nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2023‒10‒09
23 papers chosen by
Georg Man,

  1. The Impact of Venture Capital on Economic Growth By Steven Poelhekke; Benjamin Wache
  2. Agriculture Credit and Economic Growth in Bangladesh: A Time Series Analysis By Md. Toaha; Laboni Mondal
  3. The Impact of Foreign Capital Inflows on Poverty in Vietnam: An Empirical Investigation By MT Musakwa; N.M. Odhiambo
  4. Inflation and Economic Growth in Kenya: An Empirical Examination By T. Saungweme; N.M. Odhiambo
  5. The répercussion of macroeconomic factors on the performance of the Moroccan stock market: Econometric Study using the VAR Model By Abdelhadi Alimoussa; Hicham Assalih
  6. Disclosure Regulation, Intangible Capital and the Disappearance of Public Firms By Sara Casella; Hanbaek Lee; Sergio Villalvazo
  7. Options on Interbank Rates and Implied Disaster Risk By Hitesh Doshi; Hyung Joo Kim; Sang Byung Seo
  8. Deficit Financing with the National Saving Certificate and Its Macroeconomic Consequences on Bangladesh's Economy By Mohammad Mahabub Alam
  9. Optimal Government Debt Policy in the Overlapping Generations Model with Idiosyncratic Capital Return Risk By HIRAGUCHI Ryoji
  10. Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies By Mr. Zamid Aligishiev; Ms. Gabriela Cugat; Mr. Romain A Duval; Davide Furceri; João Tovar Jalles; Ms. Margaux MacDonald; Mr. Giovanni Melina; Mr. Futoshi Narita; Mr. Chris Papageorgiou; Carlo Pizzinelli
  11. Debtor (non-)participation in sovereign debt relief: A real option approach By Danny Cassimon; Dennis Essers; Andrea Presbitero
  12. Influence of tax structures on income inequality in WAEMU countries By Zabsonre Zacharia; Boukary Ouedraogo
  13. Determinants of monetary policy frameworks in emerging and developing countries By Sullivan, Megan
  14. Firm Financial Conditions and the Transmission of Monetary Policy By Thiago Revil T. Ferreira; Daniel Ostry; John Rogers
  15. Funding Liquidity Creation by Banks By Anjan V. Thakor; Edison Yu
  16. Banking Crises under a Central Bank Digital Currency (CBDC) By Lea Bitter
  17. Central Bank Digital Currencies in the Post-pandemic Era By Dominique Torre; Qing Xu
  18. What Predicts the Growth of Small Firms? Evidence from Tanzanian Commercial Loan Data By Mia Ellis; Cynthia Kinnan; Margaret S. McMillan; Sarah Shaukat
  19. Taxes, Regulations, and the Value of U.S. Corporations: A Reassessment By Ellen R. McGrattan
  20. Regulatory Arbitrage and Loan Location Decisions by Multinational Banks By Asli Demirgüç-Kunt; Bálint L. Horváth; Harry Huizinga
  21. Régulation internationale et inclusion financière - Entre impasse et renoncements B255 By Christophe Angely
  22. Global Bank Lending under Climate Policy By Asli Demirguc-Kunt; Alvaro Pedraza; Fredy Pulga; Claudia Ruiz-Ortega
  23. Forecasting International Financial Stress: The Role of Climate Risks By Santino Del Fava; Rangan Gupta; Christian Pierdzioch; Lavinia Rognone

  1. By: Steven Poelhekke (Vrije Universiteit Amsterdam); Benjamin Wache (CPB Netherlands)
    Abstract: Does venture capital (VC) investment yield economic growth? A large literature studies the effect of VC investments on firm-level activity, but its effects on economic growth are less well understood. We identify the effect of VC investment flows on destination county employment, wages, and establishment creation, using a novel instrument that captures the ‘social connectedness’ of counties to major sources of VC investment. Using detailed data on VC flows from investors to companies, we find a large positive impact of VC investment, suggesting that strong social connections to large venture capital hubs are an important contributor to regional economic growth.
