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on Financial Development and Growth |
| By: | Tim de Leeuw; Konstantin M. Wacker (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Foreign direct investment (FDI) is often seen as a means to boost domestic investment and, hence, capital accumulation. Yet, the empirical support for such a positive investment effect of FDI is inconclusive. A possible reason is that FDI is often directed towards the financial sector, where capital investment tends to be low. In this paper, we first explore the within-industry relationship between FDI and domestic investment. We then use a novel approach to analyse how FDI into the financial sector transmits into domestic investment by non-financial industries. Using industry-level FDI and investment data from 12 Central and Eastern European countries between 1997 and 2019, we find that about a quarter of FDI into an industry results in domestic investment. Additionally, we document that industries with close links to the financial sector increase domestic investment in the presence of financial FDI, particularly manufacturing, trade and real estate. |
| Keywords: | investment, capital formation, FDI, foreign direct investment, inter-industry linkages |
| JEL: | F21 F3 E22 O11 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:wii:wpaper:261 |
| By: | World Bank; International Finance Corporation |
| Keywords: | International Economics and Trade-Foreign Direct Investment |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:40934 |
| By: | Kaan Celebi; Werner Roeger |
| Abstract: | The new US administration has a clear agenda of reducing imports to the US and attract FDI by reducing tariffs and using the proceeds for supporting investment in the US. This paper uses a dynamic two country US vs RoW model where monopolistically competitive firms make export and FDI decisions. We study how this additional FDI channel affects the impact of import tariffs on the US and RoW economy. We model both the international supply linkages of domestic producers and subsidiaries of foreign firms as well as EoS of FDI sales with domestic products and imports in order to capture cost and demand channels affecting FDI decisions. Concerning the respective elasticities we use both trade elasticities as well as estimates on the effect of tariffs on the import to inward FDI sales ratio. We are in particular interested how the use of tariff revenues affects the outcome of a tariff. We find that a unilateral US tariff with transfers to households has positive effects on US consumption and leads to rising inward FDI and reduces US imports. However, rising production and investment cost reduce total US investment. A real dollar appreciation cushions the effect of tariffs on RoW exporters but increase the cost for production and investment, generating a negative spillover to the RoW. If tariffs are accompanied by investment subsidies the expansionary effects for the US are significantly larger and total US investment becomes positive. This holds especially for FDI flows to the US. The investment boom generated in the US increases world interest rates. This contributes to larger negative spillovers to the RoW. The use of tariff revenues also affects how the US and RoW are affected in case of (full) retaliation. In case of transfers, the US is hit more since higher openness increases cost of production and investment more in the US. This ranking is reversed in case of subsidies. Higher US openness generates more tariff revenues as a share of GDP and therefore more investment subsidies. |
| Keywords: | international trade, foreign direct investment, import tariffs, USA, two-country open economy model |
| JEL: | F13 F21 F23 F41 O24 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2111 |
| By: | Imbierowicz, Björn; Nagengast, Arne J.; Prieto, Esteban; Vogel, Ursula |
| Abstract: | The pace of globalization has slowed since the global financial crisis, raising concerns about widespread deglobalization and market fragmentation. We examine the effects of a deglobalization shock on bank lending, firm internal capital markets, and the real economy. Leveraging a unique dataset that combines a credit register with foreign direct investment (FDI) data, we are able to observe both domestic and cross-border credit exposures of German banks as well as internal capital market dynamics within multinational corporations (MNCs) - a feature rarely available in other countries' data. We analyze the response to the Brexit referendum shock. On average, German banks reduced lending to United Kingdom (UK) firms following the shock due to increased uncertainty about future losses. More prudent banks reduced their credit more extensively, and less profitable subsidiaries experienced greater reductions. However, UK subsidiaries of large MNCs, with access to internal capital markets, offset this credit supply shock through internal funding, shielding them from negative real effects. We find that non-UK subsidiaries play a crucial role in internal capital markets by securing external financing and reallocating funds to support UK affiliates. Well capitalized banks reallocated lending to firms outside the UK, particularly those of German MNCs. Our findings underscore that while international financial frictions following deglobalization shocks can imply negative real effects, firms integrated into global networks mitigate these impacts through internal capital markets. |
