nep-isf New Economics Papers
on Islamic Finance
Issue of 2020‒11‒09
eleven papers chosen by
Mohamed Mohamed Tolba Said

  1. Sustainable Finance for Sustainable Development By Giovanni Ferri; Bonnie Annette Acosta
  2. Data science in economics: comprehensive review of advanced machine learning and deep learning methods By Nosratabadi, Saeed; Mosavi, Amir; Duan, Puhong; Ghamisi, Pedram; Filip, Ferdinand; Band, Shahab S.; Reuter, Uwe; Gama, Joao; Gandomi, Amir H.
  3. Municipal and sub-federal debt market in 2019 By Shadrin Artem
  4. The neutral rate in Canada: 2020 update By Dmitry Matveev; Julien McDonald-Guimond; Rodrigo Sekkel
  5. An Analysis of the Performance of Target Date Funds By John B. Shoven; Daniel B. Walton
  6. Interest Rate Pegging, Fluctuations, and Fiscal Policy in China By Bing Tong; Guang Yang
  7. How to spend it: A proposal for a European Covid-19 recovery programme By Jérôme Creel; Mario Holzner; Francesco Saraceno; Andrew Watt; Jérôme Wittwer
  8. Monitoring the impact of COVID-19 in Myanmar: Agricultural commodity traders - Synopsis of results from three survey rounds through early August 2020 By Goeb, Joseph; Zu, A Myint; Zone, Phoo Pye; Synt, Nang Lun Kham; Boughton, Duncan; Maredia, Mywish K.
  9. Earnings Dynamics and Intergenerational Transmission of Skill By Lance Lochner; Youngmin Park
  10. Essays on Energy Efficiency, Environmental Regulation and Labor Demand in Swedish Industry By Amjadi, Golnaz
  11. Agricultural research in Southeast Asia: A cross-country analysis of resource allocation, performance, and impact on productivity By Stads, Gert-Jan; Nin-Pratt, Alejandro; Omot, Norah; Pham, Nguyen Thi

  1. By: Giovanni Ferri (LUMSA University); Bonnie Annette Acosta
    Abstract: The paper explores how ethical and sustainable oriented finance is key to reach sustainable development by tackling environmental risk through green finance and showing empirical evidence on the link between finance and inequality. The theory provided puts in the right mind frame to analyze markets, intermediaries and instruments with a sustainable lens to focus on the benefits that have brought to sustainable development. A discussion is presented between different intermediaries and highlights the benefits of cooperative banks especially the close relationship of customers and bank and the resilience it gives to Small and Medium Enterprises (SMEs) in difficult times. Different investments strategies are discussed walking through the evolution of Sustainable and Responsible Investing (SRI) funds and diving into the ESG analysis to use as criteria to allocate investments based on environmental, social and governance principles. Microfinance is introduced as a different market that has reached the people at the bottom of the pyramid and highlights the key role it will play to bring financial inclusion. Islamic finance and Fintech are also discussed. Different instruments are presented to understand the current landscape of how different investors are using innovative products to attack social and environmental problems. Finally, five different ways are presented on how policies can strengthen and support sustainable development arguing that the most important is by promoting sustainable footprint certification.
    Keywords: Sustainable Finance, SDGs, Green Bonds, Social Bonds, Fintech, Human Centered Business Model.
    JEL: G18 G24 G28 G38 M14 O35 P43 Q01 Q5 Q58
    Date: 2019–07
  2. By: Nosratabadi, Saeed; Mosavi, Amir; Duan, Puhong; Ghamisi, Pedram; Filip, Ferdinand; Band, Shahab S.; Reuter, Uwe; Gama, Joao; Gandomi, Amir H.
    Abstract: This paper provides a state-of-the-art investigation of advances in data science in emerging economic applications. The analysis was performed on novel data science methods in four individual classes of deep learning models, hybrid deep learning models, hybrid machine learning, and ensemble models. Application domains include a wide and diverse range of economics research from the stock market, marketing, and e-commerce to corporate banking and cryptocurrency. Prisma method, a systematic literature review methodology, was used to ensure the quality of the survey. The findings reveal that the trends follow the advancement of hybrid models, which, based on the accuracy metric, outperform other learning algorithms. It is further expected that the trends will converge toward the advancements of sophisticated hybrid deep learning models.
