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

  1. Financial asymmetries, risk sharing and growth in the EU By Eleonora Cavallaro; Ilaria Villani
  2. An Empirical Analysis on Remittances and Financial Development in Latin American Countries By Sumaiya Binta Islam; Laboni Mondal
  3. FDI, Information and Communication Technology, and Economic Growth: Empirical Evidence from Morocco By Anass Arbia; Khalid Sobhi; Mohamedou Karim; Mohammed Eddaou
  4. Access to Credit and the Expansion of Broadband Internet in Peru By Cusato, Antonio; Castillo, José Luis; IDB Invest
  5. ASEAN-5: Further Harnessing the Benefits of Regional Integration amid Fragmentation Risks By Nuri Baek; Kaustubh Chahande; Kodjovi M. Eklou; Mr. Tidiane Kinda; Vatsal Nahata; Umang Rawat; Ara Stepanyan
  6. Imperfect Financial Markets and Investment Inefficiencies By Elias Albagli; Christian Hellwig; Aleh Tsyvinski
  7. Aggregate Implications of Corporate Bond Holdings by Nonfinancial Firms By Miguel H. Ferreira
  8. Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel By Livia Chiţu; Magdalena Grothe; Tatjana Schulze; Ine Van Robays
  9. Wealth Inequality in Latin America By Carranza, Rafael; De Rosa, Mauricio; Flores, Ignacio
  10. Debt and Economic Growth: Does Size Matter? Evidence from Dynamic Parametric and Static Non-parametric Approaches By Reyes-Tagle, Gerardo; Muñoz-Ayala, Jorge E.
  11. Debt Relief: The Day After, Financing Low-Income Countries By Grégory Donnat; Anna Tykhonenko
  12. Banks’ Joint Exposure to Market and Run Risk By Alexander Copestake; Mr. Divya Kirti; Yang Liu
  13. Judging Banks’ Risk by the Profits They Report By Ben S. Meiselman; Stefan Nagel; Amiyatosh Purnanandam
  14. Should Banks Be Worried About Dividend Restrictions? By Josef Schroth
  15. The Market Price of Risk and Macro-Financial Dynamics By Mr. Tobias Adrian; Fernando Duarte; Tara Iyer
  16. Good Supervision: Lessons from the Field By Mr. Tobias Adrian; Ana Carvalho; Ms. Marina Moretti; Hee Kyong Chon; Katharine Seal; Fabiana Melo; Jay Surti
  17. Ecuador: Financial System Stability Assessment By International Monetary Fund
  18. Botswana: Financial System Stability Assessment By International Monetary Fund
  19. Monetary Policy and Innovation By Yueran Ma; Kaspar Zimmermann
  20. The Zombie Lending Channel of Monetary Policy By Bruno Albuquerque; Chenyu Mao
  21. CBDC and the operational framework of monetary policy By Jorge Abad; Galo Nuño Barrau; Carlos Thomas
  22. Simple Macroeconomics of Crypto Currency and the Political Economy of Monetary Policy in a Democracy By Sugata Marjit; Kausik Gupta
  23. Allocative efficiency between and within the formal and informal manufacturing sector in Zimbabwe By Godfrey Kamutando; Lawrence Edwards
  24. Determinants of IFRS for SMES Adoption Worldwide By Pr. Benhayoun Issam; Pr. Zejjari Ibtissam
  25. Energy prices and household heterogeneity: monetary policy in a Gas-TANK By Chan, Jenny; Diz, Sebastian; Kanngiesser, Derrick

  1. By: Eleonora Cavallaro (University of Rome, Sapienza); Ilaria Villani (European Central Bank)
    Abstract: We focus on the structural and stability dimensions of financial development and build an index to benchmark EU financial systems against their potential to enhance resilient growth and international risk sharing. We have the following results. (i) Based on the transitional dynamics of the index over 2000-2019, EU financial systems are converging towards a clustered pattern; (ii) our measure of financial development is highly significant in growth regressions, suggesting that greater openness, market-based financing, and equity positions, longer debt maturities, and enhanced stability are key to stable growth; (iii) financial asymmetries have implications for the heterogeneous vulnerability to domestic output shocks: the risk sharing mechanism is more effective in financially resilient economies that benefit by the contribution of the capital market channel, while a larger fraction of the GDP shocks remains unsmoothed in less resilient economies that feature a considerable down-seizing of the saving channel in the post-global financial crisis.