| Keywords: | Bank lending, deglobalization shock, policy uncertainty, real-financial linkages, internal capital markets |
| JEL: | F23 F34 F36 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:314411 |
| By: | Emmanuel Caiazzo (University of Naples Federico II; Department of Economics and Statistics, University of Naples Federico II, CSEF, and MoFiR) |
| Abstract: | This paper provides an early warning exercise suggesting that in complex economies, characterized by the production of knowledge-intensive products, systemic banking crises are more frequent, even after considering standard predictors of crises. We relate our findings to standard contributions in development theory linking economic growth to structural transformation of the economy. In this perspective, we argue that while transitioning from a simple to a more complex productive structure can promote economic growth, it can also increase financial instability. |
| Keywords: | Financial fragility; Economic complexity Index; production Capabilities |
| JEL: | G01 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:190 |
| By: | Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Qiang Ji (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, 100049, China) |
| Abstract: | The study investigates systemic financial risk in global markets, attributing it to geopolitical instability, climate risks, and economic uncertainties. Utilizing a state-of-the-art machine learning heterogeneous panel regression framework capable of capturing cross-sectional dependencies and nonlinear patterns, we examine financial stress across multiple economies, including China, the U.S., the U.K., and ten EU nations. Through extensive out-of-sample rolling window analysis, we show that while geopolitical uncertainty enhances short-term predictions, long-term risk forecasting is better achieved using financial and economic data. The study underscores the limitations of conventional regression models in capturing financial risk dynamics and suggests that machine learning-based panel regressions provide a more nuanced and accurate forecasting tool. The findings bear significant policy implications, highlighting the necessity for regulatory bodies to reassess risk frameworks and the role of climate-related disclosures in financial markets. |
| Keywords: | Systemic financial risk, machine learning, forecasting, climate risk, geopolitical risk |
| JEL: | C45 C58 G17 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202511 |
| By: | Pedro Amoni; Leonardo Soriano Alencar |
| Abstract: | We investigate how court rulings affect banks’ views on the protection of creditor rights, their lending practices, and the ultimate effects on business performance. Leveraging the random assignment of judges to cases brought against financial institutions, we demonstrate banks restrict credit after observing unfavorable decisions issued by pro-debtor judges in disputes involving them. This informational shock is transmitted to firms within banks’ relationships through credit rationing for small businesses, adversely affecting their performance. Our research highlights the significant role of judges in shaping economic activity beyond the immediate parties involved in a legal conflict. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:618 |
| By: | Andrés Alonso-Robisco (BANCO DE ESPAÑA); Andrés Azqueta-Gavaldón (BANCO DE ESPAÑA); José Manuel Carbó (BANCO DE ESPAÑA); José Luis González (BANCO DE ESPAÑA); Ana Isabel Hernáez (BANCO DE ESPAÑA); José Luis Herrera (BANCO DE ESPAÑA); Jorge Quintana (BANCO DE ESPAÑA); Javier Tarancón (BANCO DE ESPAÑA) |
| Abstract: | New technologies have made available a vast amount of new data in the form of text, recording an exponentially increasing share of human and corporate behavior. For financial supervisors, the information encoded in text is a valuable complement to the more traditional balance sheet data typically used to track the soundness of financial institutions. In this study, we exploit several natural language processing (NLP) techniques as well as network analysis to detect anomalies in the Spanish corporate system, identifying both idiosyncratic and systemic risks. We use sentiment analysis at the corporate level to detect sentiment anomalies for specific corporations (idiosyncratic risks), while employing a wide range of network metrics to monitor systemic risks. In the realm of supervisory technology (SupTech), anomaly detection in sentiment analysis serves as a proactive tool for financial authorities. By continuously monitoring sentiment trends, SupTech applications can provide early warnings of potential financial distress or systemic risks. |
