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on Financial Development and Growth |
| By: | Sugata Marjit; Pranab Kumar Das |
| Abstract: | The paper provides an analysis of the simultaneous existence of the formal and the informal sources of finance and their implications for the rate of growth in an economy. Our main result is that in the presence of two sources of borrowing, viz. formal banking sector with lower interest rate with finance constraint and an informal credit market with a higher interest rate but unlimited amount of availability of loans, the informal source may boost the rate of growth. Hence, without the informal source of finance easily the growth rate could have been lower. The premium associated with the differential interest rate in favour of the informal source unequivocally increases propensity towards investment. Thus higher interest rate in the informal source provides the incentive to save resources from from own production as banks do not lend beyond the quota. Thus, if diminishing returns do not impede marginal productivity too much, availability of informal credit must act as a growth stimulant. Thus the presence of informal credit market can be an effective catalyst for growth and development, contrary to what is generally perceived in the literature on financial inclusion. |
| Keywords: | finance, informal, growth |
| JEL: | G20 O40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11446 |
| By: | Mr. Dirk V Muir; Natalija Novta; Anne Oeking |
| Abstract: | After decades of high growth, the Chinese economy is facing headwinds from slowing productivity growth and a declining workforce that are projected to lower potential growth substantially in the longer term. We project China’s potential growth over the medium to long term, showing that potential growth could slow to around 3.8 percent on average between 2025-30 and to around 2.8 percent on average over 2031-40 in the absence of major reforms. We present a reform scenario with structural reforms to lift productivity growth and rebalancing China’s growth towards more consumption, that would help China transition to “high-quality”—balanced, inclusive, and green—growth. We use production function and general equilibrium modelling approaches to show that potential growth could remain at around 4.3 percent between 2025-40 under the reform scenario. |
| Keywords: | Potential growth; investment-led growth; rebalancing; demographic trends; structural reforms |
| Date: | 2024–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/238 |
| By: | Melvin, Jennifer |
| Abstract: | The UK is a global leader in Aid for Trade (AFT). Aid for Trade discourse frames it as a solution to development challenges and key to building trade relationships. This article examines the rhetorical value of this framing in pursuit of myriad interests amidst Brexit, the Covid-19 pandemic, and changes to the UK’s aid budget and administration. It is informed by data from government documents and interviews with AFT and aid experts. This study finds that AFT discourse is used to justify the UK’s merging of diplomatic and development agendas and its new ‘Global Britain’ identity. Le Royaume-Uni est un chef de file en Aide pour le Commerce (APC). En effet, l'Aide pour le Commerce est reconnue comme un outil indispensable au développement international et comme une élement clé lors de l'établissement de relations commerciales. Cet article examine la valeur rhétorique de cette représentation dans la foulée de la présente redéfinition du rôle Britanique dans le cadre du Brexit, de la Pandémie de Covid-19 et des récents ajustements budgétaires apportés à l’aide internationale. Il s'appuie sur des données provenant tant de documents gouvernementaux, que d’entretiens avec des experts de l'APC et d’aide internationale britannique. Cette étude révèle que le discours de l'APC est utilisé pour justifier la fusion des programmes diplomatiques et d’aide internationale menant à la révision du rôle britannique mondial en sa nouvelle identité de « Grande-Bretagne mondiale ». |
| Keywords: | Aid for Trade; sociology of development; Brexit; Covid-19; aid policy |
| JEL: | L81 |
| Date: | 2024–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:118559 |
| By: | Schroeder, Christofer; Hviid, Simon Juul |
| Abstract: | Contractions in credit supply can lead firms to reduce their level of employment, yet little is known about how these shocks affect the composition of firms’ employees and outcomes at the worker level. This paper investigates how bank distress affects credit provision and its effects on employment beyond firm-level aggregates. To do so, we use a novel dataset built from administrative and tax records linking all banks, firms, and workers in Denmark. We show that banks that were particularly exposed to the 2008-09 financial crisis cut lending to firms, and firms were unable to fully compensate with financing from alternate sources. The decrease in credit supply led to a drop in firm-level employment, with effects concentrated among firms with low pre-crisis liquidity, and on employment of low-educated and nonmanagerial workers. At the worker level, we find that positive effects on unemployment were driven by effects on low-educated, non-managerial and short-tenured workers. Our estimates suggest that cuts in bank lending can account for at least 5% of the fall in employment of low-educated workers in our sample, and are an important factor behind heterogeneous employment dynamics in times of contractionary credit. JEL Classification: E24, E44, G01, G21, J23 |
