nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒05‒02
27 papers chosen by
Georg Man

  1. Empirical modeling of South Africa’s external debt on economic growth (1994 -2020): NARDL Cointegration approach By Stungwa, Sanele
  2. How much is too much? Assessing the non-linear relationship between debt and sovereign creditworthiness By Zwart, Sanne
  3. Partisan external borrowing in middle-income countries By Cormier, Ben
  4. Banking Deserts," City Size, and Socioeconomic Characteristics in Medium and Large U.S. Cities By Scott W. Hegerty
  5. Cameroon: Selected Issues By International Monetary Fund
  6. Fintech, Cryptocurrencies, and CBDC: Financial Structural Transformation in China” By Franklin Allen; Xian Gu; Julapa Jagtiani
  7. The Money Multiplier and Other Measures of Financial Sector Performance By Zinn, Jesse Aaron
  8. What Drives Long-Term Interest Rates? Evidence from the Entire Swiss Franc History 1852-2020 By Niko Hauzenberger; Daniel Kaufmann; Rebecca Stuart; Cédric Tille
  9. Hysteresis, endogenous growth, and monetary policy By Sebastián Amador
  10. Monetary Policy and Asset Price Overshooting: A Rationale for the Wall/Main Street Disconnect By Ricardo J. Caballero; Alp Simsek
  11. Unconventional Monetary Policy in the Euro Area. Impacts on Loans, Employment, and Investment By António Afonso; Francisco Gomes Pereira
  12. Did small banks trade-off lending with government bond purchases during the Sovereign debt crisis? By Pietrovito, Filomena; Pozzolo, Alberto Franco
  13. Nonbank Finance and Monetary Policy Transmission in Asia By Beirne, John; Renzhi, Nuobu; Volz, Ulrich
  14. Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment By Dikau, Simon; Volz, Ulrich
  15. Socially optimal sustainability standards with non-consequentialist ("warm glow") investors By Inderst, Roman; Opp, Markus
  16. Industrial policy and risk sharing in public development banks: lessons for the post-COVID response from the EIB and EFSI By Griffith-Jones, Stephany; Naqvi, Natalya
  17. Controlling Funds Allocation for the War: The Experience of Japan in the Late 1930s By Tetsuji OKAZAKI
  18. Efectos de la inversión extranjera directa sobre la inversión en América Latina 1970-2017 By Gustavo Bittencourt; Nicolás Reig; Cecilia Rodriguez
  19. Dynamics and Developments of Chinese M&A Transactions in the wake of the BRI: A comparison of Germany and CEEC By Kintzinger, Paulina; Horky, Florian
  20. Population aging and bank risk-taking By Doerr, Sebastian; Kabas, Gazi; Ongena, Steven
  21. Risk-taking by banks: Evidence from European Union countries By Maria Teresa Medeiros Garcia; Ana Jin Ye
  22. Online Appendix to "The Firm Size-Leverage Relationship and Its Implications for Entry and Business Concentration" By Satyajit Chatterjee; Burcu Eyigungor
  23. Markups, intangible capital and heterogeneous financial frictions By Altomonte, Carlo; Favoino, Domenico; Morlacco, Monica; Sonno, Tommaso
  24. Profit shifting by multinational corporations in Kenya: The role of internal debt By Roseline Misati; Kethi Ngoka; Anne Kamau; Maureen Odongo
  25. Insurance and Poverty Reduction: Evidence from Philippine Urban and Rural Households By Pia, Medrano
  26. Household Debt: the Role of Income and Business Ownership in a Small Emerging Country By José Rivero; Graciela Sanroman
  27. Saving up for a rainy day? Savings groups and resilience to flooding in Dar es Salaam, Tanzania By Panman, Alexandra; Madison, Ian; Kimacha, Nyambiri Nanai; Falisse, Jean Benoît

  1. By: Stungwa, Sanele
    Abstract: The objective of this study is to examine the asymmetric relationship between external debt and economic growth in South Africa for a period spanning from 1994 to 2020. The study consumed an annual time series data. The study further used bounds test cointegration to investigate the long run relationship between GDP and external debt. However, the long run relationship was not found, therefore, the long run NARDL cannot estimated. The short run findings of the study state that the positive and negative shocks in foreign debt stock is -0.198 and -0.288 for each, respectively. Every 1% rise in the foreign debt stock reduces GDP growth by 0.198 percent, whereas every 1% reduction in the external debt stock boosts GDP growth by 0.288 percent When the foreign debt stock value is positive, GDP increases faster than when it is negative. Conversely, falling foreign debt leads to faster GDP growth than rising external debt. Because the estimated elasticities range greatly in importance and direction, it seems that a change in ED has an uneven impact on GDP. Therefore, South African policymakers should concentrate on enacting measures that would allow the South African economy to decrease its foreign debt.
