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on Financial Development and Growth |
| By: | S M Toufiqul Huq Sowrov |
| Abstract: | This study investigates the impact of Foreign Direct Investment (FDI) on economic growth in South Asian countries, utilizing annual panel data from five SAARC member states (Bangladesh, India, Nepal, Pakistan, and Sri Lanka) over the period 1980-2017. Data sourced from the World Development Indicators and Penn World Table were analyzed using static panel models, including Ordinary Least Squares, Fixed Effects, Random Effects, and Generalized Least Squares regressions. The empirical findings reveal that FDI exhibits a consistently positive but statistically insignificant correlation with economic growth across all model specifications. In contrast, domestic investment and human capital development emerge as significant and robust positive determinants of growth. Control variables such as government consumption and inflation show expected negative, though generally insignificant, associations with growth. The results imply that for the sampled South Asian economies, enhancing domestic investment and fostering human capital are more critical for driving economic expansion than relying on FDI inflows. Consequently, policymakers should prioritize strategies that strengthen local investment climates and improve educational and skill-building institutions to boost productivity. While FDI's role remains complementary, its insignificant immediate impact suggests the need for further research into the conditional factors such as institutional quality, financial market development, and trade policies that might mediate its effectiveness in fostering long-term growth within the region. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.16958 |
| By: | Cândida Ferreira |
| Abstract: | This study advances the discussion on the impact of financial integration on economic growth by analysing an unbalanced panel dataset covering 193 countries from 1960 to 2021. Financial integration data were obtained from the Global Financial Development Database, while macroeconomic control variables came from the World Development Indicators. Fixed effects and dynamic Generalised Method of Moments (GMM) panel estimations highlight the critical influence of macroeconomic conditions. The analysis reveals that financial integration significantly fosters economic growth, though the magnitude and direction of the effect depend on how financial integration is measured. In particular, indicators reflecting greater access to and depth of financial institutions and markets are positively associated with per capita Gross Domestic Product (GDP) growth. Conversely, higher bank concentration and increased bank efficiency—as measured by the bank lending-deposit spread and the bank cost-to-income ratio—show negative relationships with economic growth. The study also finds mixed evidence regarding financial stability indicators: a rise in liquid assets relative to deposits and short-term funding corresponds with slower economic growth, while improvements in financial stability—as measured by the bank Z-score and the ratio of bank credit to bank deposits— are linked to stronger per capita GDP growth. Drawing on these findings, the paper offers policy implications and recommendations concerning financial integration. |
| Keywords: | financial integration, economic growth, global markets, panel estimations. |
| JEL: | F36 F65 G15 G21 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03992025 |
| By: | Alberto Botta |
| Abstract: | In this paper, we present a Balance-of-Payments (BoP)-constrained center-periphery growth model extended for the inclusion of international finance and the accumulation of external debt. With respect to previous works in this stream of literature, we show how the long-run BoP-constrained growth rate changes endogenously alongside the evolution of periphery’s external position. We describe a complex non-linear system that may feature multiple equilibria with different stability properties. A stable equilibrium characterized by high long-run BoP-constrained growth and low external indebtedness is paired with a saddle-path unstable one in which a more fragile external position associates with lower growth. We also show that periods of (temporary) financial “bonanza”, i.e., surges in foreign capital pouring into the economy, may modify the long-run growth trajectory of the periphery and its overall macro stability. Financial bonanza can boost economic growth in the short term. However, it can also give rise to tougher debt service payments and possibly lead to cases of premature de-industrialization. Despite short-term benefits, the periphery may well get worse off in the long run. If the financial boom is strong and protracted enough, it can even generate radical instability driving the periphery towards default on external debt. In the final part of the paper, we discuss the policy implications of the model, namely the role of capital controls as part of a broader development strategy aimed at taming finance-led instability and boosting structural change in the periphery. |
| Keywords: | External constraint; international capital; financial bonanza; premature de-industrialization |
| JEL: | E12 F43 F62 O11 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2601 |
| By: | FitzGerald, E. V. K.; Mavrotas, G. |
| Keywords: | Financial Economics, International Development, Labor and Human Capital |
| URL: | https://d.repec.org/n?u=RePEc:ags:ilopsa:258925 |
