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on Financial Development and Growth |
| By: | Yan Li |
| Abstract: | Consumption is a primary source of economic growth and key indicator of poverty. The establishment of community banks can provide credit resources, unlocking household consumption potential and playing a crucial role in economic development. This study explores the role of community banks in promoting consumption by using data from the Panel Study of Income Dynamics (PSID) for 11 waves from 1980 to 1990, and constructing a fixed-effects model using the time-varying difference-in-differences (DID) method. The findings indicate that the establishment of community banks effectively stimulates growth in local household consumption, primarily by increasing household income and reducing precautionary savings. Therefore, both government and financial institutions should further promote the development of regional financial institutions and credit tools to promote economic growth. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.14257 |
| By: | Musabanganji, Edouard |
| Abstract: | Rwanda is a densely populated developing country where many people depend on agriculture but lack access to credit. The country has low agricultural productivity, along with high levels of income inequality and food insecurity. Studies have shown that credit access can improve rural agricultural household welfare. Over the years, the governments policies have substantially improved financial inclusion. However, poverty levels remain high particularly in rural areas. This study investigates the drivers of participation in the credit market and the effect of credit access on dietary and food diversity scores, as well as household spending. It utilizes data from 6, 183 rural households obtained from the 2015 National Comprehensive Food Security and Vulnerability Analysis survey. It analyzes the effect and drivers of access to credit on rural household total monthly expenditure, food consumption score and dietary diversity score as the outcome variables. The study applied the Endogenous Switching Regression, Propensity Score Matching, and Coarsened Exact Matching techniques. The estimation yields consistent results and reveals that access to credit is positively affecting the welfare of rural households as it induces an increase of the household consumption expenditure of borrowing households. The study does not reveal a significant linkage between access to credit and the household food consumption score. The findings suggest increasingsensitization sessions and awareness on the importance of credits. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:97af106f-a829-4aa6-b571-78b1a66d29f7 |
| By: | Belloc, Ignacio (University of Zaragoza); Molina, José Alberto (University of Zaragoza) |
| Abstract: | This paper examines how expecting to receive an inheritance impacts household savings decisions. Life-cycle consumption models indicate that the expectation of inheriting should reduce current savings plans for forward-thinking consumers. We investigate how inheritance expectations shape savings behavior within the household, considering factors such as liquidity constraints and education. To do so, we use household fixed effects to account for time-invariant factors and exploit within-household variation over time by using panel data from the Japanese Panel Survey of Consumers (2003-2019), which provides individual-level information and overcomes endogeneity concerns commonly present in cross-sectional studies. Our findings reveal that households adjust their current savings in anticipation of receiving future inheritances. Specifically, men decrease their current savings by an average of 5.4 percent if they expect to receive an inheritance in the future. Additionally, we find more pronounced changes in savings among households with higher levels of education and incomes, which are less likely to face liquidity constraints. These findings inform inheritance fiscal policies, such as inheritance taxes, revealing that households consider the expectation of inheriting in the future for current saving decisions. |
| Keywords: | intra-household allocation, savings, inheritance expectations, panel data, JPSC |
| JEL: | D14 D15 D84 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17695 |
| By: | Hoang Vu; Tomoyuki Ichiba |
| Abstract: | We investigate the full dynamics of capital allocation and wealth distribution of heterogeneous agents in a frictional economy during booms and busts using tools from mean-field games. Two groups in our models, namely the expert and the household, are interconnected within and between their classes through the law of capital processes and are bound by financial constraints. Such a mean-field interaction explains why experts accumulate a lot of capital in the good times and reverse their behavior quickly in the bad times even in the absence of aggregate macro-shocks. When common noises from the market are involved, financial friction amplifies the mean-field effect and leads to capital fire sales by experts. In addition, the implicit interlink between and within heterogeneous groups demonstrates the slow economic recovery and characterizes the deviating and fear-of-missing-out (FOMO) behaviors of households compared to their counterparts. Our model also gives a fairly explicit representation of the equilibrium solution without exploiting complicated numerical approaches. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.10666 |
| By: | Caleb Maresca |
