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on Financial Development and Growth |
| By: | Jeremy Greenwood; Pengfei Han; Hiroshi Inokuma; Juan M. Sanchez |
| Abstract: | This article uses an endogenous growth model to study how the improvements in financing for innovative start-ups brought by venture capital (VC) affect firm innovation and growth. Partial equilibrium results show how lending contracts change as financing efficiency improves, while general equilibrium results demonstrate that better screening and development of projects by VC investors leads to higher aggregate productivity growth. |
| Keywords: | endogenous growth; financial development; innovation; IPO; screening; research and development; startups; venture capital |
| JEL: | E13 E22 G24 L26 O16 O31 O40 |
| Date: | 2022–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:94817&r= |
| By: | Federico S. Mandelman; Victoria Nuguer; Alan Finkelstein Shapiro |
| Abstract: | We build a model with a traditional banking system, endogenous entry of firms and fintech intermediaries, and firm heterogeneity in credit access and usage to study the credit-market, macroeconomic, and business cycle implications of the recent sizable growth in the number of fintech intermediaries in emerging economies. Our analysis delivers three findings. First, the impact of greater fintech entry on firm financial inclusion depends on whether greater entry is driven by lower entry costs for fintech intermediaries or lower barriers to fintech credit for unbanked firms. Second, greater fintech entry can have positive long-term macroeconomic effects. Third, greater fintech entry leads to a reduction in output volatility but results in greater relative volatility in bank credit and consumption. The effects of fintech entry on macro outcomes and volatility hinge critically on the interaction between domestic financial shocks and the reduction in fintech lending rates stemming from greater fintech entry. Unless greater fintech entry leads to lower fintech credit costs for firms, greater fintech entry will have no meaningful credit-market or business-cycle consequences. |
| Keywords: | financial access and participation; endogenous firm entry; banking sector; fintech entry; emerging economy business cycles |
| JEL: | E24 E32 E44 F41 G21 |
| Date: | 2022–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:94782&r= |
| By: | Beyer,Robert Carl Michael; Wacker,Konstantin M. |
| Abstract: | This paper investigates the outstanding economic growth experience of Bangladesh. Itshows that the country’s improvements in structural correlates of growth from 1990 to 2004 are in the global top5 percent for any 15-year period since 1970. They were driven by infrastructure enhancements, more openness totrade, and increasing foreign direct investment. Additionally, this period coincided with significantfinancial reforms after the banking crisis of the late 1980s and increased political stability. A further increase ingrowth after 2005 was not correlated with new growth impulses from structural improvements. Instead, the benefitsfrom previous achievements and a stable macroeconomic and institutional environment were “good enough” to prevent themean reversion of growth that comparable fast-growing economies usually experience. |
| Date: | 2022–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10150&r= |
| By: | Kyle Dempsey; Miguel Faria-e-Castro |
| Abstract: | Banks' loan pricing decisions reflect the fact that borrowers tend to have long-lasting relationships with lenders. Therefore, pricing decisions have an inherently dynamic component: high interest rates may yield higher static profits per loan, but in the long run they erode a banks' customer base and reduce future profitability. We study this tradeoff using a dynamic banking model which embeds lending relationships using deep habits (“customer capital”) and costs of adjusting loan portfolio composition. High customer capital raises the level and decreases the interest rate elasticity of loan demand. When faced with an adverse shock to net worth, banks with high customer capital recapitalize quickly by charging high interest rates and eroding customer capital in the short term, while banks with low customer capital face persistent financial distress. Using Call Report data to measure the franchise value of banks' loan portfolios, we find that this effect has strong implications for how individual banks and the financial sector as a whole recover from shocks. |
| Keywords: | banks; Customer Capital; relationship lending; interest rates; financial crises |
| JEL: | E4 G2 |
| Date: | 2022–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:94821&r= |
| By: | Domenico Delli Gatti (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Gabriele Iannotta |
| Abstract: | We explore the intertwined dynamics of asset prices and the macroeconomy in a Behavioural model of Credit Cycles (BCC) characterized by a credit friction a' la Kiyotaki and Moore and heterogeneous expectations cum heuristic switching a la Brock and Hommes. This behavioural approach allows to better understand and replicate the effects of shocks. In the absence of actual defaults, following a positive productivity shock, our behavioural model (BCC Mark I) generates hump-shaped impulse-response functions that are more realistic than those generated by the same shock in a corresponding model with rational expec- tations (RCC). When the behavioural model allows also for defaults (BCC Mark II), a productivity shock triggers ample and persistent uctuations (if the intensity of choice of the lender is suciently high), a feature that is absent in BCC Mark I (and of course in RCC). |
