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on Financial Development and Growth |
| By: | Pérez Reyna, David (Universidad de los Andes); Rozada-Najar, Angie (Banco de la República); Suaza, Fausto (Universidad de los Andes) |
| Abstract: | Using a unique dataset combining Colombian firm, bank, and credit registry data from 2006 to 2021, we investigate the relationship between bank productivity and the productivity of firms they lend to. We find a positive correlation that strengthened after 2017. We posit a theoretical model to rationalize this finding: more productive banks optimally choose to lend to more productive firms because they can better afford the fixed costs of accessing higher-quality firm profiles. |
| Keywords: | firm productivity; bank productivity; lending relationships; productivity measurement |
| JEL: | D24 E44 G21 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021298 |
| By: | Tomohiro Hirano; Keiichi Kishi; Alexis Akira Toda |
| Abstract: | This paper identifies the conditions and mechanisms that give rise to stochastic bubbles that are expected to collapse. To illustrate the essence of the emergence of stochastic bubbles, we first present a toy model that shows that land price bubbles that are expected to collapse emerge as the unique equilibrium outcome. Then we present a full-fledged macro-finance model of intangible capital and show that stochastic stock bubbles attached to intangible capital emerge in the process of spillover of technological innovation. The dynamics with stochastic bubbles, which is characterized by unbalanced growth, can be seen as a temporary deviation from a balanced growth path in which asset prices equal the fundamentals. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:25-001e |
| By: | John Sebastian Tobar-Cruz; Carlos Alberto Ruiz-Martínez |
| Abstract: | Este trabajo explora la relación entre el acceso al crédito y la formalización y el crecimiento de los micronegocios en Colombia. Se utilizan datos de la Encuesta a Micronegocios (EMICRON) del DANE para el periodo 2019-2022, junto con la metodología de Propensity Score Matching y modelos de elección binaria para examinar esta interacción. Los resultados destacan que el acceso al crédito se relaciona de manera positiva y significativa con el crecimiento y la formalización de los micronegocios en las cuatro dimensiones estudiadas: entrada, insumos, producción y tributaria. El análisis incluye una distinción entre créditos otorgados por entidades formales e informales, revelando que los micronegocios con acceso a crédito formal presentan una mayor propensión a la formalización y un crecimiento más pronunciado en comparación con aquellos que acceden a crédito a través de entidades informales. Además, al examinar según el sexo del propietario/a, los micronegocios liderados por mujeres con acceso a crédito formal logran mejores resultados en formalización y crecimiento que los liderados por hombres. Por último, el análisis a nivel departamental revela notables variaciones en los resultados, destacando las disparidades económicas y sociales entre las diversas áreas del país. **** ABSTRACT: This paper explores the relationship between access to finance and the formalization and growth of microbusinesses in Colombia. The study utilizes data from the DANE Microbusiness Survey (EMICRON) for the 2019-2022 period, applying the Propensity Score Matching method alongside binary choice models to analyze this relationship. The findings underscore that access to credit is positively and significantly related to the growth and formalization of these businesses across the four dimensions studied: entry, inputs, production, and taxation. The analysis includes a distinction between financing provided by formal and informal entities, revealing that microbusinesses with access to formal credit exhibit a higher propensity for formalization and achieve more pronounced growth compared to those reliant on informal credit sources. Furthermore, when analyzing by the owner's gender, microbusinesses led by women with access to formal credit demonstrate superior outcomes in formalization and growth compared to those led by men. Finally, the regional-level analyses reveal significant variations in the results, underscoring the economic and social disparities across Colombia's diverse regions. |
| Keywords: | Acceso a crédito, micronegocios, formalización y crecimiento empresarial, crédito formal/informal, género, análisis departamental, Credit access, microbusiness, formalization and business growth, formal and informal credit, gender, regional level |
| JEL: | G21 J16 O16 O17 R11 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1302 |
| By: | Zakaria Elouaourti; Aomar Ibourk |
