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on Financial Development and Growth |
| By: | Hany Navarra (Saitama University, Saitama, Japan) |
| Abstract: | Remittances, the money migrant workers send to their origin country, are now a dominant external finance source for many developing countries, often surpassing official aid and foreign direct investment inflows. While widely recognized for supporting household consumption, their role in longterm poverty reduction remains contested. This study explores whether remittances only become developmentally effective under specific financial institutional conditions. Grounded in theories of absorptive capacity and institutional complementarity, it applies a dynamic panel threshold model to test whether financial system depth conditions the poverty-reducing impact of remittance inflows. Using panel data from 96 developing countries covering the period 2002 to 2021, the analysis identifies distinct regimes of remittance effectiveness. The findings offer a structural explanation for cross-country differences in remittance outcomes and provide new insight into how financial maturity shapes the developmental role of migrant transfers. Implications are drawn for SDGs related to poverty, financial access, and remittance cost reduction. |
| Keywords: | remittances, poverty, financial development, institutional threshold, SDGs, panel data |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:smo:raiswp:0562 |
| By: | Hanan AbdelKhalik Abouelfarag (Damanhour University); Noha Nagi Elboghdadly (Faculty of Economic Studies and Political Science) |
| Abstract: | Financial inclusion is one of the key enablers of driving economic growth, alleviating poverty, and consequently achieving inclusive growth. Although the relationship between financial inclusion and economic growth has been widely investigated, its relationship with inclusive growth remains unexplored. This paper examines the causality between financial inclusion and inclusive growth in Egypt during the period 2004-2022. The novelty of this study resides in constructing two composite indices using a Principal Components Analysis (PCA). The first composite index is for financial inclusion, while the second is a new multidimensional index for inclusive growth. The results reveal that the Inclusive Growth Index experiences an upward trend over the study period while the Financial Inclusion Index starts to increase in 2018. The results of the Toda-Yamamoto Causality Test show a bidirectional causality between financial inclusion and three of the sub-indices of inclusive growth as well as the overall inclusive growth index. The empirical evidence highlights that financial inclusion efforts will not achieve their targeted outcome unless a simultaneous inclusive growth strategy is conducted. Moreover, improving governance indicators is crucial to promoting inclusive growth. |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1736 |
| By: | Eslam A. Hassanein (, Beni Suef University); Nourhan A. Hassan (nourhan-hassan@feps.edu.eg) |
| Abstract: | This study investigates the nexus between natural resource volatility (NRV) and inclusive growth (IG) while examining the moderating impact of financial development (FD) and institutional quality (IQ) across 18 Middle East and North African (MENA) countries from 2002 to 2021. The empirical results —which are based on the two-step System Generalized Methods of Moments (SYS-GMM) estimation—reveal that NRV positively affects IG after controlling for moderation effects, implying that natural resources are a blessing in MENA. The results also indicate that the proposed moderators play a pivotal role in shaping the impact of volatility on IG. Institutions and volatility exhibit a synergistic relationship in promoting inclusivity in the MENA region. Nonetheless, volatility and FD are substitutive in promoting IG since FD (NRV) weakens the positive impact of volatility (FD). Overall, IQ and FD have a net positive impact on IG. However, the positive effect of FD is entirely negated at a volatility threshold of 34 percent, whereas IQ has a net positive effect beyond a volatility threshold of 17 percent. Additionally, the net positive impact of volatility on IG is nullified at an FD threshold of 80 percent. Policymakers in MENA are advised to be prudent with these thresholds while pursuing shared prosperity from their abundant natural resources |
| Date: | 2024–10–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1738 |
| By: | Caroline Flammer; Thomas Giroux; Geoffrey Heal |
| Abstract: | Mobilizing private capital at scale is critical for financing sustainable development, particularly in emerging and developing economies (EMDEs), where capital is most needed. We conduct a global survey of senior investment decision-makers across a broad spectrum of capital providers, including asset managers, pension and sovereign wealth funds, development finance institutions, philanthropic investors, and others. The survey provides novel evidence on investors’ risk-return expectations, risk perceptions, and investment practices in EMDEs and in blended finance structures. We document four main findings. First, conditional on investor type, return expectations in EMDEs are comparable to those in developed markets, suggesting that categorical exclusions of EMDE assets might be inefficient. Second, investors’ dominant risk perceptions—particularly currency and political risks—are poorly aligned with the de-risking tools commonly employed in blended finance. Third, prevailing approaches to evaluating blended finance rely on both input- and outcome-based metrics, yet with limited measurement of financial and impact additionality. Fourth, our results highlight organizational and informational frictions, rather than unattractive financial fundamentals, as key barriers to scaling sustainable investing in EMDEs. |