    Keywords: Growth, venture capital, social connectedness
    JEL: R11 G24 G41
    Date: 2023–08–30
  2. By: Md. Toaha; Laboni Mondal
    Abstract: The paper examined the impact of agricultural credit on economic growth in Bangladesh. The annual data of agriculture credit were collected from annual reports of the Bangladesh Bank and other data were collected from the world development indicator (WDI) of the World Bank. By employing Johansen cointegration test and vector error correction model (VECM), the study revealed that there exists a long run relationship between the variables. The results of the study showed that agriculture credit had a positive impact on GDP growth in Bangladesh. The study also found that gross capital formation had a positive, while inflation had a negative association with economic growth in Bangladesh. Therefore, the government and policymakers should continue their effort to increase the volume of agriculture credit to achieve sustainable economic growth.
    Date: 2023–09
  3. By: MT Musakwa (University of South Africa); N.M. Odhiambo (University of South Africa)
    Abstract: This study investigates the impact of foreign capital inflows on poverty in Vietnam, using annual time series data from 1990 to 2018. The study was motivated by the need to establish if burgeoning foreign capital inflows in Vietnam can support the poverty alleviation agenda. Foreign direct investment (FDI) and external debt were used as proxies for foreign capital inflows; and infant mortality rate, Human Development Index (HDI) and household consumption expenditure were used as poverty proxies. Using the autoregressive distributed lag (ARDL) approach, the study found foreign direct investment to reduce poverty in the short run and long run when household consumption expenditure was used as a poverty measure. However, the study found FDI to worsen poverty in the short run when infant mortality rate and HDI were used as poverty proxies. The study found external debt to have poverty mitigating effect in the short run regardless of the poverty measure used and in the long run only when household consumption expenditure was used as a poverty measure.
    Date: 2021–10
  4. By: T. Saungweme (University of South Africa); N.M. Odhiambo (University of South Africa)
    Abstract: This paper examines the relationship between inflation and economic growth in Kenya from an analytical and empirical standpoint. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach and the multivariate Granger-causality test using time series data covering 1970-2019. Structural breaks in the time series were also conducted using the Perron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporating structural breaks into time series increases statistical inference's overall validity. Inflation and economic growth in Kenya were found to have structural breaks in 1995 and 1991. These years are marked by Kenya's economic, financial, public sector and institutional reforms. The other findings of the study revealed that inflation has a statistically significant negative influence on long-term economic growth. The multivariate Granger-causality results showed a distinct short-run unidirectional causality from economic growth to inflation in Kenya. In order to mitigate the negative consequences of inflation and the coronavirus on the economy and welfare, the study recommends that Kenya's government should pursue prudent monetary, financial, and fiscal policies.
    Date: 2021–10
  5. By: Abdelhadi Alimoussa (Laboratoire des Sciences Economiques et Politiques Publiques (LSEPP) Faculté d’Economie et de Gestion de Kénitra); Hicham Assalih
    Abstract: The essence of this research lies in exploring the macroeconomic factors that exert their influence on the evolution of the stock market in Morocco. To achieve this, we rely on the methodology of time series econometrics, specifically the Vector Autoregressive (VAR) model. The available data spans a period of 21 years, ranging from 2002 to 2022, and has been meticulously extracted from reports originating from various sources, such as the Casablanca Stock Exchange (BVC), the Manar platform of the Ministry of Finance, Bank-Maghreb, the High Commission for Planning (HCP), the World Bank, and the International Monetary Fund (IMF). The conclusions drawn from this investigation prove to be highly enlightening. It is indisputable that key variables such as the Consumer Price Index, Gross National Savings, Gross Domestic Product (GDP), and Real Effective Exchange Rate play a pivotal role in the dynamics of the stock market. Specifically, our inquiry reveals that the Consumer Price Index and Gross National Savings have a positive influence on the development of the stock market. Conversely, GDP and the Real Effective Exchange Rate manifest a negative impact on stock market growth. In conclusion, our work extends to the analysis of causal relationships as well as the decomposition of variances, thereby deepening our understanding of the intricate interactions between these macroeconomic factors and the evolution of the stock market in Morocco.
