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on Financial Development and Growth |
| By: | Pasquale Scaramozzino |
| Abstract: | This paper assesses the role of foreign investment in the economic performance of South Africa. Although the evidence is inconclusive about how foreign capital flows affect aggregate variables, there is clear evidence of their positive and significant long-run effects at the sectoral level. Foreign direct investment has a positive impact on economic performance and is in turn attracted to sectors with stronger performance. Debt instruments tend to display stronger long-run relationships with economic performance indicators than equity and investment fund shares. Overall, the analysis in this paper confirms the beneficial effects of foreign direct investment on the South African economy. The design of capital flow management policies should thus take into account the sectoral impact of direct investment and its potential to stimulate sectors economic performance. |
| Date: | 2025–11–05 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11092 |
| By: | Kingsley K. Arthur (Kumasi, Ghana); Simplice A. Asongu (Johannesburg, South Africa); Peter Darko (Kumasi, Ghana); Marvin O. Ansah (Kumasi, Ghana); Sampson Adom (Kumasi, Ghana); Omega Hlortu (Kumasi, Ghana) |
| Abstract: | The current review systematically synthesizes existing literature to provide a comprehensive overview of the nature of financial crimes in Africa and their impact on economic growth. We adopted the PRISMA protocol to identify 128 papers from the Scopus database; which were analyzed using MS Excel, VOS Viewer, and R-packages (Bibliometrix). The survey reveals that financial crimes are on the rise in Africa and have gained increasing concern over the years on the part of scholars, governments and NGOs. The survey also demonstrates that most of the financial crime in Africa emanates from illicit activities such as credit card fraud, cybercrime, mobile money fraud, financial statement fraud, Ponzi scheme, bribery and corruption, public fund mismanagement, terror financing, piracy, identity fraud, tax invasion, drug trafficking, product based-fraud, burglary, trade-based money laundering, sex marketing and gambling; with the majority occurring in specific regions like Western Africa, Southern Africa and Eastern Africa. Socio-political marginalization, poverty and unemployment, weak institutional and financial regulatory systems and individual selfish interests were the major causes. Overall, the content analysis of the studies indicates that financial crimes have significant negative impacts on the economic growth of the African continent. Implications for future research and practices have been discussed. |
| Keywords: | Financial crime, financial fraud, Money laundering, Africa, Economic development, Economic growth, and Bibliometric |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:dbm:wpaper:24/022 |
| By: | Ozili, Peterson K |
| Abstract: | The study investigates the macro determinants of global financial inclusion using world data from 1999 to 2023 period. The data were analysed using the fully modified ordinary least squares regression estimator, the two-stage least squares regression estimator and the robust least squares regression estimator. The determinants examined are total domestic investment, macroeconomic management frameworks, international trade openness, total population size, consumer spending, and economic growth rate. The findings reveal that population size and trade openness have a positive effect on global financial inclusion through a higher financial inclusion index and commercial bank branch expansion. Total domestic investment and sound macroeconomic management have a negative effect on global financial inclusion through a decrease in the financial inclusion index and a reduction in the number of bank branches and the negative effect is more pronounced in the post-financial crisis years. However, total population size remain a positive determinant of global financial inclusion in the post-financial crisis years. Trade openness and consumer spending increase global financial inclusion during periods of economic prosperity while total domestic investment and sound macroeconomic management decrease global financial inclusion during periods of economic prosperity. In terms of forward-looking orientation, the study finds that a large population and weak macroeconomic management in the present period leads to financial inclusion gains in the future. It is recommended that policy adjustments in today’s population size and macroeconomic management frameworks can help to achieve future financial inclusion targets. The findings contribute to the financial inclusion literature by using world data to offer new insights into the factors that can accelerate global financial inclusion. |
| Keywords: | financial inclusion, index, determinants, gross capital formation, trade openness, investment, population, global financial crisis, consumer spending, economic growth, regression |
| JEL: | E20 E32 G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126305 |
| By: | Barry Eichengreen; Raul Razo-Garcia |
