nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒05‒23
27 papers chosen by
Georg Man

  1. Financial development, income inequality and institutional quality: A multi-dimensional analysis By Huynh, Cong Minh; Tran, Hoai Nam
  2. The Real Effects of Banking the Poor: Evidence from Brazil By Julia Fonseca; Adrien Matray
  3. The banking system and the financing of southern Italian firms By Giorgio Albareto; Michele Cascarano; Stefania De Mitri; Cristina Demma; Roberto Felici; Carlotta Rossi
  4. How Africa Borrows From China: And Why Mombasa Port is Not Collateral for Kenya's Standard Gauge Railway By Brautigam, Deborah; Bhalaki, Vijay; Deron, Laure; Wang, Yinxuan
  5. Conference on "Banking and the State" By Institut für Bank- und Finanzgeschichte (IBF) (Ed.)
  6. Corporate Finance, Industrial Performance and Environment in Africa: Lessons for Policy By Ekundayo P. Mesagan; Titilope C. Adewuyi; Olugbenga Olaoye
  7. Exchange Rate Misalignments, Foreign Direct Investment and Industrial Performance in Sub-Saharan Africa By Kirsi Zongo; Mahamadou Diarra
  8. Impact of International Investment Agreements on Japanese FDI: A Firm-level Analysis By URATA Shujiro; BAEK Youngmin
  9. Is Domestic Uncertainty a Local Pull Factor Driving Foreign Capital Inflows? New Cross-Country Evidence By Sangyup Choi; Gabriele Ciminelli; Davide Furceri
  10. Does mobile money services adoption foster intra-African goods trade? By Fayçal Sawadogo; Abdoul-Akim Wandaogo
  11. The State of Digital Financial Services in Francophone West Africa By Jenny Aker; David Carroll
  12. Politique budgétaire, Investissement privé et performance macroéconomique en République démocratique du Congo * By Elie Ndemba Tshilambu
  13. Accounting for the slowdown in output growth after the Great Recession: A wealth preference approach By Kazuma Inagaki,; Yoshiyasu Ono; Takayuki Tsuruga
  14. Wealth and income inequality in the long run By Philipp Lieberknecht; Philip Vermeulen
  15. Educational Inequality By Blanden, Jo; Doepke, Matthias; Stuhler, Jan
  16. Causal Effects of Countercyclical Interest Rates: Evidence from the Classical Gold Standard By Kris James Mitchener; Gonçalo Alves Pina
  17. The cost of excess reserves and inflation in the United States during the last century By Pavon-Prado, David
  18. Optimal Taxation of Risky Entrepreneurial Capital By Corina Boar; Matthew P. Knowles
  19. Financial Indicators, Stock Prices and Returns: Evidence from Banks Listed on the Stock Exchange of an Emerging Market (CSE) By Jihane Aayale; Meriem Seffar; James Koutene
  20. Bubbles and the Value of Innovation By Valentin Haddad; Paul Ho; Erik Loualiche
  21. Disruption and Credit Markets By Bo Becker; Victoria Ivashina
  22. On ESG Investing: Heterogeneous Preferences, Information, and Asset Prices By Itay Goldstein; Alexandr Kopytov; Lin Shen; Haotian Xiang
  23. Credit Markets, Property Rights, and the Commons By Frederik Noack; Christopher Costello
  24. How sustainable banking fosters the SDG 10 in weak institutional environments By Úbeda, Fernando; Forcadell, Francisco Javier; Aracil, Elisa; Mendez, Alvaro
  25. Financial Development and Renewable Energy Consumption in Nigeria By Stephen K. Dimnwobi; Chekwube V. Madichie; Chukwunonso Ekesiobi; Simplice A. Asongu
  26. Can the Government Be an Effective Venture Capital Investor? By Martina Fraschini; Andrea Maino; Luciano Somoza
  27. On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges By Andrea Barbon; Angelo Ranaldo

  1. By: Huynh, Cong Minh; Tran, Hoai Nam
    Abstract: Ambiguous impacts of financial development on income inequality in the literature imply that the impacts can be affected by other variables and may depend on different dimensions of financial development. This paper studies the effects of financial development with multi-dimensional analysis (financial depth, financial access and financial efficiency) of two main categories (financial institutions and financial markets) and institutional quality on income inequality in 30 Asian countries in the period 2000 – 2019. Results show that the financial institutions development (FI), the financial institutions access (FIA), the financial institutions efficiency (FIE), and the financial markets access (FMA) reduce income inequality; but the overall financial development (OFD), the financial markets development (FM), the financial institutions depth (FID), and the financial markets depths (FMD) increase it. Notably, better institutional quality not only lessens income inequality, but also moderates the effects of financial development on income inequality. Specifically, the improvement of institutional quality strengthens the beneficial effects of FI, FIA, FIE, and FMA on income inequality. Meanwhile, OFD, FM, FID, and FMD initially exacerbate income inequality until respective thresholds of institutional quality, and then beyond those levels of IQ, these indicators of financial development reduce income inequality. Results are robust with various estimators. These findings strongly support the importance of financial development with multi-dimensions and institutional reform in Asian countries as they have both direct and indirect impacts on income inequality through their mutual interactions.