    Abstract: L'essence de cette recherche réside dans l'exploration des facteurs macroéconomiques qui exercent leur influence sur l'évolution du marché boursier au Maroc. Pour ce faire, nous nous appuyons sur l'approche de l'économétrie des séries chronologiques, en particulier le modèle VAR (Vector Autoregressive). Les données à notre disposition couvrent une période de 21 années, s'étalant de 2002 à 2022, et ont été extraites avec soin des rapports émanant de diverses sources, telles que la Bourse des Valeurs de Casablanca (BVC), la plateforme Manar du Ministère des Finances, Bank-Maghreb, le Haut-Commissariat au Plan (HCP), la Banque Mondiale et le Fonds Monétaire International (FMI). Les conclusions découlant de cette investigation se révèlent particulièrement éclairantes. Il est indubitable que des variables clés telles que l'indice des prix à la consommation, l'épargne nationale brute, le produit intérieur brut (PIB) et le taux de change réel effectif jouent un rôle prépondérant dans la dynamique du marché boursier. Plus précisément, notre enquête révèle que l'indice des prix à la consommation et l'épargne nationale brute exercent une influence positive sur le développement du marché boursier. À l'opposé, le PIB et le taux de change réel effectif se traduisent par un impact négatif sur la croissance du marché boursier. En guise de conclusion, nos travaux s'étendent vers l'analyse des liens de causalité ainsi que la décomposition des variances, approfondissant ainsi notre compréhension des interactions complexes entre ces facteurs macroéconomiques et l'évolution du marché boursier au Maroc.
    Keywords: Macroeconomic variables VAR modelling MASI stock index and variance decomposition. Classification JEL : C22, C32, C51, E44 Paper type : Empirical Research, Macroeconomic variables, VAR modelling, MASI stock index and variance decomposition. Classification JEL : C22
    Date: 2023–08–29
  6. By: Sara Casella; Hanbaek Lee; Sergio Villalvazo
    Abstract: Since the mid-1990s, the number of listed firms in the U.S. has halved, and their public disclosure has become opaquer. To explain these trends, we develop a general equilibrium model where the choices of going public or private and the transparency of voluntary disclosure are characterized analytically. In the equilibrium, the stock market with directed search and the private equity market with random search co-exist. According to the estimation, stricter disclosure regulation and increased intangible capital share are the key drivers of the observed patterns. Lastly, we characterize a policymaker’s trade-off between welfare and productivity and analyze the optimal policy.
    Keywords: intangible capital; corporate disclosures; technology diffusion
    JEL: D24 G24 G38
    Date: 2023–06–30
  7. By: Hitesh Doshi; Hyung Joo Kim; Sang Byung Seo
    Abstract: The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via MLE and filter out the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which are typically calibrated to match stock moments.
    Keywords: Economic disasters; Extended Kalman filter; Interbank rate options; Interbank rates; Maximum likelihood estimation; Time-varying disaster risk
    JEL: G12 C58 C13 G13
    Date: 2023–08–14
  8. By: Mohammad Mahabub Alam
    Abstract: The National Saving Certificate (NSC), a nonmarketable saving instrument to promote savings and provide safety nets to some small savers, has been used extensively in financing the budget deficit in Bangladesh. This paper analyzes the macroeconomic impacts of NSC financing on the lending rate, gross domestic savings, government consumption, government investment, private investment, and GDP with a seven-variable SVAR framework (with short-run restrictions) using annual data from 1983 to 2021 and quarterly data from 2008Q3 to 2022Q2. The study finds that a rise in the NSC interest rate does not bring enough informal savings to the formal economy as the targeted small savers may not be the real beneficiaries of this scheme. Therefore, deficit financing with NSCs does neither promote savings nor satisfy the safety net objective as intended. Further, a higher NSC interest rate increases the lending rate that depresses private investment and GDP in the long run although it boosts government investment in the short run.
