|
on Financial Development and Growth |
| By: | Finocchiaro, Daria (Research Department, Central Bank of Sweden); Weil, Philippe (Université libre de Bruxelles and CEPR) |
| Abstract: | We investigate the growth-finance nexus in an endogenous growth model with search frictions and congestion effects in credit and innovation markets. The interplay between these two frictions generates a nonlinear relationship between finance and growth. Financial development eases the financing of innovation but can exacerbate bottlenecks in R&D. In a calibration close to the U.S. economy, finance has a negative impact on growth. This effect is quantitatively small– consistent with the observation that, in the last century, most developed economies have experienced an expansion of the financial sector and almost constant growth rates of GDP. |
| Keywords: | Growth; Finance; Search frictions; Technology; Innovation |
| JEL: | E51 G24 O40 |
| Date: | 2024–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0442 |
| By: | Chiad, Faycal; GHERBI, Abdelhalim |
| Abstract: | The aim of this research is to provide a suitable empirical framework for the interaction between Islamic finance, financial stability and economic development. Additionally, it is an attempt to empirically evaluate how the levels of financial system stability and economic growth in an oil-rich nation are affected by the financing provided by the Islamic banks. Employing fully modified ordinary least squares (FMOLS) and quantile regression (QR) based on quarterly data for the years 2013 to 2022. The paper explores strong evidence that Islamic banking finance supports economic growth (coefficients ranging from 0.14 to 0.22) and improves financial system stability, as indicated by the coefficients ranging from 0.25 to 0.32. Moreover, the study highlights that this positive relationship is negatively affected by inflation rates and levels of economic policy uncertainty. Financial inclusion has an important positive impact on both dependent variables, which reinforces this link. Furthermore, oil rents in Saudi Arabia contributed to improving economic development and supporting the financial sector's development to achieve economic diversification aimed by Saudi Vision 2030. These findings confirm the necessity of paying attention to developing Islamic banking and increasing its market share by creating products and services that achieve economic efficiency in accordance with suitable policies for making the financial sector a strategic sector that supports economic development in KSA. |
| Keywords: | Islamic Banks, Financial Stability, Economic Growth, Quantile Regression |
| JEL: | C21 G21 G32 O47 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122409 |
| By: | Shrawan, Aakanksha (National Institute of Public Finance and Policy) |
| Abstract: | The present study attempts to assess the potential determinants of economic growth at the state-level for 27 Indian states for the period 2000-01 to 2021-22. We also incorporate a quantitative variable, unspent funds as a proportion of total budgeted expenditure, to control for the quality of governance, along with other macroeconomic and structural factors. The paper finds a negative and statistically significant impact of unspent funds on the per capita GSVA growth of the states under study at the aggregate level. In addition, we also evaluate the unique growth experiences of different states separately without assuming a homogeneous response of the explanatory variables on the growth processes of all states which might assist the policymakers in offering explanations for the better or worse performing states with respect to the same macroeconomic variable. |
| Keywords: | GSVA Growth ; Unspent Funds ; Feasible Generalised Least Squares ; Industry ; India |
| JEL: | C23 O10 O11 O14 O40 L80 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:24/420 |
| By: | Kwamivi Mawuli Gomado (EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université) |
| Abstract: | Abstract Various shocks, including the Gulf War, the US recession, the 9/11 attacks, financial credit crunch, and domestic political shocks like coups, and revolutions, have contributed to the persistence of high uncertainty. This uncertainty has direct implications for economic activity, affecting both business investment and household consumption decisions. This article explores the mediating role of the quality of pro‐market institutions in the relationship between economic performance and changes in the uncertainty. It also investigates whether reforming pro‐market institutions during a period of uncertainty can mitigate the negative effects of the uncertainty on economic performance, while analyzing the channels through which the mediating effect of reforms during uncertainty manifests. Using a sample of 61 developing countries over the period 1990–2014, our results, robust to various tests, indicate that higher quality of pro‐market institutions significantly reduces the negative effects of uncertainty on economic