| JEL: | F3 G1 G2 H4 O1 Q01 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34746 |
| By: | Bojan Malchev (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Marina Trpeska (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Zoran Minovski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia) |
| Abstract: | This paper examines the impact of foreign direct investment (FDI) on economic growth and unemployment in North Macedonia over the period 2014–2023. North Macedonia, a small post-transition economy with historically high unemployment, has actively pursued FDI as a development strategy. Using annual data and econometric analysis (stationarity tests, Pearson correlations, and OLS regressions in SPSS), we test four hypotheses about FDI’s relationship with GDP growth and unemployment. The results indicate a strong positive association between FDI inflows and real GDP growth and a significant negative association between FDI and the unemployment rate. In particular, higher FDI is correlated with faster GDP growth and lower unemployment, supporting the view that FDI can be a catalyst for economic development. Regression analysis further suggests that FDI has a statistically significant positive effect on GDP growth and a negative effect on unemployment, even when accounting for the growth-employment link. These findings confirm the optimistic hypothesis that FDI inflows drive macroeconomic improvements in North Macedonia. However, complementary factors (institutional quality, human capital) are crucial for maximizing FDI benefits. The paper concludes with policy implications, emphasizing the need to attract quality FDI and strengthen domestic absorptive capacities to ensure sustainable growth and job creation. |
| Keywords: | Foreign direct investment; Economic growth; Unemployment; North Macedonia; Transition economy |
| JEL: | F21 E24 O40 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:aoh:conpro:2025:i:6:p:61-90 |
| By: | Zhang Peichang |
| Abstract: | This paper develops an endogenous growth model featuring income-dependent risk preferences to explain the emergence and evolution of buyout funds. We propose a novel preference structure where high-income agents derive utility from the thrill of entrepreneurial risk-taking, leading them to acquire business ideas from capital-constrained innovators. The model demonstrates that buyout funds emerge as equilibrium contracts when income inequality exceeds a critical threshold, with wealthy investors paying premiums to participate in ventures. Conversely, in more equal economies, buyout funds serve as transitional institutions. Initial inequality enables the acquisition of ideas, but subsequent growth allows the original idea holders to become independent entrepreneurs, leading to the fund's eventual decline. Our framework provides microfoundations for understanding how income distribution shapes financial intermediation patterns and their growth consequences, offering new insights into the relationship between inequality, entrepreneurial spawning, and innovation-driven growth. |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:78 |
| By: | Ahmed Chafai (University of Manouba); Rym Oueslati (University of Tunis); Hatem Salah (University of Manouba) |
| Abstract: | The objective of this study is to explore the curvilinear relationship between innovation and sustainable firm growth, as well as the moderating role of bank funding on research and development (R&D), institutional quality and bank market power on this nexus. To do this, we selected a sample of 424 companies listed in ten Arab countries (Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates) over the period 2010-2022. Using a systemic GMM model, the results show that there is a curvilinear (inverted U-shaped) link between innovation and sustainable firm growth. In addition, the outcome shows that bank funding on R&D, institutional quality and bank market power moderate the curvilinear nexus between innovation and sustainable firm growth. This study offers valuable insights into strategic innovation planning and elaboration of important implications by highlighting the role of bank funding on R&D, institutional quality and the power of the banking market in promoting firm sustainability. |
| Date: | 2025–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1819 |
| By: | Andrew Atkeson; Jonathan Heathcote; Fabrizio Perri |