    Keywords: Financial resilience, financial asymmetries, growth, volatility, risk sharing
    JEL: F
    Date: 2023
  2. By: Sumaiya Binta Islam; Laboni Mondal
    Abstract: Remittances have become one of the driving forces of development for countries all over the world, especially in lower-middle-income nations. This paper empirically investigates the association between remittance flows and financial development in 4 lower-middle-income countries of Latin America. By using a panel data set from 1996 to 2019, the study revealed that remittances and financial development are positively associated in these countries. The study also discovered that foreign direct investment and inflation were positively correlated with financial development while trade openness had a negative association with financial development. Therefore, policymakers of these countries should implement and formulate such policies so that migrant workers would have the incentives to send money through formal channels, which will augment the effect of remittances on the recipient country.
    Date: 2023–09
  3. By: Anass Arbia (Faculty of Law, Economics and Social Sciences, Salé, Mohammed V University, Rabat, Morocco.); Khalid Sobhi (Faculty of Law, Economics and Social Sciences, Salé, Mohammed V University, Rabat, Morocco.); Mohamedou Karim (Faculty of Law, Economics and Social Sciences, Salé, Mohammed V University, Rabat, Morocco.); Mohammed Eddaou (UMP - Professor, Faculty of Law, Economics and Social Sciences, University Mohammed First, Oujda, Morocco.)
    Abstract: Abstract The document analyzes the relationship between FDI (Foreign Direct Investment), ICT (Information and Communication Technology), and economic growth in Morocco for the period from 1990 to 2021 using the ARDL model. Three models have been evaluated, with economic growth, FDI, and ICT as dependent variables in each respective model. In model (1), the results indicate that in the short term, economic growth is not positively related to FDI and ICT. However, in the long term, FDI positively contributes to economic growth, while ICT negatively affects it. A controlled inflation rate has a positive short-term effect, and the level of education shows a positive relationship in both the short and long term. In Model (2), economic growth and government spending have a significant short-term effect on FDI, while ICT has no effect. In the long term, economic performance and inflation remain important for FDI. Model (3) confirms a significant short-term relationship between FDI and ICT, with a negative impact. However, ICT is positively influenced by the inflation rate and the level of education. In the long term, FDI, demographic changes, and education have favorable and significant effects, while economic growth has a negative impact. Regarding the Granger causality test by Toda-Yamamoto, the cause-and-effect relationship between ICT and economic growth is strong and unidirectional, while economic growth influences the level of ICT development. On the other hand, the causality between FDI and ICT concerning economic growth is indirect and depends on factors such as population growth, education level, and inflation rate. JEL classification numbers: C190, F21, F30, L96, O55. Keywords: Economic growth, FDI, Information and Communication technology, ARDL model, Toda-Yamamoto causality.
    Keywords: JEL classification numbers: C190 F21 F30 L96 O55 Economic growth FDI Information and Communication technology ARDL model Toda-Yamamoto causality, JEL classification numbers: C190, F21, F30, L96, O55 Economic growth, FDI, Information and Communication technology, ARDL model, Toda-Yamamoto causality
    Date: 2023–09–14
  4. By: Cusato, Antonio; Castillo, José Luis; IDB Invest
    Abstract: We exploit the staggered expansion of the internet broadband network to firms and bank branches locations in Peru during the last decade to study non-financial firm performance and bank credit dynamics. Access to broadband unleashes firm growth, increases the chances of entry of firms and reduces the probability of exit in benefited locations. For those firms that had a borrowing relation with a bank before the expansion of broadband, the increase in sales serves as a signal to banks about their profitability, which in turn respond by providing more credit. Entry and exit from the credit market follows a similar pattern as in the case of firms, but the results take longer to materialize after the shock. We can disentangle supply and demand effects, since there is a group of firms and bank branches with different locations and asymmetrical timing for the availability of the technology. Our analysis highlights the importance of the demand channel in the reduction of the observed interest rates, which is consistent with the fact that our credit market results are concentrated among micro and small firms, and firms with thin credit files, which are often perceived as riskier.