performance. Indeed, the reduction in GDP growth due to a change in uncertainty decreases by 93 percentage points with higher levels of pro‐market institutional quality, and this variation depends on the nature of the pro‐market institutions considered. Furthermore, implementing pro‐market institutional liberalization reforms during a period of uncertainty could not only alleviate the negative effects of uncertainty but also contribute to medium‐term economic growth. The analysis of channels suggests that this effect is mediated by the impact of reforms on household consumption and business investment. These results highlight how pro‐market institutions and reforms in these institutions can enhance the resilience of economies facing high uncertainty or unexpected and substantial economic shocks. |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04725308 |
| By: | Imran Ali, Imran; Foday, Foday; Zahid Usman, Muhammad |
| Abstract: | This study investigates the complex Relationship between Foreign Direct Investment (FDI), Exchange Rates (LEXR), GDP per Capita (LGDPPC), Inflation (LINF), and Natural Resources (LNR). Understanding these dynamics is pivotal for formulating effective economic policies and enhancing economic sustainability. The primary objective is to analyze the long-term and short-term relationships among these variables and to identify their impacts on FDI. The study aims to address how each variable influences FDI and to assess the policy implications of these relationships. By Employing the Johansen Cointegration Test and Vector Error Correction Model (VECM), the study examines the equilibrium relationships and dynamics among the variables. Granger Causality tests are used to determine the predictive relationships between FDI and its determinants. The long-run analysis shows that exchange rates significantly increase FDI, while higher GDP per capita reduces FDI. Inflation and natural resources also affect FDI but to a lesser degree. Short-term dynamics reveal that GDP per capita and natural resources have significant positives impacts on FDI, whereas the effects of exchange rates and inflation are weaker. Granger Causality tests confirm that GDP per capita influences FDI and exchange rates, while inflation affects GDP per capita. The study highlights the importance of economic growth, stable exchange rates, and controlled inflation for attracting FDI. Recommendations include investing in infrastructure and innovation, managing exchange rate volatility, and implementing transparent resource management policies to enhance economic stability and growth. |
| Keywords: | Foreign Direct Investment, Exchange Rates, GDP per Capita, Inflation, Natural Resources, Vector Error Correction Model, Cointegration, Granger Causality |
| JEL: | F62 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122185 |
| By: | MARTINEZ CILLERO Maria (European Commission - JRC); CIANI Andrea (European Commission - JRC); GIANELLE Carlo |
| Abstract: | In order to understand the role of foreign-owned business activity in regional economic development and the relevance of this phenomenon for regional policies, it is necessary, although not exhaustive, to have an appropriate mapping of investment flows that can lead to a regional characterisation of the geography of foreign direct investment (FDI). |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc136533 |
| By: | Yudai Hatayama (Bank of Japan); Yuto Iwasaki (Previously Bank of Japan); Kyoko Nakagami (Bank of Japan); Tatsuyoshi Okimoto (Bank of Japan and Keio University) |
| Abstract: | This paper quantitatively examines the effect of globalization on the natural rate of interest in developed economies, including Japan, the US, and the euro area. By incorporating into the model the variables that capture global economic and financial trends, such as demand and supply of safe assets and cross-border spillovers, with a smooth-transition framework, we account for the existence of non-linear regime change of their coefficients, driven by globalization. Our findings indicate that along with the progress of globalization, (i) the impact of global factors rapidly increased around 2000, and (ii) the commonly observed decline in the natural rate of interest can be largely attributed to these global factors. These findings underscore the importance of incorporating global factors such as demand and supply of safe assets and global spillovers, with their increasing impact, alongside the domestic factors such as productivity and demographics, when investigating developments in the natural rate of interest. |
| Keywords: | Natural Rate of Interest; Globalization; Smooth Transition Model |
| JEL: | E43 E52 F41 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e13 |
| By: | António Afonso; Jorge Caiado; Omar Al. Kanaan |