    Keywords: Gross domestic product, external debt, NARDL, South Africa
    JEL: C1 E62 F43 H63
    Date: 2022–03–03
  2. By: Zwart, Sanne
    Abstract: Public debt is a very weak predictor of a country's credit rating if a country's other features are not taken into account. However, everything else equal, more public debt is associated with worse ratings. This paper explores the relationship between debt and sovereign creditworthiness by explicitly modelling the debt thresholds associated with rating changes. It finds that the impact of an increase in public debt is highly non-linear and crucially depends on a country's economic situation. In particular, low levels of GDP per capita are associated with a smaller range of possible ratings than higher levels. Hence, for countries with a higher GDP per capita, a change in debt levels is thus more likely to result in a rating change. Overall, the non-linear relationship between debt and creditworthiness is substantial, and accounting for it improves the performance of sovereign credit rating models significantly.
    Date: 2022
  3. By: Cormier, Ben
    Abstract: Why do middle-income country governments use costlier sovereign debt markets when cheaper finance is available from official creditors? This research note argues that left-leaning governments with labor and the poor as core constituencies are likely to prioritize markets in their annual foreign borrowings. This is because markets provide an exit option from official creditor conditions that have disproportionately negative effects on working classes. This finding puts limits on disciplinary assumptions that left-leaning governments should have relatively less access to sovereign debt markets and thus use them less. Instead, left-leaning middle-income countries are likely to use proportionally more market finance as they fulfill annual foreign borrowing needs. This, in turn, shapes which middle-income countries are likely to become relatively more exposed to global debt market costs and pressures as they accumulate external debt over time.
    Keywords: borrower autonomy; external borrowing; partisanship; public debt accumulation; sovereign debt
    JEL: E6
    Date: 2022–02–07
  4. By: Scott W. Hegerty
    Abstract: A lack of financial access, which is often an issue in many central-city U.S. neighborhoods, can be linked to higher interest rates as well as negative health and psychological outcomes. A number of analyses of "banking deserts" have also found these areas to be poorer and less White than other parts of the city. While previous research has examined specific cities, or has classified areas by population densities, no study to date has examined a large set of individual cities. This study looks at 319 U.S. cities with populations greater than 100,000 and isolates areas with fewer than 0.318 banks per square mile based on distances from block-group centroids. The relative shares of these "deserts" appears to be independent of city population across the sample, and there is little relationship between these shares and socioeconomic variables such as the poverty rate or the percentage of Black residents. One plausible explanation is that only a subset of many cities' poorest, least White block groups can be classified as banking deserts; nearby block groups with similar socioeconomic characteristics are therefore non-deserts. Outside of the Northeast, non-desert areas tend to be poorer than deserts, suggesting that income- and bank-poor neighborhoods might not be as prevalent as is commonly assumed.