    Keywords: Asian countries; Financial development; Income inequality; Institutional quality
    JEL: D31 D53 E02 O16 P48
    Date: 2022–04–22
  2. By: Julia Fonseca (University of Illinois at Urbana-Champaign); Adrien Matray (Princeton University)
    Abstract: We study how financial development affects economic development and wage inequality. We use a large expansion of government-owned banks into Brazilian cities with low bank branch coverage and combine it with data on the universe of employees from 2000–2014. We find that higher financial development fosters firm growth, higher labor demand, and higher average wages, especially for cities initially in banking deserts. However, these gains are not shared equally. Instead, they increase with workers’ productivity, implying a substantial increase in wage inequality. The changes to inequality are concentrated in cities where the initial supply of skilled workers is low, indicating that talent scarcity can drive how financial development affects inequality. Our results are inconsistent with alternative explanations such as differential exposure to Brazil’s economic boom, an overall increase in government lending, and other government or social welfare programs. These results motivate embedding skill heterogeneity into macro-finance development models in order to capture these distributional consequences.
    Keywords: Banking, Economic Development, Financial Development, Wage Inequality
    JEL: O10
    Date: 2022–03
  3. By: Giorgio Albareto (Bank of Italy); Michele Cascarano (Bank of Italy); Stefania De Mitri (Bank of Italy); Cristina Demma (Bank of Italy); Roberto Felici (Bank of Italy); Carlotta Rossi (Bank of Italy)
    Abstract: This paper investigates the territorial gap in firms’ access to credit between 2008 and 2019 and describes the functioning of the credit market in the southern regions of Italy. The southern firms are characterized by a higher level of credit risk; all other things being equal, these firms face less favourable credit conditions than others, paying higher interest rates and providing more collateral on loans. Despite this, the dynamics of loans to firms was more marked in the south with respect to the rest of the country, given the support of the southern banks, which increased lending to firms in these regions, especially to small businesses, more than other banks. During the period 2008-2019, the proportion of riskier loans of banks headquartered in the south increased; these banks are characterized by lower quality credit portfolios and lower profitability.
    Keywords: firm credit, banking system, credit conditions territorial gaps, Italy’s southern regions
    JEL: G10 G21 G3 L10
    Date: 2022–04
  4. By: Brautigam, Deborah; Bhalaki, Vijay; Deron, Laure; Wang, Yinxuan
    Abstract: In December 2018, a leaked letter from Kenya's Auditor General (AG) warned that Kenya Ports Authority's assets-of which Mombasa Port is the most valuable-risked being taken over by China Eximbank if Kenya defaulted on the Standard Gauge Railway (SGR) loans. The rumor that Kenya had used Mombasa Port as collateral for the railway became widely accepted globally as another example of "Chinese debt trap diplomacy". Our research shows why this rumor is wrong. Unpacking this complicated case required expertise in the practice of international contract law, auditing, and commercial project finance. Our scholar-practitioner team's forensic analysis of all available primary documentation, over nearly two years, found significant mistakes in the AG's analysis. The AG's misreading was amplified by media misinterpretations of the project's take-or-pay agreement (TOPA) and its sovereign immunity waiver clause, both common features in international commercial project finance. Instead of a deliberate debt trap, the railway project was carefully and creatively designed to reduce the risks of a sovereign default and enhance the bankability of a project with high costs but significant long-term benefits for Kenya and the region. Our research puts Kenya's SGR in the context of debates over Chinese strategy and African development. We shed new light on how China Eximbank lends to large Belt and Road Initiative (BRI) infrastructure projects - and how African and other governments borrow. And for Kenyans, we provide the explanation that Kenya's government has failed to give: a detailed account of why they can rest easy that China is not going to be seizing their port - or indeed, any port.