| Abstract: | This paper examines the macroeconomic returns on public and private investments in 18 advanced economies from 1965 to 2019, using a Vector Autoregressive (VAR) approach. We assess whether higher investment levels drive economic growth and explore the interplay between public and private investments, particularly regarding crowding-in and crowding-out effects. A sensitivity analysis, altering the order of investments in the VAR model, tests the robustness of the results and highlights the dynamic relationships between them. The findings show that private investment consistently stimulates growth, while public investment’s impact varies by country. The analysis underscores the importance of investment sequencing, suggesting the need for flexible policies and a deeper understanding of investment dynamics. This study contributes to the debate on public investment’s role in fostering growth and offers empirical insights for future economic policy and investment strategies. |
| Keywords: | Public Investment, Macroeconomic Rates of Return, Crowding-in/out. |
| JEL: | H54 E01 E22 E62 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03502024 |
| By: | Marcus Vinicius de Freitas |
| Abstract: | China is the largest developing country. Africa is the continent with the largest number of developing countries. The China-Africa economic relationship has developed rapidly over the last two decades. China has increased its investment in Africa over the last four decades. Flows surged from $75 million (2003) to $5 billion (2021). This has had both positive and negative impacts on Africa. Infrastructure improvement, job creation, and overall economic growth can be listed as positive results, leading to improved connectivity, trade, and transportation in a continent where infrastructure integration has always been challenging. Creating such opportunities in Africa has supported lower unemployment rates, particularly among young people, which is fundamental in a continent that enjoys a positive demographic bonus. |
| Date: | 2023–08 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_30-23 |
| By: | Emmanuel Pinto Moreira |
| Abstract: | African countries were severely hit by the COVID-19 pandemic, which quickly drove the continent into its worst recession in fifty years. According to the 2022 African Development Bank African Economic Outlook (AEO), real GDP declined by -1.5% in 2020 compared to growth of 3.3% in 2019. Africa has recovered quickly from the recession, but this has not translated into favorable debt prospects for many countries. To make a challenging situation even worse, the Russia/Ukraine crisis has cast further doubt on prospects for debt sustainability in Africa. The international community has reacted to these events by putting in place a Debt Service Suspension Initiative (DSSI). To address debt needs further, the G20 has introduced a Common Framework to facilitate debt relief, including from the private sector. These two initiatives have not proven sufficient to meet Africa’s debt challenge. Africa thus would benefit from the introduction of a financial stability mechanism that would work with countries to put their finances back on a sustainable path and help ensure market access. Section 1 of this paper details Africa’s new wave of debt crises since 2010. Section 2 discusses the new debt resolution framework and its limitations. The paper then concludes by setting out the rationale for a new financial stability mechanism. |
| Date: | 2023–06 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_25-23 |
| By: | Henri-Louis Vedie |
| Abstract: | Depuis 2016, on assiste à une dynamique de création de fonds souverains africains. En 2023, on recense 21 pays et 24 fonds souverains. Sur la seule période 2016-23, celle de la deuxième vague, huit pays vont se doter d’un premier fonds souverain, et d’un deuxième, dans le cas du Maroc, en 2022. Cette étude rappelle tout d’abord l’historique d’une création qui commence, dès 1994, au Botswana, avec le Pula Fund, précisant pour chacun des 24 fonds leur date de création, leur répartition régionale, la population des pays concernés etc. Elle propose, par ailleurs, une analyse détaillée des fonds souverains de la deuxième vague, montrant que le plus grand nombre de ces fonds sont des plateformes stratégiques d’investissement, et non pas intergénérationnels, ne se finançant plus, comme la plupart des fonds souverains de la première vague, sur les rentes, pétrolière et gazière. Désormais, ces fonds stratégiques de développement ont une priorité : mobiliser les capitaux internationaux, à partir d’un effet levier de l’argent public, investi dans les projets stratégiques de leurs pays respectifs. Enfin, cette étude montre le rôle clé exercé par le Maroc durant cette deuxième vague, via son fonds souverain Ithmar Capital, en présidant, depuis novembre 2021, l’International Forum of Sovereign Wealth Funds (IFSWF), une première pour un pays africain, et en ayant été à l’initiative de la création de l’Africa Sovereign Investors Forum (ASIF). |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_04-24 |
| By: | Nusrat Nawshin; Asif Imtiaz; Md. Shamsuddin Sarker |