| By: | Nils Gornemann; Eugenio I. Rojas; Felipe Saffie |
| Abstract: | We document that rising volatility in U.S. interest rates, a key dimension of global financial risk, notably depresses the trend of economic activity in emerging market economies (EMEs) but not in advanced economies (AEs). Using a panel state-space model, we show that a one standard- deviation shock to U.S. monetary policy uncertainty permanently lowers the level of GDP in EMEs by about 25 basis points after three years, with negligible effects in AEs. We rationalize this fact in a small open economy model where firms borrow against future profits to finance innovation. Higher volatility compresses firm values, tightens collateral constraints, and endogenously slows productivity growth, especially when financial frictions are severe. |
| JEL: | F32 F41 G15 O16 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34595 |
| By: | Marie-Claude Beaulieu (Département de finance, assurance et immobilier, Université Laval and research fellow at CRREP (Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques), Holder of Chaire RBC en innovations financières); Marie-Hélène Gagnon (Département de finance, assurance et immobilier, Université Laval and research fellow at CRREP (Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques)); Céline Gimet (Sciences Po Aix, Aix Marseille Univ, CNRS, AMSE, Marseille, France) |
| Abstract: | This paper studies the main determinants of bilateral financial flows in the euro area to achieve sustainable and fair financing opportunities. We revisit the modern theory of the optimal currency area considering the impact of heterogeneity in inequality measures, within and across countries, on crossborder financial flows. To do so, we introduce financial and social fragmentation in gravity models of European capital flows. We use data from 19 Eurozone countries from 2000 to 2021 and show how fragmentation impacts capital flows, namely foreign direct investment, cross-border loans as well as portfolios, equity and bond flows. Since capital is, in principle, free to flow in the Eurozone, our analysis directly identifies the roles of potential sources of fragmentation: social inequalities, lack of market openness, and domestic regulations such as macroprudential controls. Overall, our results show that financial integration in Europe entails more capital flows of any type while social fragmentation across European countries is detrimental to capital flows, no matter which type. This is strong evidence of the importance of financial and social fragmentation in the Eurozone on the distribution of capital. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2531 |
| By: | Katsunori Minami; Ryo Horii |
| Abstract: | This paper examines the growth effects of R&D subsidies and public-funded basic research in an R&D-based endogenous growth model when political constraints do not allow the government to increase its revenue. If individuals have enough life-cycle saving motives and R&D productivity is sufficiently high, the growth rate becomes higher than the interest rate in equilibrium, and the government can finance expenses while perpetually rolling over the debt. Given this situation, debt-financed R&D subsidies always enhance short-run growth. However, they increase long-term growth only when R&D productivity exceeds another threshold. Our estimates suggest that this condition holds for most advanced countries, including the United States, but not for low-growth countries such as Japan and Italy. In contrast, enhancing public-funded basic research is effective for economic growth even in low-growth economies. However, such policies reduce the upper bound in the debt-to-GDP ratio, beyond which the economy cannot recover to a steady state. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1258rr |
| By: | Anusha Chari; Peter Blair Henry; Yanru Lee; Paolo Mauro |
| Abstract: | Despite the scarcity of infrastructure in emerging-market and developing economies (EMDEs), in the absence of readily accessible data on the historical performance of EMDE infrastructure as an asset class, private investors are reluctant to finance infrastructure projects in these countries. We begin to fill this information gap by computing the financial returns from equity investments in primarily unlisted firms in EMDEs made by the International Finance Corporation, the private-sector arm of the World Bank Group. The public market equivalent of 266 equity investments in core infrastructure by the IFC, with starting dates from 1961 to March 2020, was 1.17 using the S&P 500 as a benchmark, and 1.26 using the MSCI Emerging Markets Index. On average, over the past six decades, equity stakes in emerging-market infrastructure backed by the IFC thus delivered higher returns than investments in portfolios of publicly listed equities. Data from the full sample of IFC equity investments reveal that, on average, a diversified portfolio of investments in infrastructure-related sectors, and indeed, in all sectors more generally, generated significant positive financial returns, albeit with variation across decades. |
| JEL: | F21 G11 G24 H54 O16 O19 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34537 |
| By: | Paul X. McCarthy; Xian Gong; Marian-Andrei Rizoiu; Paolo Boldi |
