nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2024‒02‒26
23 papers chosen by
Georg Man,

  1. Nexus Between Financial System and Economic Growth: Evidence from Bangladesh By ULLAH, nazim; Barua, Chayan; Haque, Ehsanul; Arif Hosen Raja, Md; Tahsinul Islam, Mohammed
  2. Analisis de la incidencia de la inversion extranjera directa y la inversion nacional, en el crecimiento economico de Chile By Alvear Guzman Katherine; Campozano Buele Jenner; Duran Canarte Paulette; Holguin Cedeno Roger; Mejia Crespin Fernando
  3. The differential effects of foreign aid to sub-Saharan Africa By Akame, Afuge; Mavrotas, George
  4. The Paradox of Transfers: Distribution and the Dutch Disease By Richard Chisik; Nazanin Behzadan
  5. Capital, Ideas, and the Costs of Financial Frictions By Pablo Ottonello; Thomas Winberry
  6. The Predictive Power of the Term Spread and Financial Variables for Economic Activity across Countries By Menzie D. Chinn; Laurent Ferrara
  7. A Quantile Nelson-Siegel model By Matteo Iacopini; Aubrey Poon; Luca Rossini; Dan Zhu
  8. Central Banks, Stock Markets, and the Real Economy By Ricardo J. Caballero; Alp Simsek
  9. A leaky pipeline: Macroprudential policy shocks, non-bank financial intermediation and systemic risk in Europe By Krenz, Johanna; Verma, Akhilesh K
  10. Stress test precision and bank competition By Moreno, Diego; Takalo, Tuomas
  11. Does FinTech Increase Bank Risk Taking? By Mr. Selim A Elekdag; Drilona Emrullahu; Sami Ben Naceur
  12. From abnormal FDI to a normal driver of sudden stop episodes By Maria Siranova; Menbere Workie Tiruneh; Brian Konig
  13. Financial integration and international shock transmission: The terms-of-trade effect By Krenz, Johanna
  14. The Role of International Financial Integration in Monetary Policy Transmission By Jing Cynthia Wu; Yinxi Xie; Ji Zhang
  15. In Search of the Origin of Original Sin Dissipation By Bada Han; Jangyoun Lee; Taehee Oh
  16. An Intermediation-Based Model of Exchange Rates By Semyon Malamud; Andreas Schrimpf; Yuan Zhang
  17. Public debt and growth in sub-Saharan Africa: Evidence from Nigeria By Christine S. Makanza; Princewill U. Okwoche
  18. Does Local Autonomy Increase Local Income? Evidence from Italy By Massimiliano Ferraresi; Benedikt Herrmann, European Commission, JRC-Ispra; Luisa Loiacono; Leonzio Rizzo; Riccardo Secomandi
  19. Finding the Missing Stone: Mobile Money and the Quality of Tax Policy and Administration By Apeti, Ablam Estel; Edoh, Eyah Denise
  20. Central Bank Digital Currency and Banking Choices By Jiaqi Li; Andrew Usher; Yu Zhu
  21. The Role of Long-Term Contracting in Business Lending By Phoebe Tian
  22. Asset Life, Leverage, and Debt Maturity Matching By Thomas Geelen; Jakub Hajda; Erwan Morellec; Adam Winegar
  23. A decomposition analysis of the nexus between employment and credit in West Africa’s biggest economies By Nuhu, Peter; Bukari, Dramani; Sulemana, Yusif

  1. By: ULLAH, nazim; Barua, Chayan; Haque, Ehsanul; Arif Hosen Raja, Md; Tahsinul Islam, Mohammed
    Abstract: Financial system and economic growth/development is a critical and multifaceted topic that holds significant importance in the context of a country's economic landscape. Over the 21st century, the relationship between economic growth/development and financial system has been the subject of increasing attention. The objective of this study is to assessing the role of Financial Institutions i.e., Islami bank and Conventional bank with real GDP growth and also to analyzing Financial Inclusion. We used the time series data of banks from the period 2018 to 2022.We also used secondary data for this paper. Our analysis found that Islami Banks shows higher contribution over the economic development then the Conventional Banks in Bangladesh. But there are more to go. Our recommendation is that making financial system more accessible through adopting new technologies can accelerate economic growth/development in Bangladesh.
