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on Financial Development and Growth |
| By: | Ngoc-Sang Pham (EM Normandie); Thanh Tam Nguyen-Huu |
| Abstract: | We investigate the role of foreign direct investment (FDI) in the transitional dynamics of host countries by using an optimal growth model. FDI may be beneficial for the host country because local people can work for multinational firms to get a favorable salary. However, if the host country only focuses on FDI, it may face a middle-income trap. We show that if the host country invests in research and development, its economy may have sustained growth. Moreover, in this case, FDI helps the host country only at the first stages of its development process. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12010 |
| By: | Lazanoe Rajamarison (Université de Toliara - Université de Toliara); Njakanasandratra Rajaonarison (MEF - Ministère de l'économie et des finances, Madagascar, Université d’Antananarivo, Faculté de Droit, d’Economie, de Gestion et de Sociologie Ankatso, 101 Madagascar) |
| Abstract: | This document examines the determinants of foreign direct investment (FDI) in Madagascar, a country where FDI is crucial to offset the low levels of domestic savings and investment. It highlights the key role FDI plays in industrialization, exports, and macroeconomic stability. The study identifies attractive factors such as GDP growth, economic openness, and an improved business climate, while also pointing out barriers like political instability and structural deficiencies. Using econometric modeling based on national data, the article provides recommendations to enhance the country's attractiveness and improve the effectiveness of economic policies aimed at attracting FDI flows. |
| Abstract: | Le document analyse les déterminants des investissements directs étrangers (IDE) à Madagascar, un pays où les IDE sont essentiels pour compenser la faiblesse de l'épargne et de l'investissement local. Il souligne que les IDE jouent un rôle clé dans l'industrialisation, les exportations et la stabilité macroéconomique. L'étude identifie des facteurs attractifs tels que la croissance du PIB, l'ouverture économique et le climat d'affaires, mais souligne également des freins comme l'instabilité politique et les déficiences structurelles. Grâce à une modélisation économétrique basée sur les données nationales, l'article propose des recommandations pour renforcer l'attractivité du pays et améliorer l'efficacité des politiques économiques visant à capter les flux d'IDE. |
| Keywords: | IDE, Croissance économique |
| Date: | 2025–01–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04872865 |
| By: | Ryan Niladri Banerjee; Aaron Mehrotra; Fabrizio Zampolli |
| Abstract: | Since interest rates declined in the early 2000s, credit expanded strongly and its allocation changed significantly in emerging market economies (EMEs). Being largely spared by the Great Financial Crisis (GFC), EMEs have seen credit increasingly flowing to the construction and real estate sectors at the expense of manufacturing. Due to lower productivity growth in the housing sector, this shift has coincided with decreasing growth rates. Strong credit growth concentrated in a few sectors has also been associated with greater dispersion of productivity across firms, suggesting less efficient resource allocation. |
| Date: | 2024–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:91 |
| By: | Ozili, Peterson K |
| Abstract: | The literature has examined the relationship between financial inclusion and financial stability, but no studies have examined the relationship between financial inclusion and financial crisis. This study examines the effect of financial inclusion on financial crisis using data from 28 countries from 2006 to 2017. Three stylised facts were established based on real world observation. One, the level of financial inclusion, in terms of number of bank depositors, decreases during domestic financial crisis. Two, the level of financial inclusion, in terms of ATM penetration, does not decrease during global and domestic financial crises. Three, the level of financial inclusion, in terms of number of bank branch, decreases during global and domestic financial crises and the contraction is stronger during a domestic financial crisis. Using the panel regression, logit and probit regression estimation methods, the empirical results show that low levels of financial inclusion, measured by fewer bank depositors and fewer bank branches, increase the likelihood that a financial crisis will occur. Low levels of financial inclusion, measured by fewer bank depositors, increase the likelihood that a financial crisis will occur in low financial-inclusion countries. In contrast, greater ATM penetration increases the likelihood that a financial crisis will occur in low financial-inclusion countries. The interaction analyses show that all indices of financial inclusion have a joint positive impact on financial crisis, implying that high levels of financial inclusion increases the likelihood that a financial crisis will occur. |