| Abstract: | External debt has been identified as the most liable to cause financial crises in developing countries in Asia and Latin America. One recent example of near bankruptcy in Sri Lanka has raised serious concerns among economists about how to anticipate and tackle external debt-related problems. Bangladesh also faced a decline in export income and a sharp rise in import prices amid the aforementioned global shocks. Nevertheless, the international reserves of Bangladesh have never fallen to the level they did in Sri Lanka. This paper examines the relationship between remittance inflows, international reserves, and external debt in Bangladesh and Sri Lanka. Econometric estimations reveal that remittance affects external debt both directly and through international reserves in Bangladesh. The existence of a Dutch Disease effect in the remittance inflows-international reserves relationship has also been confirmed in Bangladesh. We also show that Bangladesh uses international reserves as collateral to obtain more external borrowing, while Sri Lanka, like many other developing countries, accumulates international reserves to deplete in "bad times." Remittances can be seen as one of the significant factors preventing Bangladesh from becoming a sovereign defaulter, whereas Sri Lanka faced that fate. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.09594 |
| By: | Michael Tribe |
| Abstract: | The paper aims provide detail for some of the principal changes in the structure of aid delivery since the 1960s. A significant part of the discussion is based on statistics which illustrate many of these changes in terms of the various sources of aid (OECD DAC countries, Non-DAC countries, Multilateral Agencies, and private donors). The main data sources are the OECD QWIDS webpage (OECD 2023 and 2024b) and the World Bank’s World Development Indicators (World Bank 2024). It also discusses changes in the allocation of ODA (Official Development Assistance) between directly productive, economic infrastructure, social infrastructure, humanitarian, security and ‘emergency’ sectors over these years. A distinction is made between different categories of ‘development finance’ including ODA, Official Development Finance (ODF), Other Official Finance (OOF) and lending on more commercial terms. The term ‘emerging donors’ is discussed, and the various dimensions of these donors are explored. Within a somewhat shorter time period (mainly 2000-2020) the changing institutional complexity of the ‘aid sector’ is described and the implications of this are explored, together with the changing priorities and objectives of ‘traditional donors’. In part the changing structure and priorities of the aid sector reflect international socio-economic events including natural and man-made disasters, international migration of various types, and changing perceptions of how aid ‘works’. The debate relating to ‘aid effectiveness’ is reviewed critically, and the issues relating to the ‘decolonisation’ of aid are explored briefly. One of the principal conclusions is that the ‘aid sector’ has changed enormously from the character which it had just after the Second World War when the need to address the problems of ‘less developed countries’ was first officially articulated. This change has been continuous, so that more recent significant changes follow on within the evolution of the sector. |
| Keywords: | Economic Development; International Linkages to Development, Role of International Organizations; Development Planning and Policy; Fiscal and Monetary Policy in Development; International Trade, Finance, Investment, and Aid |
| JEL: | O1 O19 O2 O23 P45 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2024_06 |
| By: | Lin Shao (Bank of Canada) |
| Abstract: | Online appendix for the Review of Economic Dynamics article |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:red:append:22-229 |
| By: | Bao, Jack (U of Delaware); Hou, Kewei (Ohio State U); Taoushianis, Zenon (U of Southampton) |
| Abstract: | We construct a measure of systemic risk, DRSFIN, that combines the high frequency information available in equity returns with a simple structural model of default. DRSFIN predicts future bank failures even after controlling for bank characteristics, macroeconomic conditions, uncertainty, and existing measures of aggregate systemic risk. We then show that DRSFIN is able to predict aggregate loan growth and nonfinancial firm failure, indicating that it not only predicts disruption in the financial sector, but also has real effects. Finally, we show that DRSFIN is also associated with elevated market uncertainty and stress in international markets. |
| JEL: | E44 E66 G01 G13 G21 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-16 |
| By: | Dominik Hecker; Hun Jang; Margarita Rubio; Fabio Verona |
| Abstract: | In this paper, we design countercyclical capital buffer rules that perform robustly across a wide range of Dynamic Stochastic General Equilibrium (DSGE) models. These rules offer valuable guidance for policymakers uncertain about the most appropriate model(s) for decision-making. Our results show that robust rules call for a relatively restrained response from macroprudential authorities. The cost of insuring against model uncertainty is moderate, emphasizing the practicality of following these robust countercyclical capital buffer rules in uncertain economic environments. Keywords: |
