empirical evidence is based in Quantile regressions which enable the study to assess the nexus throughout the conditional distribution of banking system efficiency. The following findings are established: (i) mobile phone penetration promotes banking system efficiency in the 25th quantile and the median of banking system efficiency in low income countries while for middle income countries; it is significant exclusively in the bottom quantile (i.e. 10th quantile). (ii) With the exception of the highest (i.e. 90th) quantile in which the effect of the mobile phone is not significant in English Common law countries, the impact is significant throughout the conditional distribution of banking system efficiency in Common law countries. (iii) As for French Civil law countries, the nexus is only significant in the median and highest (i.e. 90th) quantile of the conditional distribution of banking system efficiency. Policy implications are discussed.
    Keywords: Allocation efficiency; Information asymmetry; Mobile phones
    JEL: G20 G29 L96 O40 O55
    Date: 2022–01
  26. By: Enea Baselgia; Reto Foellmi
    Abstract: What is the relationship between inequality and growth? This question has occupied and fascinated social scientists for more than a century. This article critically reviews the recent empirical and theoretical literature on the complex interplay between inequality and economic growth. Inequality might come in many forms: (top) incomes, wages, wealth, land, or opportunities. At the same time, growth performance could be measured as average growth rates, variability of growth, or the potential for growth to 'take off'.
    Keywords: Economic growth, Inequality, Redistribution, Evidence, review
    Date: 2022
  27. By: Grivas Chiyaba (Department of Economics, University of Reading); Carl Singleton (Department of Economics, University of Reading)
    Abstract: This paper explores the relationships between natural resources, foreign direct investment (FDI) inflows, and the quality of national institutions, also known as ``the rules of the game''. Using a panel dataset of 69 developing countries over the period 1970–2015, we find negative and significant effects of natural resource use or extraction on the development of national institutions. We focus on legal and property rights, but these findings also apply to the quality of some other national institutions. Our results align with a theory that abundant natural resources lead to weakened institutions because of the potential for firms to secure monopoly rents. Further, we find that the effects of FDI inflows on institutional development are not robust to controlling for natural resource rents. This suggests that the latter tend to erode institutions regardless of whether those resources are exploited alongside increased foreign investment into the local economy.
    Keywords: Foreign direct investment, Natural resource abundance, Institutional quality
    JEL: F21 O13 O17 Q33
    Date: 2022–02–18
  28. By: Alessandro Ferrari (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: In a DSGE model, we study the effectiveness of a Green QE, i.e. a program of green-asset purchases by the central bank, along the transition to a carbon-free economy. The model is characterized by green firms that produce using a clean technology and brown firms that pollute but they can pay a cost to abate emissions. The transition is driven by an emission tax. We analyze the evolution of macroeconomic variables along the transition and we compare different versions of Green QE. We show two main findings, in our baseline calibration, where the green and the brown goods are imperfect substitutes. First, Green QE helps to further reduce emissions along the transition, but its quantitative impact on the stock of pollution is small. Second, we find the largest effects when the central bank invests in green assets in the early stage of the transition. Moreover, we highlight that the elasticity of substitution between the green and the brown good is a crucial parameter: if the goods are imperfect complements (an elasticity lower than one), Green QE raise emissions.
    Keywords: central bank, monetary policy, quantitative easing, climate change
    JEL: E52 E58 Q54
    Date: 2022–02

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