| Keywords: | Credit Market, Collateral Constraints, Heterogeneous Expectations, Bankruptcy, Boom Bust Cycles. |
| JEL: | E32 E44 D84 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def119&r= |
| By: | Engelbert Stockhammer; Andre Novas Otero |
| Abstract: | Southern European countries are widely considered a distinct type of capitalism, but they have experienced a varied growth performance, both over time and across countries. This paper investigates the growth drivers in southern Europe since the mid-1990s. We consider a broad set of potential growth drivers derived from the literature on Mediterranean capitalism and Comparative Political Economy more broadly. On the demand side these include the role of house prices (as the main financial variable; highlighted in parts of the growth models approach); the ‘financial curse’ hypothesis (which posits that financial inflows caused house price booms and crowded out manufacturing activities); and Keynesian arguments on the impact of fiscal policy. On the supply side, these encompass the cost competitiveness argument (consistent with mainstream economics and the Varieties of Capitalism approach), research-led technological change; and neo-structuralist arguments regarding the productive capacity. We find strong evidence for the growth contributions of house prices and fiscal policy. While these findings are generally supportive of extant analysis of these economies as finance-led rather than export-led, they call for a more serious integration of house prices in growth model analysis and for a more systematic analysis of the growth impact of fiscal policy. |
| Keywords: | Comparative Political Economy, growth models, growth drivers, southern Europe, house price cycles, fiscal policy |
| JEL: | B20 B50 E12 O43 P51 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2224&r= |
| By: | Ilkin Huseynov (Central Bank of the Republic of Azerbaijan); Nazrin Ramazanova (Central Bank of the Republic of Azerbaijan); Hikmat Valirzayev (Central Bank of the Republic of Azerbaijan) |
| Abstract: | This study examines whether payment system data can be useful for tracking economic activity in Azerbaijan. We utilise the transactional payment system data at the sectoral level and employ a Dynamic Factor Model (DFM) and Machine Learning (ML) techniques to nowcast quarterover- quarter and year-over-year nominal gross domestic product. We compared the nowcasting performance of these models against the benchmark model in terms of the out-of-sample root mean square error at three different horizons during the quarter. The results suggest that ML and DFM models have higher predictability than the benchmark model and can significantly lower nowcast errors. Although our payment time series is still too short to obtain statistically robust results, the findings indicate that variables at a higher frequency in such data can be helpful in assessing the current state of the economy and have the potential to provide a faster estimate of the economic activity. |
| Keywords: | Payment data, Nowcasting, ML, DFM |
| JEL: | C32 C38 C52 C53 E42 |
| Date: | 2022–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp23-2022&r= |
| By: | Capasso,Salvatore; Ohnsorge,Franziska Lieselotte; Shu Yu |
| Abstract: | Financial development reduces the cost of accessing external financing and thus incentivizesinvestment in higher-productivity projects that allow firms to expand to the scale needed to operate in the formaleconomy. It also encourages participants of the informal sector to join the formal sector to gain access to creditand financial services. This paper documents two findings. First, countries with less pervasive informality areassociated with greater financial development. Second, the impact of financial development, and especially bankingsector development, on informality is causal. This causal link is established using a novel instrumental variable fordomestic financial development: financial development in other (neighboring) countries. The causal link betweeninformality and financial development is stronger in countries with greater trade openness and capital accountopenness. The findings are robust to alternative specifications. |
| Date: | 2022–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10192&r= |
| By: | Abhyankar, Atharva |
| Abstract: | Using cross-country data, this paper analyzes the relationship between crime rates and their effects on financial development at the national level. To do this, I take several financial variables and compare them with three main crime variables- homicide, fraud, and corruption- and plot significant correlations to analyze trends. The results show that while fraud and corruption have no adverse effects on financial development variables, they are positively correlated with several of them, and intentional homicide is quite detrimental to countries’ financial development. |
| Keywords: | Financial development; crime; cross-country data |
| JEL: | G10 G20 K00 |
| Date: | 2022–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114653&r= |
| By: | Miguel D. Ramirez (Department of Economics, Trinity College) |
| Keywords: | Chilean Economy; Gross Capital Formation; FDI flows; FMOLS estimator; Gregory Hansen single-break cointegration test;Johansen cointegration test; remittacnes of profits and dividends; Unit root tests. |