    Date: 2022
  5. By: Institut für Bank- und Finanzgeschichte (IBF) (Ed.)
    Date: 2022
  6. By: Ekundayo P. Mesagan (Pan Atlantic University, Lagos, Nigeria.); Titilope C. Adewuyi (University of Lagos, Lagos, Nigeria.); Olugbenga Olaoye (Bells University of Technology, Nigeria)
    Abstract: This study employs the Pool Mean Group framework to investigate the impact of corporate finance and industrial performance on pollution in Africa between 1990 and 2020. The study, which focuses on 36 African nations, found that corporate financing insignificantly enhances environmental quality in the short run, while it significantly worsens the environment in the long run. Also, the result shows that industrial performance exerts a negative but insignificant impact on pollution in both the short- and long-run periods. Lastly, the interaction term between corporate finance and industrial performance has a negative and significant impact on pollution in both periods. With this striking result, the study recommends that efforts should be made to promote the growth of environmentally sound production plants in the continent through the removal of credit facilitation bottlenecks.
    Keywords: Corporate Finance, Industrial Performance, Pollution, Africa
    JEL: G3 L25 O14 Q53
    Date: 2022–01
  7. By: Kirsi Zongo (Université Norbert ZONGO de Koudougou); Mahamadou Diarra (Université Norbert ZONGO de Koudougou)
    Abstract: Cet article a pour objectif d'analyser les effets des désalignements du taux de change sur les performances industrielles des économies d'Afrique Sub-saharienne en montrant que les IDE pourraient constituer un canal par lequel transitent ces effets. Pour ce faire, le modèle comportemental du taux de change d'équilibre a été utilisé dans la détermination du taux change d'équilibre ainsi que ses désalignements à l'aide de la technique ARDL en panel. Ensuite, le modèle structurel de petite économie ouverte à deux secteurs d'activités a été utilisé pour établir les relations entre taux de change, IDE et performances industrielles. Le modèle GMM en système a permis d'élucider la relation entre désalignement du taux de change et IDE tandis que l'économétrie spatiale a servis d'analyser les effets spatiaux de l'interaction entre ces deux variables sur les performances industrielles des économies d'ASS. Il ressort des estimations que la sous-évaluation du taux de change favorise l'entrée des IDE dans les économies d'ASS et que l'interaction entre ces deux variables améliore les performances industrielles des économies de cette zone. L'article préconise alors l'adoption des sous-évaluations du taux de change ; l'amélioration du climat des affaires pour favoriser l'entrée massive des IDE.
    Keywords: Afrique Sub-saharienne,économétrie spatiale,performances industrielles,sous-évaluation,Taux de change
    Date: 2022–04–23
  8. By: URATA Shujiro; BAEK Youngmin
    Abstract: In this study, we examine the impact of Japan’s international investment agreements (IIAs) on the locational choice of Japanese firms’ foreign direct investment (FDI) by considering the quality of IIAs. We estimate the conditional logit model covering 94 host countries, 16 manufacturing sectors, and 12 non-manufacturing sectors from 2000 to 2019. We found that the presence of IIAs, particularly comprehensive and high-level ones, has a positive impact on Japan’s FDI. On the contrary, the past incidence of investor–state disputes has a negative impact. These effects are found to be particularly strong for FDI by small and medium-sized enterprises. High regulatory quality is found to attract FDI, whereas the positive impact of IIAs in attracting FDI is strong in countries with low regulatory quality.
    Date: 2022–04
  9. By: Sangyup Choi (Yonsei Univ); Gabriele Ciminelli (OECD); Davide Furceri (IMF)
    Abstract: Theory and conventional wisdom suggest that an increase in uncertainty in one country scares away foreign investment. But, due to the limited availability of cross-country uncertainty data, empirical evidence remains scarce. This paper provides a systematic analysis of how foreign capital inflows react to an increase in political and economic uncertainty, proxied using the World Uncertainty Index. We focus on bank credit, portfolio debt, and portfolio equity capital inflows into 143 countries from 51 source countries. We find that an increase in domestic uncertainty induces a substantial and persistent decrease in bank credit and portfolio debt inflows, and (to a lesser extent) in equity inflows. The effects on portfolio flows are larger for countries with more open capital markets. We also uncover important differences in the response of portfolio flows through actively-managed and passive funds. The former are similarly sensitive to changes in uncertainty that are country-specific (purely local uncertainty) and common across countries (global uncertainty), while the latter are only sensitive to global uncertainty.
