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on Financial Development and Growth |
| By: | Finkelstein-Shapiro, Alan; Mandelman, Federico S.; Nuguer, Victoria |
| Abstract: | Financial inclusion is strikingly low in emerging economies. In only a few years, financial technologies (fintech) have led to a dramatic expansion in the number of non-traditional credit intermediaries, but the macroeconomic and credit-market implications of this rapid growth of fintech are not known. We build a model with a traditional banking system and endogenous fintech intermediary creation and find that greater fintech entry delivers positive long-term effects on aggregate output and consumption. However, greater entry bolsters aggregate firm financial inclusion only if it stems from lower barriers to accessing fintech credit by smaller, unbanked firms. Decreasing entry costs for fintech intermediaries alone has only marginal effects in the aggregate. While firms that adopt fintech credit are less sensitive to domestic financial shocks and contribute to a reduction in output volatility, greater fintech entry also leads to greater volatility in bank credit, thereby introducing a tradeoff between output volatility and credit-market volatility. |
| JEL: | E24 E32 E44 F41 G21 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:11895&r=fdg |
| By: | triyawan, andi |
| Abstract: | Economic growth became the topic of discussion that is important in the country's economy (Manzoor, et., al., 2019; Urbano, et. al, 2019; Susilawati, et, al, 2020). Economic growth is seen as the long-term macroeconomic problem, which has been seen as the benchmark for its economic development. Economic growth is a form of development of economic activities that increase the production of goods and services (Ivanović-Djukić, et, al. 2018; Sherwood, 2019). The main component of economic growth is the accumulation of capital, which covers all types of investment in the capital; population growth will contribute to the total labor force; and support the advancement of technology (Sukirno, 2015). Gross Domestic Product (GDP) is one of indicator for determining the country's economic state and development. GDP is the total value of final goods and services produced by all monetary units (Center Bureau of Statistics, 2021). The economy will grow if the total production of goods and services in a given year is higher than in the previous year. The economic growth rate of Indonesia's GDP fluctuates between 2014 and 2020. |
| Date: | 2022–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:rk5n9&r=fdg |
| By: | Rashad Ahmed; Menzie D. Chinn |
| Abstract: | This paper shows that foreign term spreads constructed from bond yields of non-U.S. G-7 constituents predict future U.S. recessions and that foreign term spreads are stronger predictors of U.S. recessions occurring within the next year than U.S. term spreads. U.S. and foreign term spreads are both informative of the U.S. economy but over different horizons and for different components of economic activity. Smaller U.S. term spreads lead to smaller foreign term spreads and U.S. Dollar appreciation. Smaller foreign term spreads do not lead to significant U.S. Dollar depreciation but do lead to persistent declines in U.S. exports and FDI flows into the United States. These findings are consistent with the proposition that foreign term spreads embed growth spillovers from the U.S. and the resulting Dollar strength and slowdown abroad spill back to the United States. |
| JEL: | E43 F30 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30737&r=fdg |
| By: | Michael Gurkov (Bank of Israel); Osnat Zohar (Bank of Israel) |
| Abstract: | We estimate the distribution of future GDP growth given current financial and macroeconomic conditions. The distribution is generally symmetric, indicating that upside and downside risks are balanced. Its dispersion, which captures forecast uncertainty, rises when the median forecast decreases. The model allows us to study the connection between financial variables and GDP growth. We find that accommodative financial conditions, either in the local or the global economy, contribute to downside risks to growth within three years. |
| Keywords: | downside risks, macro-financial linkages, volatility paradox |
| JEL: | E17 E32 E44 G1 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2022.08&r=fdg |
| By: | Kohler, Karsten; Tippet, Ben; Stockhammer, Engelbert |
| Abstract: | The paper provides a framework for theorising the role of house price cycles in national growth models. We synthesise Minskyan approaches with comparative political economy (CPE) by arguing that institutions influence the extent to which countries experience what we call 'house price-driven growth models'. First, we argue that house price dynamics have been undertheorized in existing growth models analysis. Finance-led models can be properly understood only against the background of rising house prices that stimulate consumption through wealth effects and investment through construction. Second, we identify behavioural and Minskyan theories of housing cycles as suitable frameworks to theorise the impact of housing on growth. However, this literature does not provide an analysis of cross-country differences in housing cycles. Third, drawing on the CPE literature on housing systems, we argue that institutions such as homeownership rates and mortgage-credit encouraging institutions can explain differences in the intensity of housing cycles. We provide preliminary empirical support for this framework from a cross-country analysis. Our results show strong cross-country heterogeneity in the intensity of housing cycles. Countries with more intense house price cycles also tend to exhibit more volatile business and debt cycles. Homeownership rates and mortgage-credit encouraging institutions are positively correlated with the volatility of house price cycles. |