| Keywords: | countercyclical capital buffers, macroprudential policy, model comparison, structural models, model uncertainty, robust rule |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:not:notcfc:2024/04 |
| By: | Lorenzo Carbonari (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS); Alessio Farcomeni (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy); Cosimo Petracchi (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy); Giovanni Trovato (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS) |
| Abstract: | e present a model for data reduction and provide time-fixed indicators for macroprudential policies. Using a panel of 119 countries from 2000 to 2015, we empirically assess the effectiveness of macroprudential policies in reducing volatility in private credit. Unobserved heterogeneity among countries is an important factor. We employ an econometric model that accounts for this heterogeneity and document that the impact of macroprudential policies on financial stability varies, leading to either deterioration or improvement, depending on the macroeconomic conditions of the country in which they are implemented. |
| Keywords: | Macroprudential policies, Financial cycles, unobserved heterogeneity, Generalized additive models for location, scale and shape |
| JEL: | E43 E58 G18 G28 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:rim:rimwps:24-16 |
| By: | Mistak, Jakub; Ozkan, F. Gulcin |
| Abstract: | This paper examines the asymmetry in global spillovers from Fed policy across tightening versus easing episodes several examples of which have been on display since the global financial crisis (GFC). We build a dynamic general equilibrium model featuring: (i) occasionally binding collateral constraints in the financial sector with significant cross-border exposure; and (ii) global supply chains, allowing us to match the asymmetry of spillovers across contractionary versus expansionary monetary policy shocks. We find clear asymmetries in the transmission of US monetary policy, with significantly larger spillovers during contractionary episodes under both conventional and unconventional monetary policy changes. Our results also reveal that the greater the size of international credit and supply chain networks and the policymakers’ aversion to exchange rate fluctuations in the rest of the world, the greater the spillover effects of US monetary policy shocks. JEL Classification: E52, F41, E44 |
| Keywords: | capital flows, emerging markets, monetary policy, spillovers, supply chains |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242995 |
| By: | Liang, Pauline (Stanford U); Sampaio, Matheus (Northwestern U); Sarkisyan, Sergey (Ohio State U) |
| Abstract: | We examine the impact of digital payments on the transmission of monetary policy by leveraging administrative data on Brazil's Pix, a digital payment system. We find that Pix adoption diminished banks' market power, making them more responsive to changes in policy rates. We estimate a dynamic banking model in which digital payments amplify deposit demand elasticity. Our counterfactual results reveal that digital payments intensify the monetary transmission by reducing banks' market power-banks respond more to policy rate changes, and loans decrease more after monetary policy hikes. We find that digital payments impact monetary transmission primarily through the deposit channel. |
| JEL: | E42 E52 G21 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-14 |
| By: | Richard Sylla (New York University Stern School of Business); Robert E. Wright (Augustana University, South Dakota) |
| Abstract: | Fortune magazine began publishing annual rankings of U.S. corporations by revenue in 1955. Ever since, scholars and forecasters have analyzed changes in the Fortune 500 to help inform their judgments about industry concentration and the relative importance of different sectors of the economy. Unfortunately, earlier data are scarce, especially before the Civil War. Through extensive research we have created a sort of historical "Fortune 500" going back to 1812, ranked by corporate capitalization, which we share here. Numerous insights can be drawn from this dataset, including the historical dominance of the banking and finance sectors and the early importance of manufacturing. Perhaps the larger significance of being able to come up with a Fortune 500 for 1812, though, is the fact that even with a population of only about 7.5 million, U.S. already had more business corporations than any other country, and possibly more than all other countries put together, securing its role as the world's first "corporation nation." The ease of incorporating businesses released a lot of entrepreneurial energy that helped to build an ever-expanding economy and by the end of the 19th century, the U.S. would be the world's largest national economy with tens of thousands of corporations. |