| Abstract: | This paper was originally published on sciencedirect.com Our study aims to investigate the role of financial inclusion as a mediator in the relationship between contextual factors and entrepreneurial willingness in Africa. While previous research has emphasized the importance of improving institutional and contextual factors to foster entrepreneurship, our study adds a new dimension by highlighting the critical need for tailored financial services that can cater to the unique needs of African entrepreneurs. In light of this, we have employed a robust and comprehensive methodology, leveraging micro-level data that covers 44, 129 African adults and using Instrumental Variable Probit estimation. This approach allows us to offer valuable insights into the factors driving entrepreneurship in Africa. Our results suggest financial inclusion as a crucial determinant in the relationship between contextual factors and entrepreneurship in Africa, with the usage dimension being more important than the access dimension. Our findings reveal that the impact of contextual factors on entrepreneurship in Africa is strongly influenced by financial inclusion. By acting as a mediator, financial inclusion plays a pivotal role in shaping entrepreneurial willingness. Moreover, policymakers in Africa should focus on improving the business environment, addressing key contextual determinants of entrepreneurship where most African countries face a significant deficit compared to the world's top-ranking economies. These determinants include institutional quality, infrastructure, Information and Communication Technology (ICT) adoption, health, skills, product market, labor market, and innovation capability. Our study advances the field of research in two key ways. First, it provides empirically grounded evidence on both individual and contextual factors that can stimulate entrepreneurship in Africa. Given the representativeness of our sample, the policy implications of our study are valuable, offering useful insights for international institutions and policymakers working to promote entrepreneurship in Africa. Second, in contrast to previous studies on financial inclusion that use macroeconomic data to quantify the multidimensionality of financial inclusion, our study is unique in that it constructs a financial inclusion index based on microeconomic data to quantify the financial inclusion level of each individual in our sample. |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:rpaeco:rpnn_78 |
| By: | Kingsley, Obiora; Ozili, Peterson K |
| Abstract: | Using six widely accepted indicators, this study compares the progress made in financial inclusion in Nigeria, Sub-Saharan Africa and the rest of the World, with a view to deducing lessons that each entity can improve upon. We find that Nigeria outperformed sub-Saharan Africa in three indicators of financial inclusion while sub-Saharan Africa did better than Nigeria in one metric. Nigeria and sub-Saharan Africa exceeded the World average in informal borrowings. We also constructed an index of financial inclusion and found that financial institution account ownership, formal borrowing, informal borrowing and debit or card ownership are significant positive determinants of the financial inclusion index. These findings indicate that policymakers in Nigeria and sub-Saharan Africa have significant room for improving their financial inclusion standings towards the global average. We make recommendations on the aspects where policymakers can place their focus in pursuit of this goal. |
| Keywords: | financial inclusion, Nigeria, Sub-Saharan Africa, digital financial inclusion |
| JEL: | G00 G20 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121548 |
| By: | TODO Yasuyuki; NISHITATENO Shuhei; Sean BROWN |
| Abstract: | This paper investigates the impact of the Belt and Road Initiative (BRI) on foreign direct investment (FDI) from China and other major source countries, such as the United States (US), France and Japan, by applying staggered difference-in-differences (DID) event study estimations to a gravity model. In addition to estimations using country-pair fixed effects, we employ models with source and host country-year fixed effects to control for effects through changes in any host country attribute due to the BRI, such as infrastructural changes. By so doing, we separately estimate the BRI effect as changes occur in bilateral relationships. We find that FDI from China, Hong Kong, the US, Switzerland, Japan, and France to BRI countries increased in the post-BRI period, whereas FDI from the UK, the Netherlands, and Luxembourg decreased. After controlling for country-year fixed effects, there remains a post-BRI upward trend in FDI from the US, Switzerland, and France and a downward trend in FDI from the UK, the Netherlands, and Luxembourg. These findings suggest that FDI from non-China countries to BRI countries are affected by individual bilateral relationships between the non-China countries and the BRI recipient countries. For example, the US may invest more in BRI countries to strategically compete with China in those locations. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25004 |
| By: | Gnangnon, Sèna Kimm |