    Date: 2020–10–15
  3. By: Shadrin Artem (Gaidar Institute for Economic Policy)
    Abstract: At year-end 2019, the regional consolidated budgets and local government off-budget funds’ budgets ran a surplus of RUB 17.4 billion or 0.02 percent of GDP (contraction by around 30-fold over the year). To compare, in 2018 the regional consolidated budgets and local government off-budget funds’ budgets ran a surplus of RUB 512.9 billion or 0.49 percent of GDP. In 2019, the budgets of the subjects of the Russian Federation ran a surplus of RUB 15.5 billion, urban districts’ budgets ran a deficit of RUB 16.3 billion, federal-status cities’ inner-city municipalities’ budgets ran a surplus of RUB 0.5 billion, municipal areas’ budgets ran a surplus of RUB 16.0 billion, urban settlements’ budgets ran a surplus of RUB 0.9 billion, local government off-budget funds’ budgets ran a surplus of RUB 12.7 billion. In 2018, the budgets of the subjects of the Russian Federation ran a surplus of RUB 491.5 billion, urban districts’ budgets ran a deficit of RUB 0.8 billion, federal-status cities’ inner-city municipalities’ budgets ran a deficit of RUB 0.4 billion, municipal areas’ budgets ran a surplus of RUB 6.7 billion, urban settlements’ budgets ran a deficit of RUB 0.2 billion, rural settlements’ budgets ran a deficit of RUB 0.6 billion, local government off-budget funds’ budgets ran a deficit of RUB 2.7 billion
    Keywords: Russian economy, regional and municipal finances, loan market
    JEL: H71 H74
    Date: 2020
  4. By: Dmitry Matveev; Julien McDonald-Guimond; Rodrigo Sekkel
    Abstract: The neutral rate of interest is important for central banks because it helps measure the stance of monetary policy. We present updated estimates of the neutral rate in Canada using the most recent data. We expect the COVID-19 pandemic to significantly affect the fundamental drivers of the Canadian neutral rate.
    Keywords: Economic models; Interest rates; Monetary policy
    JEL: E40 E43 E50 E52 E58 F41
    Date: 2020–10
  5. By: John B. Shoven; Daniel B. Walton
    Abstract: This paper presents a thorough evaluation of target date funds for the period 2010-2020. These funds have grown enormously in assets, reaching $1.4 trillion by the end of 2019. They account for approximately 24 percent of all of the assets in 401(k) accounts. The paper reports on the results of a style analysis evaluation of TDFs which results in their effective asset allocation. It examines the constant in the style analysis regressions which reflects the over- or under-performance of the funds relative to a passive benchmark with the same asset allocation. Lower cost TDFs tend to match the benchmark, whereas higher cost TDFs deviate considerably from theirs. We examine how TDFs performed in the stock market crash between 2/19/20 and 3/23/20. In this five week period, broad market averages fell by about one-third. We find that the value of long-dated TDFs (those with a target date of 2045 and beyond) fell by between 30 and 35 percent, whereas the 2025 funds, designed for people roughly 60 years old, lost between 20 and 25 percent of their value. We find that past performance only weakly influences future expected performance. As with equity funds in general in this period, TDFs with actively managed ingredient funds, on average, trailed the performance of their cheaper passively managed counterparts.
    JEL: D14 D91 G11 J32
    Date: 2020–10
  6. By: Bing Tong (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Guang Yang (School of Economics, Nankai University)
    Abstract: This paper proves in a New Keynesian model that interest rate pegging can explain the unusual business cycle fluctuations in China. It is traditional wisdom that when the nominal interest rate is inflexible, there is no unique equilibrium in macroeconomic models. We prove that a unique equilibrium exists if the nominal rate is pegged for a limited period, after which it switches to a flexible rate regime. The peg alters the propagation of external shocks, magnifies volatility of endogenous variables, and leads to instability of the economy. Besides, the model becomes more unstable when the peg duration extends, and when the pegged rate deviates from steady state. At the same time, fiscal multiplier increases under the peg, indicating fiscal policy may be more effective in mitigating economic fluctuations when monetary policy is restricted by interest rate pegging.