    Keywords: Financial system, Economic Growth, Islamic and Conventional Banks
    JEL: A10
    Date: 2024–04–16
  2. By: Alvear Guzman Katherine; Campozano Buele Jenner; Duran Canarte Paulette; Holguin Cedeno Roger; Mejia Crespin Fernando
    Abstract: The research aims to assess the impact of foreign direct investment (FDI) and domestic investment on Chile's economic growth. By elucidating the relationship between FDI and domestic investment, the study contributes valuable insights for economic policy formulation and future investments. The findings hold significance in shaping Chile's international perception as an investment destination, potentially influencing its standing in the global economic landscape. Demonstrating that FDI is a significant driver of economic growth could enhance confidence among foreign investors. The project's importance lies in contributing to economic knowledge and guiding strategic decisions for sustainable economic growth in Chile. Understanding the interplay of FDI and domestic investment allows for a balanced approach, promoting stable economic development and mitigating issues like excessive reliance on foreign investment. The study highlights the theory of internationalization as a conceptual framework for understanding the motives and strategies of multinational companies investing abroad. Leveraging data from sources like the Central Bank of Chile, the research analyzes variables such as Chile's economic growth (GDP), FDI, and domestic investment. The hypothesis posits a significant long-term causal relationship between FDI, National Investment (NI), and Chile's Economic Growth (GDP). Statistical analysis using the Eviews 6 software tool confirms that attracting foreign investments and promoting internal investment are imperative for sustainable economic growth in Chile.
    Date: 2023–11
  3. By: Akame, Afuge; Mavrotas, George
    Abstract: This paper explores the impact of various forms of donor aid on economic growth in 39 sub-Saharan African countries from 2002 to 2020. The findings suggest that while total aid positively influences growth, different aid modalities have varying effects, with project aid and technical assistance boosting growth, while budget support and humanitarian assistance hinder it. The study emphasizes the importance of disaggregating aid types in research on aid effectiveness, challenging the traditional approach of using a single figure for aid in policy recommendations.
    Keywords: COVID-19, aid, sub-Saharan Africa
    Date: 2024–01
  4. By: Richard Chisik (Department of Economics, Toronto Metropolitan University, Toronto, Canada); Nazanin Behzadan (Department of Economics, University of Prince Edward Island, Charlottetown, Canada)
    Abstract: We develop a new model of international trade with non-homothetic preferences whereby within-country income distribution affects the pattern of trade and economic growth. Alternative forms of foreign transfers, such as foreign aid and remittances, interact with the income distribution in dissimilar manners, which in turn generates differences in spending patterns, production patterns, and the pattern of international trade. In a three sector model with international trade and production we show that while remittances foster economic growth, foreign aid can cause economic stagnation. A production shift to the sector with less long-run growth potential is known as the Dutch disease and in our model the disease is triggered by within-country income differences and the form of the foreign transfer. We empirically verify these hypotheses with data from a panel covering the years 1991-2009 while controlling for the issues of omitted variable bias and the possible endogeneity of foreign aid and remittances.
    Date: 2024–02
  5. By: Pablo Ottonello; Thomas Winberry
    Abstract: We study the role of financial frictions in determining the allocation of investment and innovation. Empirically, we find that firms are investment-intensive when they have low net worth but become innovation-intensive as they accumulate more net worth. To interpret these findings, we develop an endogenous growth model with heterogeneous firms and financial frictions. In our model, low net worth firms are investment-intensive because their returns to capital are high. Financial frictions slow the rate at which firms exhaust the returns to capital and shift towards innovation. Calibrating to the US economy, we find that the resulting lower growth implies large GDP losses even though capital misallocation is small. In other words, financial markets effectively fund the implementation of existing ideas, but do not adequately fund the discovery of new ideas. If innovation has positive spillovers, a planner would not only raise innovation but also lower investment expenditures among constrained firms.
    JEL: E22 E23 G3 O30 O4
    Date: 2024–01
  6. By: Menzie D. Chinn; Laurent Ferrara
    Abstract: In recent years, there has been renewed interest in the moments of the yield curve (or alternatively, the term spread) as a predictor of future economic activity, defined as either recessions, or industrial production growth. In this paper, we re-examine the evidence for this predictor for the United States, other high-income countries, as well as selected emerging market economies (Brazil, India, China, South Africa and South Korea), over the 1995-2023 period. We examine the sensitivity of the results to the addition of financial variables that measure other dimensions of financial conditions both domestically and internationally. Specifically, we account for financial conditions indexes (Arrigoni, et al., 2022), the debt service ratio (Borio, et al., 2020), and foreign term spreads (Ahmed and Chinn, 2023). We find that foreign term spreads and the debt service ratio in many cases yield substantially better predictive power, in terms of in-sample fit using proportion of variance explained. Overall, the predictive power of the yield curve, as well as other financial variables, varies across countries, with particularly little explanatory power in emerging market economies.