| JEL: | C22 O40 O57 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:2201&r= |
| By: | Longaric, Pablo Anaya |
| Abstract: | Exchange rate movements affect the economy through changes in net exports, i.e. the trade channel, and through valuation changes in assets and liabilities denominated in foreign currencies, i.e. the financial channel. In this paper, I investigate the macroeconomic and financial effects of U.S. dollar (USD) exchange rate fluctuations in small open economies. Specifically, I examine how the financial channel affects the overall impact of exchange rate fluctuations and assess to what extent foreign currency exposure determines the financial channel’s strength. My empirical analysis indicates that, if foreign currency exposure is high, an appreciation of the domestic currency against the USD is expansionary and loosens financial conditions, which is consistent with the financial channel of exchange rates. Moreover, I estimate a small open economy New Keynesian model, in which a fraction of the domestic banks’ liabilities is denominated in USD. In line with the empirical results, the model shows that an appreciation against the USD can be expansionary depending on the strength of the financial channel, which is linked to the level of foreign currency exposure. Finally, the model indicates that the financial channel amplifies the effects of foreign monetary policy shocks. JEL Classification: E44, F31, F41 |
| Keywords: | exchange rates, financial and trade channels, local projections - instrumental variable, open economy DSGE model |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222739&r= |
| By: | Sam Z. Njinyah (Manchester Metropolitan University, UK); Sally Jones (Manchester Metropolitan University, UK); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | The performance of small and medium size enterprises (SMEs) is an important determinant of economic development, especially in developing countries like Cameroon. However, due to financial constraints, SMEs in Cameroon do face significant challenges to exporting, which affect their export performance. Many SMEs develop relationships with financial institutions to benefit from loans to overcome export barriers. However, there is no evidence as to whether such benefits help them overcome the limitations of their financial constraints to improve their export performance. Using data from the World Bank Enterprise Survey 2016 in Cameroon, we examine the moderation effect of loans as a benefit of networks on the relationship between financial constraints and export performance for SMEs in Cameroon using regression analysis. Our results show that financial constraints negatively affect export performance. The moderation effect was significant but negative which means the benefit of network (loans) was not enough to offset the negative effect of financial constraints on export performance. Studies on export barriers and export performance for SMEs in Cameroon are scarce and our research provides some policy and managerial implications to help SME exporting in Cameroon. |
| Keywords: | Export barriers, Lack of finance, Network, Export performance, and Cameroon |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:22/073&r= |
| By: | Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, 69100, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA) |
| Abstract: | In this paper we examine the effect of permanent inflation shocks on real interest rates, based on a structural Time-Varying Parameter Vector Autoregression (TVP-VAR) model that account for parameter instability. This is important since we use over 700 years of annual data that covers the entire economic history for France, Germany, Holland (the Netherlands), Italy, Japan, Spain, the United Kingdom (UK) and the United States (US), going as far back as 1310. Based on the responses of real interest rates to an inflation shock, the Fisherian hypothesis of a one-to-one movement of inflation to nominal interest rates can only be rejected episodically, in favour of a Mundell-Tobin effect of less than proportional increase in the nominal interest rate to an inflation shock. In other words, generally speaking, real interest rate in the long-run tends to be unaffected by inflation shocks, as derived from longest possible data samples of real interest rates and inflation for the advanced economies considered. Hence, the results in the existing literature based on post World War II samples, should be treated with caution due to the possibility of sample selection bias. Our findings, that real interest rates might not necessarily be a monetary phenomenon, have important policy implications in the current context of rising global inflation rates. |
| Keywords: | Inflation, Real interest rate, TVP-VAR |
| JEL: | C32 E31 E43 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202245&r= |
| By: | Cahen-Fourot, Louison |