| Abstract: | In a paper 20 years ago, we analyzed the evolution of the international monetary system over the preceding 20 years and projected its evolution 20 years into the future, on the assumption of unchanged transition probabilities. Here we compare those projections with outcomes and provide new projections, again 20 years into the future. Although the world as a whole has seen financial opening and movement away from intermediate exchange rate regimes, as projected, movement has been slower than projected on the basis of observed transition probabilities in the 20 years preceding our forecast. New projections again based on unchanged transition probabilities but allowing countries to shift between advanced, emerging and developing country groupings and reclassifying exchange rate regimes to accord with current practice again suggest that policy regimes will be modestly different in 2045 than today. There will be a continued decline in intermediate exchange rate arrangements, and gains for hard pegs, as emerging markets move in this direction, and for more freely floating rates, driven by developing countries. There will be a further increase in the share of countries with open capital accounts, driven by emerging markets and developing countries. |
| JEL: | F0 F33 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34416 |
| By: | Arce, Fernando; Bengui, Julien; Bianchi, Javier |
| Abstract: | We propose a macroprudential theory of foreign reserve accumulation that can rationalize the secular trends in public and private international capital flows. In middle-income countries, the increase in international reserves has been associated with elevated private capital inflows, both in the aggregate and in the cross-section, and economies with a more open capital account have accumulated more reserves. We present an open economy model of financial crises that is consistent with these features. We show that optimal reserve management policy leans against the wind, raising gross private borrowing while improving the net foreign asset position and reducing exposure to crises. |
| Keywords: | Macroprudential policy;International reserves;Financial Crises;Gross capital flows |
| JEL: | E58 F31 F32 F34 F51 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14336 |
| By: | Giovanni Donato (Geneva Graduate Institute, International Economics) |
| Abstract: | This paper examines how international investment agreements constrain the use and effectiveness of capital controls in emerging and developing economies. Leveraging a novel database on the specific content of investment treaties, I identify those that include "macro-stability exceptions", which allow countries to derogate from their legal obliga-tions in times of crisis. Although theoretical models highlight the effectiveness of capital controls in moderating capital flows, empirical evidence remains inconclusive. I argue that this is partly due to the potential conflict between capital controls and countries' treaty commitments, and to the limited attention given to endogeneity bias in existing stud-ies. To address this identification challenge, I construct two indicators of policy space restriction and flexibility, reflecting the content of countries' investment agreements in force, which I use as instruments for capital controls on outflows. Instrumental Variable (IV) estimates reveal that capital controls have a statistically significant causal effect on sudden stops. However, the direction of the effect differs across investment types. More-over, countries with more restrictive treaty commitments are less likely to deploy capital controls, whereas those with greater policy space due to macro-stability exceptions use controls more extensively. |
| Keywords: | International Investment Agreements; Exceptions; Capital Controls; Sudden Stops; Instrumental Variable |
| JEL: | F32 F38 F42 G28 |
| Date: | 2025–11–04 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp17-2025 |
| By: | Mariam Camarero (University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón (Spain).); Joan Crespo (University of Val`encia and INTECO, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, (Spain).); Cecilio Tamarit (University of Val`encia and INTECO, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, (Spain).) |
| Abstract: | This paper investigates the role of Foreign Direct Investment (FDI) in shaping the evolution of comparative advantages within global production networks. Extending existing frameworks on knowledge diffusion, we conceptualize FDI as a vector for cross-border capability transfer. The empirical strategy combines static and dynamic approaches: the static analysis employs gravity-style models to assess patterns of export similarity across countries, while the dynamic analysis examines how FDI influences specialization, with a particular focus on high-complexity sectors. Drawing on a bilateral dataset covering FDI and trade flows for 138 countries over two decades, from 2001 until 2021, the results show that FDI significantly enhances the host economy’s ability to develop new comparative advantages in capability-intensive goods. Moreover, the dual approach reveals that FDI supports both diversification and consolidation, acting through different mechanisms. These findings offer new insights into the processes of industrial upgrading and structural transformation in an increasingly interconnected global economy. |
| Keywords: | Foreign Direct Investment; Competitive Advantage; Relatedness; External Linkages |
| JEL: | F23 F43 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2511 |
| By: | Jacopo Timini |