    Keywords: Compliance;accountability;Norms;Sanctions;Argentina
    JEL: O33 L86 G21
    Date: 2023–06
  5. By: Nuri Baek; Kaustubh Chahande; Kodjovi M. Eklou; Mr. Tidiane Kinda; Vatsal Nahata; Umang Rawat; Ara Stepanyan
    Abstract: The ASEAN-5 region, which comprises Indonesia, Malaysia, the Philippines, Singapore, and Thailand, has benefited substantially from its integration to the world economy, particularly through trade. Rising risks of geoeconomic fragmentation could reverse some gains reaped from globalization over the past decades. In this context, advancing regional integration among ASEAN-5 members has the potential to enhance the region’s resilience against external headwinds. This paper shows that despite sizeable progress, particularly in regional trade integration, there is room to advance financial integration, which also lags trade integration in ASEAN-5. Empirical findings from the paper illustrate that a higher degree of regional financial integration could generate sizeable output gains for the region. Using firm-level data, the paper highlights that digitalization, an area where the region is thriving, can support regional integration by helping firms better integrate into global value chains, with the benefits being stronger for small and medium sized enterprises. The results also suggest that digitalization can help firms move up the value chain through the production of more sophisticated products, often coined as higher export sophistication.
    Keywords: Trade integration; financial integration; digitalization; fragmentation risks
    Date: 2023–09–15
  6. By: Elias Albagli (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Christian Hellwig (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Aleh Tsyvinski (Yale University [New Haven])
    Abstract: We analyze the consequences of noisy information aggregation for investment. Market imperfections create endogenous rents that cause overinvestment in upside risks and underinvestment in downside risks. In partial equilibrium, these inefficiencies are particularly severe if upside risks are coupled with easy scalability of investment. In general equilibrium, the shareholders' collective attempts to boost value of individual firms leads to a novel externality operating through price that amplifies investment distortions with downside risks but offsets distortions with upside risks.
    Date: 2023
  7. By: Miguel H. Ferreira (Queen Mary University of London, School of Economics and Finance)
    Abstract: This paper explores the impact of risky asset holdings by U.S. nonfinancial firms. From the early 1990s to 2017, the share of risky securities surged from 28% to over 40% of firms’ financial assets. Using a business-cycle heterogeneous firms model, I show that declining real interest rates since the 1980s increased the risk premium, driving the increase in risky asset holdings. The model predicts that firms with higher exposure to risky assets experience an investment decline up to 50% more pronounced during large shocks, empirically validated by analyzing the Great Financial Crisis.
    Keywords: Risky assets; corporate bonds; firm heterogeneity; firm dynamics; business-cycle
    JEL: E22 E44 G11
    Date: 2023–09–29
  8. By: Livia Chiţu; Magdalena Grothe; Tatjana Schulze; Ine Van Robays
    Abstract: We study the heterogeneous impact of jointly identified monetary policy and global risk shocks on corporate funding costs. We disentangle these two shocks in a structural Bayesian Vector Autoregression framework and investigate their respective effects on funding costs of heterogeneous firms using micro-data for the US. We tease out mechanisms underlying the effects by contrasting traditional financial frictions arising from asset-based collateral constraints with the recent earnings-based borrowing constraint hypothesis, differentiating firms across leverage and earnings. Our empirical evidence strongly supports the earnings-based borrowing constraint hypothesis. We find that global risk shocks have stronger and more heterogeneous effects on corporate funding costs which depend on firms' position within the earnings distribution.