| Abstract: | Traditional valuation metrics for the U.S. stock market based on a comparison of the aggregate market value of U.S. corporations to measures of dividends, earnings, output, and the replacement cost of measured capital have been above historical norms for the past 25–30 years. Will they return to their historical means? We use macroeconomic data to argue that the observed decline in labor’s share of corporate output in conjunction with relatively weak corporate investment mechanically generates a persistent rise in the ratio of corporate valuation relative to corporate earnings, even absent any changes in expected returns or growth rates. |
| JEL: | E21 G12 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34748 |
| By: | Ricardo J. Caballero |
| Abstract: | AI technology can generate speculative-growth equilibria. These are rational but fragile: elevated valuations support rapid capital accumulation, yet persist only as long as beliefs remain coordinated. Because AI capital is labor-like, it expands effective labor and dampens the normal decline in the marginal product of capital as the capital stock grows. The gains from this expansion accrue disproportionately to capitalists, whose saving rate rises with wealth, raising aggregate saving. Building on Caballero et al (2006), I show that these features generate a funding feedback—rising capitalist wealth lowers the required return—that can produce multiple equilibria. With intermediate adjustment costs, elevated valuations are the mechanism that sustains a transition toward a high-capital equilibrium; a loss of confidence can precipitate a self-fulfilling crash and reversal. |
| JEL: | E21 E22 E24 E44 O33 O41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34722 |
| By: | Eric Hilt |
| Abstract: | This review essay discusses the history, causes and consequences of financial crises. In recent years scholars have assembled new sources of data and utilized new empirical designs to analyze crises, shedding light on old questions and producing new insights. This essay highlights those new insights, and uses the historical record of crises in the United States to put those insights into perspective. I begin with a discussion of the defining characteristics of financial crises and their evolution, both in the U.S. and in the rest of the world. I then revisit the chronology of crises in the U.S. since 1870. Data on bank failure rates and large-bank equity losses suggest that some panics were not full-blown financial crises, and also identify episodes when no panic occurred that could potentially be considered crises. I then turn to two categories of theoretical models developed to analyze the mechanisms responsible for crises. The first focuses on asset price bubbles, which have been associated with many crises. The second is focused on the dynamics of bank runs and panics, which have been especially common in the United States. Finally, I present an overview of the effects of crises and the mechanisms transmitting financial distress in the banking system into the rest of the economy. |
| JEL: | N1 N10 N11 N12 N2 N20 N21 N22 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34719 |
| By: | Basco, Sergi; Roses, Joan R. |
| Abstract: | The economic impact of pandemics is commonly studied using theoretical models that assume constant returns to scale and no factor movements. This article argues that a new economic geography model with increasing returns to scale and capital mobility better explains the effects of pandemics in modern economies. Our model predicts that pandemics shape where investments are made, leading to long-term impacts on economic development. To test this, we examine the consequences of the Great Influenza Pandemic on credit allocation and structural transformation in Spain from 1915 to 1929. Our research shows that credit growth was lower in regions with high mortality. Quantitatively, a one standard deviation increase in flu-driven mortality decreases credit (per capita) by 13.6%. We also document that this flu-driven reallocation of credit resulted in an increase in relative urban GDP in low mortality rate regions. A one standard deviation increase in flu-driven credit raises relative urban GDP by 9.5%. |
| Keywords: | pandemics; capital mobility; economic geography; structural change |
| JEL: | E32 N10 N30 N90 O11 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:wpaper:128853 |
| By: | Abdullah Gulcu (Ankara University); Erdal Ozmen (Middle East Technical University); Fatma Tasdemir (Sinop University) |
| Abstract: | This study aims to explore the nonlinear impact of financial integration on income inequality in advanced (AE) and emerging market and developing economies (EMDE). Our panel fixed effect threshold estimation results suggest that international financial integration (IFI) provides a data-driven estimated threshold for the effect of IFI on income inequality. IFI is positively associated with inequality in EMDE, albeit this positive relation diminishes in more financially integrated episodes. In AE, inequality decreases with IFI in less financially integrated episodes. Our empirical findings reveal that the relationship between IFI and inequality is driven by both capital inflows and outflows in AE while it is determined by capital inflows in EMDE. Finally, we investigate whether the impact of IFI on inequality changes with the level of financial development. Our results also suggest that the inequality-increasing effect of IFI is much lower in financially more developed episodes in EMDE. All these findings imply that policies fostering financial development and equitable financial access are crucially important to mitigate the adverse effects of IFI on inequality, especially in EMDE. |