| Keywords: | bank lending, financial crisis, firm borrowing, labour demand |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243001 |
| By: | Lingjuan Xu (Nanjing University of Aeronautics and Astronautics); Yijiang Liu (Nanjing University of Aeronautics and Astronautics); Beibei Xiang (Nanjing University of Aeronautics and Astronautics); Qunwei Wang (Nanjing University of Aeronautics and Astronautics) |
| Abstract: | In order to explore the impact of digital finance on the high-quality development of manufacturing industry, this paper uses data from 30 provinces in China from 2012 to 2021, and uses a multiple intermediary effect model to empirically study the mechanism and path of digital finance promoting the high-quality development of manufacturing industry. The research reveals that the eastern provinces of China are leading in the high-quality development index of the manufacturing industry from a spatial dimension. Looking at the temporal dimension, the overall level of high-quality development in the manufacturing industry in each province is showing an increasing trend, with the eastern region demonstrating the most significant upward trend. Empirical research has found that digital finance plays a significant catalytic role in the high-quality development of the manufacturing industry, with an impact coefficient of 0.032. Furthermore, digital finance can enhance the level of high-quality development in the Chinese manufacturing industry through three pathways: industrial upgrading, optimization of resource allocation, and environmental regulation. |
| Keywords: | High-quality sustainable development, Manufacturing industry, Digital finance, Multiple mediation effects model, Empirical testing |
| JEL: | O23 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14716391 |
| By: | Qiang Wan; Jun Cui |
| Abstract: | This paper explores the impact of banking fintech on reducing financial risks in the agricultural supply chain, focusing on the secondary allocation of commercial credit. The study constructs a three-player evolutionary game model involving banks, core enterprises, and SMEs to analyze how fintech innovations, such as big data credit assessment, blockchain, and AI-driven risk evaluation, influence financial risks and access to credit. The findings reveal that banking fintech reduces financing costs and mitigates financial risks by improving transaction reliability, enhancing risk identification, and minimizing information asymmetry. By optimizing cooperation between banks, core enterprises, and SMEs, fintech solutions enhance the stability of the agricultural supply chain, contributing to rural revitalization goals and sustainable agricultural development. The study provides new theoretical insights and practical recommendations for improving agricultural finance systems and reducing financial risks. Keywords: banking fintech, agricultural supply chain, financial risk, commercial credit, SMEs, evolutionary game model, big data, blockchain, AI-driven risk evaluation. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.07604 |
| By: | Myles, Jamieson |
| Keywords: | Trade finance, Cooperative business, Cotton, Federal credit institutions, History of capitalism |
| JEL: | N00 J54 N12 N22 N42 N52 P10 P13 Q13 Q14 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gnv:wpaper:unige:181156 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Why do banks fail? In a new working paper, we study more than 5, 000 bank failures in the U.S. from 1865 to the present to understand whether failures are primarily caused by bank runs or by deteriorating solvency. In this first of three posts, we document that failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. Further, we find that problems in failing banks are often the consequence of rapid asset growth in the preceding decade. |
| Keywords: | financial crises; deposit insurance; bank runs; bank failures |
| JEL: | G21 |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99160 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities. |
| Keywords: | bank runs; financial crises; deposit insurance; bank failures |
| JEL: | G01 G2 |
| Date: | 2024–11–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99163 |
| By: | Sydow, Matthias; Fukker, Gábor; Dubiel-Teleszynski, Tomasz; Franch, Fabio; Gründl, Helmut; Miccio, Debora; Pellegrino, Michela; Gallet, Sébastien; Kotronis, Stelios; Schlütter, Sebastian; Sottocornola, Matteo |
| Abstract: | This paper documents the extension of the system-wide stress testing framework of the ECB with the insurance sector for a more thorough assessment of risks to financial stability. The special nature of insurers is captured by the modelling of the liability side and its loss absorbing capacity of technical provisions as the main novel feature of the model. Leveraging on highly granular data and information on bilateral exposures, we assess the impact of liquidity and solvency shocks and demonstrate how a combined endogenous reactions of banks, investment funds and insurance companies can further amplify losses in the financial system. The chosen hypothetical scenario and subsequent simulation results show that insurers’ ability to transfer losses to policyholders reduces losses for the entire financial sector. Furthermore, beyond a certain threshold, insurance companies play a crucial role in mitigating both direct and indirect contagion. JEL Classification: D85, G01, G21, G23, L14 |