    Keywords: NSC financing, budget deficit, fiscal policy, savings, investment, SVAR, Bangladesh
    JEL: H62 C51 E62 E21 E22
    Date: 2023–09
  9. By: HIRAGUCHI Ryoji
    Abstract: In this paper, we study the two-period overlapping generations model in which individuals are subject to idiosyncratic risks and study the optimal provision of government debt. In our model, individuals are ex ante homogeneous, and hold risky capital and safe government bonds in the first period. They are subject to idiosyncratic capital return risk in the second period. It is well-known that in deterministic overlapping generations models, when government debt is provided to maximize steady state welfare, the interest rate (r) is equal to the economic growth rate (g). However, in our model with idiosyncratic risks, the risk-free rate is less than the economic growth rate in the optimal steady state. This implies that even when the rollover of government debt is sustainable, increases in debt may reduce welfare. When the return on capital accumulation is risky, the level of safe assets the individuals hold is inefficiently high. Setting the risk-free rate below the economic growth rate reduces demand for government bonds and enhances capital accumulation, which is welfare-improving.
    Date: 2023–09
  10. By: Mr. Zamid Aligishiev; Ms. Gabriela Cugat; Mr. Romain A Duval; Davide Furceri; João Tovar Jalles; Ms. Margaux MacDonald; Mr. Giovanni Melina; Mr. Futoshi Narita; Mr. Chris Papageorgiou; Carlo Pizzinelli
    Abstract: Many emerging market and developing economies face a difficult trade-off between economic support and fiscal sustainability. Market-oriented structural reforms ease this trade-off by promoting economic growth and strengthening public finances. The empirical analysis in this note, based on 62 EMDEs over 1973-2014, shows that reforms are associated with sizeable and long-lasting reductions in the debt-to-GDP ratio mainly through higher fiscal revenues and lower borrowing costs. These effects are larger in countries with greater tax efficiency, lower informality, and higher initial debt. Moreover, a model-based analysis elaborates on how such fiscal gains can be enhanced when revenue windfalls associated with reforms are saved or channeled through higher public investment.
    Keywords: Fiscal Policy; Debt Dynamics; Economic Regulation; Structural Reforms; Emerging Market Economies; Low-Income Developing Countries; market reform; reform impact; GDP ratio; government debt reduction; government policy response; Emerging and frontier financial markets; Debt reduction; Fiscal stance; Global; Asia and Pacific;Debt sustainability analysis
    Date: 2023–09–12
  11. By: Danny Cassimon (University of Antwerp); Dennis Essers (Economics and Research Department, National Bank of Belgium); Andrea Presbitero (International Monetary Fund and CEPR)
    Abstract: Developing countries have recently proved reluctant to participate in sovereign debt moratoria and debt relief initiatives. We argue that debtors' (non-)participation decisions can be understood through the lens of real options. Eligible countries compare the net benefits of participating in a debt relief initiative now with the value of waiting to potentially execute their participation option later, when they may have more information on the benefits and costs. We corroborate the real option framing with anecdotal evidence and through a survival analysis that exploits cross-country and time variation in the requests to participate in the Debt Service Suspension Initiative (DSSI), which provided temporary debt moratoria during the COVID-19 pandemic. Structured along the policy levers suggested by the real option framework, we discuss a number of ways in which participation in debt relief initiatives can be made more attractive to debtor countries.
    Keywords: sovereign debt, sovereign debt relief, Debt Service Suspension Initiative, Common Framework, real options, survival analysis
    JEL: H63 F34 F55
    Date: 2023–09
  12. By: Zabsonre Zacharia (CEDRES - Centre d'Etudes, de Documentation et de Recherches Economique et Sociale - UJZK - Université Joseph Ki-Zerbo [Ouagadougou], UTS - Université Thomas Sankara); Boukary Ouedraogo (CEDRES - Centre d'Etudes, de Documentation et de Recherches Economique et Sociale - UJZK - Université Joseph Ki-Zerbo [Ouagadougou], UTS - Université Thomas Sankara)
    Abstract: Extreme inequalities often engender the kind of poverty that has major implications for the enjoyment of civil and political rights (Alston, 2019). Left unchecked, it can lead to oligarchy, socio-political unrest, political instability, insecurity crises (Miller, 2021; Tanzi, 2018; Karen, 2017). Yet all citizens are legitimately entitled to a share of income generated by the state because they agree to obey the legitimacy of the state and the prosperity of its members (Hemel, 2019). Income distribution before tax may change due to changes in tax regimes (Bourguignon, 2015). The present research therefore aims to analyze the influence of the tax structure on income inequality in WAEMU over the period 2000-2020. To do this, the technique of least squares in two stages is used. The results show that progressive and regressive taxation positively affect income inequality in the WAEMU area. The overall level of taxation and proportional taxes do not have a significant effect on income inequality in WAEMU countries. Therefore, to reduce income inequality, WAEMU countries have an interest in reducing both regressive taxes, and progressive taxes. But the decline of the former must be greater than the latter.