| Date: | 2025–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1821 |
| By: | Petry, Johannes |
| Abstract: | This chapter investigates the growing importance of Asia within the global financial system and analyzes its implications for the liberal script. First, the chapter explores the place of finance within the liberal script, investigating the paradigm shift from embedded liberalism to neoliberalism and subsequently growing importance of capital-market based finance for economic allocation within the Western script. Second, the autonomous origins of developmentalism in Asian financial scripts are discussed which markedly differ from (neo)liberal conceptions of finance. Third, and moving beyond the neoliberal-developmental dichotomy, the chapter conducts a comparative analysis of the five largest Asian financial systems: China, Korea, India, Japan, and Singapore. In doing so, the chapter identifies significant variations of how Asian finance relates to the liberal script, ranging between accommodation, resistance, and contestation. While maintaining some developmental characteristics, Japan and Singapore largely accommodate the liberal script. In contrast, we can observe resistance to conform with the liberal script in Korea and India where developmental characteristics maintain a prominent role and steps are taken to enable a controlled co-existence. Finally, only China truly contests the liberal script, both through the intensity and international reach of its developmental characteristics but most importantly through other actors’ reaction towards it. The chapter thus illustrates that while there are significant differences between (more) developmental Asian and (more) neoliberal Western financial systems, the rise of Asia represents only a partial contestation of the neoliberal financial script, which cannot, however, be separated from broader geopolitical constellations that challenge the liberal script. |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:g8tjc_v1 |
| By: | Dos Santos, Amanda |
| Abstract: | This paper documents the importance of government debt in facilitating the development of corporate bond markets. Using micro-level data from Brazil, I exploit variation in the supply of government bonds at different maturities to estimate the causal effect of additional government debt outstanding on firm issuance decisions. I find that at early stages of development, government debt complements corporate debt, implying that additional government debt outstanding at a given maturity causes firms to issue more. These effects ultimately increase long-term debt issuance and investment across firms, with stronger responses from companies with higher asset duration. However, as markets mature and government debt levels rise, I document a shift from complementarity to substitution. This evidence can be rationalized through government debt reducing corporate pricing uncertainty by providing pricing benchmarks and facilitating price discovery in bond markets. |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:9he6d_v1 |
| By: | Sambit Bhattacharyya; Chirantan Chatterjee (Department of Economics, University of Sussex, BN1 9SL Falmer, United Kingdom); Stephen Lartey |
| Abstract: | How do global crises affect development aid effectiveness? We explore this question by analyzing the impact of 2008 global financial crisis on development aid effectiveness in Africa using a novel triple-difference design (aid by donor × governance quality × trade exposure) estimated pre and post 2008 with nightlights data across 41 African countries observed over the period 2000 to 2021. We find Chinese aid to be effective in well governed and trade exposed countries following the crisis whereas OECD aid lost its governance dependent advantage. Structural break test confirms 2008 as a turning point for Chinese aid effectiveness. Total aid concentration outperforms aid diversification by 79% relative to pre-crisis patterns in terms of effectiveness. US aid appears to be inequality reducing post 2008. Chinese aid seems effective post 2008 irrespective of its modalities ‘ODA like’ and ‘other official flows’ whereas US aid is effective only under the modality ‘economic’. The results appear to be robust to GDP as an alternative outcome variable and placebo test. |
| Keywords: | Foreign Aid; Economic Development; Africa; China |
| JEL: | F35 O19 O47 O55 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:sus:susewp:0126 |
| By: | Hung Q. Tran |
| Abstract: | Official Development Assistance (ODA) to developing countries has fallen in recent years to well below the UN target of 0.7% of developed countries’ gross national income. Global remittances have become the biggest inflow to poor countries, greater than ODA or foreign direct investment which has also declined. Against the backdrop of geopolitical tension between major powers, other countries including developing ones and development institutions have to do their parts in mobilizing development finance to assist low income countries. The challenge in doing so remains formidable in the foreseeable future. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb59_25 |
