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on Financial Development and Growth |
| By: | Gurung, Nirmal |
| Abstract: | Nepal’s financial system has undergone waves of credit booms, especially in the pre- and post-COVID-19 pandemic periods, which raises questions about the health of the banking sector. This paper examines the association between credit growth and banking sector health using secondary data from Nepal Rastra Bank and the International Monetary Fund. The World Bank for fiscal years 2016/17-2023/24. It is found that private sector credit grew at nearly 29 percent in 2016/17 and more than 27 percent in 2020/21, which far exceeded the overall economy’s growth rates. Credit boomed due to large remittance inflows, low real interest rates, and rapid expansion of bank outlets and digital products. Heavy lending to real estate, housing, construction, and import sectors. Consequently, the quality of banks’ assets declined as credit growth slowed down sharply in 2021/22. The non-performing loan ratio, which averaged between 1.2 and 1.8 percent during the boom years, rose to about 2.6 percent in 2022/23 and 3.7 percent in 2023/24. The capital adequacy ratio of banks dipped from 14.5 percent in 2016/17 to 12.8 percent in 2023/24. The study concludes that rapid credit growth, albeit beneficial for a short time, may pose significant financial stability risks if the lending environment worsens and credit becomes concentrated in a few sectors. The paper recommends enhanced risk-based supervision, countercyclical capital buffers, diversification of credit to productive sectors, improved governance, and enhanced capital markets to complement bank lending |
| Date: | 2026–09–26 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:7fasc_v1 |
| By: | Nicolás Caso; Jason Gagnon; Jessica Hagen-Zanker |
| Abstract: | Remittances and social protection programmes have become two of the most important sources of financial support for households across low- and middle-income countries. While both have been linked to household investment and livelihood diversification, little is known about how they jointly influence entrepreneurship. This paper examines whether public transfers, in the form of cash transfers and school feeding support, crowd out or in household entrepreneurship and whether private transfers, in the form of remittances, complement or substitute for public transfers in shaping entrepreneurship. Using household survey data from eight communities in West Africa, we analyse the relationship between social protection, remittances and a range of entrepreneurial outcomes. The results provide little evidence that social protection systematically influences household entrepreneurship or alters the relationship between remittances and business activity. In contrast, remittances remain consistently associated with business creation and entrepreneurial intentions across multiple contexts. These findings suggest that expanding social protection does not diminish the productive role of remittances and highlight the importance of considering public and private sources of household support jointly when assessing policies aimed at promoting entrepreneurship and inclusive economic development. |
| JEL: | F24 L26 I38 O12 H53 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:26/1152 |
| By: | Gootjes, Bram; Pallan, Hayley Marie |
| Abstract: | Despite heightened interest in the role of geopolitics and fragmentation for cross-border economic activity, there is limited understanding of the potential scarring effects of adverse global conditions on foreign direct investment (FDI). Accounting for the real-time nature of investor decisions, local projection estimates show that adverse global growth shocks have scarring effects on FDI project announcements for about three years. Beyond the baseline finding, the paper offers three novel results: scarring effects are more subdued in “safe” countries; projects in “strategic” sectors smooth headline announcement fluctuations because they are less sensitive to adverse global growth shocks; and geopolitical positioning plays an important role in the uneven recovery of FDI announcements. The results are robust to a variety of additional exercises, including sample adjustments, alternative shock measures and specifications, and various definitions of institutions, sectors, and geopolitical alignment. |
| Date: | 2026–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11452 |
| By: | Jiongyi Hao (Department of Economics, Trinity College Dublin) |