    Keywords: Uncertainty; Capital flows; World Uncertainty Index; Mutual funds; ETFs; COVID-19
    JEL: F21 F32 F42
    Date: 2022–04
  10. By: Fayçal Sawadogo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Abdoul-Akim Wandaogo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: Using a propensity score matching methodology, we study the causal effect of mobile money services adoption on intra-African goods trade. We find that countries that adopted MM register a higher goods trade share in GDP of about 0.6 percent in comparison to non-adopters.
    Keywords: JEL classification : F10,O23,O33,O55 Mobile money,Goods trade,Impact analysis,Africa
    Date: 2021–02
  11. By: Jenny Aker (Tufts University [Medford]); David Carroll (Tufts University [Medford])
    Abstract: The introduction of digital financial services (DFS) offers new opportunities to reduce the transaction costs associated with money transfers. Over the past decade, the number of DFS deployments has increased substantially, with over 300 deployments worldwide as of 2020. While there is substantial potential for such services to address the constraints to financial inclusion, especially in West Africa, widespread adoption and usage of these services remains relatively concentrated in particular markets. Economic research shows promise in terms of DFS increasing access to money transfers, smoothing consumption and reducing poverty in the long-term, but few studies have more sustained impacts. This can, in part, be explained by the agent network in several countries and the regulatory framework. We conclude by providing recommendations for the further growth of mobile money in West Africa.
    Keywords: West Africa,Digital Financial Services (DFS),Mobile money,Financial inclusion,Agents,Interoperability
    Date: 2022–04–07
  12. By: Elie Ndemba Tshilambu (UPC - Université protestante au Congo)
    Abstract: Ce papier tente d'apprécier l'incidence de la politique budgétaire sur l'investissement privé et la croissance économique en R.D. Congo de 1990-2018. Dans ce sens, il évalue l'intensité du multiplicateur Budgétaire afin de statuer sur mécanisme budgétaire de quelques sous périodes. Une régression simple servira à cette fin. Nous estimons, comme Katuala (2020), un modèle de Vecteurs Autorégressifs structurels sous l'approche Bayésienne (B-SVAR) pour vérifier l'effet d'éviction et la dynamique macroéconomique sur les séries trimestrielles obtenues après désagrégation (Denton, 1971). La causalité de Granger (1980) et la cointégration de Johansen (1991) permettront de statuer sur les liens entre variables alors que l'identification des chocs du modèle s'inspire des travaux de Binning (2013) qui combinent les restrictions de signes et de zéros tant à court terme qu'à long terme dans le cadre de modèles VAR structurels sousidentifiés. Nos résultats ont révélé que : (i) Le multiplicateur budgétaire est très faible mais significatif. Ce qui pourrait justifier la faible force impulsive des investissements publics sur l'activité économique en R.D. Congo ; (ii) les chocs sur le Dépenses publiques n'ont pas donné des retombées escomptées sur la croissance économique ; (iii) les cours du cuivre sont restés rigides. Ce qui prouve que la R.D. Congo est un petit pays face à la scène internationale et (iv) Les investissements privés réagissent positivement aux soldes budgétaires et dépenses en capital du gouvernement congolais. Cette relation réfute l'hypothèse d'effet d'éviction.
    Keywords: Politique Budgétaire,Investissement privé,Croissance économique,Analyse bayésienne Classification JEL : E62,E22,O40,C11 Fiscal Policy,Private Investment,Economic Growth,Bayesian Analysis JEL classification : E62,C11
    Date: 2022–04–01
  13. By: Kazuma Inagaki,; Yoshiyasu Ono; Takayuki Tsuruga
    Abstract: Previous studies have argued that output growth in advanced economies declined during the Great Recession and remained low afterward. This paper proposes a model to explain this slowdown in output growth. We incorporate wealth preferences and downward nominal wage rigidity into a standard monetary growth model. Our model demonstrates that output initially grows at the same rate as productivity and slows endogenously in the transition path to the stagnation steady state. This stagnation is persistent even if productivity continues to grow at a steady rate. Applying our model to US data, we show that it successfully explains the declines observed in the real interest rate, inflation, and the velocity of money, along with the slowdown in output growth.