| Abstract: | This paper reexamines the effects of the Latin Monetary Union (LMU) - a 19th century agreement among several European countries to standardize their currencies through a bimetallic system based on fixed gold and silver content - on trade. Unlike previous studies, this paper adopts the latest advances in gravity modeling and a more rigorous approach to defining the control group by accounting for the diversity of currency regimes during the early years of the LMU. My findings suggest that the LMU had a positive effect on trade between its members until the early 1870s, when bimetallism was still considered a viable monetary system. These effects then faded, converging to zero. Results are robust to the inclusion of additional potential confounders, the use of various samples spanning different countries and trade data sources, and alternative methodological choices. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.25487 |
| By: | Yongquan Cao; Wei Jiang; Mr. Waikei Raphael Lam; Neng Wang |
| Abstract: | This paper provides a parsimonious yet tractable approach to evaluating maximum sustainable debt across countries and over time within the p-theory framework developed by Jiang et al. (2024). By incorporating tax distortions, asset-pricing components (risk-free rates, convenience yields, and jump-risk premia), and sovereign default risks into the model, we calibrate it for a large sample of over 170 countries. Our illustrative findings show that while current debt levels in many economies remain within maximum sustainable debt levels, debt burdens in many emerging markets and low-income countries are near their respective sustainable levels. In contrast, a few countries that are in—or at high risk of—debt distress have debt levels exceeding their sustainable thresholds. The analysis highlights how sustainable debt estimates evolve over time in response to shifts in financial conditions and macro-fiscal fundamentals. These estimates are particularly sensitive to key parameters—most notably when interest-growth differentials are narrow. |
| Keywords: | Debt limit; debt carrying capacity; convenience yields; risk premium; asset pricing; maximum sustainable debt |
| Date: | 2025–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/223 |
| By: | Nicolas M. Burotto |
| Abstract: | The author develops a dynamic macroeconomic model of a small open economy to identify two key vulnerabilities that prevent emerging markets from fully integrating into global markets: high financial integration costs and their low position in the international monetary hierarchy. These vulnerabilities make them susceptible to financial traps, jeopardize debt sustainability, and increase volatility. He shows that the weak response of capital flows to interest rates further limits the ability of monetary policy to stabilize the system. As a result, these economies have restricted policy options and often resort to mimicking external monetary policy strategies in times of financial distress. |
| Keywords: | external debt sustainability; currency hierarchy; financial trap; balance of payments constraint; subordinated integration |
| JEL: | E12 E32 E44 F34 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1087 |
| By: | Leonardo Burlamaqui |
| Abstract: | Between the late 1990s and mid-2000s, China's banking sector underwent a profound yet largely underappreciated transformation--arguably one of the most consequential episodes of financial restructuring in recent economic history. This paper analyzes the Chinese banking reform process through a Minskyian lens, with particular attention to the conceptual ambiguity between financial fragility and financial instability in Minsky's own formulation. The core contribution lies in demonstrating that the reforms implemented under Zhu Rongji successfully resolved a condition of deep and systemic financial fragility without tipping into full-blown financial instability. In that sense, China’s banking overhaul constitutes a non-Minskyian resolution to what was, in classical terms, a Minsky-type problem. The Chinese case thus provides a rare empirical example of mounting financial fragility managed without crisis--offering critical insights for contemporary efforts at financial stabilization under conditions of systemic vulnerability. |
| JEL: | B5 E02 G28 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1086 |
| By: | Joerg Bibow |
| Abstract: | For the past hundred years or more, payments have been primarily associated with banking, and banking as we know it today--being the result of many centuries of evolution--features a bundling of (at least) three main lines of business: lending, deposit-taking, and payment services. In the past 15 years or so, banks have come under severe competition as providers of payment services. Will "banking on payments" become outmoded and payments untethered from banking, or will payments still have a place in the future of banking? This paper sets out to explore this question and to address the following two related issues. First, what are the likely consequences (especially for the financing of growth and the provision of liquidity in the form of bank deposits) of the apparent "unbundling" of the traditional connections in banking between lending, deposit-taking, and payment services? Second, what are the implications of the evolution (or revolution) of money, payments, and banking for public policy, monetary theory, and the theory of monetary policy? |
| Keywords: | banking; money; payments; financial intermediation; bank regulation; monetary policy |
| JEL: | B22 E12 E42 E58 G21 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1091 |
| By: | Howard Bodenhorn; Youwei Xing |