| Abstract: | This paper investigates how human capital and economic development are associated with the relationship between foreign direct investment (FDI) and the participation of the global value chain (GVC). Using a bilateral panel of 76 economies from 2009 to 2020, we show that education is not uniformly associated with a greater FDI‐GVC link. Its effect depends on the stage of development: in low‐income economies, structural constraints weaken the role of education, while in higher‐income economies, tertiary education is associated with a higher FDI‐GVC relationship, consistent with greater technology absorption and upgrading. We also find that the education level of the FDI source country may matter more than that of the host country. These findings suggest that education is a complementary rather than independent driver of FDI‐GVC integration, with its benefits realized only at higher levels of development. |
| Keywords: | FDI, Global Value Chains, Human Capital, Economic Development, Conditional Effects |
| JEL: | F21 F23 F15 F14 C23 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep2126 |
| By: | Mariam Camarero (INTECO & Department of Economics, Universitat Jaume I, Castellón, Spain); Joan Crespo (INTECO and Department of Economic Structure, Universidad de Valencia, Spain); Cecilio Tamarit (Department of Applied Economics II, University of Valencia, Spain) |
| Abstract: | This paper examines the role of Foreign Direct Investment (FDI) in shaping comparative advantage within global production networks, conceptualizing FDI as a vector for cross-border capability transfer. Using a bilateral dataset for 138 countries over 2001–2021, we combine static and dynamic empirical approaches. The static analysis shows that country pairs with larger bilateral FDI stocks exhibit greater similarity in export structures. The dynamic analysis shows that complementarities between a host economy’s FDI partners and its own productive base raise the probability of entering new product specializations. This effect is conditional: it requires adequate domestic capabilities, is stronger in more developed economies, and exhibits substitution between direct and related forms of complementarity. Crucially, FDI linkages do not extend the host’s reach into the most complex goods, where domestic relatedness dominates. FDI thus supports diversification into standard products, but cannot substitute for domèstic capability-building in the most demanding segments of the product space. |
| Keywords: | FDI, Export similarity, Comparative advantage, Gravity model, Economic complexity. |
| JEL: | F14 F21 C23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:jau:wpaper:2026/11 |
| By: | Fukuzawa, Daisuke; Islamaj, Ergys; Le, Duong Trung; Mattoo, Aaditya; Samano Penaloza, Agustin |
| Abstract: | This paper analyses how China’s rapid expansion has affected growth in other developing economies through the trade channel. The empirical strategy is a shift-share design that exploits pre-determined variation across countries in the exposure of their exports to China’s import demand and export supply in global markets, well before China became a dominant trader. The paper shows that China’s rising demand for commodities and intermediate goods has had a favorable impact on other developing countries’ growth, while intensified competition from its manufacturing exports has had an adverse effect. The former effect is stronger and therefore the net effect has been positive for most countries. The positive impact is, however, becoming weaker as China’s growth slows down, and developing countries’ longer term growth may also be influenced by the changes in their economic structures induced by China’s trade expansion. |
| Date: | 2026–09–28 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11467 |
| By: | Dean Corbae; Pablo D'Erasmo |
| Abstract: | We develop a simple model of banking industry dynamics to study the relation between market structure and financial stability. Motivated by data, we analyze an environment where a small number of dominant (nonatomistic) banks strategically interact with a large number of small (atomistic) banks. A nontrivial endogenous bank size distribution arises out of entry and exit in response to aggregate and regional shocks to borrowers’ production technologies and banks’ idiosyncratic deposit inflows. Since the model has nonatomistic banks that generate granular spillovers from idiosyncratic shocks and pose systemic risk, we use the model to study the implications of too-big-to-fail policies. |
| Keywords: | Macroprudential policy; bank size distribution; industry dynamics with imperfect competition |
| JEL: | E44 G21 L11 |
| Date: | 2026–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:103867 |
| By: | Beáta Horváth (Magyar Nemzeti Bank (Central Bank of Hungary)); Tamás Berki (Magyar Nemzeti Bank (Central Bank of Hungary)); Lívia Réka Ónozó (Magyar Nemzeti Bank (Central Bank of Hungary)); Csanád Temesvári (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | This paper proposes a sentiment-based financial stress indicator for Hungary based on occurrence of financial crisis related terms and explores its relationship with macrofinancial variables related to financial uncertainty. Sentiment analysis was conducted on textual data from two major Hungarian news portals covering the period from 2005 to 2020. The terms used in the analysis carry negative connotations, making them suitable for capturing financial instability and stress. The index successfully identifies stress periods that are not adequately reflected by other available sentiment indices related to Hungary. Overall, we propose a novel type of index that enables timely, even real-time monitoring of financial stress situation in Hungary across different time frequencies. |