| By: | Heidland, Tobias; Schularick, Moritz; Thiele, Rainer |
| Abstract: | Wir schlagen Mutual Interest Development Cooperation (MIDC) als neue Blaupause für Entwicklungszusammenarbeit (EZ) vor. Der Ansatz richtet EZ konsequent am beiderseitigen Interesse von Geber- und Partnerländern aus und setzt passende Anreize, um damit politische Legitimität wiederzustellen und die langfristige Wirksamkeit der EZ zu erhöhen. MIDC ist ein übergeordnetes Governance-Modell, kein Instrument "von der Stange". Es formuliert ein kohärentes Set an Prinzipien und Regeln, die Regierungen und Institutionen in einer Weise anwenden können, die zu ihren institutionellen Strukturen und politischen Kontexten passt. Die Kernelemente dieses Ansatzes sind im Folgenden zusammengefasst. Entwicklungszusammenarbeit hat an Glaubwürdigkeit und politischer Unterstützung verloren. Trotz hoher Ausgaben haben nur wenige Länder selbsttragendes Wachstum erreicht, und große Teile der Öffentlichkeit in Geberländern nimmt EZ als Wohltätigkeit mit geringen Erträgen wahr. Statt auf Altruismus und Konditionalität zu setzen, braucht es in Zeiten geopolitischer Fragmentierung, fiskalischer Zwänge und globaler Schocks eine neue Herangehensweise, die die Anreize für Geber- und Partnerländern zusammenbringt. Mutual Interest Development Cooperation (MIDC) bietet ein solches Modell: Die Wahl zwischen unterschiedlich tiefen Partnerschaftsarten, die auf Reziprozität, Reformsignalen und vorhersehbarer Finanzierung beruhen. Indem sichtbare, gegenseitige Vorteile für Partner- und Geberland sichergestellt werden, wird EZ transformativ für reformorientierte Staaten und gewinnt zugleich politische Legitimität in Geberländern. MIDC baut auf bewährten Initiativen auf und verbindet diese mit einem starken Fokus auf das beiderseitige Interesse von Geber- und Partnerländern. |
| Keywords: | Auslandshilfe, Vorteile für Geberländer, Wirksamkeit der Hilfe, Entwicklungspolitik, strukturelle Transformation, "Mutual Interest Filter" |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkrp:335874 |
| By: | Muhammad Usman Anwar Goraya |
| Abstract: | This paper examines the relationship between Official Development Assistance (ODA) and conflict in the ten largest aid-receiving African countries between 2009 and 2023. Using Ordinary Least Squares, Principal Component Analysis, and Ridge (L2) regression, the study assesses whether conflict, proxied by political stability, governance indicators, and macroeconomic conditions, systematically influences aid inflows. Results reveal a nuanced relationship. Pooled regressions indicate that aid is positively associated with poverty, inflation, and fragility, while voice and accountability are negatively related to ODA. Fixed-effects estimates instead show positive associations between aid, political stability, and GDP per capita over time, alongside negative correlations with perceived corruption. Ridge regression confirms the robustness of various governance variables under multicollinearity. Overall, donors appear responsive to both humanitarian need and institutional quality, producing an aid-conflict-institutions trilemma: aid is most concentrated where conflict risk and institutional weakness are greatest, yet these same conditions which constrain aid effectiveness. The paper contributes by integrating theory with panel-econometric tools to to explore international development aid allocation. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.16992 |
| By: | Douglas Cumming; Hisham Farag; Santosh Koirala; Danny McGowan |
| Abstract: | We study whether Fintech disrupts the banking sector by intensifying competition for scarce deposits funds and raising deposit rates. Using difference-in-difference estimation around the exogenous removal of marketplace platform investing restrictions by US states, we show the cost of deposits increase by approximately 11.5% within small financial institutions. However, these price changes are effective in preventing a drain of liquidity. Size and geographical diversification through branch networks can mitigate the effects of Fintech competition by sourcing deposits from less competitive markets. The findings highlight the unintended consequences of the growing Fintech sector on banks and offer policy insights for regulators and managers into the ongoing development and impact of technology on the banking sector. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.14071 |
| By: | Sasho Arsov (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Aleksandar Naumoski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Pece Nedanovski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia) |