| Abstract: | Commercial banking is an industry in which long-term, nonexclusive relationships between bankers and their borrowers are governed by short-term contracts. This paper documents the nature of bank-borrower relationships in a historical setting. We use a new dataset of 55, 000 loans to 10, 000 unique borrowers over 35 years in the mid-nineteenth century. Two-way fixed effects models reveal that a one standard deviation increase in the number of previous loans leads to an increase in loan size by 4.72%. A one-year increase in the duration of a relationship leads to an increase in loan size of 5.6%. Relationships have small effects on loan rates, but substantial effects on collateral. Borrowers with relationships with competing banks receive substantially smaller loans. Propensity score matching reveals that banks learn about borrowers early in the relationship. Finally, the bank severed relationships with about half of the borrowers who defaulted on a loan. A surviving relationship becomes more valuable after default. |
| JEL: | G21 N21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34422 |
| By: | Francesco Bianchi; Do Q. Lee; Sydney C. Ludvigson; Sai Ma |
| Abstract: | How rational is the stock market and how efficiently does it process information? We use machine learning to establish a practical measure of rational and efficient expectation formation while identifying distortions and inefficiencies in the subjective beliefs of market participants. The algorithm independently learns, stays attentive to fundamentals, credit risk, and sentiment, and makes abrupt course-corrections at critical junctures. By contrast, the subjective beliefs of investors, professionals, and equity analysts do little of this and instead contain predictable mistakes–prestakes–that are especially prevalent in times of market turbulence. Trading schemes that bet against prestakes deliver defensive strategies with large CAPM and Fama-French 5-factor alphas. |
| JEL: | G1 G17 G40 G41 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34420 |
| By: | Milo Bianchi (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse, CNRS - Centre National de la Recherche Scientifique); Philippe Jehiel (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, UCL - University College of London [London]) |
| Abstract: | We analyze bubbles and crashes in a model in which some investors are partially sophisticated. While the expectations of such investors are endogenously determined in equilibrium, these are based on a coarse understanding of the market dynamics. We highlight how such investors may endogenously switch from euphoria to panic and how this may lead to equilibrium bubbles and crashes even in a purely speculative market in which information is complete and it is commonly understood that the bubble cannot grow forever. We also show how this setting can match stylized empirical facts, and we investigate whether bubbles may last longer when the share of fully rational traders increases. |
| Keywords: | Bounded rationality, Crashes, Speculative bubbles |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05327589 |
| By: | Leonardo Burlamaqui |
| Abstract: | This paper reconstructs Joseph Schumpeter's major works to propose a coherent new departure point for analyzing economic and social change. I argue that Capitalism, Socialism and Democracy (1942) (CSD) marks a radical departure from Schumpeter's earlier attempts in The Theory of Economic Development (1912 [1934]) (TED) and Business Cycles (1939) (BC) to merge equilibrium theory with evolutionary dynamics. In CSD, equilibrium disappears, cycles recede, and capitalism is recast as a process of creative destruction--turbulent, conflictual, and institutionally embedded. Yet the building blocks of this paradigm--innovation, the entrepreneurial function, credit creation, capital as a social relation, and the seeds of financial fragility--were already present in TED and BC, though obscured by equilibrium reasoning. The originality of this reconstruction lies in recovering Schumpeter's neglected concept of the "secondary wave, " buried in BC, which anchors financial fragility within the creative destruction paradigm and provides the bridge to Keynes's liquidity preference and Minsky's financial instability hypothesis. Reconstructed in this way, Schumpeter's trilogy yields a framework in which credit, innovation, technological disruptions, and financial fragility are inseparable. The synthesis illuminates both the resilience and the instabilities of contemporary capitalism and, when extended, helps to explain the logic of "hybrid institutional architectures"--above all the "China model, " today's most ambitious and misunderstood experiment in innovation-led, state-directed development in contemporary political economy. |
| Keywords: | Schumpeter; Keynes; Minsky; creative destruction; innovation; conflict; secondary wave; liquidity preference; financial fragility; economic and social change |
| JEL: | B15 B25 B52 E32 E44 O30 O43 P16 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1098 |
| By: | Arnone, Massimo; Costantiello, Alberto; Drago, Carlo; Leogrande, Angelo |