| Keywords: | Financial crisis, financial inclusion, index, bank branches, ATM, bank depositors. |
| JEL: | G21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123290 |
| By: | Ozili, Peterson K |
| Abstract: | The study examines the effect of financial inclusion on bank stability, and the effect of bank stability on financial inclusion from 2011 to 2020. The study analyses 33 countries which are divided into Asian countries, African countries, European countries, and countries in the region of the Americas and using the panel regression method. It was found that high levels of financial inclusion have a significant positive impact on bank stability. The regional results show that financial inclusion improves bank stability in African countries and in countries in the region of the Americas while financial inclusion impairs bank stability in European countries. The analysis for the impact of bank stability on financial inclusion shows that bank stability has a significant effect on financial inclusion. The regional analysis shows that greater bank stability decreases financial inclusion in European and African countries while greater bank stability increases financial inclusion in countries in the Americas region. The results suggest that the effect of financial inclusion on bank stability, and the effect of bank stability on financial inclusion, depends on how financial inclusion and bank stability are measured and the region examined. |
| Keywords: | financial inclusion, bank stability, capital adequacy ratio, capital buffer, financial inclusion index, automated teller machines, deposits, commercial banks |
| JEL: | G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123301 |
| By: | Tsatchoua Tchakouadeu, Jacques; Bouwawé, Duclo; Awoutcha Tchieuzing, Romuald Fernand |
| Abstract: | The objective of this study is to investigate the effects of ICT on financial development as measured by domestic credit to the private sector in Sub-Saharan Africa. The study uses a panel of 30 countries and covers the period 1995 - 2019. The data come from a variety of sources and the method of generalised moments in a system (GMM) is used for the regressions. The results show that mobile phone subscriptions (ATM) and fixed-line subscriptions (ATF) have a positive and significant effect on financial development at the 1% level, with ATF having a greater impact. Hence the need for governments and financial institutions in African countries to invest in promoting and investing in ICT infrastructure. |
| Keywords: | ICT, Financial development, Financial technology, Sub-Saharan Africa |
| JEL: | G14 G20 L96 O55 |
| Date: | 2024–10–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123448 |
| By: | Christophe Van Langenhove (-) |
| Abstract: | This paper leverages data from the Panel Study of Income Dynamics (PSID) to analyze inter- and intra-generational wealth mobility in the United States. Having constructed a gradient-boosting ML-model to obtain wealth rank approximations until 1969, I provide a rich set of empirical wealth mobility moments. Several findings stand out. First, overall inter-generational wealth mobility and intra-generational wealth mobility at the top have declined over time. Second, wealth mobility in the United States is lower compared to most other countries for which wealth mobility data is available. Third, the majority of wealth mobility occurs between ages 30 and 39, and wealth rank resemblance between (grand)parents and their (grand)children increases with age. Fourth, wealth mobility at the top is significantly higher across three versus two generations, while the difference in mobility at the bottom is comparatively weaker. Fifth, there exists positive inter-dependence between individuals’ wealth rank trajectories and those of their parents over the same time period. Sixth, diverging wealth mobility outcomes across families and individuals are associated with variation in inter-generational transfers, business ownership, labor income, health and non-mortgage indebtedness. |
| JEL: | D14 D15 E21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1104 |
| By: | Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins |
| Abstract: | Using new household-level data, we study the secular increase in U.S. household debt and its distribution since 1950. Most of the debt were mortgages, which initially grew because more households borrowed. Yet after 1980, debt mostly grew because households borrowed more. We uncover home equity extraction, concentrated in the white middle class, as the largest cause, strongly affecting intergenerational inequality and life-cycle debt profiles. Remarkably, the additional debt did not lower households’ net worth because of rising house prices. We conclude that asset-price-based borrowing became an integral part of households’ consumptionsaving decisions, yet at the cost of higher financial fragility. |
| Keywords: | household debt, home equity extraction, inequality, household portfolios, financial fragility |
| JEL: | G51 E21 E44 D14 D31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_634 |
| By: | Titan Alon; Natalie Cox; Minki Kim |