    Date: 2022–05
  14. By: Philipp Lieberknecht (Deutsche Bundesbank, Frankfurt, Germany); Philip Vermeulen (Faculty of Business, Economics and Law at AUT University)
    Abstract: This paper analyses the joint long-run evolution of wealth and income inequality. We show that top wealth and income shares were cointegrated over the past century in France and the US. We rationalise this _nding using a two-agent version of the Solow growth model. In this framework, the co-movement of top wealth and income shares is determined by the relative saving rate at the top, i.e. the ratio of the saving rate of rich individuals to the aggregate saving rate. The cointegration _nding suggests that relative saving rates at the top are fairly stable over time, thus explaining the tight co-movement between top wealth and income shares over the past century.
    Keywords: income inequality, wealth inequality, top shares, savings rates, cointegration, error correction
    JEL: D31 E21 E25 N32 N34
    Date: 2022–05
  15. By: Blanden, Jo (University of Surrey); Doepke, Matthias (Northwestern University); Stuhler, Jan (Universidad Carlos III de Madrid)
    Abstract: This chapter provides new evidence on educational inequality and reviews the literature on the causes and consequences of unequal education. We document large achievement gaps between children from different socio-economic backgrounds, show how patterns of educational inequality vary across countries, time, and generations, and establish a link between educational inequality and social mobility. We interpret this evidence from the perspective of economic models of skill acquisition and investment in human capital. The models account for different channels underlying unequal education and highlight how endogenous responses in parents' and children's educational investments generate a close link between economic inequality and educational inequality. Given concerns over the extended school closures during the Covid-19 pandemic, we also summarize early evidence on the impact of the pandemic on children's education and on possible long-run repercussions for educational inequality.
    Keywords: educational inequality, education finance, social mobility
    JEL: I21 I24 J62
    Date: 2022–04
  16. By: Kris James Mitchener; Gonçalo Alves Pina
    Abstract: We estimate the causal impact of countercyclical interest rates on macroeconomic outcomes in open economies. To identify countercyclical interest rates, we construct a new database of short-term interest rates, principal exports, and international commodity prices for 40 economies from 1870 to 1913. This era of capital mobility, nominal anchors, specialization and trade integration, exposed economies to multiple exogenous demand-side shocks. Specialization and trade integration subjected economies to a “commodity lottery” in the form of price fluctuations in world markets. Capital mobility and a currency peg exposed them to interest-rate movements originating in the U.K., the largest economy and linchpin of the classical gold standard. We identify (i) positive effects of commodity-export prices on real GDP and the domestic price level and (ii) negative effects of exogenous changes in short-term interest rates on the same variables. We then show that countercyclical interest rates, defined relative to export-price shocks, stabilized both output and the domestic price level. This stabilization was more effective for the price level than for output.
    JEL: E4 E52 F33 F41 N10
    Date: 2022–04
  17. By: Pavon-Prado, David
    Abstract: This paper proposes another factor explaining why the American banking sector accumulates reserves (the reserves-cost mechanism) and its consequences mainly on inflation (reserves-cost channel). The mechanism claims that when banks are holding reserves more expensive than those available in the market, they obtain new reserves and accumulate those unused. In addition, the cost of the sources from where banks obtain their reserves determines banks’ decisions about the loans rate. This originates the reserves-cost channel, whereby banks’ decisions about the loans rate modify the impact of Fed’s policies on final targets such as inflation. I test the validity of the mechanism and channel estimating an SVAR for the period 1922-2020. The results confirm both hypothesis and show that when banks set a loans rate lower in relation to the short-term rate of reference, there is higher demand for credit, output and inflation levels.
    Keywords: monetary policy, Federal Reserve, SVARs, excess reserves, reserves cost
    JEL: E4 E5
    Date: 2022–04–28
  18. By: Corina Boar; Matthew P. Knowles
    Abstract: We study optimal taxation in a model with endogenous financial frictions, risky investment and occupational choice, where the distribution of wealth across entrepreneurs affects how efficiently capital is used. The planner chooses linear taxes on wealth, capital and labor income to maximize the steady state utility of a newborn agent. Most agents in the model are poor, leading to a redistributive motive for taxation. Optimal tax rates can be written as a closed-form function of the size of the tax bases and their elasticities with respect to tax rates. We find that it is optimal to tax capital income because financial frictions reduce the elasticity of capital income with respect to taxes and because capital income taxes prevent excessive entry into entrepreneurship. Optimal wealth taxes are positive but close to zero, since they strongly discourage capital accumulation.