    Keywords: Corporate spreads; earnings-based borrowing constraint; heterogeneous firms; monetary policy shocks; global risk shocks
    Date: 2023–09–15
  9. By: Carranza, Rafael; De Rosa, Mauricio; Flores, Ignacio
    Abstract: How much wealth has accumulated in the region and how is it distributed across households? Despite being widely recognized for its extreme income inequality, reliable data on wealth is scarce, partial and oftentimes contradictory, making it difficult to answer these basic questions. In this study, we estimate aggregates based on macroeconomic data, and inequality based on recently available surveys. We contrast our results with the literature, with a handful of state-of-the-art estimates from administrative sources, and with more available but extrapolated estimates from Credit Suisse and Considering all the evidence, we distinguish reliable facts from what can only be conjectured or speculated. We find that aggregate wealth increased over two decades in four countries, now ranging close to 3.5 the national income for market value estimates and 5-6 times at book values. We also find that wealth inequality is amongst the highest in the world were it can be measured. Given data limitations, one can only speculate about aggregates in opaque countries and about inequality trends in any country in the region. Although recent research in the developed world has focused in combining data sources to better understand wealth, the region lags behind and urgently requires more and better public information.
    Keywords: wealth distribution;wealth-to-income ratios;household surveys;national accounts;Latin America
    JEL: D31 E01 E22
    Date: 2023–06
  10. By: Reyes-Tagle, Gerardo; Muñoz-Ayala, Jorge E.
    Abstract: This paper provides new evidence on the effect of debt on economic growth through two alternative methodological approaches. On the one hand, by using a panel error correction model with a sample of 130 countries between 1980 and 2020, we found evidence of the existence of a range of debt-to-GDP ratios for which economic growth remains positive after debt surges. This threshold may lie between 32 percent and 136 percent, with optimal economic growth achieved at an 84 percent debt-to-GDP ratio for the whole sample of countries. The error correction form for the economic growth was dynamically consistent and non-linear with respect to the debt-to-GDP ratio. On the other hand, recent evidence has shown that commodity price volatility increases external debt accumulation for commodity-exporting countries. Still, there is no evidence of the effects of debt surges on these countries' economic growth. This paper provides original insights into the relationship between economic growth and the debt-to-GDP ratio for commodity and non-commodity-driven economies by employing a regression discontinuity design (RDD) approach. This method allows us to estimate differences in economic growth around an estimated threshold without assuming any specific function for the underlying relationship between the two variables. Our findings suggest that non-commodity-driven economies benefit from a higher threshold (85 percent) than commodity-exporting economies (50 percent).
    Keywords: debt thresholds;optimal debt;economic growth;ECM/ARDL panel;panel cointegration;RDD;commodity-exporting and non-commodity-exporting economies
    JEL: C22 C23 E62 F43 G18 H63
    Date: 2023–04
  11. By: Grégory Donnat (Université Côte d’Azur); Anna Tykhonenko
    Abstract: In this paper, we investigate the factors of external public indebtedness for Low-Income Countries (LICs) and, as a modeling technique, we employ the iterative Bayesian shrinkage procedure to handle the differences between countries in panel data. Some LICs have benefited from two debt relief programs, the Heavily Indebted Poor Countries (HIPC) initiatives and the Multilateral Debt Relief Initiative (MDRI). We explore whether these debt reductions affect the access to external financing and credit markets of HIPCs. First, our estimation method highlights various debt dynamics across LICs from 1988 to 2018. Second, our results highlight a change in the relationships between external public indebtedness and its factors after the HIPC and MDRI. Unlike past debt reductions, most HIPCs keep borrowing, mainly from private creditors, even if the debt-to-GDP ratio increases. HIPCs’ access to credit markets does not suffer from a potential risk-aversion on the part of lenders, and is facilitated by their attractiveness to private investors.
    Keywords: Debt Relief, external financing, low-income countries, Bayesian shrinkage estimator
    JEL: H
    Date: 2023
  12. By: Alexander Copestake; Mr. Divya Kirti; Yang Liu
    Abstract: Recent failures of US banks highlight that large liability withdrawals can damage capital positions—i.e., that liquidity risk and solvency risk interact. A simple risk assessment for banks in a wide group of countries finds sizable exposure to this interaction. This varies significantly across banks—primarily reflecting differences in cash buffers, capitalization, securities holdings and exposure to market risk—and is highly concentrated. Vulnerability is generally greater for banks in AEs due to lower cash buffers, securities holdings and capitalization. Within AEs—unlike in EMs—larger banks are most exposed, due to greater wholesale funding and thinner capital buffers. Estimated aggregate losses are substantial in some countries, reflecting a range of recent shocks.