    Keywords: New Keynesian model, Chinese economy, Interest rate peg, Fiscal policy, Rational expectation
    JEL: E31 E32 E43 E62
    Date: 2020–05
  7. By: Jérôme Creel (Observatoire français des conjonctures économiques); Mario Holzner; Francesco Saraceno (Observatoire français des conjonctures économiques); Andrew Watt (Macroeconomic Policy Institute (IMK)); Jérôme Wittwer (Bordeaux population health (BPH))
    Abstract: ■The Recovery Fund recently proposed by the EU Commission marks a sea-change in European integration. Yet it will not be enough to meet the challenges Europe faces. There has been much public debate about financing, but little about the sort of concrete projects that the EU should be putting public money into.■Here we propose a 10-year, €2tn investment programme focusing on public health, transport infrastructure and energy/decarbonisation. ■It consists of two pillars. In a national pillar Member States — broadly as in theCommission proposal — would be allocated €500bn. Resources should be focused on the hardest-hit countries and front-loaded: we suggest over a three-year horizon.■The bulk of the money —€1.5tn — would be devoted to finance genuinely European projects, where there is an EU value added. We describe a series of flagship initiatives that the EU could launch in the fields of public health, transport infrastructure and energy/decarbonisation. ■We call for a strengthened EU public health agency that invests in health-staff skillsand then facilitates their flexible deployment in emergencies, and is tasked withensuring supplies of vital medicines (Health4EU). ■We present costed proposals for two ambitious transport initiatives: a dedicated European high-speed rail network, the Ultra-Rapid-Train, with four-routes cuttingtravel times between EU capitals and regions, and, alternatively, an integrated European Silk Road initiative that combines transport modes on the Chinese model. ■In the area of energy/decarbonisation we seek to “electrify” the Green Deal. We call for funding to accelerate the realisation of a smart and integrated electricity gridfor 100%-renewable energy transmission (e-highway), support for complementary battery and green-hydrogen projects, and a programme, modelled on the SURE initiative, to co-finance member-state decarbonisation and Just Transition policies.■The crisis induced by the pandemic, coming as it does on top of the financial and euro crises, poses a huge challenge. The response needs to take account of the longer-run structural challenges, and above all that of climate change. The European Union should rise to these challenges in the reform of an ambitious medium-runrecovery programme, appropriately financed. An outline of such a programme isset out here by way of illustration, but many permutations and options are available to policymakers.
    Keywords: European recovery programme; Covid-19
    Date: 2020–06–18
  8. By: Goeb, Joseph; Zu, A Myint; Zone, Phoo Pye; Synt, Nang Lun Kham; Boughton, Duncan; Maredia, Mywish K.
    Abstract: To understand how Myanmar’s crop marketing system has been affected by the COVID-19 crisis, phone interviews were conducted with more than 100 agricultural commodity traders roughly every 30 days from late May until early August 2020. A round of qualitative interviews was also conducted with key informants on land-trading routes to China, Thailand, and India. Key findings • Traders who reported that the pandemic is affecting their business in any way declined from 77 percent in late May to 43 percent in early August. Buying and marketing challenges were the most common disruptions reported in early August, followed by difficulties in collecting repayments on credit lent out to farmers. Increasing numbers of traders also reported difficulties in obtaining new loans or credit for their business. • Higher shares of traders reported year-on-year decreases both in credit provision and in wholesale trading volumes in August compared to June. • More traders report a decrease in competition than an increase since the crisis began. • Crop buying and selling prices have been stable on average between April and August. • Border gate closures at the China (Muse), Thailand (Myawaddy), and India (Tamu) borders have resulted in drastic reductions in overland exports of agricultural commodities since March 2020. Key informants said that there has been almost no crop trading to China and India, while exports to Thailand are down over half compared to a year ago. Recommended actions • Coordinate domestic transport restrictions put in place in response to the recent second wave of COVID-19 to allow continued domestic trade of agricultural commodities. • Facilitate safe exports of agricultural commodities. This should be done with formal agreements and government investments in monitoring and infrastructure. If borders remain closed into the monsoon harvest season later in 2020, farmers should expect to receive poor prices for their crops. • Quickly expand the provision of loans for working capital to crop traders (CERP Action 2.1.1). This will enable traders to continue their buying activities through the coming harvest and prevent a possible decline in competition in the sector. • Continue the waiver of the 2 percent withholding tax for crop traders (CERP Action 2.1.3).