| Abstract: | The paper explores the issue of digital financial inclusion as a means to overcome the traditional hurdles in access to financial services and its impact on the level of financial development. Using a broad sample of 102 countries worldwide and a time series of data ranging from 2011 to 2021, a Principal Component Analysis is applied to derive a single measure of digital financial inclusion (DFI). The ranking shows that the developed countries and the European nations in general dominate the list, while the bottom is mostly populated by African countries. Using a modified digital financial inclusion index to meet the availability of data, a regression analysis using OLS and GMM techniques was applied to determine the impact of DFI on the level of financial development. The results show that digital financial inclusion has a positive impact on financial development, so the authorities should closely monitor and support the use of digital technologies in the financial sector, as well as enhance the access of the population to these opportunities and their ability to use modern communication technologies. |
| Keywords: | Financial development, Digital financial inclusion, Debit card, ATM |
| JEL: | G20 G50 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:aoh:conpro:2025:i:6:p:91-101 |
| By: | Jasna Tonovska (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Predrag Trpeski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia) |
| Abstract: | Purpose Global capital increasingly flows not only through traditional financial markets and institutions, but through digital infrastructures—payment platforms, mobile banking systems, and online transaction networks that have become the new pipes of the global economy. These infrastructures shape how quickly capital enters, how securely it is intermediated, and how abruptly it can reverse. In this sense, digitalization is now part of the architecture of the global economy, conditioning the volatility that defines openness. Traditional analyses of the drivers of capital flows and their volatility, built around push factors (global shocks) and pull factors (domestic fundamentals), cannot fully explain why countries with similar fundamentals often face very different volatility profiles (Koepke, 2015; Cerutti et al., 2015; Fratzscher, 2011). As Carney (2019) noted, the pipes through which capital flows are transmitted matter as much as the drivers themselves. This study builds directly on that insight and provides a systematic empirical evidence that digital infrastructures act as pipes that shape the stability of global capital. Design/methodology/approach We extend the classical push–pull framework into a push–pull–pipes model (Pagliari et al., 2017; Wang, 2019). Push factors include a Global Financial Conditions Index (data sourced from Capital Economics), U.S. real GDP growth volatility (estimated volatility based on data sourced from FRED), and Global Economic Conditions volatility (estimated volatility based on data sourced from KOF Swiss Economic Institute). Pull factors comprise a Domestic Financial Conditions Index (data sourced from Capital Economics, Boraccia et al., 2023), a Financial Development Index (data sourced from the IMF), Capital Account Openness (Chinn–Ito index; Chinn et al., 2008), and Real Effective Exchange Rate volatility (estimated volatility based on data sourced from Bruegel). Pipes are measured by Relative Sovereign Credit Ratings (score versus the global median; De et al., 2020) and a Relative Digital Infrastructure Index (mobile and internet banking penetration per 1, 000 adults, benchmarked globally). σ_kt^ij= α_k^ij+β^ij 〖PUSH〗_t+γ^ij 〖PULL〗_(k, t-1)+δ^ij 〖PIPES〗_(k, t-1)+ε_kt^ij In this study, we explicitly embed digital infrastructures within the pipes dimension, thereby expanding the volatility debate beyond incentives to the channels through which capital is transmitted. Regarding the methodology, the analysis uses an unbalanced quarterly panel of advanced and emerging, and developing economies over 2000Q1–2023Q1. The dependent variable σ_kt^ij is the volatility of gross capital inflows, which is estimated as follows. For each economy and instrument (direct, portfolio, and other investment), we first estimate residuals from an ARIMA (1, 1, 0) model on the quarterly series; second, the standard deviation of these residuals is calculated as our volatility measure. The econometric specification employs panel fixed effects to control for unobserved country heterogeneity, with Driscoll–Kraay standard errors to address heteroskedasticity and autocorrelation. We estimate separate regressions for the drivers of volatility in FDI, portfolio, and other-investment inflows. We also run the specifications on the EMDE subsample to examine this group more closely. Findings Across the full sample, push factors dominate: global financial conditions and U.S. cycle volatility account for most of the variation in capital-flow volatility. Pull factors are uneven: stronger financial development and greater openness tend to attract flows but often raise volatility, while REER volatility remains a persistent destabilizer. Within this structure, pipe condition outcomes. Relative sovereign ratings are procyclical—upgrades attract inflows that are often more volatile—and digital infrastructures display a negative and statistically significant association with the volatility of total, portfolio, and especially banking-related inflows, suggesting that countries with deeper digital systems experience smoother financial intermediation and