    JEL: C22 E37 E43
    Date: 2024–01
  7. By: Matteo Iacopini; Aubrey Poon; Luca Rossini; Dan Zhu
    Abstract: A widespread approach to modelling the interaction between macroeconomic variables and the yield curve relies on three latent factors usually interpreted as the level, slope, and curvature (Diebold et al., 2006). This approach is inherently focused on the conditional mean of the yields and postulates a dynamic linear model where the latent factors smoothly change over time. However, periods of deep crisis, such as the Great Recession and the recent pandemic, have highlighted the importance of statistical models that account for asymmetric shocks and are able to forecast the tails of a variable's distribution. A new version of the dynamic three-factor model is proposed to address this issue based on quantile regressions. The novel approach leverages the potential of quantile regression to model the entire (conditional) distribution of the yields instead of restricting to its mean. An application to US data from the 1970s shows the significant heterogeneity of the interactions between financial and macroeconomic variables across different quantiles. Moreover, an out-of-sample forecasting exercise showcases the proposed method's advantages in predicting the yield distribution tails compared to the standard conditional mean model. Finally, by inspecting the posterior distribution of the three factors during the recent major crises, new evidence is found that supports the greater and longer-lasting negative impact of the great recession on the yields compared to the COVID-19 pandemic.
    Date: 2024–01
  8. By: Ricardo J. Caballero; Alp Simsek
    Abstract: This article summarizes empirical research on the interaction between monetary policy and asset markets, and reviews our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences economic activity with lags. In this context: (i) the central bank (the Fed, for short) stabilizes the aggregate asset price in response to financial shocks, using large-scale asset purchases if needed ("the Fed put"); (ii) when the Fed is constrained, negative financial shocks cause demand recessions, (iii) the Fed's response to aggregate demand shocks increases asset price volatility, but this volatility plays a useful macroeconomic stabilization role; (iv) the Fed's beliefs about the future aggregate demand and supply drive the aggregate asset price; (v) macroeconomic news influences the Fed's beliefs and asset prices; (vi) more precise news reduces output volatility but heightens asset market volatility; (vii) disagreements between the market and the Fed microfound monetary policy shocks, and generate a policy risk premium.
    JEL: E32 E43 E44 E52 G12
    Date: 2024–01
  9. By: Krenz, Johanna; Verma, Akhilesh K
    Abstract: How does macroprudential regulation affect financial stability in the presence of non-bank financial intermediaries? We estimate the contributions of traditional banks vis-'a-vis non-bank financial intermediaries to changes in systemic risk - measured as ∆CoVaR - after macroprudential policy shocks in European countries. We find that while tighter macro-prudential regulation, generally, decreases systemic risk among traditional banks, it has the opposite effect on systemic risk in the non-bank financial intermediation sector. For some types of regulations, the latter effect is even stronger than the former, indicating that macro-prudential tightening increases systemic risk in the entire financial system, through leakages between the traditional and the non-bank financial intermediation sectors.
    Keywords: macroprudential policy, systemic risk, ∆, CoVaR, non-bank financial intermediation, regulatory arbitrage, Europe
    JEL: G18 G23 G28 G21 E58
    Date: 2023
  10. By: Moreno, Diego; Takalo, Tuomas
    Abstract: We study a competitive banking sector in which banks choose the level of risk of their asset portfolios and, upon the public disclosure of stress test results, raise funding by promising investors a repayment. We show that competition forces banks to choose risky assets so as to promise investors high repayments, and to gamble on favorable stress test results. Increasing stress test precision increases banks' asset riskiness but also improves allocative efficiency. When risk taking is not too sensitive to the precision of information, maximal transparency maximizes both stability and surplus. In contrast, when banks exercise market power assets are less risky, while opacity maximizes banks' stability and, when the social cost of bank failure is sufficiently large, the surplus as well. Our results in overall highlight the need to take into account the structure of banking industry when designing stress tests.