    Keywords: MYANMAR, BURMA, SOUTHEAST ASIA, ASIA, Coronavirus, coronavirus disease, Coronavirinae, COVID-19, agriculture, commodities, trade, crops, marketing
    Date: 2020
  9. By: Lance Lochner (University of Western Ontario); Youngmin Park (Bank of Canada)
    Abstract: This paper develops and estimates a two-factor model of intergenerational skill transmission when earnings inequality reflects differences in individual skills and other non-skill shocks. We consider heterogeneity in both initial skills and skill growth rates, allowing variation in skill growth to change over the lifecycle. Using administrative tax data on two linked generations of Canadians covering 37 years, we exploit covariances in log earnings (at different ages) both across and within generations to identify and estimate the intergenerational correlation structure for initial skills and skill growth rates, lifecycle skill growth profiles, and the dynamics of non-skill earnings shocks. We estimate low intergenerational elasticities (IGE’s) for earnings in Canada (less than 0.2 even based on 5- and 9-year average earnings); however, skill IGE’s are typically 2–3 times larger due to considerable (and persistent) variation in earnings conditional on skills. Both earnings and skill IGE's decline substantially for more recent cohorts and are lower for children born to younger fathers. We estimate significant heterogeneity in both initial skills and skill growth rates, showing that intergenerational transmission of these factors explains up to 40% of children’s skill variation. Skills become a more important determinant of earnings over the first part of workers’ careers, while intergenerational transmission of skills becomes less important with age. Although "inherited" initial skills (compared to skill growth) are a more important determinant of children’s skills throughout their lives, parents’ initial skills and skill growth rates are equally important determinants of children’s skills, largely because both strongly influence children’s initial skills. Finally, we study intergenerational mobility for the 35 largest cities in Canada, determining the extent to which considerable differences in earnings and skill IGE’s vary with the extent of local heterogeneity in parental skills vs. earnings instability.
    Keywords: skill transmission, two-factor model, intergenerational elasticities, IGE, Canada
    JEL: J62 J24 C33
    Date: 2020–10
  10. By: Amjadi, Golnaz (Department of Economics, Umeå University)
    Abstract: Paper [I] Energy efficiency improvement (EEI) benefits the climate and matters for energy security. The potential emission and energy savings due to EEI may however not fully materialize due to the rebound effect. In this study, we measure the size of the rebound effect for fuel and electricity within the four most energy intensive sectors in Sweden: Pulp and paper, Basic iron and steel, Chemical, and Mining. We use a detailed firm-level panel data set for 2000–2008 and apply a stochastic frontier analysis (SFA) for measuring the rebound effect. We find that neither fuel nor electricity rebound effects fully offset the potential energy and emission savings. Among the determinants, we find the CO2 intensity and the fuel/electricity shares to be useful indicators for identifying firms with higher or lower rebound effects within each sector. Paper [II] Energy efficiency improvement (EEI) is generally known to be a cost-effective measure for meeting energy, climate and sustainable growth targets. Unfortunately, behavioral responses to such improvements (called energy rebound effects) may reduce the expected savings in emissions and energy from EEI. Hence, the size of this effect should be considered to help set realistic energy and climate targets. Currently there are significant differences in approaches for measuring rebound effect. Here, we used a two-step procedure to measure both short- and long-term energy rebound effects in the Swedish manufacturing industry. In the first step, we used data envelopment analysis (DEA) to obtain energy efficiency scores. In the second step, we estimated energy rebound effects using a dynamic panel regression model. This approach was applied to a firm-level panel dataset covering all 14 sectors in the Swedish manufacturing industry over the period 1997–2008. We showed that, in the short run, partial rebound effects exist within most of manufacturing sectors, meaning that the rebound effect decreased, but did not totally offset, the energy and emission savings expected from EEI. The long-term rebound effect was smaller than the short-term effect, implying that within each sector, energy and emission savings due to EEI are larger in the long run compared to the short run. Paper [III] Energy inefficiency in production implies that the same level of goods and services could be produced using less energy. The potential energy inefficiency of a firm may be linked to long-term structural rigidities in the production process and/or systematic shortcomings in management (persistent inefficiency), or associated with temporary issues like misallocation of resources (transient inefficiency). Eliminating or mitigating different inefficiencies may require different policy measures. Studies measuring industrial energy inefficiency have mostly focused on overall inefficiencies and have paid little