| Abstract: | First, I update and wrap up the discussion on a monetary growth imperative, namely the argument that debt-money bearing interest triggers real GDP growth. I provide a detailed account of the different versions of the argument and show why none of them hold. In all cases, the argument is shown to be inconsistent in macro-accounting terms or to be at odds with the functioning of the monetary system. The general solution to the monetary growth imperative is that a sufficient share of wealth must be put back in circulation, for example via higher consumption out of wealth or taxation. Moreover, I show that a monetary growth imperative could equally well occur in an economy without debt-money or interest. However, the solution to the monetary growth imperative entails a sustainability paradox: more wealth put back in circulation allows to reach a stable full stationary state but may be environmentally unsustainable. I also highlight convergences between the critique of the monetary growth imperative and the monetary circuit literature. Second, I address the criticism that no net wealth accumulation is unrealistic. It requires to explain why there is accumulation in the first place. Building from post-Keynesian and institutionalist perspectives, I argue that we need to locate the analysis at the level of the definitional social relations of capitalism: market exchange and wage labour. Growth imperatives are emerging properties of these two social relations. I develop a critique of steadystate economics and underline the ontological difference between a zero-growth capitalism and a post-growth economy. |
| Keywords: | growth imperative,capitalism,paradox of profit,ecological macroeconomics,post-growth |
| JEL: | E21 E24 E43 B52 P1 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:penwps:012022&r= |
| By: | Gbatsoron Anjande; Simeon T Asom; Ngutsav Ayila; Bridget Ngodoo Mile; Victor Ushahemba Ijirshar |
| Abstract: | This study examines the roles of government spending and money supply on alleviating poverty in Africa. The study used 48 Sub-Saharan Africa countries from 2001 to 2017. The study employed one step and two-step system GMM and found that both the procedures have similar results. Different specifications were employed and the model selected was robust, with valid instruments and absence of autocorrelation at the second order. The study revealed that government spending and foreign direct investment have significant negative influence on reducing poverty while money supply has positive influence on the level of poverty in the region. The implication of the finding is that monetary policy tool of money supply has no strong influence in combating the menace of poverty. The study therefore recommends that emphasis should be placed on increasing more of government spending that would impact on the quality of life of the people in the region through multiplier effect, improving the financial system for effective monetary policy and attracting foreign direct inflows through enabling business environment in Africa. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2209.14443&r= |
| By: | Mariusz Kapuściński (Narodowy Bank Polski) |
| Abstract: | In this study I analyse the effects of the transition to higher actual regulatory capital ratios due to the tightening of capital regulations in Poland. In contrast to earlier studies for this economy, as a measure of capital regulations I directly use minimum regulatory capital ratios. I focus on the impact on bank lending and GDP. I apply Bayesian panel vector autoregressive models to bank-level data. I find that the tightening of capital regulations lowers bank lending and GDP for at least one out of two analysed minimum regulatory capital ratios. This implies that capital regulations are an effective prudential policy tool in Poland. I also illustrate, as the starting point for the choice of a research design, the threats of not distinguishing capital regulation shocks from capital shocks. Finally, I attempt to identify non-linearities in the effects of changes in capital regulations. |
| Keywords: | capital regulations, bank lending, Bayesian panel vector autoregressive models, panel data, macroprudential policy |
| JEL: | E69 E51 G21 C33 C11 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:350&r= |
| By: | Rojas Alvarado,Luis Diego; Vegh,Carlos; Vuletin,Guillermo Javier |
| Abstract: | This paper analyzes the macroeconomic effects of macroprudential policy—in the form of legalreserve requirements—in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identifyinnovations in changes in legal reserve requirements, a narrative approach—based on contemporaneous reports from theIMF and central banks in the spirit of Romer and Romer (2010)—is developed in which each change is classified intoendogenous or exogenous to the business cycle. This distinction is critical in understanding the macroeconomiceffects of reserve requirements. In particular, while output falls in response to exogenous increases in legal reserverequirements, it is not affected when using all changes and relying on traditional time-identifying strategies. Thisbias reflects the practical relevance of the misidentification of endogenous countercyclical changes inreserve requirements. The empirical frontier is also pushed along two important dimensions. First, in measuring legalreserve requirements, both the different types of legal reserve requirements in terms of maturity and currency ofdenomination as well as the structure of deposits are taken in account. Second, since in practice reserve requirementpolicy is tightly linked to monetary policy, the study jointly analyze the macroeconomic effects of changes incentral bank interest rates. To properly identify exogenous central bank interest rate shocks, the Romer and Romer(2004) strategy is used. |
| Date: | 2022–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10145&r= |
| By: | Simona Malovana; Martin Hodula; Zuzana Gric; Josef Bajzik |