    Date: 2022–03
  5. By: International Monetary Fund
    Abstract: Selected Issues
    Keywords: model calibration; soes subsidization; digital money in Cameroon; micro-finance development; micro-finance institution; Financial inclusion; Mobile banking; Financial sector development; Digital currencies; Microfinance; Sub-Saharan Africa; Global
    Date: 2022–03–11
  6. By: Franklin Allen; Xian Gu; Julapa Jagtiani
    Abstract: Fintech and decentralized finance have penetrated all areas of the financial system and have improved financial inclusion in the last decade. In this paper, we review the recent literature on fintech, cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs). There are important implications from the rise of fintech and the introduction of stablecoins and CBDCs in recent years. We provide an overview of China’s experience in fintech, focusing on payments, digital banking, fintech lending, and the recent progress on its CBDC pilots (e-CNY). We also discuss important considerations in designing effective cryptocurrency regulations. Cryptocurrency regulations could promote growth of innovations through enhanced public confidence in this market. The e-CNY could become mainstream in the global market through effective regulations, which provide incentives and protection to market participants. A key factor to success for digital currencies has been their widespread adoption. If the Chinese e-CNY were to become a mainstream currency, the introduction of CBDC could potentially offer solutions to existing problems inherent in traditional financial systems.
    Keywords: fintech; cryptocurrency regulations; stablecoins; CBDCs; e-CNY; China
    JEL: G21 G28 G18 L21
    Date: 2022–04–11
  7. By: Zinn, Jesse Aaron (Clayton State University)
    Abstract: This paper develops and discusses several ratios designed to assess financial intermediation overall, as well as the two steps necessary for financial intermediation: attracting funds and lending them. We find that the money multiplier is, in typical cases, positively related to all of these ratios, suggesting that it also can be interpreted as a measure of how well a financial sector is performing in its role as intermediary between savers and borrowers.
    Date: 2022–04–02
  8. By: Niko Hauzenberger; Daniel Kaufmann; Rebecca Stuart; Cédric Tille
    Abstract: We study domestic and international drivers of long-term interest rates using newly compiled financial market data for Switzerland starting in 1852. We use a time-varying parameter vector autoregressive model to estimate long-term trends in nominal interest rates, exchange rate growth, and inflation. We then decompose the Swiss long-term interest rate trend into various drivers using an interest rate accounting framework. The decline in long-term interest rates since 1970 is mainly driven by a decline in the level of inflation. Comparing Switzerland with the rest of the world, we show that while Swiss real interest rates were higher during the 19th century, the pattern reversed after World War 2 with Swiss nominal and real rates becoming lower than foreign ones. However, this Swiss “low interest rate island” has disappeared in recent years. We document a connection between inflation risk and the Swiss term spread, as well between relative inflation risk and the difference between Swiss and foreign real interest rates.
    Keywords: Natural rate of interest, exchange rate, inflation risk, term spread, uncovered interest parity, historical data
    JEL: E4 E5 F3
    Date: 2022–04
  9. By: Sebastián Amador (Department of Economics, University of California Davis)
    Abstract: I provide evidence of substantial hysteresis (i.e., a situation in which temporary shocks have long-run effects) from monetary shocks on two sources of endogenous growth; human capital and technological adoption. This contribution is the first to test for the presence of this phenomenon in direct measures of the supply-side potential of economies, instead of indirect measures, e.g., TFP. To estimate the effects of exogenous monetary policy shocks, I improve on the the trilemma identification by incorporating a mean-unbiased instrumental variable estimator. Results show substantial hysteresis in both human capital and technological adoption. Importantly, these are found to be asymmetric, as only contractionary shocks result in long lasting responses. I evaluate the aggregate importance of monetary hysteresis with a growth accounting exercise. Across the 17 countries in sample, the accumulated average cost of monetary hysteresis ranges between 1.2 and 9.6% of TFP, for human capital and the adoption of electricity, respectively.
    Keywords: hysteresis, money non-neutrality, endogenous growth
    JEL: E01 E30 E32 E44 E47 E51 F33 F42 F44
    Date: 2022–04–20
  10. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their steady-state levels consistent with current potential output). Overshooting leads to a temporary disconnect between the performance of financial markets and the real economy, but it accelerates the recovery. When there is a lower-bound constraint on the discount rate, overshooting becomes a concave and non-monotonic function of the output gap: the asset price boost is low for a deeply negative initial output gap, grows as the output gap improves over a range, and shrinks toward zero as the output gap improves further. This pattern also implies that good macroeconomic news is better news for asset prices when the output gap is more negative. Finally, we document that during the Covid-19 recovery, the policy-induced overshooting was large−sufficient to explain the high levels of stock and house prices in 2021.