attention to distinctions between the types. The aim of this study was to assess whether energy inefficiency is transient and/or persistent in the Swedish manufacturing industry. I used a firm-level panel dataset covering fourteen industrial sectors from 1997–2008 and estimated a stochastic energy demand frontier model. The model included a four-component error term separating persistent and transient inefficiency from unobserved heterogeneity and random noise. I found that both transient and persistent energy inefficiencies exist in most sectors of the Swedish manufacturing industry. Overall, persistent energy inefficiency was larger than transient, but varied considerably in different manufacturing sectors. The results suggest that, generally, energy inefficiencies in the Swedish manufacturing industry were related to structural rigidities connected to technology and/or management practices. Paper [IV] The aim of this paper was to investigate whether the environment and employment compete with each other in Swedish manufacturing industry. The effect of a marginal increase in environmental expenditure and environmental investment costs on sector-level demand for labor (employment) was studied using a detailed firm-level panel dataset for the period 2001–2008. The results showed that the sign and magnitude of the net employment effects ultimately depend on the aggregate sector-level output demand elasticity. If the output demand is inelastic, these costs induce small net improvements in employment, while a more elastic output demand suggests negative, but in most sectors relatively small, net effects on demand for labor. Hence, the results did not generally indicate a substantial trade-off between jobs and the environment. The general policy recommendation that can be drawn from this study is that, in the absence of empirically estimated output demand elasticities, a careful attitude regarding national environmental initiatives for sectors exposed to world market competition should be adopted.
    Keywords: Energy efficiency improvement; rebound effect; stochastic frontier analysis; data envelopment analysis; stochastic energy demand frontier model; persistent and transient energy inefficiency; energy inefficiency; environmental expenditure and environmental investment costs; output demand elasticity
    JEL: C02 C33 C50 D22 J23 K32 L60 Q40 Q50
    Date: 2020–10–30
  11. By: Stads, Gert-Jan; Nin-Pratt, Alejandro; Omot, Norah; Pham, Nguyen Thi
    Abstract: Southeast Asia made considerable progress in building and strengthening its agricultural R&D capacity during 2000–2017. All of the region’s countries reported higher numbers of agricultural researchers, improvements in their average qualification levels, and higher shares of women participating in agricultural R&D. In contrast, regional agricultural research spending remained stagnant, despite considerable growth in agricultural output over time. As a result, Southeast Asia’s agricultural research intensity—that is, agricultural research spending as a share of agricultural GDP—steadily declined from 0.50 percent in 2000 to just 0.33 percent in 2017. Although the extent of underinvestment in agricultural research differs across countries, all Southeast Asian countries invested below the levels deemed attainable based on the analysis summarized in this report. The region will need to increase its agricultural research investment substantially in order to address future agricultural production challenges more effectively and ensure productivity growth. Southeast Asia’s least developed agricultural research systems (Cambodia, Laos, and Myanmar) are characterized by low scientific output and researcher productivity as a direct consequence of severe underfunding and lack of sufficient well-qualified research staff. While Malaysia and Thailand have significantly more developed agricultural research systems, they still report key inefficiencies and resource constraints that require attention. Indonesia, the Philippines, and Vietnam occupy intermediate positions between these two groups of high- and low-performing agricultural research systems. Growing national economies, higher disposable incomes, and changing consumption patterns will prompt considerable shifts in levels of agricultural production, consumption, imports, and exports across Southeast Asia over the next 20 to 30 years. The resource-allocation decisions that governments make today will affect agricultural productivity for decades to come. Governments therefore need to ensure the research they undertake is responsive to future challenges and opportunities, and aligned with strategic development and agricultural sector plans. ASTI’s projections reveal that prioritizing investment in staple crops will still trigger fastest agricultural productivity growth in Laos. However, Indonesia, Malaysia, and Vietnam could achieve faster growth over the next 30 years by prioritizing investment in research focused on fruit, vegetables, livestock, and aquaculture. In Cambodia, Myanmar, and Thailand, the choice between focusing on staple crops versus high-value commodities was less pronounced, but projections did indicate that prioritizing investments in oil crop research would trigger significantly lower growth in agricultural productivity.
    Date: 2020

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