    Keywords: Banks; Liquidity Risk; Solvency Risk
    Date: 2023–09–22
  13. By: Ben S. Meiselman; Stefan Nagel; Amiyatosh Purnanandam
    Abstract: In competitive capital markets, risky debt claims that offer high yields in good times have high systematic risk exposure in bad times. We apply this idea to bank risk measurement. We find that banks with high accounting return on equity (ROE) prior to a crisis have higher systematic tail risk exposure during the crisis. Proximate causes of crises differ, but the predictive power of ROE is pervasive, including during the financial crisis of 2007–2010 and the recent crisis triggered by the collapse of Silicon Valley Bank. ROE predicts systematic tail risk much better than conventional measures based on risk-weighted assets.
    JEL: G20 G30
    Date: 2023–08
  14. By: Josef Schroth
    Abstract: Countercyclical bank capital requirements have emerged as a popular regulatory tool to help smooth financial cycles. The idea is to reduce capital requirements when exogenous shocks cause aggregate bank capital to decrease so that regulation does not needlessly constrain banks’ supply of credit. In the model in this paper, banks are rationally forward-looking and thus ignore short-lived reductions in capital requirements. During a financial crisis, a regulator would want to first impose drastic dividend restrictions to force banks to rebuild capital, but also would want to keep capital requirements low for a sufficiently long time afterwards. However, such a policy is not time-consistent. Once banks are sufficiently re-capitalized, the regulator would be tempted to immediately raise capital requirements all the way to pre-crisis levels. Optimal time-consistent capital regulation requires that bank capital is rebuilt gradually during financial crises. In particular, banks must be able to pay dividends even when bank equity is still significantly below pre-crisis levels.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; Credit risk management; Financial stability; Financial system regulation and policies; Lender of last resort
    JEL: E13 E32 E44
    Date: 2023–09
  15. By: Mr. Tobias Adrian; Fernando Duarte; Tara Iyer
    Abstract: We propose the conditional volatility of GDP spanned by financial factors as a “Volatility Financial Conditions Index” (VFCI) and show it is closely tied to the market price of risk. The VFCI exhibits superior explanatory power for stock and bond risk premia compared to other FCIs. We use a variety of identification strategies and instruments to demonstrate robust causal relationships between the VFCI and macroeconomic aggregates: a tightening of financial conditions as measured by the VFCI leads to a persistent contraction of output and triggers an immediate easing of monetary policy. Conversely, contractionary monetary policy shocks cause tighter financial conditions.
    Keywords: Macro-Finance; Financial Conditions Index; Monetary Policy; Asset Pricing; Market Price of Risk; Consumption Volatility; Causal Identification
    Date: 2023–09–22
  16. By: Mr. Tobias Adrian; Ana Carvalho; Ms. Marina Moretti; Hee Kyong Chon; Katharine Seal; Fabiana Melo; Jay Surti
    Abstract: Keeping banks safe and sound hinges on good supervision. The bank failures of March 2023 precipitated questions about the effectiveness of supervision. This paper reflects on lessons learned from this banking turmoil and reviews global progress in delivering effective supervision over the past ten years. It finds progress in areas like risk monitoring, stress testing, and business model analysis. Yet, progress has also been hampered by deficiencies in supervisory approaches, techniques, tools, and (use of) corrective and sanctioning powers, as well as by unclear mandates, inadequate powers, and lack of independence and resources. Overcoming these deficiencies requires supervisors to improve their own performance and other policy makers to contribute to ensuring vigilant, independent and accountable supervision.