| Abstract: | This paper analyzes how expectations of Transformative AI (TAI) affect current economic behavior by introducing a novel mechanism where automation redirects labor income from workers to those controlling AI systems, with the share of automated labor controlled by each household depending on their wealth at the time of invention. Using a modified neoclassical growth model calibrated to contemporary AI timeline forecasts, I find that even moderate assumptions about wealth-based allocation of AI labor generate substantial increases in pre-TAI interest rates. Under baseline scenarios with proportional wealth-based allocation, one-year interest rates rise to 10-16% compared to approximately 3% without strategic competition. The model reveals a notable divergence between interest rates and capital rental rates, as households accept lower productive returns in exchange for the strategic value of wealth accumulation. These findings suggest that evolving beliefs about TAI could create significant upward pressure on interest rates well before any technological breakthrough occurs, with important implications for monetary policy and financial stability. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.11264 |
| By: | Eigbiremolen, Godstime O.; Orji, Anthony |
| Abstract: | This paper examines the household wealthhigher education attendance relationship and the evidence on credit constraints in post-secondary schooling. Using unique longitudinal data that link household wealth and measures of cognitive ability age 12 years to higher education attendance at age 1922 years, we differentiated short-term credit constraints from long-term credit constraints and directly tested the relative importance of short and long-term credit constraints in schooling decision. We found that both short-term and long-term credit constraints determine the household wealthhigher education attendance relationship. Therefore, we recommend complementing short-term policies like financial aid with long-term interventions that empower households to continue to invest in human capital development over the childs life cycle, which will crystalize in higher cognitive ability and readiness for higher education. |
| Date: | 2024–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:320a3a06-d397-4c66-9333-53725f8ec499 |
| By: | Weipan Xu; Yaofu Huang; Qiumeng Li; Yu Gu; Xun Li |
| Abstract: | Wide coverage and high-precision rural household wealth data is an important support for the effective connection between the national macro rural revitalization policy and micro rural entities, which helps to achieve precise allocation of national resources. However, due to the large number and wide distribution of rural areas, wealth data is difficult to collect and scarce in quantity. Therefore, this article attempts to integrate "sky" remote sensing images with "ground" village street view imageries to construct a fine-grained "computable" technical route for rural household wealth. With the intelligent interpretation of rural houses as the core, the relevant wealth elements of image data were extracted and identified, and regressed with the household wealth indicators of the benchmark questionnaire to form a high-precision township scale wealth prediction model (r=0.85); Furthermore, a national and township scale map of rural household wealth in China was promoted and drawn. Based on this, this article finds that there is a "bimodal" pattern in the distribution of wealth among rural households in China, which is reflected in a polarization feature of "high in the south and low in the north, and high in the east and low in the west" in space. This technological route may provide alternative solutions with wider spatial coverage and higher accuracy for high-cost manual surveys, promote the identification of shortcomings in rural construction, and promote the precise implementation of rural policies. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.12163 |
| By: | Ewusie, Ewura-Adwoa; Annim, Samuel Kobina |
| Abstract: | This study investigates the extent to which debt repayments pose a burden for household borrowers. We question the use of arbitrary thresholds to determine the over-indebtedness status of a household and introduce a new opportunity cost approach to provide the first objective measures of the incidence and severity of over-indebtedness in Ghana from the clients perspective. Using two waves of nationally representative survey data, we employ maximum likelihood and instrumental variable estimation techniques to determine the influence of loan amount and loan use on the probability and intensity of over-indebtedness and examine the effect of over-indebtedness on households living standards. The findings suggest that 41 per cent of household borrowers are over-indebted, and 23 per cent endure severe over-indebtedness by sacrificing food expenditures. An increase in the loan size and unproductive loan use strongly increases the probability of over-indebtedness. Other influential factors include rural residence, low education, female-headed households and insurance. In addition to small loan sizes and unproductive loan use, the risk of severe over-indebtedness is associated with low education, female-headed households, rural residence and informal employment. Over-indebtedness also reduces household living standards by 24 per cent. This research provides crucial information to aid policy decisions on households vulnerability due to sacrifices for debt repayment. Such sacrifices could ultimately affect future poverty levels and the attainment of the sustainable development goal to eradicate extreme poverty by the year 2030. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:988bbe25-0892-44a8-abce-0573b614b9f0 |
| By: | David Lee Kuo Chuen; Yang Li |