| Keywords: | Post-Keynesian Economics,Comparative Political Economy,growth models,housing,house price cycles |
| JEL: | E32 O57 R21 R31 B52 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1942022&r=fdg |
| By: | Woodgate, Ryan |
| Abstract: | This paper develops two Sraffian supermultiplier models of two different kinds of economies that are dependent upon foreign direct investment (FDI): the "export platform FDI-led" growth model and the "tax haven FDI-led" growth model. The former is driven by the growth of the exports of foreign-owned firms and is associated with greenfield FDI inflows, whereas the latter is driven by the growth of profits booked at foreign-owned shell companies that are partly absorbed through taxation and is associated with intangible FDI inflows. The two models achieve demand, output, and income growth via fundamentally different channels yet appear similarly export-led given how profit shifting artificially inflates the net exports of tax havens. Based on these models, a set of empirical indicators are proposed to differentiate exportplatform from tax haven economies. In contrast to Bohle/Regan (2021), who characterise output growth in both Hungary and Ireland as being led by the exports of foreign-owned firms, the model and indicators proposed here support the hypothesis that Ireland is closer to the tax haven FDI-led growth model. |
| Keywords: | Foreign direct investment,growth model,multinational corporation,tax haven |
| JEL: | E12 P44 F21 F23 F62 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1982022&r=fdg |
| By: | Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam) |
| Abstract: | The paper investigates the term structure of foreign direct investment into Vietnam economy by dividing the short-term, medium-term and long-term contribution on the domestic economic growth. The data is an annual sample of Vietnam economy over 2007-2021. The empirical evidence records that the foreign direct investment stimulates the domestic economic growth by promoting the net exports in the medium-term and by the capital accumulation process in the long-term. In the short-term, the foreign direct investment also provides the foreign currency, which affect directly the equilibrium foreign exchange rate. Therefore, the foreign direct investment is a crucial growth engine for the Vietnam economy. The evidence suggests that the foreign direct investment can be a priority for the public policy to enhance the domestic economic growth rate. Beside the domestic sector, including the state-owned firms and private firms, the foreign direct investment needs to be managed so that its contribution to domestic economic growth is maximized. |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03863069&r=fdg |
| By: | Vrolijk, Kasper |
| Abstract: | Many governments adopt policies and actively compete to attract foreign direct investment (FDI). Particularly for lower-income countries, attracting FDI - and with it the benefits of cooperating with multi-national enterprises (MNEs) - is a promising strategy for participating in global supply chains and increasing local firm productivity. However, empirical findings show contrasting effects and there is heated debate over FDI's advantages and drawbacks. The current trend to rising market concentration also begs the question: Have FDI effects changed in recent years? This Policy Brief aims to address these questions by studying FDI and what the apparent growth in market concentration implies. Although foreign investment theoretically raises productivity, creates employment and offers many other benefits, the empirical evidence is not unequivocal. Initial coarse country-level data found that receptivity to FDI raises the host country's economic growth. But later research used more detailed sector data and showed ambiguous effects (Görg & Greenaway, 2004). New microdata confirm that FDI effects are differential: Not all workers and households benefit equally. They also showcase the different ways in which MNEs and FDI benefit firms, workers and households in host countries. Recently, superstar firms, which capture large shares of industries and thereby increase market con-centration, have emerged. Linked to reduced national economic dynamism and evident in global markets, the rise of superstar firms could negatively impact on FDI effects. They differ from MNE competition effects and confer market power so that MNEs can determine prices and wages. This trend toward rising market concentration is observed across multiple sectors and has several possible causes, such as technological and legal factors. A literature survey reveals a lack of evidence about how rising concentration in global markets is affecting FDI gains. However, other evidence suggests that the positive spillovers to domestic firms may well be lower, with higher market concentration negatively affecting wages and employment. The following takeaways can be derived for policy-making: 1. Integrate competition policy: Competition effects should be considered when evaluating FDI and policies should be introduced to ensure competitive practises after FDI entry. 2. Improve monitoring: Collect data on competi-tive forces and how they change when MNEs enter host economies. 3. Absorb regressive effects: Introduce social benefits to counter the potential mixed effects of FDI and MNE market power. |