| Keywords: | sentiment; financial stress; text analysis |
| JEL: | C32 E44 G01 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:mnb:wpaper:2026/3 |
| By: | International Monetary Fund |
| Abstract: | Despite significant efforts to unwind the impact of the COVID-19 fiscal stimulus and other shocks, debt levels in many Low-Income Countries (LICs) remain relatively high, with debt vulnerabilities exacerbated by uncertain global conditions and a changing creditor landscape. In this context, the purpose of this paper is to provide factual data and insights on recent trends in public debt vulnerabilities and financing challenges in LICs, with a special focus on domestic debt issues. The evidence presented, particularly on the ever more important role of domestic debt as a source of public financing, highlights the importance of the continued work of the IMF and the World Bank to monitor debt vulnerabilities and support countries through a combination of policy advice, financial resources, and capacity building. Furthermore, the scale of identified vulnerabilities reinforces the need for strong debt management and enhanced debt transparency to sustain good relations with creditors and underpin sound financing decisions. |
| Keywords: | Debt burden; Debt burden indicator; Debt service; Debt sustainability; Debt vulnerability; Debt transparency; Domestic debt; Financing needs; Global; IMF-World Bank LIC-DSF; IMF-World Bank LIC-DSF database; Sub-Saharan Africa; IMF staff; IMF policy; transparency policy; IMF Policy; Caribbean; Asia and Pacific; South America; Central America |
| Date: | 2025–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfpps:2025/038 |
| By: | Haldar, Stuti (CIRCLE, Lund University); Bazaz, Amir (Indian Institute for Human Settlements) |
| Abstract: | India's green transition is framed as a vision of energy security, developmental ambition, and strategic autonomy. We argue, however, that the expansion of renewable energy in India increasingly depends on financial circuits embedded in the US dollar-centered global credit hierarchy. Through a Global Credit View, we surface how the Indian state pursues energy sovereignty through a strategic dependence - building and deploying public institutions that de-risk projects, stabilise revenue streams, and render renewable infrastructure investable for transnational capital. Focusing on critical institutional nodes, we trace how they convert domestic energy assets into financial claims suited to offshore credit markets. This architecture enables rapid scale-up and preserves state-led directionality in institutional terms, yet it also deepens exposure to currency volatility, global financial cycles, and creditor discipline. India's energy transition, we argue, is therefore not only a techno-industrial project, but also a monetary settlement structured by 'strategic' subordination. |
| Keywords: | Energy transition; Transition finance; Infrastructure governance; Energy gigantism; Global credit hierarchy |
| JEL: | F34 Q43 Q48 |
| Date: | 2026–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:lucirc:2026_004 |
| By: | Krustev, Georgi |
| Abstract: | Leveraging the unique setting of unilateral euroisation, this paper examines the spillover effects of euro area monetary policy on Montenegro and Kosovo. Through the lens of a structural VAR model with block exogeneity, it shows that euro area monetary policy shocks can significantly influence output and inflation in these economies, albeit with a delayed response, while contributing only modestly to their overall business cycle fluctuations. JEL Classification: C11, C32, E52 |
| Keywords: | block exogeneity, monetary transmission, structural VAR |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263293 |
| By: | OECD |
| Abstract: | This working paper explores the underlying reasons for shifts in the gold landscape and the possibility that these developments could signal deeper ongoing transformations in the global economy, with broader implications across economic sectors and financial markets. This paper provides an overview of these signals and emerging trends and identifies four futures of gold scenarios for global markets and payment systems, illicit financial flows, geofinance, economic and sustainable development, critical mineral supply chains and responsible business conduct. |
| Date: | 2026–10–05 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaad:51-en |
| By: | Gordon Y. Liao; Eswar S. Prasad; Tony Zhang |