| Abstract: | This paper explores the connection between innovation dynamics and the Bank Capital to Asset Ratio (CAR) in the context of 39 European nations from 2018 to 2025. With a multidimensional panel data approach that incorporates a combination of static and dynamic panel models and machine learning algorithms—specifically Decision Tree Regression—the study conducts a data-oriented analysis of the impact of various types of innovation on the resilience of the banking sector. The study differentiates innovation inputs (e.g., trademark applications, innovator share), outputs (e.g., new-to-marketing and new-to-firm product sales), and productivity factors and factors permitting a finely grained comprehension of innovation inputs and financial consequences. Cluster analysis is applied to classify countries into innovation performance groups and is followed by regression and variable importance calculations. The study identifies that process innovations executed by small and medium enterprises (SMEs) are positively linked with CAR and that information is associated with greater financial stability, whereas innovation outputs and productivity indicators at times relate inversely and register corresponding financial stress in the face of innovation-driven transitions. Further, pre-stage innovation inputs may raise banks' uncertainty and register systematic risk escalation. The model of a Decision Tree also reveals the sales of innovative products and labor productivity to be the most robust determinants of CAR with varied directional impacts between them. These results document the innovation-finance nexus complexity and refute the supposition that innovation equally strengthens economic prudence. The study contributes new knowledge to the literature through the combination of the assessment of financial prudency with the type of innovation and provides clear policy directions for the synchronization of innovation strategies with macroprudency aims across the European region. |
| Keywords: | Innovation, Bank Capital, Financial Stability, Decision Tree Regression, Europe. |
| JEL: | C38 E44 G21 O31 O52 |
| Date: | 2025–08–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125982 |
| By: | Lala AlAsadi; Oluwasegun Bewaji; Aayush Gugnani; Tarush Gupta; Ronald Heijmans |
| Abstract: | This paper investigates the volatility dynamics of USD-backed stablecoins, challenging the assumption of inherent stability. Using a multi-level econometric framework, including GARCH, SVAR, and TVP-VAR models, we analyze how stablecoins respond to macro-financial shocks such as monetary policy changes, market uncertainty, and crypto volatility. Results show that USDC and TUSD are highly sensitive to external disturbances, while USDT and DAI remain relatively resilient. Stablecoins primarily absorb volatility but become more connected to systemic risk during crises. Frequency-domain analysis reveals short-term spillovers dominate during stress events, with long-term integration increasing post-2021. The findings highlight the heterogeneous nature of stablecoins and their growing ties to traditional finance, underscoring the need for tailored regulation and ongoing monitoring to mitigate systemic vulnerabilities. |
| Keywords: | stablecoins; volatility; financial markets; monetary policy |
| JEL: | F31 G14 E42 E58 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:846 |
| By: | Bakker, Gerben |
| Abstract: | We identify a previously underappreciated data revolution starting in the 1960s, in which business information firms adopted ICT very early on to automate market data sales. Before this ‘terminal revolution’, securities firms could barely cope with the paperwork of growing trading volumes, forcing the NYSE to close on Wednesdays to allow them to catch up. The terminal revolution placed computer screens on every client’s desk, changed how data was accessed and acted on, and created virtual trading floors, foreshadowing almost all stages the internet would go through some three decades later. We focus on early entrant Reuters and late entrant Bloomberg, which came to dominate global market data provision, discussing other firms along the way. We find that theory on sunk costs and market structure (Sutton, 1998) can explain how the exploding market remained highly concentrated, despite many new entrants. We also find that financial and business news (subject to Arrow’s paradox) was a complement to data (not subject to Arrow’s paradox), and barely profitable by itself: only firms offering both financial news and data tended to survive. |
| Keywords: | news agencies; financial and business news; business information; Arrow's fundamental paradox of information; trading data terminals; exchange rates; stock prices; bond prices; commodity prices; precursors to internet; industrialisation of services; ICT productivity impact; Kenneth J. Arrow; business history |
| JEL: | L82 L86 N20 N72 N74 N82 N84 O33 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129938 |
| By: | Tesfaye T. Lemma; Michael Machokoto; Marvelous Kadzima |
| Abstract: | This study examines the impact of climate risk and climate policies on capital flows in Southern African Development Community (SADC) countries. Using data from 10 SADC countries spanning 2000 to 2022, we find that climate risk proxied by extreme weather and climatic events negatively affects aggregate international capital flows and their individual components: direct investments, portfolio investments and other investments. Similarly, the extensiveness of climate policies is associated with a decline in capital flows across all three categories. These inverse relationships persist whether international capital inflows or outflows are used as the dependent variable. The findings remain robust after addressing potential biases related to omitted variables, measurement issues, endogeneity and self-selection. This study offers important policy insights for SADC economies a region highly vulnerable to climate change yet relatively under-researched. |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11093 |