| Keywords: | Trade & investment,FDI |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:idospb:122022&r=fdg |
| By: | Tihana Škrinjarić (Hrvatska narodna banka, Hrvatska); Maja Bukovšak (Hrvatska narodna banka, Hrvatska) |
| Abstract: | The countercyclical capital buffer (CCyB) is a key macroprudential policy instrument, whose purpose is to create additional capital in the periods of increasing cyclical risks in order to provide banks with enough space for continued smooth lending during a crisis. In the pre-crisis period, the CCyB’s purpose can be to indirectly mitigate excessive lending. The calibration of the CCyB starts with the estimation of a credit gap based on statistical filters contrasting the long-term credit activity with the economic activity in order to assess the extent to which current dynamics deviates from the equilibrium. Due to a series of problems that occur in practice, this research examines options for improving credit gap estimation, assessed using the criterion of quality of crisis signalling in a historical sample and expert judgement. The main findings of the research suggest that credit and GDP series should be filtered separately, assuming that the credit cycle lasts longer than the business cycle and that the lack of knowledge about the exact duration of the credit cycle can be remedied by estimating a range of possible credit gaps. The new indicators proposed in the research were found to send earlier signals of the occurrence of crisis and are more stable than the previously used national specific indicators. All this allows for an earlier and more gradual build-up of countercyclical capital buffers, which would be less subject to change. |
| Keywords: | credit gap, statistical filters, macroprudential policy, systemic risk, countercyclical capital buffer. |
| JEL: | C18 E32 E58 G01 G2 |
| Date: | 2022–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:hnb:wpaper:69&r=fdg |
| By: | Gabriel Jiménez; Dmitry Kuvshinov; José-Luis Peydró; Björn Richter |
| Abstract: | We show that U-shaped monetary policy rate dynamics are strongly associated with financial crisis risk. This finding holds both in long-run cross-country macro data covering many crises and monetary policy cycles, and in detailed micro, administrative data covering the post-1995 period in Spain. In the macro data, we find that pre-crisis monetary policy follows a U shape, with policy rates first cut and then increased over the 7 years before the onset of the crisis. This U shape holds across a wide variety of crisis definitions, short-term rate measures, and becomes stronger after World War 2. Differently, even though inflation and real rates show some of these dynamics before a crisis, these results are much less robust. The patterns are also much weaker when it comes to long-term rates and non-crisis recessions. We show that monetary policy rate hikes (both raw, and instrumented using the trilemma IV of Jordà et al, 2020) increase crisis risk, but, different to previous studies, we show that this effect is driven by rate hikes which were preceded by a series of cuts. To understand why U-shaped monetary policy is linked to crises, we show that the initial loosening of policy is followed by high growth in credit and asset prices, putting the economy into a vulnerable financial "red zone''. After the subsequent monetary tightening these vulnerabilities materialize, leading to larger-than-usual declines in credit, asset prices, and real activity. To dig into the underlying mechanisms, we use administrative data on the universe of bank loans and defaults during the 1990s and 2000s boom-bust cycles in Spain. Consistently, we find that U-shaped monetary policy increases the probability of ex-post loan defaults, but effects are much stronger for ex-ante riskier firms and for banks with weaker balance sheets. Overall, our paper shows that monetary policy dynamics have important implications for financial stability. |
| Keywords: | monetary policy, financial stability, financial crises, credit, asset prices, banks, macro-finance |
| JEL: | E51 E52 E44 G01 G21 G12 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1378&r=fdg |
| By: | Nuno Palma; Carolyn Sissoko |
| Abstract: | We present a detailed study of the Seven Years' War (1756–1763) using a new dataset based on the Bank of England minutes. We argue that the war and associated Bank of England actions led to a transformation of the financial system. Additionally, while there was short-term crowding out of private investment when interest rates rose due to the issue of war-related government debt, in the long-run there was crowding in: higher government spending led to an increase in private sector investment. |