| Keywords: | contagion, financial stability, fire sales, insurance companies, interconnectedness, stress test |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243000 |
| By: | Orkun Saka; Yuemei Ji; Clement Minaudier |
| Abstract: | We show that politicians facing a binding term limit are more likely to engage in financial de-liberalisation than those facing re-election, but only in the wake of a financial crisis. In particular, they implement policies that tend to favour incumbent financial institutions over the general population, such as increasing barriers to entry in the banking sector. We rationalise this behaviour with a theory of political accountability in which crises generate two opposite effects: they increase the salience of financial policies to voters but also create a window of opportunity for politicians captured by the financial industry to push potentially harmful reforms. In line with the implications of our model, we show that revolving doors between the government and the financial sector play a key role in encouraging bank-friendly policies after crises. |
| Keywords: | financial crises, political accountability, democracies, term-limits, special-interest groups |
| JEL: | D72 D78 G01 P11 P16 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11461 |
| By: | Ruslana Datsenko; Johannes Fleck |
| Abstract: | Economic growth in some euro area countries has been lackluster since the COVID-19 pandemic. Concurrently, the ECB hiked its policy rate to fight inflation. In this note, we show that high interest rates have depressed economic activity more in those euro-area countries with large manufacturing sectors. |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-11-12-2 |
| By: | Moritz Pfeifer; Gunther Schnabl |
| Abstract: | This paper investigates the relationship between economic divergence and expansionary monetary policies within the eurozone based on a new divergence indicator. We study the dynamics between the economic divergence of member states and unconventional monetary policy in a Bayesian SVAR and find a strong positive response of the expansion of the ECB’s balance sheet to rising divergence. We find weaker evidence for unconventional monetary policies lowering divergence. We interpret these findings as evidence that expansionary monetary policy aims to absorb shocks leading to divergence. However, it may exacerbate divergence and inflationary pressures in the long-run. This research contributes to the literature on Optimum Currency Areas (OCAs) by highlighting the dynamics between economic disparities and unconventional monetary policy. |
| Keywords: | optimum currency areas, unconventional monetary policy shocks, statistical identification |
| JEL: | E52 E58 F15 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11442 |
| By: | Maximilian Grimm (University of Bonn) |
| Abstract: | Does monetary policy affect funding vulnerabilities of the banking system? I show that contractionary monetary policy shocks cause an aggregate outflow of retail deposits and an inflow of non-core market-based funding. Using a newly constructed worldwide dataset covering the liability structure of banking systems at monthly frequency, I demonstrate that a growing reliance on wholesale funding is associated with increasing risks of financial instability and subsequent contractions in lending and real activity. I rationalize this effect of monetary policy on banks' funding structure and ultimately on financial stability risk in a model where profit-maximizing banks do not internalize the heightened systemic risk stemming from the rise of runnable debt in the system. This paper shows that monetary policy has direct consequences for financial stability by changing the liability structure of the banking sector. |
| Keywords: | Monetary policy, bank funding, banking fragility |
| JEL: | E44 E52 E58 G01 G21 N10 N20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:341 |
| By: | Rohit Kumar; Sourabh Bikas Paul; Nikita Singh |
| Abstract: | We analyze the impact of the Reserve Bank of India's (RBI) monetary policy communications on Indian financial market from April 2014 to June 2024 using advanced natural language processing techniques. Employing BERTopic for topic modeling and a fine-tuned RoBERTa model for sentiment analysis, we assess how variations in sentiment across different economic topics affect the stock market. Our findings indicate that dovish sentiment generally leads to declines in equity markets, particularly in topics related to the interest rate policy framework and economic growth, suggesting that market participants interpret dovish language as signaling economic weakness rather than policy easing. Conversely, dovish sentiment regarding foreign exchange reserves management has a positive impact on equity market. These results highlight the importance of topic-specific communication strategies for central banks in emerging markets. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04808 |
| By: | Bindseil, Ulrich; Marrazzo, Marco; Sauer, Stephan |