    JEL: E2 E6 H2
    Date: 2022–04
  19. By: Jihane Aayale (ISCAE - Institut Supérieur de Commerce et d'Administration des Entreprises); Meriem Seffar (GRM - Groupe de Recherche en Management - EA 4711 - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - UCA - Université Côte d'Azur); James Koutene (ISCAE - Institut Supérieur de Commerce et d'Administration des Entreprises)
    Abstract: The Moroccan banking sector has undergone major developments following the structural reforms undertaken and which have enabled it to comply with international standards. The implementation of internal control, compliance and risk management systems has significantly improved its profitability. Indeed, Moroccan banks are subject to restrictive regulations and close supervision by the Moroccan Central Bank, Bank Al-Maghrib, to monitor and regulate their growth and exposure to the various risks inherent to their activities, including credit, liquidity, market and operational risks. Among the banks in the sector, six are listed on the Casablanca Stock Exchange, including market-leading banks such as Attijari Wafa bank, Bank of Africa and Banque Centrale Populaire. On the other hand, the Moroccan stock market attracts several local and foreign investors who would be interested in whether the price of shares and their evolution can be predicted by banking and financial ratios. The main objective of this study is to analyze the relationship between share prices and returns of listed banks and indicators of solvency, liquidity, asset quality and profitability. This article runs a multiple linear regression in a panel data analysis using the financial data of commercial banks listed on the Casablanca Stock Exchange from 2011 to 2020. In an efficient financial market, stock prices and their fluctuations should reflect the profitability of banks, alongside with their liquidity, and their solvency, which is a guarantee of the resilience of the banking during financial and economic crises. The results show that stock prices are not impacted by the level of liquidity, asset quality and profitability indicators, raising a much-debated question about the efficiency of the Moroccan stock market. On the other hand, other tests show that the level of profitability of banks, measured by ROA, is linked to the above-mentioned indicators.
    Keywords: Emerging Market,Asset quality,Profitability,Liquidity,Solvency,Stock Market Efficiency,Banks,Share Prices,Stock Returns
    Date: 2022
  20. By: Valentin Haddad; Paul Ho; Erik Loualiche
    Abstract: Booming innovation often coincides with intense speculation in financial markets. Using over a million patents, we document two ways the market valuation of innovation and its economic impact become disconnected during bubbles. Specifically, an innovation raises the stock price of its creator by 40% more than is justified by future outcomes. In contrast, competitors’ stock prices move little despite their profits suffering. We develop a theory of investor disagreement about which firms will succeed that reconciles both the facts, unlike existing models of bubbles. Optimal innovation policy during bubbles must account for the disconnect.
    JEL: G0 G4 O3
    Date: 2022–04
  21. By: Bo Becker; Victoria Ivashina
    Abstract: We show that over the past half century innovative disruptions were central to understanding corporate defaults. In a given year, industries experiencing abnormally high VC or IPO activity subsequently see higher default rates, higher segment exits by conglomerates, and higher yields on bonds issued by the firms in these industries. Overall, we find that disruption is a broad phenomenon, negatively affecting incumbent firms across the spectrum of age, valuation, and levers, with the exception of very large and low-leverage firms, which confirms our central hypothesis.
    JEL: G12 G30 G32
    Date: 2022–03
  22. By: Itay Goldstein; Alexandr Kopytov; Lin Shen; Haotian Xiang
    Abstract: We study how environmental, social and governance (ESG) investing reshapes information aggregation by prices. We develop a rational expectations equilibrium model in which traditional and green investors are informed about financial and ESG risks but have different preferences over them. Because of the preference heterogeneity, traditional and green investors trade in the opposite directions based on the same information. We show that the equilibrium price may not be uniquely determined. An increase in the fraction of green investors and an improvement in the ESG information quality can reduce price informativeness about the financial payoff and raise the cost of capital.
    JEL: G14 G32
    Date: 2022–04
  23. By: Frederik Noack; Christopher Costello
    Abstract: Credit markets and property rights are fundamental for modern economies, but they also have implications for the commons. Using a dynamic model of competitive resource extraction, we show that improving property right security unambiguously increases conservation incentives, but the effect of credit markets on resource extraction effort hinges on the security of property rights. We test these predictions using data on global fisheries, credit markets, and the largest-ever marine property rights assignment. We find that property right security reduces resource extraction, while credit market development increases resource extraction under insecure property rights but reduces resource extraction under secure property rights.