| Keywords: | Bank of England; City of London; discount market; interest rates; crowding in; financial history |
| JEL: | N13 N23 N43 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:2211&r=fdg |
| By: | Galizia, Federico; Perraudin, William; Powell, Andrew; Turner, Timothy |
| Abstract: | Long-term development finance provided by Multilateral Development Banks (MDBs) is key to advancing the United Nations 2015 Sustainable Development Goals. However, MDBs are constrained in their lending by the availability of capital. This paper argues that Risk Transfer, as a complement to equity injections, could permit higher MDB lending by attracting a broader class of investors. We describe selected examples of actual Risk Transfer transactions and provide estimates of the potential expansion in lending these techniques could yield. But we also identify obstacles that limit investors willingness and ability to participate in these transactions. Therefore, we recommend an agenda for international policymakers to open the way for the wider use of Risk Transfer. Still, we recognize this will be a gradual process which cannot substitute for MDB expansion through additional ordinary capital resources. |
| JEL: | F53 O16 G15 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:11733&r=fdg |
| By: | Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam) |
| Abstract: | The paper analyzes the interaction between the financial economy and real economy on a data sample of 185 economies over 1990-2019. In particular, the financial economy mentions to the value of financial markets, including the bonds, debts, securities and related assets, while the real economy is based on the production capacity of an economy. Methodology: The research methodology is based on a quantitative analysis. This method carries out the graphical and data analysis, then, derives main princinple underlying the interaction between the financial and real economy. Findings: The evidence shows that the financial economy can have various correlation pattern with the real economy. There exists a non-linear dependence pattern of economic growth on the stock market value per GDP and a negative correlation of domestic credit to private sector with the economic growth. Implications: The empirical evidence suggests that the financial economy does not necessary illustrate the production capacity but mainly illustrates the expectation by the households and investors. Thus, an appropriated policy can be the participation of government to provide useful information to drive and stablize the financial markets, especially during the recession time period. |
| Keywords: | Financial Economy,Real Economy,Quantitative Analysis |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03863210&r=fdg |
| By: | Michael Gurkov (Bank of Israel) |
| Abstract: | This paper studies the relationship between the synchronization of financial cycles and financial integration using data on 30 OECD countries. The results suggest that the relationship is state-dependent: While financial integration acts as a “shock absorber” during normal times, the findings indicate that it facilitates “shock propagation” during financial crises. Overall, the findings show that while financial integration may be desired because it may facilitate risk diversification, additional macroprudential measures may be warranted to account for the risk exposure during times of crisis. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2022.17&r=fdg |
| By: | Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam) |
| Abstract: | The paper investigates the jointly dynamics of international trade cycle and financial cycle in the Vietnam economy. The data is a time-series sample of Vietnam economy over the 1995-2021 time period. And the research objective is to analyze the co-movement of foreign trade and financial cycle, incorporating the recent Covid-19 pandemic. Methodology: The research methodology combines both qualitative analysis with quantitative one. In particular, the qualitative analysis reviews the recent literature on the global trade and financial cycle, with a focal point on the developing economies. Then, the quantitative analysis considers the time-series analysis of Vietnam economy, as one typical small open economy. Findings: The global trade and financial cycle are considered as a central role within the current international monetary system. The trade cycle can be effective in the short and medium term while the financial cyle exists for a longer term. In the Vietnam economy, the trade and financial cycle co-moves closedly, especially during the time period of structural break such as Covid-19 pandemic. Implications: The results uncover that the public policy needs to be adjusted according to the points in the global trade and financial cyle. The policy at the peak of cycle can be tightened while the policy at the trough of cycle needs to be expanded. And the policy at both the peak and trough needs to be accompanied with an excellent communication to the whole economy. |
| Keywords: | Global Trade Cycle,Financial Cycle,Quantitative Analysis,Qualitative Analysis,Vietnam economy |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03863141&r=fdg |
| By: | Jason Choi; Rishabh Kirpalani; Diego J. Perez |