    Abstract: Les inégalités extrêmes engendrent souvent le genre de pauvreté qui a des implications majeures pour la jouissance des droits civils et politiques (Alston, 2019). Laissée sans contrôle, elle peut conduire à l'oligarchie, aux troubles socio-politiques, à l'instabilité politique, aux crises d'insécurité (Miller, 2021 ; Tanzi, 2018 ; Karen, 2017). Pourtant, tous les citoyens ont légitimement droit à une part de revenus généré par l'Etat du fait qu'ils acceptent obéir à la légitimité de l'État et à la prospérité de ses membres (Hemel, 2019). La répartition du revenu avant impôt peuvent changer suite à des modifications des régimes fiscaux (Bourguignon, 2015). Le présent travail de recherche vise donc à analyser l'influence de la structure fiscale sur l'inégalité de revenu dans l'UEMOA au cours de la période 2000-2020. Pour ce faire, la technique des moindres carrés en deux étapes est utilisée. Les resultats prouvent que l'imposition progressive et celle régressive affectent positivement l'inégalité de revenus dans la zone UEMOA. Le niveau global de la fiscalité ainsi que les impôts proportionnels n'ont pas d'effet significatif sur l'inégalité de revenu dans les pays de l'UEMOA. Par conséquent, pour réduire l'inégalité de revenu, les pays de l'UEMOA ont intérêt à réduire et les impôts régressifs, et les impôts progressifs. Mais la baisse des premiers doit être plus importante que les derniers.
    Keywords: Income inequality, Progressive taxes, Regressive taxation, WAEMU, Taxation Résumé., OUEDRAOGO Boukary, Income inequality Progressive taxes Regressive taxation WAEMU Taxation Résumé, OUEDRAOGO Boukary, Income inequality, Taxation Résumé, Inégalité de revenus, Impôts progressifs, Imposition régressive, UEMOA, Fiscalité.
    Date: 2023–08–23
  13. By: Sullivan, Megan
    Abstract: This paper investigates the determinants of countries’ choice of monetary policy frameworks for emerging and developing countries. It draws on the literature concerning how exchange rate regimes are determined, and the much smaller body of literature on determination of monetary policy frameworks (for advanced and emerging countries), to identify 3 approaches that account for countries’ choice of monetary policy framework. We empirically test the joint relevance of the variables within each theory and find them to be jointly statistically significant. A key highlight of this paper is that it uses an (emerging and developing) country tailored variable that measures trade networks of potential currency blocs. The model correctly predicts 79% of countries’ choice of framework, when aggregated by target variable, and 84% of countries’ choices, when aggregated by degree of monetary control.
    Keywords: monetary policy frameworks; trade networks; inflation targets; exchange rate targets; discretion; central bank independence
    JEL: E42 E52 E58 F40
    Date: 2023–07
  14. By: Thiago Revil T. Ferreira; Daniel Ostry; John Rogers
    Abstract: We study how the transmission of monetary policy to firms' investment and credit spreads depends on their financial conditions, finding a major role for their excess bond premia (EBPs), the component of credit spreads in excess of default risk. While monetary policy easing shocks compress credit spreads more for firms with higher ex-ante EBPs, it is lower-EBP firms that invest more. We rationalize these findings using a model with financial frictions in which lower-EBP firms have flatter marginal product of capital curves. We also show empirically that the cross-sectional distribution of firm EBPs determines the aggregate effectiveness of monetary policy.