| Abstract: | As digital payments become increasingly popular, many central banks are looking into the issuance of retail central bank digital currency (CBDC) as a new central bank monetary liability in addition to banknotes and commercial bank reserves. CBDC will have broadly the same balance sheet and profit implications as the issuance of banknotes. While the decision to issue CBDC is often thought to likely increase the size of central banks’ balance sheets, the net impact of digitalisation on balance sheet size could also be negative, as the number of banknotes in circulation may decline and CBDC’s design features could limit its take-up as a store of value. We use scenario analyses to illustrate the key drivers of the impact of CBDC on central bank profitability, with the part of CBDC that does not derive from an exchange of banknotes being an important factor. The financial risk implications of CBDC for central banks can be managed via well-established frameworks and relate primarily to the impact on balance sheet size and asset composition. The paper concludes with a discussion on how the profit and risk channels affect central bank capital. JEL Classification: E58 |
| Keywords: | central bank capital, central bank digital currency, digital money, financial risk management, seigniorage |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2024360 |
| By: | Náñez Alonso, Sergio Luis (Universidad Católica de Ávila); Echarte Fernández, Miguel Ángel (Universidad Católica de Ávila); Kolegowicz, Konrad (Universidad de Economía de Cracovia); Sanz-Bas, David (Universidad Católica de Ávila); Jorge-Vázquez, Javier (Universidad Católica de Ávila) |
| Abstract: | Los países de la región del Caribe, Centroamérica y Sudamérica han irrumpido con fuerza e indiscutible liderazgo en la adopción del dinero digital, ya sea apostando por las monedas digitales emitidas y respaldadas por un banco central (CBDC) o por las monedas virtuales descentralizadas (DEFI), lideradas por Bitcoin y Ether. El objetivo del artículo es identificar las razones que llevan a un país o zona monetaria a decantarse por alguno de estos sistemas. Una vez estudiadas las ventajas y desventajas del uso de las divisas virtuales centraremos el análisis en doce variables sobre el uso de dinero móvil extraídas del GFI (Global Findex Indicator) de los años 2011, 2014, 2017 y 2021 de todos estos países. El presente artículo demuestra, entre otras cuestiones, que la apuesta por un dinero digital basado en CBDC o DEFI depende más de la elección política de los dirigentes del país en cuestión que de criterios socioeconómicos. |
| Keywords: | CBDC; monedas digitales; política monetaria; inclusión financiera; innovación de bancos centrales; dinero digital |
| JEL: | E42 E44 E52 F40 |
| Date: | 2023–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:col:000418:021224 |
| By: | Gipper, Brandon (Stanford U); Gu, Laura Lingyu (U of Chicago); Kim, Jinhwan (Stanford U); Noh, Suzie (Stanford U) |
| Abstract: | Using debit and credit card data, we find a one standard-deviation increase in firms’ earnings surprise is linked to a 3% or $5.6 billion increase in aggregate quarterly consumption of local households near the disclosing firms’ headquarters. The effect is more pronounced when earnings news is informative about local households’ wealth, is widely disseminated through media, and is more intensely searched by locals. The change in consumption is concentrated in less expensive goods, such as dining out, and among various local stakeholders, including employees and business owners. Consistent with households not being able to unravel fraud, their consumption reacts even to fraudulent earnings, which reverses only after the fraud is revealed. To corroborate our mechanism, we conduct a nationwide survey of 500 randomly selected households. Nearly 50% of the respondents say their spending decisions are influenced by the financial news of local firms via its effect on local job or investment opportunities. Our findings yield important policy implications of financial reporting on household welfare. |
| JEL: | D12 D15 D80 D81 E21 M41 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:4163 |
| By: | Fessler, Pirmin; Rapp, Severin |
| Abstract: | We estimate the relationship between people’s biased perceptions of their rank in the wealth distribution and savings behavior. Using unique wealth survey data from Austria, we uncover a significant bias in self-assessed distributional ranks. Our estimates indicate that individuals who underestimate their wealth rank have a savings rate approximately 50% higher than those who assess their rank accurately. Preferences that feature relative wealth in the utility function can explain this relationship. Our findings inform contemporary macroeconomic models and contribute to understanding the impact of information bubbles on economic decisions. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2024–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:3x4jh |
| By: | Francis Annan |
| Abstract: | We study the direct and indirect effects of randomized entry. In partnership with the two largest service providers in Ghana, we implement a three-step design that randomizes the entry of new financial mobile money vendors, who also sell non-financial goods/services, across local markets. This mixed financial and non-financial services setting is widespread and naturally emerges as the market entry approach for several real-world financial markets. Randomized entry increases firm conduct and service quality and decreases price-cost markups, indicating positive consumer surplus. We find evidence of within-market revenue reallocation and expansion for mobile money and a large services multiplier: revenues for non-financial goods/services increased (+20%), with aggregate service industry revenues increasing. These improvements emphasize the “real effects” of financial markets on the local economy, and come from adoption externalities and aggregate increase in household expenses. Entry increases local economic activity, and it does so not only by changing markets for digital financial services, but also by transforming the non-financial services sector. These effects are key ingredients for advancing basic and applied knowledge on firm entry in industry equilibrium. |