| Abstract: | The US government is the dominant supplier of global safe assets and faces a downward-sloping demand for its debt. In this paper, we ask if the US exercises its market power when issuing debt and study its macroeconomic consequences. We develop a model of the global economy in which US public debt generates a non-pecuniary value for its holders, analyze the equilibrium in which the US government is the monopoly provider of this safe asset, and contrast this case with the one in which the US government acts as a price taker. We use variation in estimated demand elasticities for US debt during high- and low-volatility regimes to empirically distinguish between these two models and find that the data reject the price-taking behavior in favor of the monopoly one. We then quantify the distortions due to market power and find that it generates a significant underprovision of safe assets, a sizable markup in the convenience yield, and large welfare benefits for the US to the detriment of the rest of the world. Finally, we study the implications of increasing competition in safe assets from other sovereigns and private institutions. |
| JEL: | E6 F3 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30720&r=fdg |
| By: | Daniel Carvalho (Banco de Portugal) |
| Abstract: | This paper provides two main contributions. First, it proposes a measure of intra-financial assets, i.e., financial assets within the financial sectors, and documents the rapid growth of these claims in European countries. Second, it looks at the relationship of total and intra-financial assets of banks and non-banks and credit provided to the non-financial sectors. Results show that while total assets of both banks and non-banks are strongly associated with loans to non-financial corporations and households, intra-financial assets of banks are associated with loans to non-financial corporations only and intra-financial assets of non-banks with loans to households. |
| Keywords: | Banksandnon-banksinterconnectedness, credit, finance-growthnexus |
| JEL: | F36 G10 G21 G23 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0622&r=fdg |
| By: | Kang, Shulong; Dong, Jianfeng; Yu, Haiyue; Cao, Jin; Dinger, Valeriya |
| Abstract: | This paper investigates how government-led banking liberalization affects credit allocation by banks using as a quasi-natural experiment the establishment of city commercial banks (CCBs) in China. Based on more than three million corporate financial statements spanning over 16 years, we find that the establishment of CCBs led to a 6-14 % drop in debt funding for private firms, as well as a 1-2 % rise in their funding costs. At the same time, private infrastructure firms enjoyed a nearly 6 % increase in debt funding and more than 100-basis-point drop in interest costs despite their inferior credit quality. The debt financing of private firm appears most severely affected in municipalities where officials face high promotional pressures or fiscal constraints. |
| Keywords: | banking liberalization,city commercial banks,bank lending,credit allocation,political economy in banking |
| JEL: | D7 G21 G32 G38 P2 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:bdp2021_004&r=fdg |
| By: | Max Berre (Audencia Business School); Benjamin Le Pendeven (Audencia Business School) |
| Abstract: | How do business-cycles impact startup-valuations? While several studies explore VC startupecosystems and pre-money valuations, relatively-few delve deeper into the role of macro-level economic factors in influencing those startup deals valuations. Using a dataset of 1,089 venturecapital investments in European Union and European Economic Area markets, this article examines macroeconomic, cyclical and macro-sectoral influences on VC startups pre-money VC valuations. Our findings show that business-cycles impact startup-valuation both directly and indirectly. Beyond DCF factors, startup-valuations are impacted via by business-cycles directly, and via local venture-capital market-size. By using a Structural Equation Model approach, our findings contribute to entrepreneurship and financial-intermediary literature by exploring indirect and endogenous relationship possibilities finding that most determinants are transmission-channels rather than independent drivers. Our findings effectively tie-together startup-valuations, intermediary markets, and macroeconomic determinants. |
| Keywords: | Valuation Startup Venture Capital Entrepreneurial Finance Business-cycle Structural Equation Model,Valuation,Startup,Venture Capital,Entrepreneurial Finance,Business-cycle,Structural Equation Model |
| Date: | 2022–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03872889&r=fdg |
| By: | POSTI, LOKESH; KHOLIYA, MAMTA; POSTI, AKHILESH KUMAR |
| Abstract: | The study investigates the differential impact of various sources of finance on informal firm performance. In the informal sector, where access to finance is limited, we investigate how productivity varies with different sources of finance. Given the data limitations, a pseudo-panel data design was used by combining the three only available, independent cross-sectional surveys conducted by the National Sample Survey Office between 1999-2000 and 2015-16. Using formal and informal credit as two different sources of finance and total factor productivity (TFP) as the primary measure of firm performance, we find a positive relationship among them across all major industries; however, the impact of formal finance was higher than informal credit. Our results stand robust against alternative performance measures. Additionally, to address endogeneity concerns, dynamic panel data analysis was adopted. Obtained findings convey essential policy implications for intensification of financial inclusion and financial literacy. |