    Keywords: Banks; supervision; prudential standards
    Date: 2023–09–06
  17. By: International Monetary Fund
    Abstract: Ecuador’s financial system is dominated by banks and credit cooperatives. Its exposure to macrofinancial risks is shaped by its fully dollarized economy and its position as an oil exporter. The institutional framework for financial sector oversight is complex, uncoordinated, and prone to political intervention, which results in sub-optimal policies.
    Date: 2023–09–21
  18. By: International Monetary Fund
    Abstract: Botswana’s financial sector, which exhibits high integration between banks and non-bank financial institutions, withstood the pandemic well. The economic recovery continues to be strong, but inflation remains high with risks tilted to the upside. Overall, the authorities have made notable progress in strengthening their financial supervisory and regulatory frameworks since the 2007 FSAP.
    Date: 2023–09–21
  19. By: Yueran Ma; Kaspar Zimmermann
    Abstract: We document that monetary policy has a substantial impact on innovation activities. After a tightening shock of 100 basis points, research and development (R&D) spending declines by about 1 to 3 percent and venture capital (VC) investment declines by about 25 percent in the following 1 to 3 years. Patenting in important technologies, as well as a patent-based aggregate innovation index, declines by up to 9 percent in the following 2 to 4 years. Based on previous estimates of the sensitivity of output to innovation activities, these magnitudes imply that output could be 1 percent lower after another 5 years. Monetary policy can influence innovation activities by changing aggregate demand and correspondingly the profitability of innovation, and by changing financial market conditions. Both channels appear relevant in the data. Our findings suggest that monetary policy may affect the productive capacity of the economy in the longer term, in addition to the well-recognized near-term effects on economic outcomes.
    JEL: E2 E5 G31 O3
    Date: 2023–09
  20. By: Bruno Albuquerque; Chenyu Mao
    Abstract: We uncover a new channel—the zombie lending channel—in the transmission of monetary policy to nonfinancial corporates. This channel originates from the presence of unviable and unproductive (zombie) firms. We identify exogenous variation in monetary conditions around the world by exploiting the international transmission of US monetary policy shocks. We find that tighter monetary policy leads to more favorable credit conditions for zombie firms relative to other firms. Zombies are then able to cut investment and employment by relatively less. This is indicative of evergreening motives by lenders when interest rates rise: lenders face incentives to restructure existing loans of zombie firms to avoid the realization of losses on their balance sheets. Policies that strengthen banks’ balance sheets, that limit banks’ incentives to engage in risky behavior, and laws that allow an efficient resolution of weak firms, may help mitigate zombie lending practices when financial conditions tighten.
    Keywords: Monetary policy; Corporate investment; Zombie firms; Zombie lending
    Date: 2023–09–15
  21. By: Jorge Abad; Galo Nuño Barrau; Carlos Thomas
    Abstract: We analyze the impact of introducing a central bank-issued digital currency (CBDC) on the operational framework of monetary policy and the macroeconomy as a whole. To this end, we develop a New Keynesian model with heterogeneous banks, a frictional interbank market, a central bank with deposit and lending facillities, and household preferences for different liquid assets. The model is calibrated to replicate the main monetary and financial aggregates in the euro area. Our analysis predicts that CBDC adoption implies a roughly equivalent reduction in banks' deposit funding. However, this 'deposit crunch' has a rather small effect on bank lending to the real economy, and hence on aggregate investment and GDP. This result reflects the parallel impact of CBDC on the central bank's operational framework. For relatively moderate CBDC adoption levels, the reduction in deposits is absorbed by an almost one-to-one fall in reserves at the central bank, implying a transition from a 'floor' system –with ample reserves– to a 'corridor' one. For larger CBCD adoption, the loss of bank deposits is compensated by increased recourse to central bank credit, as the corridor system gives way to a 'ceiling' one with scarce reserves.