| Abstract: | Blockchain technology, though conceptualized in the early 1990s, only gained practical relevance with Bitcoin's launch in 2009. Recent advancements have demonstrated its transformative potential, particularly in the digital art and global payment sectors. Non-fungible tokens (NFTs) have redefined digital ownership, while financial institutions use blockchain to enhance cross-border transactions, reducing costs and settlement times. Using the Diamond-Mortensen-Pissarides (DMP) model, this paper examines blockchain's impact on labor markets by improving job-matching efficiency, thereby reducing unemployment. However, high research costs and competition with incumbent technologies hinder early-stage blockchain adoption. We extend the DMP model to analyze the role of government intervention through tax and wage policies in mitigating these barriers. Our findings suggest that lowering firm tax rates can accelerate blockchain innovation, enhance labor market efficiency, and promote employment growth, highlighting the critical balance between technological progress and economic policy in fostering blockchain-driven economic transformation. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.15549 |
| By: | Jian Chen; Guohao Tang; Guofu Zhou; Wu Zhu |
| Abstract: | We study whether ChatGPT and DeepSeek can extract information from the Wall Street Journal to predict the stock market and the macroeconomy. We find that ChatGPT has predictive power. DeepSeek underperforms ChatGPT, which is trained more extensively in English. Other large language models also underperform. Consistent with financial theories, the predictability is driven by investors' underreaction to positive news, especially during periods of economic downturn and high information uncertainty. Negative news correlates with returns but lacks predictive value. At present, ChatGPT appears to be the only model capable of capturing economic news that links to the market risk premium. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.10008 |
| By: | Jaud, Melise; Kukenova, Madina; Strieborny, Martin |
| Abstract: | Foreign investors facilitate efficiency-enhancing structural change in the recipient countries. After countries liberalize their stock markets and allow foreign investors to acquire equity stakes in domestic firms, products that do not correspond to the liberalizing countries' comparative advantage disappear disproportionately faster from their export portfolios. At the same time, the overall long-term export performance of the liberalizing countries improves. Domestic stock market development does not have the same disciplining effect in terminating inefficient exports. Foreign investors thus play a unique role in improving resource allocation in the real economy. |
| Date: | 2023–02–14 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10307 |
| By: | Ndzinisa, Patrick |
| Abstract: | The study examines how financial development affects the effectiveness of monetary policy in influencing output and inflation in South Africa, through its interaction with the repo rate. Monetary policy effectiveness in this relationship is measured by the responsiveness of output and inflation to an interaction-term between a financial development indicator and the repo rate.This is carried out by estimating an output and inflation equations incorporating the interaction-term as an explanatory variable in each of theoutput and inflation equations. If the coefficient of the interaction-terms is negative and significant it implies that the effectiveness of monetary policy in influencing output and inflation is enhanced. On the other hand, a positive and significant coefficient of the interaction-terms means that the interaction of the financial development with the repo rate dampens monetary policy effectiveness in influencing output and inflation. Considering the adoption of an Inflation Targeting Framework (ITF) monetary policy framework in 2000, the study further examines how the regime shift has affected the effectiveness of monetary policy in South Africa. The study employs an Autoregressive Distributed Lag (ARDL) model to analyse the data for long-run co integration and an Error Correction Model (ECM) to test for a short-run relationship. Additionally, the study uses a structural VAR to assess how long it takes for the interaction-terms to have full impact on output and inflation. The study concludes that the effect of monetary policy on output and inflation is enhanced through the interaction of the bank-based financial development indicator with the repo rate in South Africa. It also concludes that it takes about three quarters and four quarters for the bank-based interaction-term to have full impact on output and inflation respectively, which is quicker than it takes for the repo rate individually to have full impact on these variables. The study also finds that after the adoption of the ITF, the repo rate managed to restrain inflation to be within the targeted band at the expense of output. The study recommends that the South African Reserve Rank (SARB) should consider the bank-based financial development indicator when formulating its monetary policy. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:12656e95-0ea3-4a03-b89f-307848cd5f7f |
| By: | Okelo, Jimmy Apaa |
| Abstract: | Remittances are a major source of financing for many low-income countries. High costs, however, have held back remittance inflows. Estimates show that between 5% and 15% of remittances are lost due to the high costs. Mobile Money has emerged as a powerful tool for cross-border money transfers. Since it was launched in Uganda in 2012, cross-border transfers through mobile money increased tremendously. Inward remittances rose to US$ 45.5 million in December 2021, up from just US$ 6.5 million in 2013. Among the available Mobile Money products (deposits, withdrawals, person-to-person (p2p), person-to-business (p2b), airtime and data purchase), inward and outward remittances grew fastest in 2016-2022 with annual growth rates of 96.4% and 158.3%. The increased use of Mobile Money is a reprieve to lower costs. Data from the World Bank shows that mobile money operators charge the lowest costs. In addition to enhancing competition, convenience, and security, mobile money also serves as a price discovery platform, enabling customers to initiate transactions directly from their handsets without the need to visit operators' outlets. This allows users to transact when exchange rates are favorable. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:a7ec19e9-03e8-466f-bf91-8674bd0d2e02 |