| Abstract: | In the presence of credit frictions, student debt may prevent graduates from realizing the full returns to a college education by distorting their occupation choice and subsequent early career investments in human capital. This paper quantifies the aggregate size of these labor market distortions by computing the effect of large-scale student debt forgiveness policies. The model’s predictions are disciplined by new empirical evidence showing that more student debt leads to higher initial earnings, but lower returns-to-experience. The quantitative results suggest that rising student debt is having a substantial adverse effect on aggregate labor productivity and the occupational composition of employment. |
| Keywords: | Student debt, occupation choice, wage profiles, credit constraints, misallocation of talent, college, higher education, labor productivity. |
| JEL: | E0 E2 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_635 |
| By: | Olivier Jeanne |
| Abstract: | Financial repression can be used to avoid a government default when fiscal policy is constrained. We present a model showing that optimal financial repression progresses through successive stages with increasing levels of distortion. Data from advanced economies suggest that the initial stage of financial repression typically begins when government debt exceeds 100% to 120% of GDP. Moreover, Japan’s experience suggests that countries such as the U.S. have significant leeway before resorting to the most distortive forms of financial repression. |
| JEL: | E58 E59 E6 E62 F38 G01 G28 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33395 |
| By: | António Afonso; José Alves; Wojciech Grabowski; Sofia Monteiro |
| Abstract: | We employ a cross-quantilogram approach to assess relationships between quantiles of stock returns and sovereign yields, in the U.S. and Germany, in the period 1990-2024. Specifically, we focus on the lowest 5% quantile of stock returns and the highest 5% quantile of bond returns, providing insights into tail dependencies, crucial during market downturns and periods of heightened volatility. We also measure causality in volatilities extending well-known approaches analyzing volatility transmission. We find significant cross-market relationships between U.S. and German stock and bond markets, influenced by economic crises, macroeconomic dynamics, and monetary policy interventions, and financial stress play a crucial role. |
| Keywords: | stock returns; sovereign bond returns; stock-bond relationship; crossquantilogram; volatility transmission; US; Germany; monetary policy shocks; fiscal stance. |
| JEL: | C32 F21 F37 F42 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03662025 |
| By: | Nikolaishvili, Giorgi (Wake Forest University, Economics Department) |
| Abstract: | This paper examines the dynamic macroeconomic effects of monetary transmission through community and noncommunity bank lending in the United States. I find that while both types of banks amplify the impact of monetary policy shocks on output, community banks exhibit a more delayed and persistent amplificatory influence than their noncommunity counterparts. These results suggest that continued decline in community banks' market share may dampen the efficacy of monetary policy over longer horizons. Moreover, the adverse real effects of monetary tightening are likely to be longer-lasting for small business borrowers who depend on community banks for funding. |
| Keywords: | Community banks; FAVAR; lending channel; monetary policy; relationship lending |
| JEL: | E51 E52 G21 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:ris:wfuewp:0123 |
| By: | Christian Bittner (Deutsche Bundesbank & Goethe University Frankfurt); Rustam Jamilov (University of Oxford); Farzad Saidi (University of Bonn & CEPR) |
| Abstract: | We develop a quantitative macroeconomic framework with heterogeneous financial intermediaries and active liquidity management. In the model, banks manage uninsured, idiosyncratic deposit withdrawal risk through an iterative over-the-counter interbank market with endogenous intensive and extensive margins and equilibrium assortative matching based on balance sheet size. We validate our framework using administrative data from Germany encompassing the universe of bank-to-bank exposures. Our findings strongly support the presence of assortative matching in the data, thereby confirming the model's key mechanism. We show that assortative matching can inefficiently lead to reduced trading volumes and a broader region of inaction in the interbank market, a smaller and riskier banking sector, and a macroeconomy characterized by lower aggregate output. Using our empirically validated framework, we explore secular trends in interbank trading, the roles of liquidity and interest rate corridor policies, and the impact of deposit market power. |
| Keywords: | Heterogeneous banks, interbank markets, monetary policy, liquidity policy |
| JEL: | E44 E52 G20 G21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:353 |
| By: | Joseph Ariel Tello Carvache; Jorge Alejandro Moncayo Correa; Carlos Sempertegui Seminario |