| Abstract: | The global aid system functions as a complex and evolving ecosystem; yet widespread understanding of its structure remains largely limited to aggregate volume flows. Here we map the network topology of global aid using a dataset of unprecedented scale: over 10 million transaction records connecting 2, 456 publishing organisations across 230 countries between 1967 and 2025. We apply bipartite projection and dimensionality reduction to reveal the geometry of the system and unveil hidden patterns. This exposes distinct functional clusters that are otherwise sparsely connected. We find that while governments and multilateral agencies provide the primary resources, a small set of knowledge brokers provide the critical connectivity. Universities and research foundations specifically act as essential bridges between disparate islands of implementers and funders. We identify a core solar system of 25 central actors who drive this connectivity including unanticipated brokers like J-PAL and the Hewlett Foundation. These findings demonstrate that influence in the aid ecosystem flows through structural connectivity as much as financial volume. Our results provide a new framework for donors to identify strategic partners that accelerate coordination and evidence diffusion across the global network. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.17243 |
| By: | Mehrotra, Santosh (University of Bath); Hassan, Shady |
| Abstract: | This paper examines how IMF policies contribute to the inequality in MENA, and to a Middle-Income Trap (MIT). Developing a theory expanding Acemoglu and Robinson’s “Narrow Corridor” framework, it shows how IMF conditions align domestic elite incentives with creditor interests through a principal-agent lens. Using 2020-2025 data, its analysis reveals IMF monetary policies create rent-seeking structures that institutionalize inequality and suppress growth. The paper identifies an “engineered r>g dynamic” as a quantifiable signature of this extraction, empirically verified in Egypt. It establishes a causal link between financial/monetary policy (interest rates, debt compounding) and the “Despotic Leviathan” state formation. |
| Keywords: | political economy, domestic debt, inequality, IMF conditionality, state capture, Middle-Income Trap, Egypt |
| JEL: | O11 O43 P16 F33 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18350 |
| By: | Rolf Aaberge; Jørgen Modalsli; Edda Solbakken (Statistics Norway) |
| Abstract: | This paper introduces a framework for estimating long-run series of measures of overall inequality and top wealth shares when data consist of a combination of historical tabulations and modern administrative registers of taxable wealth. The proposed framework is applicable when historical wealth tabulations as a minimum provide information on bracket boundaries and the proportion of tax units for each of the wealth brackets. The framework has been used to produce evidence on wealth inequality in Norway from 1912 to 2019. The empirical results show that wealth inequality as measured by the Gini coefficient was very high at the beginning of the twentieth century, fell during the post-war period and has increased substantially since the 1980s. The rise in wealth inequality over the recent four decades is driven by a rise in the wealth share of the top 1 per cent, while equalization among the bottom 99 per cent accounted for 70 percent of the reduction in wealth inequality from the early 1950s to the late 1960s. |
| Keywords: | Distribution of wealth; long-run inequality; the Gini coefficient; wealth taxation; Norway |
| JEL: | D31 D63 H29 N34 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:ssb:dispap:1028 |
| By: | Elin Halvorsen; Joachim Hubmer; Serdar Ozkan; Sergio Salgado |
| Abstract: | CORRECT ORDER OF AUTHORS: Hubmer, Halvorsen, Salgado, Ozkan. Online supplemental material for "Why Are the Wealthiest So Wealthy? New Longitudinal Empirical Evidence and Implications for Theories of Wealth Inequality" by Hubmer, Halvorsen, Salgado, and Ozkan (2025). |
| Keywords: | wealth inequality; lifecycle wealth dynamics; rate of return heterogeneity; bequests; saving rate heterogeneity |
| JEL: | D14 D15 E21 |
| Date: | 2025–12–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:102292 |
| By: | Welch, Katie; Van Leuven, Andrew; Lambert, Dayton M. |
| Abstract: | Bank or branch closure resulting in loss of access to lending institutions has been linked to limited economic growth and long-term vitality of a region (Nguyen, 2019; Conroy et al., 2017). Since the 1980’s, changes in banking, such as higher efficiency in branches, greater numbers of ATMs, and the emergence of alternative banking forms, coincided with declines in the total number of physical banks; by 1997, the total number of banking institutions had declined by 33% in the US and 40% in the Southern Great Plains (SGP) (Spong and Harvey, 1998). Following the advent of smart technology in the late 2000s, alternative banking options have become even more readily available with over half of all commercial banks in the United States offering online banking services by the end of 2003. In 2022, surveys found that 72% of banking Americans preferred to access their accounts through mobile or online portals (ABA, 2022). The availability and adoption of mobile technology begs the question, are brick-and-mortar bank entries and exits affected by technologies that increase mobile banking access? This study estimates the relationship between mobile banking access and bank entry and exit in the SGP, defined as the states of Kansas, Oklahoma, and Texas. These findings will lend insight to the question of whether there are areas without banking access or if the availability of mobile banking impacts physical bank presence. |