    Keywords: monetary policy; investment; credit spreads; excess bond premium; firm heterogeneity
    JEL: E22 E44 E50
    Date: 2023–05–31
  15. By: Anjan V. Thakor; Edison Yu
    Abstract: Relying on theories in which bank loans create deposits—a process we call “funding liquidity creation”—we measure how much funding liquidity the U.S. banking system creates. Private money creation by banks enables lending to not be constrained by the supply of cash deposits. During the 2001–2020 period, 92 percent of bank deposits were due to funding liquidity creation, and during 2011–2020 funding liquidity creation averaged $10.7 trillion per year, or 57 percent of GDP. Using natural disasters data, we provide causal evidence that better-capitalized banks create more funding liquidity and lend more even during times when cash deposit balances are falling.
    Date: 2023–01–30
  16. By: Lea Bitter (TU Berlin)
    Abstract: One of the main concerns associated with central bank digital currencies (CBDC) is the disintermediating effect on the banking sector in general, and the risk of bank runs in times of crisis in particular. This paper examines the implications of an interest-bearing CBDC on banking crises in a dynamic bank run model with a financial accelerator. The analysis distinguishes between bank failures due to illiquidity and due to insolvency. In a numerical exercise, CBDC leads to a reduction in the net worth of banks in normal times but mitigates the risk of a bank run in times of crisis. The financial stability implications also depend on how CBDC is accounted for on the asset side of the central bank balance sheet: if CBDC issuance is offset by asset purchases, it delays the onset of both types of bank failures to larger shocks. In contrast, if CBDC issuance is offset by loans to banks, it substantially impedes failures due to illiquidity, but only marginally affects bank failures due to insolvency.
    Keywords: central bank digital currency; financial intermediation; financial stability; bank runs;
    JEL: E42 E58 G01 G21
    Date: 2023–09–12
  17. By: Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Qing Xu (UCL - Université catholique de Lille, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)
    Abstract: With fast development of Fintech in financial industry and increasing popularity of cryptocurrencies and stablecoins, more and more central banks conducted extensive research on Central Bank Digital Currencies (CBDCs), the new form of digital fiat currency. Some of them are engaging in CBDCs pilots, with cross border payment tests. Important currency areas as China, EU or UK are interested in the subject but less significative ones as Bahamas, Nigeria, or Venezuela seem also interested in. This chapter aims to analyze this new phase in the development of the forms of money/means of payment. Different forms of CBDCs are imagined: are they different expressions of the same objective or not? Will hey substitute the official currency or other means of payments? Which technology will be activated to make the operational? Which will be the role of banks on this context? How to explain that some big central banks (the Federal Reserve) are not interested in them? Will they generalize?
    Keywords: CBDC, People's Bank of China, blockchains, disintermediation, Stable coins, means of payment, currencies, digitalization
    Date: 2023–07–20
  18. By: Mia Ellis; Cynthia Kinnan; Margaret S. McMillan; Sarah Shaukat
    Abstract: Not all firms have equal capacity to absorb productive credit. Identifying those with higher potential may have large consequences for productivity. We collect detailed survey data on small- and medium-sized Tanzanian firms who borrow from a large commercial bank, which in turn raises funds via international capital markets. Using machine learning methods to identify predictors of loan growth, we document, first, that we achieve high rates of predictive power. Second, “soft” information (entrepreneurs’ motivations for entrepreneurship and constraints faced) has predictive power over and above administrative data (sector, age, etc.). Third, there is a different and larger set of predictors for women than men, consistent with greater barriers to efficient capital allocation among female entrepreneurs.
    JEL: G14 J16 O16
    Date: 2023–08
  19. By: Ellen R. McGrattan
    Abstract: This paper reassesses the conclusions of McGrattan and Prescott (2005), which derived the quantitative implications of growth theory for U.S. corporate valuations. In addition to having two more decades of data, the analysis incorporates recent changes in policies that affect corporate investments, taxes, and legal-form choice. Secular trends identified in the earlier period remain, with little change in the tangible capital-output ratio or profit share of output. Corporate valuations remain high relative to the postwar average, in line with the theoretical prediction. Critical to this prediction is the decline in effective tax rate on distributions and the rise of foreign direct investment abroad. With the recent enactment of the Tax Cuts and Jobs Act, corporate valuations are predicted to rise even further relative to GDP.