    JEL: H0 Q01 Q2
    Date: 2022–03
  24. By: Úbeda, Fernando; Forcadell, Francisco Javier; Aracil, Elisa; Mendez, Alvaro
    Abstract: The role of the financial sector is central in reducing income inequality – the goal of SDG 10 – by facilitating economic opportunities. However, institutional weaknesses may also undermine this effect. We argue that sustainable banking generates bidirectional trust to overcome institutional weaknesses, particularly the weak rule of law. Empirical evidence from 46 countries aggregating data of 1060 banks over 2010–2017 shows that sustainable banking lessens income inequality in weak rule of law settings. The results are robust after including the effects of bank digitalisation. This study has important implications for sustainable banking expansion into weak institutional environments and demonstrates banks’ efforts in their commitment to reducing inequality.
    Keywords: banks; ESG; inequality; institutions; rule of law; sustainable Development Goals
    JEL: F3 G3
    Date: 2022–07–01
  25. By: Stephen K. Dimnwobi (Nnamdi Azikiwe University Awka, Nigeria); Chekwube V. Madichie (Pan-Atlantic University, Lagos, Nigeria); Chukwunonso Ekesiobi (Chukwuemeka Odumegwu Ojukwu University, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Financial sector performance is increasingly linked with the transition to renewable energy in the sustainability discourse of developing economies. This paper examines the nexus and implication(s) of financial development on renewable energy consumption in Nigeria (the largest and most populous economy in Africa). Specifically, this study utilised the broad based financial development index data to effectively address the multidimensional nature of financial development and the portion of renewable energy in total energy consumption as key variables, while other relevant pieces of information (growth rate of per capita GDP, foreign direct investment and consumer price index) were incorporated. The study employed a blend of the ADF test and Zivot-Andrew test to ascertain stationarity properties as well as the likelihood of structural breaks, while the ARDL was utilized to determine the long-run relationship(s) using data from 1981 to 2019. The study estimation finds, among other things, that financial development is critical for renewable energy consumption in Nigeria and recommends policies to promote better outcomes for the financial and energy sectors, respectively.
    Keywords: Financial development; Renewable energy consumption; Nigeria
    Date: 2022–01
  26. By: Martina Fraschini (University of Lausanne, HEC; Swiss Finance Institute); Andrea Maino (University of Geneva); Luciano Somoza (University of Lausanne, HEC; Swiss Finance Institute)
    Abstract: In recent years, governments have allocated increasing capital to direct startup funding through Government-sponsored Venture Capital funds (GVC). In this paper, we study the role of GVCs in the venture capital market and their relationship with Private Venture Capitalists (PVC). Using European data, we find that GVCs invest consistently with their policy mandates, favoring specific industries, geographical areas, and firms with high innovation potential, but have lower average performances. These findings indicate that GVCs can identify innovative companies and prioritize positive externalities over profit maximization. We build an asset pricing model with heterogeneous preferences to study the role of GVCs in catalyzing PVC investments. We find that PVCs invest less in startups previously funded by GVCs, in line with empirical evidence. At aggregate level, GVC investments can crowd-in private ones if they focus on startups in VC hubs.
    Keywords: venture capital, public investments, crowd-in, subsidy, industrial policy, patent data, innovation.
    JEL: G24 G11 G18 H54 O30
    Date: 2022–04
  27. By: Andrea Barbon (University of St. Gallen); Angelo Ranaldo (University of St. Gallen)
    Abstract: Despite the growing adoption of decentralized exchanges, little is known about their market quality. Using a comprehensive dataset, we compare decentralized blockchain-based venues (DEXs) to centralized crypto exchanges (CEXs) assessing two aspects of market quality: price efficiency and market liquidity. We find that CEXs provide better market quality and identify the main friction dampening DEX efficiency as the high gas price stemming from proof-of-work blockchains. We propose and empirically validate a stylized model of DEX liquidity provision, linking trading volume, protocol fees, and liquidity. We identify quantitative conditions needed for DEXs to overtake CEXs in the future.
    Keywords: Decentralized Exchanges, Automated Market Making, Blockchain, Decentralized Finance, Market Quality, Limit Order Book
    JEL: G14
    Date: 2022–04

This nep-fdg issue is ©2022 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.