| Keywords: | Early American Business History, Fortune 500, Structure of US Economy. |
| JEL: | B10 B15 G32 |
| Date: | 2024–08–03 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp224 |
| By: | Andrea Ascani (Gran Sasso Science Institute); Lakshmi Balachandran Nair (LUISS Guido Carli University) |
| Abstract: | Whilst most governments’ supportive measures have kept businesses afloat during the most depressing stages of the COVID-19 pandemic, these massive liquidity injections can also hide the risk of keeping financially fragile firms alive artificially, thus starting a process that turns them into zombie firms (zombies). In this article, we investigate whether and under what circumstances the presence of zombies in an industry constitutes a barrier to the innovativeness of non-zombies in the same sector. By analysing matched patent-firm data from Bureau van Dijk ORBIS Intellectual Property on 426, 130 Italian firms from 2012 to 2018, we find evidence in favour of negative intraindustry spillovers. Nonetheless, this general relationship is subject to various contingencies connected to both industry and firm characteristics. Specifically, we highlight that the retention of zombies can congest the innovative activities of healthy firms, especially when they depend on external sources of finance, operate in highly competitive markets, are more exposed to the erosion of their market shares, and do not possess a pre-existing strong knowledge base. Our findings have relevant policy and managerial implications. |
| Keywords: | zombie firms, innovation, Italy, spillovers, poisson, instrumental variable |
| JEL: | O31 L20 D22 |
| Date: | 2023–06 |
| URL: | https://d.repec.org/n?u=RePEc:ahy:wpaper:wp40 |
| By: | Dorgyles C.M. Kouakou (Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France) |
| Abstract: | This paper contributes to the literature on the effects of informal firms on the operations of registered firms at three levels. First, we provide the first global evidence on the causal effect of competition from informal firms – referred to as informal competition – on the credit constraints faced by registered firms. Using a large firm-level dataset from the World Bank Enterprise Surveys, covering 145 countries and over 141, 000 observations, and employing the instrumental variable method to address the endogeneity of informal competition, we find that registered firms competing against informal firms are significantly more likely to be credit-constrained than those that do not. This result holds after controlling for economic development, financial development, economic conditions, and the institutional environment across different countries, regardless of firm size and sector, and it remains robust across a variety of robustness tests. Evidence from Sub-Saharan Africa and Latin America and the Caribbean indicates that the effect of informal competition is stronger in these regions than in the rest of the world. Second, we show that the impact of informal competition diminishes with higher financial development and firm productivity. Third, we demonstrate that self-financing capacity, capacity utilization, and informal payments are key channels through which informal competition exacerbates credit constraints for registered firms. |
| Keywords: | nformal competition; Formal-informal linkages; Credit constraints; Productivity; Financial development; Transmission channels |
| JEL: | D24 G20 O12 O16 O17 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:tut:cremwp:2024-10 |
| By: | Jérémie Bertrand (IÉSEG School Of Management [Puteaux]); Paul-Olivier Klein (Laboratoire de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon); Fotios Pasiouras (Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School) |
| Abstract: | High secrecy cultures are characterized by a preference for confidentiality and non-disclosure of information. This study documents the impact of cultural differences in secrecy on firms' access to credit. We use data from the World Bank Enterprise Surveys for a large sample of firms operating in 35 countries from 2010 to 2019. We show that firms operating in countries with higher levels of secrecy are less likely to apply for credit when they need it—they are more discouraged—and also less likely to receive credit when they do apply—they are more rationed. The underlying economic channels are greater opacity and corruption in cultures with high secrecy. The effect of cultural secrecy on credit discouragement and credit rationing is moderated by trust in banks, interpersonal trust, and firms' financial dependence on external sources. We control for several potential alternative drivers and conduct several robustness tests. The results confirm that firms have better access to credit in cultures that promote transparency and information disclosure. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04691594 |