    Keywords: monetary policy, aggregate demand inertia, lags, output gap, recovery, asset prices, overshooting, Wall/Main Street disconnect, Covid-19, interest rate lower bound, macroeconomic news, market bond portfolio, QE/LSAPs
    JEL: E21 E32 E43 E44 E52 G12
    Date: 2022
  11. By: António Afonso; Francisco Gomes Pereira
    Abstract: Using a difference-in-differences identification strategy on a micro panel at the bank and firm level, we study the transmission effectiveness of ECB’s large-scale asset purchasing programs programs (i.e. APP and PEPP) in the Euro area. Our findings show: first, balance sheet composition of banks is an important determinant of monetary policy transmission. We tested this hypothesis by showing that banks more exposed to government debt securities had higher loan growth than less exposed banks after the APP announcement. By extension, this could lead to heterogeneous economic impacts depending on the geographical location of exposed banks. For the PEPP, contrary to the APP, we did not find a portfolio-rebalancing channel for banks that were more exposed to government debt securities. Second, using balance sheet data on corporates, we verify that firms that borrowed more increased employment and fixed capital investment, albeit to a lesser degree than before the APP announcement. Furthermore, our sample shows that corporations in countries with banks more exposed to government debt securities had higher borrowing growth and fixed capital growth versus countries with less exposed banks.
    Keywords: unconventional monetary policy, difference-in-differences, euro area, employment, investment
    JEL: C23 D22 E52 E58 G11 G20
    Date: 2022
  12. By: Pietrovito, Filomena; Pozzolo, Alberto Franco
    Abstract: At the beginning of the decade, many banks in euro-area periphery countries shifted their portfolios from corporate lending towards sovereign debt holdings. According to some scholars, this was the result of the moral suasion exerted by domestic authorities; others suggest instead that it was the outcome of a free choice of weak banks that bet-for-resurrection increasing the holdings of risky, high yielding government bonds. Our analysis shows that a contemporaneous increase in banks’ total assets and a portfolio readjustment from loans to government bonds is consistent with a surge in the risk-premium required by banks on corporate lending. After briefly describing our hypothesis within a simple model of a bank’s portfolio choice, we test its empirical implications on a large sample of individual loan data granted by over 100 Italian small banks during the post sovereign debt crisis period (2012-2014). Our results provide convincing evidence in support of our hypothesis.
    Keywords: Credit Supply, Government bond purchases, Sovereign debt crisis, Small banks, Bank-firm relationship
    JEL: E51 G21
    Date: 2022–04–11
  13. By: Beirne, John (Asian Development Bank Institute); Renzhi, Nuobu (Asian Development Bank Institute); Volz, Ulrich (Asian Development Bank Institute)
    Abstract: Focusing on Asian economies over the period 2006 to 2019, we find that while nonbank finance appears to complement rather than substitute credit provision by the traditional banking sector, weaker regulatory quality is an important driving factor. Moreover, while we find that central bank policy rates countercyclically affect credit provision by nonbanks, impulse responses to monetary policy shocks with and without nonbank finance indicate that the effectiveness of monetary policy as a transmission channel to GDP growth, inflation, house prices, and traditional bank credit is weakened in the presence of nonbank finance. Our paper has implications for monetary policy implementation, potentially incorporating nonbanks into central bank operations and liquidity provision, as well as for financial supervisors in mitigating regulatory arbitrage.