| JEL: | D18 D62 G20 G50 L22 L26 O12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33134 |
| By: | Vázquez Carrillo, Nitzia (Universidad Nacional Autónoma de México); Díaz Mondragón, Manuel (Universidad Nacional Autónoma de México) |
| Abstract: | Microfinanzas e instituciones microfinancieras son conceptos que no están presentes en el marco legal mexicano, aunque sí son parte del lenguaje de autoridades y académicos. En la literatura financiera existe una gran cantidad de documentos que realizan el análisis de las microfinanzas y las instituciones financieras. Incluso, empresas calificadoras de valores efectúan reportes sobre el sector microfinanciero del país. El problema es que en todos los casos tienen una concepción distinta sobre lo que también llaman industria microfinanciera, de ahí nuestro interés por realizar publicar este artículo, contribuyendo a identificar qué intermediarios pueden considerarse microfinancieras y cuáles no, a pesar de atender a la población en alguna situación de pobreza. |
| Keywords: | inclusión financiera; inclusión social; instituciones microfinancieras; microfinanzas; pobreza |
| JEL: | B21 D02 D53 E44 G02 |
| Date: | 2023–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:col:000418:021225 |
| By: | Zhiguo He; Jing Huang; Cecilia Parlatore |
| Abstract: | We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective (“soft”) information becomes more objective and concrete (“hard”). In a model with multidimensional fundamentals, two banks equipped with similar data processing systems possess hard signals about the borrower's hard fundamentals, and the specialized bank, who further interacts with the borrower, can also assess the borrower's soft fundamentals. Increasing the span of the hard information hardens soft information, enabling the data processing systems of both lenders to evaluate some of the borrower's soft fundamentals. We show that hardening soft information levels the playing field for the non-specialized bank by reducing its winner's curse. In contrast, increasing the precision or correlation of hard signals often strengthens the informational advantage of the specialized bank. |
| JEL: | G21 L13 L52 O33 O36 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33141 |
| By: | Lyuhong Wang; Jiawei Jiang; Yang Zhao |
| Abstract: | We introduce an innovative framework that leverages advanced big data techniques to analyze dynamic co-movement between stocks and their underlying fundamentals using high-frequency stock market data. Our method identifies leading co-movement stocks through four distinct regression models: Forecast Error Variance Decomposition, transaction volume-normalized FEVD, Granger causality test frequency, and Granger causality test days. Validated using Chinese banking sector stocks, our framework uncovers complex relationships between stock price co-movements and fundamental characteristics, demonstrating its robustness and wide applicability across various sectors and markets. This approach not only enhances our understanding of market dynamics but also provides actionable insights for investors and policymakers, helping to mitigate broader market volatilities and improve financial stability. Our model indicates that banks' influence on their peers is significantly affected by their wealth management business, interbank activities, equity multiplier, non-performing loans, regulatory requirements, and reserve requirement ratios. This aids in mitigating the impact of broader market volatilities and provides deep insights into the unique influence of banks within the financial ecosystem. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.03922 |
| By: | Agarwal, Isha (University of British Columbia); Chen, Wentong (Cornell University); Prasad, Eswar (Cornell University) |
| Abstract: | We provide the first empirical evidence on how media-driven narratives influence cross-border institutional investment flows. Applying natural language processing techniques to one-and-a-half million newspaper articles, we document substantial cross-country variation in sentiment and risk indices constructed from domestic media narratives about China in 15 countries. These narratives significantly affect portfolio flows, even after controlling for macroeconomic and financial fundamentals. This impact is smaller for investors with greater familiarity or private information about China and larger during periods of heightened uncertainty. Political and environmental narratives are as influential as economic narratives. Investors react more sharply to negative narratives than positive ones. |
| Keywords: | media narratives, cross-border flows, institutional investors, portfolio investment in China, textual analysis, natural language processing |
| JEL: | F30 G11 G15 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17442 |