| Keywords: | Informal Sector, Finance, Credit, Total Factor Productivity, Pseudo Panel, India |
| JEL: | D2 L21 L25 M2 O14 |
| Date: | 2022–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115550&r=fdg |
| By: | Sam Njinyah (Manchester Metropolitan University, UK); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | The purpose of this paper is to examine the relationship between a firm starting operation informally and its future innovation and whether this relation is moderated by institutional support (having access to finance from financial institutions to run their business). Data from the World Bank Enterprise Survey on 30 Eastern European and South-East Asian countries were analysed using probit regression analysis. The findings show that there is a positive significant relationship between firms that start operations informally and the firms’ innovation and that such effect persists over time. We found that this relationship is stronger if the firms can gain access to finance to expand their business activities. Finally, our result shows that such a relationship is based on the type of innovation being pursued by the firm. By examining the moderation effect of access to finance on starting a business informally, we provide an alternative explanation to policymakers on how to deal with informal firms to benefit from their contribution to growth. |
| Keywords: | Informality/unregistered firms, Innovation, Institutions, and Eastern European and South East Asia |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:22/099&r=fdg |
| By: | Wang, Yijing |
| Abstract: | Contrary to the renowned irrelevance theory proposed by Modigliani and Miller in 1961, empirical evidence suggests that assets that pay dividends command a price premium, despite the fact that dividend payments are generally taxed more heavily than capital gains. In this paper, I use a monetary-search model and propose a new resolution to this puzzle, based on the idea that the price premium of dividend assets arises due to the superior liquidity role played by dividends compared to returns in the form of capital gain. As dividend is virtually identical to money in facilitating transactions, it helps stockholders avoid selling their assets at an undesirable price in financial markets with frictions and trading delays. The paper provides a number of theoretical results that find support in the data. I also study firms’ optimal decision to pay dividends, and show that an increase in the interest rate can hurt the economy not only through the traditional channel, i.e., reduction in real money holdings, but also through the reduction in aggregate R&D activities. |
| Keywords: | Dividend Puzzle, Search and Matching, Asset Liquidity, Over-the-Counter Markets |
| JEL: | E40 E44 E50 G11 G12 |
| Date: | 2022–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115560&r=fdg |
| By: | Ganau, Roberto; Rodríguez-Pose, Andrés |
| Abstract: | We analyse the investment-to-cash flow relationship in Europe using a sample of manufacturing small- and medium-sized enterprises (SME) over the period 2009–2016. We investigate the effect of regional institutional quality on the investment-to-cash flow sensitivity, finding that, although credit constraints remain a serious problem for European SMEs, high-quality regional institutions contribute to mitigate the dependency on internally-generated resources to finance new investments. Improvements in local institutional quality can therefore facilitate SMEs’ access to credit–e.g. through inter-firm trade credit relationships –, but are insufficient to overcome the credit restrictions faced by European SMEs. |
| Keywords: | credit constraints; small- and medium-sized firms; manufacturing industry; institutional quality; Europe |
| JEL: | C23 R50 |
| Date: | 2022–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112487&r=fdg |
| By: | Hernandez, Carlos Eduardo; Tovar, Jorge; Caballero/Argáez, Carlos |
| Abstract: | The resilience of firms to industry-wide shocks has positive externalities in industries with systemic risk, such as banking. We study the resilience of banks to macroeconomic slowdowns in a context of lax microprudential regulations: Colombia during the 1980s. Multiple banks performed poorly during the crisis due to practices that tunneled resources from depositors to shareholders and board members. Such practices —related lending for company acquisitions, loan concentration, and accounting fraud— were enabled by power concentration and links with political power among local banks. In contrast, foreign-owned banks performed relatively well during the crisis due to three factors: (i) foreign-owned banks imported governance institutions and lending procedures from their headquarters, (ii) foreign-owned banks were not part of local business groups with concentrated ownership, and (iii) foreign-owned banks were ex-ante less likely to receive a bailout from the government. These factors continued to be relevant into the 1980s, even though the Colombian government had forced foreign banks to become minority stakeholders of their subsidiaries in 1975. |