    Keywords: Taxation; Stock market; Productive capital stocks
    JEL: E62 G18 E44
    Date: 2023–07–12
  20. By: Asli Demirgüç-Kunt (Center for Global Development); Bálint L. Horváth (University of Arizona); Harry Huizinga (Tilburg University and CEPR)
    Abstract: This paper examines the impact of international differences in capital regulation on multinational banks’ loan origination location decisions. International loan location decisions represent a key banking margin that has previously not been examined in the literature on regulatory arbitrage by banks. Our estimation relies on within-loan contribution variation in location options for individual multinational banks that participate in a syndicated loan. We examine how the loan location choice and the intensity of regulatory arbitrage are affected by borrower transparency. We find that greater borrower transparency to a local bank establishment makes loan location at this establishment more likely, and that regulatory arbitrage is more intense in the case of more transparent borrowers.
    Keywords: Regulatory arbitrage, capital regulations, loan origination
    JEL: G21 G38
    Date: 2023–04–11
  21. By: Christophe Angely (FERDI - Fondation pour les Etudes et Recherches sur le Développement International)
    Abstract: Les services bancaires, aux particuliers, aux entreprises, voire aux États souverains existent sous différentes formes depuis des millénaires (époque sumérienne en Mésopotamie, 24 siècles avant J.-C. 1). Pour les délivrer, les institutions financières ont dû s'appuyer sur des outils de mesure de risques qui pendant très longtemps reposaient sur des analyses subjectives faites par des banquiers ayant accès à des informations privilégiées. Ces données sur les caractéristiques de leur client, souvent emprunteur, portaient sur la réputation, l'effet de levier 2 , la volatilité des bénéfices pour l'entreprise et, la plupart du temps, sur l'existence de garanties en cas de défaut. Cette approche très sélective a certainement été à l'origine de la vieille locution populaire « on ne prête qu'aux riches et aux puissants ».
    Date: 2023–08–04
  22. By: Asli Demirguc-Kunt (Center for Global Development); Alvaro Pedraza (World Bank); Fredy Pulga (Universidad de la Sabana); Claudia Ruiz-Ortega (World Bank)
    Abstract: What is the response of bank foreign subsidiaries to climate policy in their host countries? We find that global banks with high environmental performance increase their presence in countries after local authorities strengthen their climate-related actions. Through their foreign subsidiaries, these banks expand their credit by 4.6 percent following an increase in one-standard deviation of the host country climate policy index. Importantly, we do not find evidence that banks with low environmental scores exit in response to climate initiatives. Our findings show that strengthening climate policy might be a win-win strategy for policymakers—in addition to addressing carbon emission reduction, climate-related initiatives also appear to attract foreign capital from lenders with strong preferences for green assets.
    Keywords: Global banks, climate change, environmental performance
    JEL: G21 G28 D62 Q54
    Date: 2023–01–31
  23. By: Santino Del Fava (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany); Lavinia Rognone (University of Edinburgh Business School, 29 Buccleuch Place, Edinburgh, EH8 9JS, United Kingdom)
    Abstract: We study the predictive value of climate risks for subsequent financial stress in a sample of daily data running from October 2006 to December 2022 of thirteen countries, which include China, ten European Union (EU) countries, the United Kingdom (UK), and the United States (US). The climate risk indicators are the result of a text-based approach which combines the term frequency-inverse document frequency and the cosine-similarity techniques. Given the persistence of financial stress as well as the importance of spillover effects of financial stress from other countries, we use random forests, a machine-learning technique tailored to handle many predictors, to estimate our forecasting models. Our findings show that climate risks tend to have a moderate impact, albeit in several cases statistically significant, on predictive accuracy, which tends to be stronger, in our cross-section of countries, on a daily than at a weekly or monthly forecast horizon of financial stress. Furthermore, the predictive value of climate risks for financial stress is heterogeneous across the countries in our sample, implying that a univariate forecasting model appears to be better suited than a corresponding multivariate one. Finally, the predictive value of climate risks for financial stress appears to be stronger in several countries at the lower conditional quantiles of financial stress.
    Keywords: Financial stress, Climate risks, Random forests, Forecasting
    JEL: C22 C32 C53 G15 Q54
    Date: 2023–09

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