    Keywords: nonbank finance; fintech; monetary policy; Asia
    JEL: E44 E50 G20
    Date: 2022–01
  14. By: Dikau, Simon; Volz, Ulrich
    Abstract: Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This article investigates the use of one specific monetary policy tool, namely window guidance, by the Peoples’ Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries. ‘Window guidance’ is a relatively informal policy instrument that uses benevolent compulsion to ‘guide’ financial institutions to extend credit and allocate lending in line with official (government) targets. We investigate window guidance targets for the period 2001–2020 and find that ‘green’ targets were included by the CBRC from at least 2006 and by the PBC from 2007 to discourage lending to carbon-intensive and polluting industries and/or to increase support to sustainable activities. In 2014, both authorities stopped discouraging lending to carbon-intensive/polluting industries through window guidance. Sustainable objectives were subsequently also removed from the PBC's list of window guidance priority sectors at the start of 2019, ending the practice of green window guidance in China. Sustainability-enhancing window guidance targets were replaced and formalized through new ‘Guidelines for Establishing the Green Financial System’, reflecting efforts to move away from controls-based towards market-based policy instruments. Based on this analysis, the article draws four lessons for the design of green finance policies for other countries that seek to enhance sustainable finance and mitigate climate change and related risks.
    Keywords: sustainable finance; central banking and financial supervision; China; ES/R009708/1; ES/P005241/1; 71661137002; T&F deal
    JEL: G20
    Date: 2021–12–08
  15. By: Inderst, Roman; Opp, Markus
    Abstract: Agencies around the world are in the process of developing taxonomies and standards for sustainable (or ESG) investment products. A key assumption in our model is that of non-consequentialist private investors (households) who derive a "warm glow" decisional utility when purchasing an investment product that is labelled as sustainable. We ask when such labelling is socially beneÖcial even when the social planner can impose a minimum standard on investment and production. In a model of Önancial constraints (Holmström and Tirole 1997), which we close to include consumer surplus, we also determine the optimal labelling threshold and show how its stringency is a§ected by determinants such as the prevalence of warm-glow investor preferences, the presence of social network e§ects, or the relevance of Önancial constraints at the industry level.
    Keywords: Sustainability,ESG,green financing,labelling
    Date: 2022
  16. By: Griffith-Jones, Stephany; Naqvi, Natalya
    Abstract: The European Investment Bank (EIB) and European Investment Fund (EIF) have been key partners in implementing the Juncker Plan (EFSI) (2015–2020; and going forward will play an important role in the EU’s post-COVID industrial policy response. In order to evaluate these initiatives, we: distinguish between “real economy risks” and “financial risks”; and outline the trade-off between increased leverage and policy steer and control over projects, due to the number of intermediaries involved, and the need to make projects attractive for private investors. We argue that EFSI has made significant achievements, including enabling the EIB and EIF to provide long-term finance in the post-crisis period and to take more “real economy risk”. However, incentives have been created for EFSI to focus excessively on increasing leverage, at the expense of policy steer. Furthermore, the use of complex financial products and opaque pricing methods with terms too generous for private investors has in some cases generated excessive “financial risk”. In order to increase investment in the real economy and play a role in structural transformation, the EIB’s post-COVID response must have a greater focus on the final beneficiaries of projects rather than on the private financial intermediaries themselves. In those cases where it is necessary to use intermediaries, performance related conditionalities should be strictly enforced to have greater control over projects.
    Keywords: EFSI; European Investment Bank; financial risks; real economy risks; Covid-19; coronavirus
    JEL: F3 G3
    Date: 2021
  17. By: Tetsuji OKAZAKI
    Abstract: This paper explores how financial controls functioned to affect funds allocations in late 1930s Japan. For larger firms, subject to the financial controls, the difference in capital growth between firms in the nonpriority and priority industries expanded when the financial controls started, while differences in borrowing growth between them did not until the controls were later extended to cover both short- and long-term funds. For samples including small and medium-sized firms, I found that for a nonpriority industry, the capital growth of the firms subject to the controls (with capital over the upper limit of exemption for the controls) declined compared with the firms under the upper limit when the controls commenced. Conversely, for firms in a priority industry, this discontinuity across the upper capital limit is not observed. These results strongly suggest that the financial controls did indeed affect and alter the funds allocation. Key words: Economic control, financial control, war economy, fund allocation, Japan JEL classification numbers: G18, G21, G38, N25, P21
    Date: 2022–04
  18. By: Gustavo Bittencourt (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Nicolás Reig (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Cecilia Rodriguez (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: El objetivo general de este trabajo es analizar los efectos de la inversión extranjera directa (IED) sobre la inversión en los países de América Latina en una perspectiva de largo plazo (1970-2017) desde el punto de vista empírico y a nivel macroeconómico. Considerando diversos aspectos teóricos y analíticos, se realiza un análisis descriptivo y empírico del efecto total de la IED sobre la acumulación de capital de las economías, lo que comprende el aporte directo de las inversiones de las Empresas Extranjeras a la Formación Bruta de Capital, y el efecto indirecto, que son los impactos de la presencia de IED sobre las inversiones de las empresas domésticas. Los resultados sugieren que el efecto total fue negativo en el panel conjunto, y para la mayoría de los países, principalmente por el efecto indirecto de sustitución o desplazamiento de las inversiones domésticas por parte de la IED. Se exceptúan algunos países medianos y pequeños, y el panel en el período 2000-2017, que muestran efectos neutrales.