    Keywords: financial stability, stress tests, bank transparency, banking regulation, bank competition
    JEL: G21 G28 D83
    Date: 2024
  11. By: Mr. Selim A Elekdag; Drilona Emrullahu; Sami Ben Naceur
    Abstract: Motivated by its rapid growth, this paper investigates how FinTech activities influence risk taking by financial intermediaries (FIs). In this context, this paper revisits an ongoing debate on the impact of competition on financial stability: on one side, it is argued that greater competition encourages greater risk taking (competition-fragility hypothesis), while the other side of the debate asserts that more competition can increase financial stability (competition-stability hypothesis). Using a curated databased covering over 10, 000 FIs and global FinTech activities, we find a robust relationship whereby greater FinTech presence is associated with heightened risk taking by FIs, offering support for the competition-fragility hypothesis. However, the inclusion of bank-, industry-, and country-specific characteristics can alter this relationship. Importantly, there is suggestive evidence indicating that in certain cases, greater FinTech presence may be associated with less FI risk taking amid stronger domestic institutions. Notwithstanding the relevance for policy, this paper presents a novel framework that may help reconcile some of the conflicting results in the literature which have found supportive evidence for each of the two competing hypotheses.
    Keywords: fintech; bank risk taking; competition
    Date: 2024–01–26
  12. By: Maria Siranova (Slovak Academy of Sciences); Menbere Workie Tiruneh (Slovak Academy of Sciences & Webster Vienna Private University); Brian Konig (Slovak Academy of Sciences & University of Economics in Bratislava)
    Abstract: In this paper we study role of ‘abnormal FDI‘ as a potential driver of sudden stops during the 2009-2019 period. The unexplained part of country fixed effects in a bilateral gravity regression is used to calculate the abnormal FDI. We then construct three measures of ‘FDI abnormalcy‘ that assess: i) the possible role of an economy as financial centre or tax haven, ii) the contribution of ‘FDI abnormalcy‘ to total FDI position, and iii) the exposure toward territories considered as tax havens or financial centres. Determinants of sudden stops are analysed by the panel probit model. We find that economies labelled as tax havens or financial centres and economies with comparably higher shares of inward ‘abnormal FDI’ were associated with a lower incidence of sudden stops. In contrast, the presence of capital inflows linked to tax haven or financial centre territories may increase the likelihood of a sudden stop event.
    Keywords: Sudden stop, FDI, illicit financial flows, tax havens, international financial centres
    JEL: F G
    Date: 2024
  13. By: Krenz, Johanna
    Abstract: What are the effects of financial integration on global comovement? Using a standard two-country DSGE model, I show that in response to country-specific supply shocks higher exposure to foreign assets leads to lower cross-country output correlations, while the opposite is true for country-specific demand shocks. I argue that an important, yet overlooked, transmission channel originates in the interplay between financial integration and terms of trade movements in response to the shocks hitting the economy. The transmission channel is independent of whether the agents who hold the foreign assets are financially constrained or not.
    Keywords: Business cycle comovement, Financial cycle comovement, Financial integration, Demand versus supply shocks, Terms of trade, Transfer Problem, Balance sheet effect
    JEL: E30 E44 F41 F44 G15
    Date: 2023
  14. By: Jing Cynthia Wu; Yinxi Xie; Ji Zhang
    Abstract: Motivated by empirical evidence, we propose an open-economy New Keynesian model with financial integration that allows financial intermediaries to hold foreign long-term bonds. We find financial integration features an amplification for a domestic monetary policy shock and a negative spillover for a foreign shock. These results hold for conventional and unconventional monetary policies. Among various aspects of financial integration, the bond duration plays a major role, and our results cannot be replicated by a standard model of perfect risk sharing between households. Finally, we observe an important interaction between financial integration and trade openness and demonstrate trade alone does not have an economically meaningful impact on monetary policy transmission.
    Keywords: central bank research; international financial markets; monetary policy transmission
    JEL: E44 E52 F36 F42
    Date: 2024–02
  15. By: Bada Han; Jangyoun Lee; Taehee Oh
    Abstract: In this paper, we examine how, contrary to the ‘original sin’ hypothesis, emerging market economies have gained the ability to borrow abroad in their local currency. We empirically analyze the relationship of various economic variables with local currency debt and identify three crucial conditions for the capacity to borrow in local currency: institutional quality, sufficient depth in the domestic bond market, and adequate performance in inflation targeting. While shares in JPMorgan Government Bond Index-Emerging Markets (GBI-EM) index also appear to be influential, the associations with local currency debt is less clear. We conduct a similar empirical analysis on portfolio equity, which represents a safer form of external liability than foreign currency debt, and verify that the depth of the equity market plays a key role in attracting foreign capital to domestic equity markets. Finally, we propose a simple portfolio model based on the inelastic market hypothesis to explain the positive correlation between capital market depth and the dissipation of original sin, which refers to the presence of more external liability in the form of equity or local currency debt. In essence, our analysis suggests that emerging market economies with reasonably strong fundamentals are not necessarily reliant on foreign currency debt.