| Abstract: | The African Growth and Opportunity Act (AGOA), a non-reciprocal trade preference offered by the United States to Sub-Saharan African countries, is set to expire on 30 September 2025. The present article examines the effect of the AGOA suspension on poverty in suspended countries. The analysis covers an unbalanced sample of 43 SSA countries, of which 15 SSA countries at least once from the benefits of the AGOA (the treatment group), and 28 SSA countries eligible to the benefits of the programme, but that never suspended from those benefits (control group). The empirical findings indicate that the AGOA suspension has raised poverty in suspended countries, with countries that export non-resource products being the most adversely affected. In addition, the AGOA suspension results in a higher poverty rate in the long-term than in the short-term. Finally, the analysis has revealed that the poverty situation of suspended countries has worsened relatively to countries that never benefited from the programme. This shows that the poverty situation of the suspended countries has deteriorated after the AGOA suspension compared to what their situation would have been if they did not benefit from the programme. The analysis sheds light on the poverty increases consequences of the AGOA suspension, and also points to the adverse consequences of the uncertainty surrounding non-reciprocal trade preferences for beneficiary countries. |
| Keywords: | AGOA Suspension, Poverty, Sub-Saharan African countries |
| JEL: | F14 I30 O11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:309194 |
| By: | Yang, Xiaoliang (Zhongnan University of Economics and Law); Zhou, Peng (Cardiff Business School); Dong, Xue |
| Abstract: | This paper investigates the long-run nexus between wealth inequality and aggregate output using a DSGE model in which wealth inequality endogenously affects individual entrepreneurship incentives, thereby influencing aggregate output. Our model passes the indirect inference test against the UK data from 1870 to 2015. We find that shocks to aggregate TFP, entrepreneurial barriers, government grant support and general government spending played significant roles in shaping historical inequality dynamics in the UK. Directly removing entrepreneurial barriers or indirectly providing government grant support to the private sector such as through inclusive loan subsidies are effective means of reducing inequality and stimulating output growth. |
| Keywords: | Wealth Inequality, Aggregate Output, Entrepreneurship, Indirect Inference |
| JEL: | C72 C92 D83 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2025/1 |
| By: | Priti Kalsi; Zachary Ward |
| Abstract: | Is the top tail of wealth a set of fixed individuals or is there substantial turnover? We estimate upper-tail wealth dynamics during the Gilded Age and beyond, a time of rapid wealth accumulation and concentration in the late 19th and early 20th centuries. Using various wealth proxies and data tracking tens of millions of individuals, we find that most extremely wealthy individuals drop out of the top tail within their lifetimes. Yet, elite wealth still matters. We find a non-linear association between grandparental wealth and being in the top 1%, such that having a rich grandparent exponentially increases the likelihood of reaching the top 1%. Still, over 90% of the grandchildren of top 1% wealth grandfathers did not achieve that level. |
| JEL: | D31 J62 N31 N32 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33355 |
| By: | Marco Bonomo; Tiago Cavalcanti; Fernando Chertman; Amanda Fantinatti; Andrew Hannon; Cezar Santos |
| Abstract: | Consumer loans are key for consumption smoothing. But what if individuals who need them the most find it harder to access these loans? We examine this question empirically and quantitatively, using Brazilian credit registry and matched employer-employee data. Low-income individuals face higher interest rates, even after controlling for several risk factors and characteristics. Our model includes life-cycle dynamics, different credit types, occupations, and income shocks with endogenous default. According to the calibrated model, reforms reducing loan interest rate spreads could significantly benefit individuals, especially young and poor informal workers. The pro-competition 2013 Loan Portability reform increased welfare by 0.2% of annual consumption. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:614 |
| By: | Alexander Rom |
| Abstract: | This paper investigates the impact of banking competition on interest rates for household consumption loans in the Euro Area from 2014 to 2020. Utilizing a panel data regression approach, we analyze how various factors, including local banking competition, influence the interest rates set by banks across 13 Euro-area countries. Our key independent variable, local banking competition, is measured by the number of commercial bank branches per 100, 000 adults. Control variables include the ECB interest rate, euro exchange rate, real GDP growth rate, inflation rate, unemployment rate, bank business volumes, and country risk. We address potential endogeneity and heterogeneity biases and employ both Fixed Effects and Hausman-Taylor models to ensure robust results. Our findings indicate that higher local banking competition is associated with a slight increase in interest rates for household loans. Additionally, factors such as ECB interest rate, country risk, and euro appreciation significantly affect interest rates. The results offer insights into how competitive dynamics in the banking sector influence borrowing costs for households, providing valuable implications for policymakers and financial institutions in the Euro Area. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.17723 |