| Keywords: | Banking, Tunneling, Related Lending, Financial Crises, Foreign Banks |
| JEL: | G21 G28 G30 G33 N26 |
| Date: | 2022–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115662&r=fdg |
| By: | Saka, Orkun; Ji, Yuemei; De Grauwe, Paul |
| Abstract: | We first present a simple model of post-crisis policymaking driven by both public and private interests. Using a novel dataset covering 94 countries between 1973 and 2015, we then establish that financial crises can lead to government interventions in financial markets. Consistent with a public interest channel, we find post-crisis interventions occur only in democratic countries. However, by using a plausibly exogenous setting -i.e., term limits- muting political accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that may promote (obstruct) private (public) interests. |
| Keywords: | Financial crises,reform reversals,democracies,term-limits,special-interest groups |
| JEL: | G01 G28 P11 P16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:bdp2021_010&r=fdg |
| By: | Hasan, Iftekhar; Krause, Thomas; Manfredonia, Stefano; Noth, Felix |
| Abstract: | This paper shows that local banking market conditions affect mortality rates in the United States. Exploiting the staggered relaxation of branching restrictions in the 1990s across states, we find that banking deregulation decreases local mortality rates. This effect is driven by a decrease in the mortality rate of black residents, implying a decrease in the black-white mortality gap. We further analyze the role of mortgage markets as a transmitter between banking deregulation and mortality and show that households' easier access to finance explains mortality dynamics. We do not find any evidence that our results can be explained by improved labor outcomes. |
| Keywords: | Banking Deregulation, Mortality, Racial Inequality |
| JEL: | G21 I14 I15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:142022&r=fdg |
| By: | Lai, Tat-kei; Wang, Luhang |
| Abstract: | In China, the relative wages of high-skilled and low-skilled workers display huge variation across different regions. We examine whether financial intermediation development can explain such variation. Conceptually, better-developed financial intermediation helps financially-constrained firms raise new capital, which is usually skilledbiased, resulting in an increased demand for skilled labor and skill premium. Using a cross-section of workers from the 1% Population Survey of 2005, we find consistent evidence; besides, the relationship is stronger among workers in industries with higher capital-skill complementarity and in non-state-owned enterprises. Overall, our results suggest that the financial market plays a role in explaining skill premium in China. |
| Keywords: | Financial intermediation,Misallocation,Skill premium,China |
| JEL: | J24 J31 O11 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:bdp2022_006&r=fdg |
| By: | Peter Grajzl; Peter Murrell |
| Abstract: | We generate and analyze data pertinent to the role of caselaw in England's economic development during the Industrial Revolution. Applying topic modeling to a corpus of 67,455 reports on English court cases, we construct annual time series of caselaw developments between 1765 and 1865. We then add a real per-capita GDP series to our caselaw series and estimate a structural VAR. Caselaw shocks account for more of the variability in per-capita GDP than do shocks directly to per-capita GDP. The response of per-capita GDP to caselaw innovations critically depends on the legal domain. Developments in caselaw on intellectual property, organizations, debt and finance, and inheritance exerted positive effects while developments in property and ecclesiastical caselaw reduced per-capita GDP. Our analysis uncovers a 'bleak law era' when the legal system misallocated attention between development-promoting and development-hindering areas of law. |
| Keywords: | caselaw, England, economic development, Industrial Revolution, topic modelling, time series |
| JEL: | N13 N43 K10 K30 P48 O17 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10088&r=fdg |
| By: | Laeven, Luc; Popov, Alexander |
| Abstract: | Using data on syndicated loans, we find that the introduction of a carbon tax is associated with an increase in domestic banks’ lending to coal, oil, and gas companies in foreign countries. This effect is particularly pronounced for banks with large prior fossil-lending exposures, suggesting a role for bank specialization. Lending to private companies in foreign markets increases relatively more, which points to an intensification of banks’ incentives to avoid public scrutiny. We also find that banks reallocate a relatively larger share of their fossil loan portfolio to countries with less strict environ-mental regulation and bank supervision. JEL Classification: F3, G15, G21, H23, Q5 |
| Keywords: | carbon taxes, climate change, cross-border lending |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222762&r=fdg |