| By: | Yan Li |
| Abstract: | The issue of local government debt is widely recognized as one of the "gray rhinos" affecting the stable development of China's economy. Government debt can transmit risks to local banks, which are among the primary holders of local debt, thereby triggering systemic financial risks. Consequently, exploring debt resolution pathways and evaluating the systematic effects of debt servicing policies has become critically important. This study employs panel data from 348 local commercial banks across 29 provincial-level administrative regions in China from 2010 to 2023, and constructs a difference-in-differences (DID) model to investigate the impact of the State Council's special supervision of debt servicing on local bank risks. The findings indicate that the government's debt servicing policy essentially represents a shift of government debt from explicit to implicit forms, significantly increasing the risks faced by local banks and producing outcomes contrary to the policy's original intent. This effect is particularly pronounced for rural commercial banks and banks with high customer concentration and fewer branches. Mechanism analysis reveals two key insights. First, local banks are heavily influenced by local government control; the government's debt servicing requires banks to support the government by purchasing government bonds and other financial instruments, which leads to a deterioration in asset quality and an expansion of risk exposure. Second, government debt crowds out private credit from local banks, weakening the region's repayment capacity and ultimately increasing bank risk. Our research uncovers the counterintuitive effects of government debt servicing and offers corresponding policy recommendations. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.13423 |
| By: | Ilias Aarab; Thomas Gottron |
| Abstract: | The rapidly increasing availability of large amounts of granular financial data, paired with the advances of big data related technologies induces the need of suitable analytics that can represent and extract meaningful information from such data. In this paper we propose a multi-layer network approach to distill the Euro Area (EA) banking system in different distinct layers. Each layer of the network represents a specific type of financial relationship between banks, based on various sources of EA granular data collections. The resulting multi-layer network allows one to describe, analyze and compare the topology and structure of EA banks from different perspectives, eventually yielding a more complete picture of the financial market. This granular information representation has the potential to enable researchers and practitioners to better apprehend financial system dynamics as well as to support financial policies to manage and monitor financial risk from a more holistic point of view. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.15611 |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development-Finance and Development Finance and Financial Sector Development-Financial Structures Finance and Financial Sector Development-Banks & Banking Reform Finance and Financial Sector Development-Financial Regulation & Supervision |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:41930 |
| By: | Wamalwa, Peter; Tiriongo, Samuel; Mulindi, Hillary |
| Abstract: | Competition in the banking sector is a catalyst for innovation and the adoption of digital channels to provide financial services. The low cost of providing financial services through digital channels has been leveraged on by banks to extend services to the underserved and the excluded. This paper deploys panel regressions and binary response models to analyse the impact of competition in the banking sector on penetration and utilization of digital financial services across gender in Kenya, Uganda, and Tanzania, controlling for competition in the telecommunications sector. The latest wave of Finscope Survey (2017) and financial inclusion household survey (FinAccess, 2021) datasets are used. The analysis shows that males have a higher probability of using digital financial services than females. Females in rural areas, engaged in the agriculture, services, trade and casual labour are less likely to use digital financial services compared to their male counterparts. Competition in the banking industry increases utilization of digital financial services due to banks leveraging on innovation to provide relevant services at low cost. Therefore, a policy approach that considers gender differences and fosters competition in banking and mobile telecommunication industries will encourage providers of financial services providers to effectively leverage on mobile money and digital finance to close gender gaps in the utilization of digital financial services in the EAC region. |
| Date: | 2024–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:ee1ed634-f735-4382-8f2a-4c28005350ec |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development-Financial Structures Finance and Financial Sector Development-Financial Sector and Social Assistance Finance and Financial Sector Development-Finance and Development |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:42367 |
| By: | Ana Fiorella Carvajal; Tatiana Didier |
| Keywords: | Private Sector Development-Small and Medium Size Enterprises Finance and Financial Sector Development-Access to Finance Finance and Financial Sector Development-Finance and Development Social Protections and Labor-Employment and Unemployment Social Protections and Labor-Labor Markets |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:42213 |
| By: | International Finance Corporation |
| Keywords: | Finance and Financial Sector Development-Finance and Development Private Sector Development-Private Sector Economics Finance and Financial Sector Development-Financial Structures |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:42041 |