| Abstract: | We show that the dollar remains dominant in most aspects of global finance. The euro and renminbi are competing in an increasingly fragmented second tier of currencies, leaving no clear rivals to the dollar. We study how financial innovation could reshape the international monetary system. In principle, innovation levels the playing field between countries, for instance by reducing the need for vehicle currencies to intermediate transactions between other currency pairs and by making it easier to acquire and trade foreign assets. We show that an alternative outcome is more likely. Innovations that reduce frictions in cross-border transactions, especially dollar-backed payment stablecoins and other forms of tokenization of money, could interact with relative market thickness to reinforce the dollar’s dominance. This outcome is not preordained but depends on other countries’ willingness to embrace innovations and strengthen their financial markets and regulatory frameworks. While unipolarity has many disadvantages, we show that in some circumstances multipolarity might result in greater global fragility at times of financial market stress. |
| JEL: | E42 E51 F33 F36 G15 G33 O33 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35822 |
| By: | Keith Hazen (Federal Reserve Bank of Philadelphia and Rutgers University); Julapa Jagtiani (Federal Reserve Bank of Philadelphia); Loretta J. Mester (Wharton School of Business, University of Pennsylvania and Griswold Center for Economic Policy Studies, Princeton University) |
| Abstract: | Using transaction-level data for Bitcoin (BTC), Ethereum (ETH), and Wrapped Bitcoin (WBTC) matched to public “Whale Alert†signals, we examine how large-scale cryptocurrency trades shape market microstructure. Specifically, we test whether whale transactions alter the composition of active non-whale participants, trigger leader-follower herd behavior, and elevate short-term return volatility. We document a stark divergence between networks: Whale alerts heavily reshape (native) BTC participation by mobilizing previously inactive retail and institutional investors, whereas ETH and WBTC participant profiles remain highly stable on the Ethereum platform. Furthermore, non-whale investors exhibit strong leader-follower behavior in the BTC market — buying and selling in tandem with whale direction. This pattern is largely absent in the Ethereum ecosystem, except among the largest non-whale tranches. These behavioral dynamics directly mirror market stability: Whale alerts induce a brief 24-hour spike in BTC volatility (most acutely following WBTC alerts) but coincide with compressed volatility on the Ethereum platform. Additionally, these asymmetric market responses persisted across Ethereum’s transition from proof-of-work to proof-of-stake. These findings indicate persistent informational and structural asymmetries between large and small digital-asset investors. |
| Keywords: | Cryptocurrency, Ethereum, ETH, Bitcoin, WBTC, crypto whales, DeFi |
| JEL: | G14 G23 G28 G41 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:358 |
| By: | Virginie Terraza (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier, uni.lu - Université du Luxembourg = University of Luxembourg = Universität Luxemburg); Aslı Boru İpek (Kütahya Dumlupinar University = Kütahya Dumlupınar Üniversitesi [Kütahya, Turquie]) |
| Abstract: | This study proposes a multi-stage approach to modelling dependencies using Vector Autoregression (VAR), Nonlinear Autoregressive Neural Network (NAR-NN) models, and copulas. This paper aims to assess the dynamic dependency structure between cryptocurrencies and traditional financial assets, considering regime changes and safe-haven properties. The proposed methodology integrates change point detection with copula-based conditional correlation Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models to identify structural breaks and nonlinear dependencies between regimes. A sequential change point procedure based on fast signal segmentation is employed to detect structural changes. According to this study, cryptocurrencies and traditional assets exhibit regimedependent dependence. It was also determined that during periods of market stress, this dependency significantly increases. This paper has significant implications for portfolio diversification, risk management, and the role of digital assets in financial markets. Furthermore, this proposed methodology contributes to the literature by capturing nonlinear, time-dependent, and regime-dependent dependency structures. |
| Keywords: | 62M10, 68T07, neural network MSC: 91G15, DCC-GARCH family models, VAR, copula, change point detection, financial markets, interconnections, interconnections financial markets change point detection copula VAR DCC-GARCH family models neural network MSC: 91G15 62M10 68T07 |
| Date: | 2026–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05752791 |