| Keywords: | suptech, natural language processing, machine learning, network analysis, sentiment |
| JEL: | C63 D81 G21 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2504 |
| By: | Degryse, Hans; Huylebroek, Cédric; Van Doornik, Bernardus |
| Abstract: | Regulators increasingly rely on supervisory technologies (SupTech) to enhance bank supervision, but their potential role in disciplining bank behavior remains unclear. We address this knowledge gap using unique data from the SupTech application of the Central Bank of Brazil. We show that, after a SupTech event, banks reveal inconsistencies in their risk reporting and tighten credit to less creditworthy firms, effectively reducing risk-taking. This credit tightening in turn has small spillovers on less creditworthy firms borrowing from affected banks. Our results can be explained by a moral suasion channel, offering novel insights into the role of SupTech in bank supervision. |
| Keywords: | Bank supervision, SupTech, Bank risk-taking, Bank lending, Real effects |
| JEL: | G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitp:314419 |
| By: | Ahmed Pirzada |
| Abstract: | To what extent did the liberalisation policies of the 1990s and 2000s help address the misallocation of factors across sectors in developing countries? This paper shows that while misallocation decreased during this period - particularly in countries with higher levels of misallocation in 1990 - this improvement cannot be explained by the liberalisation reforms implemented by respective governments. However, a more nuanced picture emerges for trade liberalisation. In countries which were sufficiently democratic, an increase in trade liberalisation decreased misallocation. This evidence also helps reconcile conflicting views on the success of liberalisation reforms by highlighting the importance of right political institutions for their success. |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:bri:uobdis:24/784 |
| By: | Takeo Hori (Department of Industrial Engineering and Economics, School of Engineering, Institute of Science Tokyo); Ryonghun Im (School of Economics, Kwansei Gakuin University) |
| Abstract: | The collapse of asset bubbles leads to a demand-driven recession. When capital utilization is endogenous and capital creation is subject to idiosyncratic risks, aggregate demand significantly influences output, even with flexible prices. The bursting of bubbles causes a sharp decline in consumption and investment demand, forcing firms to reduce capital utilization. As a result, output and long-run growth contract suddenly and severely, pushing the economy into a demand recession. Nominal rigidities further deepen the downturn. Policies that stimulate aggregate demand, such as consumption and investment subsidies, can help prevent such recessions. |
| Keywords: | asset bubbles, demand recession, capital utilization, uninsured idiosyncratic risks, flexible price, zero lower bound |
| JEL: | E32 E44 G1 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:287 |
| By: | Mbara, Gilbert |
| Abstract: | We investigate the notable decline in wealth and income inequality in Kenya over the 10-year period between 2005 and 2015. Using a calibrated continuous time heterogeneous agent model, we attribute up to 92% of the variation in top wealth inequality to a persistent but slow increase in the return to capital, a low risk free rate, and rising effective income tax rates. Our study suggests that a macroeconomic environment characterized by low risk-free interest rates anchored by low debt-to fiscal revenue ratios are key to reducing both wealth and income inequality. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:aeeab0f8-4a1f-430c-90d1-58a06c9a0b2f |
| By: | Linda Glawe (University of Rostock); Jamel Saadaoui (University Paris 8); Can Xu (China Merchants Group) |
| Abstract: | This paper investigates nonlinearities in the inflation-growth-uncertainty relationship in Chinese provinces over the period 1992 to 2017 using nonlinear models and dynamic panel threshold models. We find that for the full sample period (1992–2017), inflation rates exceeding 9.7% are associated with a positive growth effect (β2 = 0.03). Below this threshold, the correlation is insignificant. Since inflation rates above 9.7% were mainly observed in the early to mid-1990s, we restrict the sample to 1999–2017. In this period, the inflation threshold lowers to approximately 5.1%. Moreover, the relationship between inflation and growth shifts across the two regimes: below 5%, inflation is positively associated with growth (β1 = 0.01), while above 5%, the effect turns negative and statistically insignificant. We further explore whether the effect of inflation on growth could be affected by uncertainty at the provincial level. For that purpose, we combine two recent uncertainty indices for the Chinese economy that are based on Chinese newspapers. We find that inflation only has a positive effect on growth for low-levels of uncertainty. For high-levels of uncertainty, the effect of inflation on growth turns negative and statistically insignificant. |