    Keywords: Original Sin; Local Currency Debt; Emerging Markets
    Date: 2024–01–26
  16. By: Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Andreas Schrimpf (Bank for International Settlements (BIS) - Monetary and Economic Department; Centre for Economic Policy Research (CEPR); University of Tuebingen); Yuan Zhang (Shanghai University of Finance and Economics)
    Abstract: We develop a continuous time general equilibrium model with intermediaries at the heart of international financial markets. Global intermediaries bargain with households and extract rents from providing access to foreign claims. By tilting state prices, intermediaries’ market power breaks monetary neutrality and makes international risksharing inefficient. Despite having zero net positions, markups charged by intermediaries significantly distort international asset prices and exchange rate dynamics and their response to shocks. Our model can reproduce patterns consistent with several well-known exchange rate puzzles, such as deviations from Uncovered and Covered Interest Parity. All equilibrium quantities are derived in closed form, allowing us to pin down the underlying economic mechanisms explicitly.
    Keywords: Financial Intermediation, Exchange Rates, Uncovered Interest Parity, Covered Interest Parity Deviations
    JEL: E44 E52 F31 F33 G13 G15 G23
    Date: 2024–01
  17. By: Christine S. Makanza (School of Economics, University of Cape Town); Princewill U. Okwoche (School of Economics, University of Cape Town)
    Abstract: This study examines the relationship between public debt and growth in Nigeria and extends the literature in two unique ways. First, whereas previous studies focusing on Nigeria have mainly assumed a linear debt-growth relationship, this study examines the non-linear threshold effects of the debt. Second, instead of focusing only on external debt as in previous studies, this study employs the total debt measure along with the individual components of debt given the historical importance of both the external and domestic debt in Nigeria. Empirical analyses are carried out using annual time series data sourced from the Central Bank of Nigeria and the World Development Indicators covering the period 1970-2017. Evidence strongly confirms the presence of a nonlinear debt-growth nexus for Nigeria similar to what is widely reported in the literature. This suggests that debt may be good for growth up to a certain threshold beyond which it becomes a drag on growth. Evidence from the Sasabuchi-Lind-Mehlum test for U-shape presents a threshold estimate of 56% for total public debt and 88% for external debt. We could not pinpoint a nonlinear and threshold effect for domestic debt. Rather, the evidence points to a linear negative effect of domestic debt on growth. Policy recommendations based upon these findings are discussed.
    Date: 2023
  18. By: Massimiliano Ferraresi (University of Ferrara); Benedikt Herrmann, European Commission, JRC-Ispra; Luisa Loiacono (University of Ferrara); Leonzio Rizzo (University of Ferrara & IEB); Riccardo Secomandi (University of Ferrara)
    Abstract: Can fiscal autonomy affect per-capita income levels? The existing literature shows mixed results on the impact of fiscal autonomy on GDP growth, it often uses cross-country datasets comparing nations with different socio-economic contexts. Even when it digs into the subnational entities of a nation either financial indexes or institutional dummies are used as proxies for fiscal autonomy: both can imply endogeneity due either to measurement errors or reverse causality. We empirically investigate the impact of fiscal autonomy on per-capita income stimulated by the proper use of local financial resources. We do this by exploiting an Italian natural experiment comparing the impact on per-capita income of the use of own resources in municipalities belonging to the autonomous provinces of Trento and Bolzano, which manage almost all their taxes autonomously, to those belonging to the neighbouring regions of Veneto and Lombardy, which manage only a small fraction of taxes paid by their citizens. We use a spatial fuzzy regression discontinuity design to compare similar municipalities on the border between the provinces of Trento and Bolzano and Lombardy and Veneto. We find that the higher the level of local financial fiscal autonomy, proxied by the ratio of own tax revenue to total revenue, the higher the level of per-capita income. The proxy is instrumented with a dummy indicating municipalities with a real institutional fiscal autonomy : those belonging to the provinces of Trento and Bolzano. This allows us to interpret the proxy as an exogenous variation indicating institutional fiscal autonomy. We find that a 10 percentage points increase in financial fiscal autonomy increases per-capita income by 3%. Hence, our results suggest that local governments that are more accountable and closer to citizens, manage their revenues in a more efficient way than in the case when they receive transfers from the centre.