    Keywords: Inversión extranjera directa, Empresas transnacionales, Inversión, Crecimiento económico, América Latina
    JEL: F21 F23 E22 O40
    Date: 2020–08
  19. By: Kintzinger, Paulina; Horky, Florian
    Abstract: China's "Belt-and-Road" initiative is one of the largest economic policy projects in history to date. It comes hand in hand with investments in almost all areas of life in 164 countries. In this article, dynamics of Chinese M&A activities in Europe related to the BRI are investigated. Germany as Europe's largest economy is compared to the countries of the former 17+1 Forum by using a modern sequential explanatory mixed-methods research design. The investigation examines four main fields: the general scope, dynamics over time, sectoral focus and short-term financial development of target companies. Hereby, we find crucial differences but also similarities of the regions studied. Based on the quantitative results as well as the in-depth expert insights, implications for politics and business are finally derived.
    Keywords: M&A Transactions, CEEC, Germany, BRI, Economic Policy
    JEL: E61 F5 G34
    Date: 2022–04–04
  20. By: Doerr, Sebastian; Kabas, Gazi; Ongena, Steven
    Abstract: Does population aging affect bank lending? To answer this question we exploit geographic variation in population aging across U.S. counties to provide the first evidence on its impact on bank risk-taking. We find that banks more exposed to aging counties experience deposit inflows due to seniors' higher savings rate. They consequently extend more credit, but relax lending standards: Loan-to-income ratios increase and application rejection rates decline. Exposed banks also see a sharper rise in nonperforming loans during downturns, suggesting that population aging may lead to financial instability. These results are in line with an increase in savings and a decline in investment opportunities induced by population aging.
    Keywords: Risk-taking, financial stability, low interest rates, population aging, demographics
    JEL: E51 G21
    Date: 2022
  21. By: Maria Teresa Medeiros Garcia; Ana Jin Ye
    Abstract: The aim of this paper is to study the relation between banks’ ownership structure and their risk-taking behavior. Additionally, we examine the impact of banking regulation on banks’ approach to taking risk. The empirical analysis considers a sample of listed banks from EU countries over the period of 2011 to 2016. We found that the structure of the board of directors can influence bank risk behavior but not the ownership concentration. No significant relation was found between the influence of the regulatory environment and bank risk, i.e., stricter regulation has no effect on risk taking by banks.
    Keywords: Banks; Risk; Corporate governance; Regulation; EU countries.
    JEL: G21 G32 G34 G38
    Date: 2022–04
  22. By: Satyajit Chatterjee (Federal Reserve Bank of Philadelphia); Burcu Eyigungor (Federal Reserve Bank of Philadelphia)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2022
  23. By: Altomonte, Carlo; Favoino, Domenico; Morlacco, Monica; Sonno, Tommaso
    Abstract: This paper studies the interaction between financial frictions, intangible investment decisions, and markups at the firm level. In our model, heterogeneous credit constraints distort firms' decisions to invest in cost-reducing technology. The latter interacts with variable demand elasticity to generate endogenous dispersion across firms in markups and pass-through elasticities. We test the model's predictions on a representative sample of French manufacturing firms over the period 2004-2014. We establish causality by exploiting a quasi-natural experiment induced by a policy change that affected firms' liquidity. Our results shed new light on the roots of rising markups and markup heterogeneity in recent years.