| Keywords: | Inflation, economic growth, Chinese economy, nonlinearities, uncertainty, dynamic panel threshold models |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.4 |
| By: | Kamol Alimukhamedov |
| Keywords: | Finance and Financial Sector Development |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:41127 |
| By: | Erik Feyen; Daniela Klingebiel; Marco Ruiz |
| Keywords: | Finance and Financial Sector Development-Finance and Development |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:41121 |
| By: | IFC; WTO |
| Keywords: | International Economics and Trade-Trade Finance and Investment International Economics and Trade-Foreign Trade Promotion and Regulation |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:40748 |
| By: | Abigail Opokua Asare (University of Oldenburg, Department of Economics) |
| Abstract: | The effectiveness of educational aid in Africa is a pressing issue, with little consensus on whether the management quality of aid has significant contribution toward achieving inclusive, equitable, and quality education on the continent by 2030. Despite substantial inflows of educational aid from both bilateral and multilateral sources, Africa continues to report the world’s highest illiteracy rates, indicating potential inefficiencies in educational aid management. This paper investigates whether the impact of World Bank–funded educational projects across Africa on literacy rates depends on the quality of project management. The findings reveal that educational projects managed in a highly satisfactory manner significantly reduce illiteracy, regardless of the quantity of aid or volume of aid disbursement. Meanwhile, projects managed in a sub-satisfactory manner show no progress at all. These findings highlight that effective management is far more critical to success than the amount of aid provided and suggest that reforming management practices could drastically enhance the impact of educational aid. By prioritizing high-quality management practices, policymakers and international organizations could improve the effects of educational aid, offering a targeted strategy to drive Africa’s educational progress. |
| Keywords: | aid effectiveness, management quality, illiteracy, DHS, World Bank, Africa |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:old:dpaper:449 |
| By: | Krüger, Malte; Seitz, Franz |
| Abstract: | Payment costs for consumers are difficult to determine, are not recorded in an internationally harmonized manner and vary significantly from country to country. They are incurred in many forms, for example as fees for account management, for cash withdrawals at ATMs or for payment cards; but also as financial damage in the event of loss or fraud. On the other hand, this also includes time costs, e.g. for cash withdrawals or the payment process, and costs of data disclosure. To determine the total costs and for international comparisons, different key figures are calculated, such as the cost per transaction, as a percentage of the transaction value or relative to GDP. After clarifying the concept of costs, the focus of our paper is on a critical review of the literature on cost studies at the consumer level. In particular, the results of existing work are compared, the most important cost categories are identified and sensitivity analyses are carried out. We find some key cost drivers and show how the results are driven by key assumptions. |
| Keywords: | cash, debit card, credit card, costs, consumer |
| JEL: | D12 E41 E42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:314427 |
| By: | Carin van der Cruijsen; Jakob de Haan |
| Abstract: | This paper proposes a payment literacy index, developed using a comprehensive consumer survey in the Netherlands to assess knowledge of both traditional and new payment methods, as well as fraud in the payment system. The index suggests that there is considerable room for improvement in payment literacy. Payment literacy is influenced by a number of personal characteristics, the information sources used, experiences with fraud, and the desire to be well informed about payments. Our findings suggest a positive relationship between payment literacy and trust in the payment system and banks, as well as the likelihood of individuals adopting new payment methods and making payments independently. |
| Keywords: | payment literacy; payments; financial inclusion; financial literacy; trust |
| JEL: | D12 D83 G50 J16 J33 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:831 |