| Keywords: | Community/Rural/Urban Development |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea25:361114 |
| By: | Burga, Carlos; Cespedes, Jacelly; Parra, Carlos R; Cerón, Marcos; Quispe, Isaí |
| Abstract: | Instant payment systems have rapidly gained global traction by enhancing transaction efficiency, yet evidence remains limited on how their designparticularly interoperabilityshapes market structure. We exploit Perus 2023 interoperability mandate as a quasi-natural experiment using a difference-in-differences design. Mandated interoperability increased deposit market concentration by approximately 2%. Incumbent banks linked to the dominant digital wallet expanded their deposit market share by nearly 10% and reduced deposit interest rates by 5080 basis points. We also observe more branch closures in high-adoption areas and declining microcredit. A model explains these results through an “amenity shock, ” boosting digital wallet convenience for all adopters. Due to network externalities, the largest incumbent wallet captures a disproportionate share of new users in dual-platform markets an “amenity effect” that ultimately increases concentration. By contrast, in single-platform regions, interoperability lowers barriers for new providers an “entry effect” that spurs competition and erodes incumbent dominance. Our results show that this amenity effect in dual-platform cities outweighs the entry effect elsewhere. Overall, our findings show competitive effects of interoperability mandates critically depend on initial market structure and distribution of platform market shares. |
| JEL: | E42 J31 O33 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14435 |
| By: | Amado, Lindorf |
| Abstract: | Standard economic models often treat money as a social construct independent of physical laws. This paper proposes a unified thermodynamic theory of value, positing that monetary systems are information protocols evolved to maximize entropy production in dissipative structures (civilizations). By analyzing 10, 000 years of economic history—from the Neolithic era to the Digital Age—we demonstrate a strict linear relationship (R2 = 0:9934) between the Real Cost of Energy (E) and the Granularity of Money (G). We derive the Equation of Value, G / E, where the value of the accounting unit scales directly with the energy cost of labor. This framework resolves historical anomalies such as the collapse of the Roman Denarius and the failure of the 20th-century Gold Standard, interpreting them not as policy errors, but as thermodynamic phase transitions. The theory predicts that the current decline in the marginal cost of energy (via AI and renewables) necessitates a transition to a monetary substrate with near-infinite divisibility and zero friction. |
| Keywords: | Thermodynamics, Monetary Theory, Entropy, Granularity, Econophysics, AI, Gold Standard, Collapse, Deterministic |
| JEL: | B52 C10 E42 N10 O33 |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127378 |
| By: | Hiebert, Paul; Monnin, Pierre |
| Abstract: | Climate change is often characterised as a standalone risk for the financial system. In practice, however, the emergence and materialisation of climate-related shocks interact with general macro-financial conditions, implying potentially novel and difficult-to-predict interactions. In such an environment, macroprudential buffers earmarked for specific risks have limitations, as they might not account for important correlations between climate-related shocks and other sources of financial vulnerability, nor for the extent to which climate-related shocks might compound existing challenges in the real economy and financial sector. In light of such complex challenges, this report investigates how a holistic approach can enhance the financial system’s ability to absorb compound shocks. It finds that consolidated capital buffers accounting for the amplifying effects of combined shocks, which single-risk buffers might underestimate, offer general insurance against several sources of uncertainty (both reducible and irreducible). |
| JEL: | N0 F3 G3 |
| Date: | 2025–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130740 |
| By: | Andrea Vismara; Ola Ali; Carsten K\"allner; Guillermo Prieto-Viertel; Rafael Prieto-Curiel |
| Abstract: | International remittances represent a vital source of disaster adaptation finance for households around the world, yet their responsiveness to environmental disasters remains poorly quantified. We reveal a previously unmeasured global macro-financial system of international migrant diasporas remittances response to the occurrence of disasters in the country of origin. We do so by developing a structural model simulating individual remittance decisions, calibrated with global disaster records and bilateral monthly remittances flow data from the period 2010-2019. Our analysis reveals that approximately 332 billion USD (5.46\% of total remittances) were mobilized specifically in response to earthquakes, floods, storms, and droughts over the decade. Earthquakes triggered the largest remittance responses per person affected, while droughts elicited the smallest. The model also identifies significant variation in diaspora groups' capacity to activate financial support. These findings establish remittances as a substantial yet limited form of disaster finance, highlighting their importance and limitations in building resilience against future environmental shocks. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.16373 |