    JEL: H71 H72 R11
    Date: 2023–12
  19. By: Apeti, Ablam Estel; Edoh, Eyah Denise
    Abstract: Making tax administration more efficient and maximising voluntary compliance is a very difficult task for developing countries. In this paper, we analyse the effect of mobile money payments on the quality of tax policy and administration for a large sample of countries in developing economies. We use the World Bank indicator on efficiency of revenue mobilisation as a measure of the quality of tax policy and administration and employ an entropy balancing method to show that mobile money payments improve the quality of tax systems. This result is robust to several robustness tests, including sample alteration, alternative measures of mobile money, controlling for other aspects of tax policy, and alternative estimation methods such as GMM-system, event study approach and ordinary least square. In addition, our results show that the positive effect of mobile money on tax systems depends on the level of development, financial development, the state’s legitimacy, a country’s fiscal space, the number of available products/companies, the type of mobile money services, and the geographic position of countries. Finally, we highlight some potential mechanisms underlying these findings through lower tax compliance burden, smaller informal sector, and lower corruption.
    Keywords: Economic Development,
    Date: 2024
  20. By: Jiaqi Li; Andrew Usher; Yu Zhu
    Abstract: To what extent does a central bank digital currency (CBDC) compete with bank deposits? To answer this question, we develop and estimate a structural model where each household chooses which financial institution to deposit their digital money with. Households value the interest paid on digital money, the possibility of obtaining complementary financial products, and the access to in-branch services. A non-interest-bearing CBDC that does not provide complementary financial products can substantially crowd out bank deposits only if it provides an extensive service network. Imposing a large limit on CBDC holding would effectively mitigate this crowding out.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E50 E58
    Date: 2024–02
  21. By: Phoebe Tian
    Abstract: This paper examines inefficiencies arising from a lack of long-term contracting in small business lending in China. I develop and estimate a dynamic model where firms repeatedly interact with the same lender. All loans are short-term. Collateral can be used to deter a strategic default by a firm, but the lender cannot recover the full value of the collateral in the case of a default. The endogenous contract terms—including interest rates, loan size and collateral—reflect a firm’s probability of default in equilibrium. Learning drives the dynamics of contract terms because a firm’s profitability type is unknown. Long-term contracts improve welfare mainly by mitigating the incentives for a firm to default.
    Keywords: Financial institutions
    JEL: D83 D86 G21 L14 L26
    Date: 2024–02
  22. By: Thomas Geelen (Copenhagen Business School - Department of Finance; Danish Finance Institute); Jakub Hajda (HEC Montreal - Department of Finance); Erwan Morellec (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); Adam Winegar (BI Norwegian Business School)
    Abstract: Capital ages and must eventually be replaced. We propose a theory of financing in which firms borrow to finance investment and deleverage as capital ages to have enough financial slack to finance replacement investments. To achieve these dynamics, firms issue debt with a maturity that matches the useful life of assets and a repayment schedule that reflects the need to free up debt capacity as capital ages. In the model, leverage and debt maturity are negatively related to capital age while debt maturity and the length of debt cycles are positively related to asset life. We provide empirical evidence that strongly supports these predictions.
    Keywords: capital age, asset life, maturity matching, debt cycles, maturity cycles
    JEL: E32 G31 G32
    Date: 2024–01
  23. By: Nuhu, Peter; Bukari, Dramani; Sulemana, Yusif
    Abstract: The World Economic Forum in 2014 reports that persistent jobless growth is one of the topmost challenges the globe faces. International Labour Organisation (ILO) data indicates that Ghana’s employment elasticity of output has been fallen since 1992; from 0.76 in 1992-1999 to 0.5 since 2006. This trend implies that from 1992, the ability of the Ghanaian economy to create jobs as it grows has been shrinking. Similarly, estimates show that Nigeria’s output elasticity of employment averages 0.39% across all sectors. Through decomposition, this paper investigates the nexus between credit and employment with the view to answering the following questions. i. How does economic activity impact employment creation in developing countries like Ghana and Nigeria? ii. How does credit intensity impact employment creation? iii. How important is sectoral credit mix to creating employment? And iv. Should sectoral employment factor guide credit extension? The results for both countries show that total change in employment consequent on credit availability has been positive. However, the adoption of credit as a trigger for employment creation must not only be intensified but also deliberately targeted at the sectors of the economy that offer the greatest potential for job creation.
    Keywords: Credit, Employment, Economic Activity, Unemployment, Ghana, Nigeria
    JEL: E24 E44 E51 O55 O57
    Date: 2023–05–21

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