lower exposure to sudden stops. In EMDEs, however, the estimated coefficients on the Digital Infrastructure Index remain negative but largely insignificant, indicating that the stabilizing potential of digital pipes does not systematically materialize in weaker institutional environments. This pattern implies that while digitalization may facilitate access and speed of intermediation, it cannot by itself anchor stability without complementary institutional quality and regulatory depth. In such contexts, digital infrastructures operate more as accelerators of integration than as absorbers of volatility—enhancing financial connectivity but offering limited insulation from global shocks. Originality/value For EMDEs, investing in digital infrastructures should be viewed both as a development priority and as a conditional macro-financial resilience strategy. While digital systems can expand access and efficiency, their stabilizing potential remains largely unrealized in the absence of strong institutional and regulatory frameworks. Without these complements, digital infrastructures enhance financial connectivity but offer limited insulation from external shocks, operating more as channels of speed than of stability. Strengthening institutional quality and financial supervision is therefore essential for digital pipes to function as genuine macro-stabilizers. At the global level, integrating the “pipes” dimension—particularly digital infrastructures—into the IMF’s Integrated Policy Framework would acknowledge their role as structural complements to monetary, fiscal, and macroprudential instruments (Basu et al., 2023; IMF, 2023; IMF, 2022). Doing so would allow global surveillance and policy design to better capture how technological architectures condition the transmission and volatility of capital in an increasingly digitalized financial system (IMF, 2023). This study reconceptualizes the analysis of capital flow volatility for the digital era by extending the classical push–pull framework into a structural push–pull–pipes perspective. The evidence confirms that while global and domestic macro-financial conditions remain the primary determinants of volatility, the channels through which capital circulates increasingly matter (Reuter et al., 2025). Among these, digital infrastructures emerge as a new driver of capital flow volatility. Across all economies, deeper digital infrastructures are associated with lower volatility in total, portfolio, and banking inflows, reflecting smoother intermediation and improved informational efficiency. In EMDEs, however, the effect remains statistically weak, implying that digital systems alone cannot substitute for institutional strength. Their stabilizing potential is contingent on regulatory quality, supervisory depth, and the credibility of financial governance. Digital pipes are reshaping the speed, reach, and resilience of capital mobility. Recognizing their dual role—facilitating integration while conditioning volatility—should become central to future macro-financial frameworks. |
| Keywords: | Capital flows volatility, Drivers, Push, Pull, Pipes, Digital infrastructure |
| JEL: | F32 G15 O33 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:aoh:conpro:2025:i:6:p:308-312 |
| By: | Ambrocio, Gene; Bui, Dien Giau; Hasan, Iftekhar; Lin, Chih-Yung |
| Abstract: | We demonstrate that foreign institutional ownership (FIO) is associated with stronger stock return sensitivity to the Global Financial Cycle (GFC), indicating greater global co-movement among stocks selected by FIOs compared to those not selected. We conjecture that this may be because (i) FIOs tend to pick ex-ante very similar firms when investing abroad, or (ii) FIO investments itself makes firms ex-post more similar and more sensitive to the GFC. We find evidence in support of both hypotheses: that the increased co-movement may be due to FIO's selecting more homogeneous firms and that the sensitivity to the GFC increases after FIO investment. However, we find no significant difference between firms that have longer exposure to FIO investors and those that have only recently obtained FIO investment. Our results indicate that diversification gains are left on the table when FIOs select firms to invest in. |
| Keywords: | Foreign institutional ownership, Global Financial Cycle, co-movement, diversification gains |
| JEL: | E44 F21 F30 G15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:335890 |
| By: | Irigoin, Alejandra |
| Abstract: | By specifying the specie on which returns were to be repaid respondentia was a ubiquitous financial instrument to carry international trade in which silver was “essential” for its continuation. Where multiple currencies existed and silver was the preferred money, imported silver species performed as foreign currency. Thus, the import of foreign coins created issues for prices, profits and exchange rates. Eighteenth century Europeans alternatively used respondentia or bills depending on the monetary context, casting a shade of doubt on the inherent efficiency of a cashless means of payment. Until the 1820s, private bills of exchange did not circulate where cash had a premium. Europeans developed means to regulate the price of foreign coins and exchange rates. Elsewhere respondentia allowed to hedge against exchange risk and propitiated arbitrage profits, giving an advantage over bills. The article documents the global scope of the instrument; it explains the exchange nature of the contract and explores the issues that respondentia came to solve. It highlights the role of monies of account Europeans used in pricing foreign currencies in international trade. |