    Keywords: markups; financial sontraints; intangibles; productivity; technological change
    JEL: D24 G32
    Date: 2021–01–08
  24. By: Roseline Misati; Kethi Ngoka; Anne Kamau; Maureen Odongo
    Abstract: Illicit financial flows directly impact a country's ability to raise, retain, and mobilize its own resources to finance sustainable development. Against a backdrop of a weak public financial position attributed to capital flight, tax avoidance, and dependence on corporate income taxes, governments in Africa face impediments to their efforts to widen the tax base. Using firm-level annual data from 2015-19 from multinational corporations' audited financial statements, we assess the scale of profit shifting by those corporations with a presence in Kenya.
    Keywords: Profit shifting, Corporate tax, Multinational firms
    Date: 2022
  25. By: Pia, Medrano
    Abstract: The poor are the most vulnerable class to risks and shocks and yet are also the least likely to be insured. In this essay, I explore the relationship between insurance and poverty reduction using a nationally representative household panel data from the Philippines. I find that the main pathway through which insurance coverage diminishes vulnerability to poverty is by aiding already non-poor households from falling into poverty in the face of shocks. In contrast, insurance coverage is insignificant in aiding escape from poverty among already poor households. However, a difference-in-difference (DID) analysis that exploit the occurrence of super-typhoon Reming in 2006 in the Bicol region of the Philippines suggest that insurance coverage enabled poor households to escape from poverty in the face of a natural disaster. Hence, while insurance may not be a magic cure to fundamental roots of poverty, it remains a critical tool in diminishing the exposure to poverty of the most vulnerable sectors of Philippine society.
    Keywords: Insurance, Poverty, Shock
    JEL: I3 I32 R2
    Date: 2022–03–16
  26. By: José Rivero (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Graciela Sanroman (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: We analyze the debt side of household balance sheets in a small economy with underdeveloped financial markets. Our main focus is on the influence of income on the intensive margin of debt holdings and how business ownership affects that relationship. Using data from a novel Uruguayan dataset, we estimate selectioncorrected Conditional Quantile Regressions (CQR). The motivation for using CQR stems from the fact that the conditional distribution of debt holdings is highly asymmetric. This makes it worthwhile to take the analysis beyond the mean. In addition, understanding the effects of income and entrepreneurship for the most indebted households is a policy relevant question. We find that income does not affect the probability of being indebted but it has a significant impact on the intensive margin of debt holdings. The income elasticity of debt stocks is positive and varies substantially across types of households, being those who own formal businesses the most sensitive to income variations.
    Keywords: Household finance, Household debt, Conditional Quantile Regression
    JEL: C21 C24 D14 G0
    Date: 2020–11
  27. By: Panman, Alexandra; Madison, Ian; Kimacha, Nyambiri Nanai; Falisse, Jean Benoît
    Abstract: This paper explores the role of savings groups in resilience to urban climate-related disasters. Savings groups are a rapidly growing phenomenon in Africa. They are decentralized, non-institutional groups that provide millions of people excluded from the formal banking sector with a trusted, accessible, and relatively simple source of microfinance. Yet there is little work on the impacts of savings groups on resilience to disasters. In this paper, we use a combination of quantitative and qualitative evidence from Dar es Salaam (Tanzania) to shed new light on the role that savings groups play in helping households cope with climate-related shocks. Drawing on new data, we show that approximately one-quarter of households have at least one member in a group, and that these households recover from flood events faster than those who do not. We further argue that the structure of savings groups allows for considerable group oversight, reducing the high costs of monitoring and sanctioning that often undermine cooperative engagement in urban areas. This makes the savings group model a uniquely flexible form of financing that is well adapted to helping households cope with shocks such as repeated flooding. In addition to this, we posit that they may provide a foundation for community initiatives focusing on preventative action.
    Keywords: Dar es Salaam; disaster prevention; floods; recovery financing; resilience; savings groups
    JEL: R14 J01 F3 G3
    Date: 2021–04–29

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