| By: | Heng-fu Zou (The World Bank) |
| Abstract: | By the 13th century, England had developed a market-oriented, legally sophisticated, and proto-capitalist system that set it apart from continental Europe. This economy, characterized by widespread market activity, financial innovation, and a mobile labor force, integrated tools like mortgages, loans, and banking, supported by institutions such as the stock exchange and robust property rights. Unlike subsistence-based economies, England's dynamic system encouraged growth, productivity, and innovation. These long-standing financial and legal structures laid the groundwork for England's industrialization and global economic leadership, showcasing that its rise to dominance was the result of centuries of gradual evolution and strategic development. |
| Date: | 2025–01–04 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:719 |
| By: | Heng-fu Zou (The World Bank) |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:721 |
| By: | International Monetary Fund |
| Abstract: | 2024 Selected Issues |
| Date: | 2025–01–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/014 |
| By: | John Echeverri-Gent (University of Virginia); Renuka Sane (TrustBridge Rule of Law Foundation) |
| Abstract: | This essay shows how the sectoral political network in India's banking sector has structured its development from the era of dirigisme beginning under the Nehru government in 1947 to the more liberalized contemporary period starting in 1991. We show that political bargains, or institutionalized agreements among actors in a sectoral political network, are mechanisms through which the legacies of earlier eras shape developments in subsequent periods. Our study of India's banking sector examines two varieties of political bargains. Politicians created an entrenched political bargain during the dirigiste era by nationalizing India's banks to assert control over bank governance. Entrenched bargains limit subsequent reforms to policies that address their negative consequences but not the underlying causes emanating from the interests of powerful actors. Principal-agent relations are the second type of political bargain. Politicians struck this evolving bargain by establishing an asymmetric relationship between the government and India's central bank, the Reserve Bank of India (RBI). We analyze how these entrenched and principal-agent bargains have shaped the development of Indian banking by examining their impact on the banking sector's recurring non-performing asset problem and its dynamic payment system. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bjd:wpaper:8 |
| By: | Abolfazl Rezghi |
| Abstract: | How does rational inattention interact with financial frictions? I provide new empirical evidence from survey data suggesting that this interaction likely plays a critical role in understanding macroeconomic dynamics. In a simple model, I demonstrate that financially constrained firms tend to be more attentive to economic conditions, consistent with my empirical findings. Embedding this mechanism into a DSGE model, I show that the aggregate investment response to a monetary policy shock depends on this interaction. The model further predicts that credit-constrained firms reduce their investment after an expansionary shock due to tighter borrowing constraints and higher production costs, a prediction I empirically confirm. |
| Keywords: | Monetary policy; Rational inattention; Financial frictions; Investment |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/025 |
| By: | Sebastian Dragoe; Camelia Oprean-Stan |
| Abstract: | The monetary transmission channel is disrupted by many factors, especially securitization and liquidity traps. In our study we try to estimate the effect of securitization on the interest elasticity and to identify if a liquidity trap occurred during 1954Q3-2019Q3. The yield curve inversion mechanism shows us that economic cycles are very sensitive to decreasing profitability of banks. However there is no evidence that restoring their profits will ensure a strong recovery. In this regard, we research the low effect of Quantitative Easing (QE) upon economic growth and analyze whether securitization and liquidity traps posed challenges to QE or is it the mainstream theory flawed. In this regard we will examine the main weaknesses of QE, respectively the speculative behavior induced by artificial low rates and its unequal distribution. We propose a new form of QE that will relief households and not reward banks for their risky behavior before recession. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.06575 |
| By: | José Andrée Camarena; Juan Pablo Medina; Daniel Riera-Crichton; Carlos A. Vegh; Guillermo Vuletin |