| Keywords: | private maritime trade finance; early modern global commerce; exchange risk; monies of account |
| JEL: | N20 F31 G23 G14 |
| Date: | 2025–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:wpaper:128607 |
| By: | Denise Duffy; Joseph G. Haubrich; Christopher Healy |
| Abstract: | Local commercial real estate conditions are positively correlated with the health of regional banks (assets between $10 billion and $100 billion), as measured by the composite confidential supervisory rating. Among other variables, return on assets is positively correlated with our proxy of bank health, but size and capital ratio are negatively correlated. Among the different components of the rating, the management rating has the most influence on the composite rating. |
| Keywords: | Regional Banks; CAMELS ratings; commercial real estate |
| JEL: | G21 G28 R30 |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:102379 |
| By: | Anyfantaki, Sofia; Martynova, Natalya; Avramidis, Panagiotis |
| Abstract: | We study how deposit rate shocks transmit across banking markets through digital social ties. Depositors’ inattention implies that households react to outside rate changes only when social networks make these changes salient, inducing connected banks to raise their own rates. Using merger-driven shocks to local deposit rates and county-level social connectedness, we show that small banks increase rates in response to shocks occurring in socially linked but geographically distant counties. Spillovers are economically meaningful, persistent, and stronger in competitive markets and in counties with more financially sophisticated households. Digital social ties therefore activate depositor search and integrate deposit markets across space. JEL Classification: G20, G21, G23, G29 |
| Keywords: | deposit pricing, information transmission, limited attention, social connections, uniform pricing |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263178 |
| By: | Xuesong Huang; Todd Keister |
| Abstract: | We study how the type of money used in blockchain-based trade affects interest rates, investment, and welfare. Stablecoins in our model are backed by safe assets, while banks issue deposits (both traditional and tokenized) to fund a portfolio of safe and risky assets. Deposit insurance creates a risk-shifting incentive for banks, and regulation increases banks’ costs. If regulatory costs are large and risk-shifting is limited, we show that allowing only tokenized deposits to be used in crypto trade raises welfare by expanding bank credit. If regulation is lighter and the risk-shifting incentive is strong, in contrast, allowing only stablecoins is desirable despite crowding out credit. In between these cases, allowing stablecoins and tokenized deposits to compete is optimal. The tradeoffs between these policies are reminiscent of both historical and recent debates over the desirability of narrow banking. |
| Keywords: | stablecoins; money creation; narrow banking; bank regulation |
| JEL: | E42 G21 G28 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102411 |
| By: | Gersbach, Hans; van Buggenum, Hugo; Zelzner, Sebastian |
| Abstract: | Stablecoins are rapidly expanding as money-like assets for payments, trading, settlement, and cross-border transfer. In response, policymakers are moving quickly to develop new regulatory frameworks to safeguard the monetary and financial system. This article develops a forward-looking, research-based policy agenda for stablecoins, drawing on monetary theory, recent market developments (including stress events), our own analytical framework, and the broader academic literature. In our view, a world in which stablecoins reach scale requires a coherent package of measures: tools to preserve financial stability and resilience against liquidity crises; protections for monetary sovereignty and the singleness of money; rules on stablecoin remuneration; constraints on platform market power alongside interoperability requirements; robust financial-integrity rules; and international coordination to limit regulatory arbitrage and close cross-border loopholes such as multi-issuer structures. We also highlight several areas that require further evaluation prior to policy adoption, including whether (and under what conditions) a public liquidity backstop for systemic issuers or central-bank reserve access is warranted, as well as modernization pathways within the traditional monetary system. We benchmark our agenda against the U.S. GENIUS Act and the EU's MiCA and provide a cross-jurisdictional comparison. |
| Keywords: | Stablecoins, Private digital money, Regulation and policy, MiCA, GENIUS Act |
| JEL: | E4 E5 G1 G2 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:335903 |
| 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:wpaper:129938 |