| Abstract: | The ever-increasing use of borrower-based measures such as loan-to-value, debt-to-income, and debt service-to-income limits has created a demand to better understand the transmission and effectiveness of such policy. In this paper, we collect more than 700 estimates from 34 studies on the effect of borrower-based measures on bank loan provision. A birds-eye view of our dataset points to significant fragmentation of the literature in terms of the estimated coefficients. On average, the introduction or tightening of borrower-based measures reduces annual credit growth by 1.6 pp. Using a battery of empirical tests, we verify the presence of a strong publication bias, especially against positive and statistically non-significant estimates. The bias-corrected coefficient is about half the size of the uncorrected mean of the collected estimates but remains safely negative. Further, we explore the context in which researchers obtain such estimates and we find that differences in the literature are best explained by model specification, estimation method, and underlying data characteristics. |
| Keywords: | Bayesian model averaging, borrower-based measures, macroprudential policy, meta-analysis, publication bias |
| JEL: | C83 E58 G21 G28 G51 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2022/8&r= |
| By: | Ortega Nieto,Daniel; Hagh,Ariya; Agarwal,Vivek |
| Abstract: | Can an implementation-driven analysis of project success be used as a more granular instrument forassessing the effectiveness of World Bank project By focusing on how projects perform, this paper attempts tocapture variation hitherto unexplored in the aid effectiveness literature. This offers greater precision fordiagnosing implementation challenges throughout the project cycle, producing a cross-cutting instrument that reachesacross country-, time-, and sector- based approaches. Using data from the Global Delivery Initiative's “DeliveryChallenges in Operations for Development Effectiveness” database and indicators from more than 5,000 lendingprojects (1995 – 2015), the paper examines project performance and the achievement of development objectivesacross 42 specific delivery challenges. Bayesian model averaging is used for a holistic assessment of the relativeimpacts of each challenge alongside a battery of structural and contextual covariates. The findings show that issues ofproject design, ineffective monitoring, and weak organizational capacity have systematically hindered theWorld Bank's performance and achievement of the indicators. Conversely, while financial instability andweaknesses in stakeholder engagement can hinder success, their identification and treatment ultimately improvesproject performance. |
| Date: | 2022–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:10144&r= |
| By: | Githinji Njenga; Josphat Machagua; Samwel Gachanja |
| Abstract: | Capital markets facilitate capital growth by mobilizing savings and converting them into investments, and they are therefore a stimulant of economic growth. There is evidence that countries with high savings rates tend to grow faster. Although most sub-Saharan Africa countries recognize the importance of local capital markets and have made efforts to develop them, they have not fully reaped the expected benefits. Hence the need for interventions to accelerate capital market development. |
| Keywords: | Capital market, Domestic savings, Investments, Saving and investment, Small and medium enterprises, Private sector |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2022-112&r= |
| By: | Meera Narayanaswamy; Fedor Miryugin |
| Keywords: | Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Capital Markets and Capital Flows Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - Non Bank Financial Institutions Private Sector Development - Emerging Markets Private Sector Development - Private Sector Economics |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:35053&r= |
| By: | Facundo Abraham; Juan J. Cortina; Sergio L. Schmukler |
| Keywords: | Finance and Financial Sector Development - Capital Markets and Capital Flows |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:35193&r= |
| By: | Silva, Thiago; Souza, Sérgio; Guerra, Solange; Tabak, Benjamin |
| Abstract: | The literature measures a bank's market power using aggregated data at the bank level. However, market power may be exercised in a decentralized way by each bank branch and for specific banking products. This article proposes a novel methodology for estimating a bank's market power at the branch level in each locality and for each banking product. We find significant heterogeneity in banks' market power by locality and product, even within the same bank. Our results suggest that aggregate measures of bank market power may be misleading and distorted. Accurate quantification of market power requires fine-grained measures, which are essential for enhancing financial regulation and competition. |
| Keywords: | market power, Lerner index, competition, credit market, COVID-19 |
| JEL: | C51 G20 G21 L11 |
| Date: | 2022–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114766&r= |
| By: | Emmanuel Mourlon-Druol; Aliénor Cameron |
| Abstract: | This paper analyses the geographical evolution of banking centres since 1970, based on The Banker’s ranking of the world’s top commercial lending banks. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:node_8106&r= |
| By: | World Bank Group |
| Keywords: | Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Finance and Financial Sector Development - Banks & Banking Reform Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Financial Regulation & Supervision |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:35120&r= |