| Abstract: | In the aftermath of the 1997-98 Asian crises, many emerging markets self-insured by accumulating international reserves (i.e., non-contingent assets) in excess of what many models predicted, while relying relatively little on state-contingent assets. This apparent over-reliance on self-insurance has been viewed as a puzzle in search of an explanation. A related, and still outstanding, puzzle is why the benefits of financial liberalization appear to be quite small and, yet, financial globalization has been unprecedented in recent decades. We show that these two puzzles can be solved by incorporating rare macroeconomic disasters in income risk. To this effect, we first fit a fat-tailed distribution to long output time series for 156 countries. We then develop a theoretical framework to quantify (i) the increase in welfare gains of financial integration and (ii) how the composition of official reserves (non-contingent and contingent) responds to bigger shocks. Our results show that fat tails lead to a sharp increase in both the gains of financial integration and self-insurance for standard values of the coefficient of risk aversion. |
| JEL: | E20 E44 F36 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33366 |
| By: | Brühl, Volker |
| Abstract: | The introduction of central bank digital currencies (CBDCs) in general, and of a digital euro in particular, has attracted growing interest from academic research, central banks and political decision-makers. Most of the existing literature is focused on the impact of a digital euro on monetary policy issues, financial stability - especially the potentially enhanced risk of bank runs - and related questions concerning the design options of a digital euro. However, a digital euro could negatively affect the profitability of the European banking sector. Fees from payment transaction services could decline and refinancing costs could increase, as comparatively cheap financing from retail deposits would have to be replaced in part by more expensive financing instruments such as bonds or open market operations with the ECB. This paper deals with these aspects by estimating the potential impact of a digital euro in a simulation model based on current market data. The analysis demonstrates that the annual fee losses could be in the range of €2.1 billion to €4.2 billion. The associated refinancing need due to replacements of deposits by digital euro holdings could be in the range of €324 billion to €650 billion, translating into additional refinancing costs of around €6.5 billion to €19.5 billion p.a.. Therefore, a fair compensation model for banks and payment service providers is needed to avoid adverse consequences for the profitability and resilience of the European financial sector. The paper also discusses the general need for a retail digital euro in light of the expected benefits and risks as well as implications for design options to mitigate inherent risks. |
| JEL: | E42 E51 G21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:308806 |
| By: | Dung Quang Le (National Economics University, Vietnam Author-2-Name: Trang Quynh Phama Author-2-Workplace-Name: University of East London, UK Author-3-Name: Thi Phuong Nguyenb Author-3-Workplace-Name: International School, Vietnam National University, Hanoi, Vietnam Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | " Objective - The primary objective of this exploratory research is to investigate the factors affecting investment behavior in the Vietnamese Bitcoin market. Methodology/Technique – The study employs quantitative research methods, including surveys of the Vietnamese Bitcoin market, to gain valuable insights into the factors influencing investment behavior. It uses exploratory factor analysis and regression analysis for data analysis. Findings – Research results show that there are 5 factors affecting Bitcoin investment behavior in Vietnam: benefits, past experience, national laws, crowd effects, and the Bitcoin market. Among them, the two most influential factors are national interests and laws. The lowest impact factor is past experience. The study tested the differences in Bitcoin investment behavior between Bitcoin investors according to gender, age, income, and investment time. The study found no significant variance in the evaluation of gender, age, income, and investment time in Bitcoin investment behavior in Vietnam. Based on the regression results, the authors recommend practical solutions related to benefits, past experience, national laws, crowd effects, and the Bitcoin market. The aim is to assist Vietnamese investors in understanding the influence of factors on Bitcoin investments in Vietnam. From there, investors adopt the appropriate behaviors, views, and investments in Bitcoin and other virtual currencies. Novelty – The first study uses a quantitative method to address the factors affecting the investment behavior in the Vietnamese Bitcoin market. Type of Paper - Empirical" |
| Keywords: | Investment Behavior; Bitcoin Market; Investors' Decisions; Virtual Currencies |
| JEL: | G2 G29 |
| Date: | 2024–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr226 |