    Keywords: central bank digital currency, interbank market, search and matching frictions, reserves
    JEL: E42 E44 E52 G21
    Date: 2023–09
  22. By: Sugata Marjit; Kausik Gupta
    Abstract: The paper attempts to examine the macroeconomic implications of the coexistence of crypto currency with legal tender money in the context of a democratic country such as India. The paper shows that macroeconomic implications of crypto currency can be captured by a simple extension of the IS-LM model. The main potential political consequence emerges due to difficulty in implementation of monetary policy, especially prior to elections. The paper shows that if the share of crypto currency out of total money supply is high it is bound to impact on the efficacy of monetary policy. .The paper also examines the practical difficulties of legalizing crypto currency.
    Keywords: block chain, crypto currency, legal tender money, monetary policy
    JEL: E52 E58 E61 E63
    Date: 2023
  23. By: Godfrey Kamutando (Post-doctoral Research Fellow, School of Economics, University of Cape Town and Policy Research in International Services and Manufacturing (PRISM).); Lawrence Edwards (School of Economics, University of Cape Town and Policy Research in International Services and Manufacturing (PRISM).)
    Abstract: Resource misallocation has the potential to reduce aggregate total factor productivity and undermine industrial development. These effects can be particularly pronounced in emerging economies where large market frictions impede efficient resource allocation. This paper investigates the extent and nature of resource misallocation between and within the formal and informal manufacturing sector in Zimbabwe. Applying the approach developed by Hsieh & Klenow (2009) to firm-level microdata, the results reveal extensive resource misallocation in both the formal and informal manufacturing sector. Misallocation is more pronounced in informal sector firms and is associated with relatively large capital market distortions. Further, misallocation is more pronounced amongst relatively productive firms, thus exacerbating aggregate losses in total factor productivity (TFP). Estimates indicate that aggregated gains in TFP of 126.7% can be realized through efficient resource allocation.
    Keywords: Misallocation, total factor productivity, informal sector
    JEL: E24 D24 E29 L60
    Date: 2023
  24. By: Pr. Benhayoun Issam (UMI - Université Moulay Ismail); Pr. Zejjari Ibtissam (USMBA - Université Sidi Mohamed Ben Abdellah)
    Abstract: The main purpose of this study is to analyze whether there is a relationship between macroeconomic factors and the adoption of IFRS for SMEs in order to help answer the question of why some countries adopt IFRS for SMEs while others do not. We used logistic regression analysis to investigate 150 countries, including 85 jurisdictions that have adopted IFRS for SMEs. The main results indicate that a country is more likely to adopt IFRS for SMEs if it has an unfavorable political climate and a non-Anglo-Saxon culture. Nonetheless, there is no evidence that the country's economic growth, the existence of a capital market, the educational level, and the legal system are associated with the decision to adopt IFRS for SMEs.This study contributes to a better understanding of the factors influencing the adoption of IFRS for SMEs on a country level and could be used to predict a country's decision to adopt this standard. It also adds to the literature on international accounting harmonization by examining country-level determinants that influence the adoption of IFRS for SMEs by all companies.
    Keywords: IFRS, IFRS for SMEs, macroeconomic factors, country-level, adoption, Accounting harmonization
    Date: 2023–09–17
  25. By: Chan, Jenny (Bank of England); Diz, Sebastian (Central Bank of Paraguay); Kanngiesser, Derrick (Bank of England)
    Abstract: How does household heterogeneity affect the transmission of an energy price shock? What are the implications for monetary policy? We develop a small, open-economy TANK model that features labour and an energy import good as complementary production inputs (Gas-TANK). Given such complementarities, higher energy prices reduce the labour share of total income. Due to borrowing constraints, this translates into a drop in aggregate demand. Higher price flexibility insures firm profits from adverse energy price shocks, further depressing labour income and demand. We illustrate how the transmission of shocks in a RANK versus a TANK depends on the degree of complementarity between energy and labour in production and the degree of price rigidities. Optimal monetary policy is less contractionary in a TANK and can even be expansionary when credit constraints are severe. Finally, the contractionary effect of an energy price shock on demand cannot be generalised to alternate supply shocks, as the specific nature of the supply shock affects how resources are redistributed in the economy.
    Keywords: Energy prices; inflation; household heterogeneity; monetary policy
    JEL: E21 E23 E31 E52 F41
    Date: 2023–09–22

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