| Abstract: | Given the hyperinflation that most of the Latin American countries suffered in the 90 and their decision towards adopting dollarization and in most cases keeping their own currency, this paper analyzes the effectiveness of dollarization as a protective mechanism against economic disruptions in Latin American countries. It assesses the context that led Latin American dollarized countries to dollarize and analyzes CPI, GDP, and the poverty rates pre, during, and postpandemic in Latin American countries, considering those that are dollarized and those that are not, and evaluating its relation to the US. Interviews were carried out with experts in the field. It assesses the advantages and disadvantages of dollarization regarding global crises. The data was compared and analyzed to check if there were patterns that support the paper objective which is that dollarization might serve as a protective mechanism against economic disruption. It was found that dollarization protects the economy against inflation, however, it does not fully protect the economy when considering economic performance and poverty. In conclusion, this research concludes that dollarization does not completely serve as a protective mechanism against economic disruptions nonetheless, it found that a bigger role is played by domestic policies and government action. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12358 |
| By: | Ozili, Peterson K |
| Abstract: | The relationship between financial inclusion and exchange rate has not received any attention in the literature. This study investigates the effect of the official exchange rate on the level of financial inclusion. A sample of 17 countries were analysed from 2012 to 2020. Four financial inclusion indicators were used in the analysis: the number of ATMs per 100, 000 adults variable, the number of bank accounts (or depositors) per 1, 000 adults variable, the number of commercial bank branches per 100, 000 adults variable, and a financial inclusion index. The correlation result shows that financial inclusion and exchange rate are negatively correlated while the regression result shows that a weakening official exchange rate or currency depreciation has a significant positive impact on financial inclusion through increase in the number of bank depositors (or bank accounts) and increase in the number of commercial bank branches. The findings support the argument that currency depreciation will lead people to take more loans which will increase bank profitability and encourage banks to expand to new locations to acquire new depositors, thereby increasing financial inclusion. The implication of the study is that currency depreciation is beneficial effect for financial inclusion. It is recommended that policymakers should determine the right level of currency depreciation (or devaluation) that is needed to support national financial inclusion efforts and they should manage the exchange rate around that level. |
| Keywords: | financial inclusion, exchange rate, bank branch, depositors, depreciation, devaluation |
| JEL: | F13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123292 |
| By: | International Monetary Fund |
| Abstract: | 2024 Selected Issues |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/021 |
| By: | Di Wu |
| Abstract: | Bitcoin, widely recognized as the first cryptocurrency, has shown increasing integration with traditional financial markets, particularly major U.S. equity indices, amid accelerating institutional adoption. This study examines how Bitcoin exchange-traded funds and corporate Bitcoin holdings affect correlations with the Nasdaq 100 and the S&P 500, using rolling-window correlation, static correlation coefficients, and an event-study framework on daily data from 2018 to 2025.Correlation levels intensified following key institutional milestones, with peaks reaching 0.87 in 2024, and they vary across market regimes. These trends suggest that Bitcoin has transitioned from an alternative asset toward a more integrated financial instrument, carrying implications for portfolio diversification, risk management, and systemic stability. Future research should further investigate regulatory and macroeconomic factors shaping these evolving relationships. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.09911 |
| By: | Giulio Cornelli; Sebastian Doerr; Jon Frost; Leonardo Gambacorta |
| Abstract: | A new data set on retail holdings of cryptoassets reveals that in the wake of the Terra/Luna collapse and the FTX bankruptcy, crypto trading activity increased markedly, with large and sophisticated investors selling and smaller retail investors buying. Data on major crypto trading platforms over August 2015–December 2022 show that, as a result, a majority of crypto app users in nearly all economies made losses on their bitcoin holdings. Nevertheless, despite crypto's large user base and the substantial losses to many investors, the market turmoil in 2022 had little discernible impact on broader financial conditions outside the crypto universe, underlining the largely self-referential nature of crypto as an asset class. |
| Date: | 2023–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:69 |