nep-isf New Economics Papers
on Islamic Finance
Issue of 2022‒02‒28
six papers chosen by

  1. Magnitudes of households’ carbon footprint in Iskandar Malaysia: Policy implications for sustainable development By Irina Safitri Zen; Abul Quasem Al-Amin; Md. Mahmudul Alam; Brent Doberstein
  2. Contagion in the Banking Industry: a Robust-to-Endogeneity Analysis By Sophie Béreau; Nicolas Debarsy; Cyrille Dossougoin; Jean-Yves Gnabo
  3. Asset Prices Under Knightian Uncertainty By Roman Frydman; Soren Johansen; Anders Rahbek; Morten Nyboe Tabor
  4. Waiting for Capital: Dynamic Intermediation in Illiquid Markets By Barney Hartman-Glaser; Simon Mayer; Konstantin Milbradt
  5. Remittances and firm performance in sub-Saharan Africa : evidence from firm-level data By Kabinet Kaba; Mahamat Moustapha
  6. Does financial innovation enhance financial deepening and growth in Kenya? By Misati, Roseline Nyakerario; Osoro, Jared; Odongo, Maureen

  1. By: Irina Safitri Zen (International Islamic University Malaysia [Kuala Lumpur]); Abul Quasem Al-Amin (University of Waterloo [Waterloo]); Md. Mahmudul Alam (UUM - Universiti Utara Malaysia); Brent Doberstein (University of Waterloo [Waterloo])
    Abstract: The carbon footprint of households is a significant contribution to global greenhouse gas emissions, accounting for 24% of total emissions. As a result, it is critical to quantify a household's carbon footprint in order to reduce it over time. One of the best ways to measure carbon emitted from various sectors of the economy, including household daily activities, is to calculate a country's carbon footprint (CF). This study statistically examined the magnitude of households' carbon footprints and their relationships with household daily activities and certain socio-economic demographic variables in Malaysia. Results revealed that the average household carbon footprint amounted to 11.76 t-CO2. The average also showed that the primary carbon footprint, 7.02 t-CO2 or 59.69% was higher compared to the secondary carbon footprint which was 4.73 t- CO2 or 40.22% and assessment revealed significant differences among household types. The largest carbon footprint was evident in a medium-high cost urban area, estimated at 20.14 t-CO2, while the carbon footprint found in a rural area was 9.58 t-CO2. In the latter, the primary carbon footprint was almost double the figure of 5.84 t-CO2 (61%) than the secondary carbon footprint of 3.73 t-CO2 (39%). The study reveals a higher carbon footprint in urban areas compared to rural ones depicting the effects of urbanisation and urban sprawl on household lifestyles and carbon footprints. Despite some limitations, the findings of this study will help policymakers design and implement stronger policies that enforce low-carbon activities and energy-saving goods and services in order to reduce urban Malaysia's carbon footprint dramatically.
    Keywords: Carbon Emissions,Lifestyle,Energy,Households,Carbon Footprint
    Date: 2021
  2. By: Sophie Béreau (CeReFiM - Center for Research in Finance and Management [UNamur] - UNamur - Université de Namur [Namur], NaXys - Namur Center for Complex Systems [Namur] - UNamur - Université de Namur [Namur]); Nicolas Debarsy (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Cyrille Dossougoin; Jean-Yves Gnabo (CeReFiM - Center for Research in Finance and Management [UNamur] - UNamur - Université de Namur [Namur], NaXys - Namur Center for Complex Systems [Namur] - UNamur - Université de Namur [Namur])
    Abstract: What drives financial contagion? The empirical literature aimed at modeling financial risk spillovers in crisis periods and documenting the role of contagion channels is subject to an endogeneity issue, as the channel itself can respond to a change in the level of risk. We tackle this issue by using a novel spatial econometric estimation procedure based on a control function approach and offer "robust-toendogeneity " evidence on the role of indirect financial contagion channels in the banking industry. Our estimations, based on on 28 large US banks during the financial crisis (2007Q3-2013Q2), confirm that several channels are endogeneous. Accounting for endogeneity is proved to be important for recovering reliable estimates of transmission mechanisms. Banks similarity in fundamentals, similarity in investment strategy as well as common exposure appear as significant drivers of contagion. Based on relevant transmission's channels, we build a simple systemic risk indicator named "Interaction Based Centrality". We show that it may help forecast vulnerable institutions in times of crisis and could thereby be used for monitoring purposes by regulatory authorities.
    Keywords: banking,common asset exposures,contagion,endogeneity,Katz centrality,market-price channel,information channel,spatial econometrics,spillover
    Date: 2022–01–05
  3. By: Roman Frydman (Department of Economics, New York University); Soren Johansen (Department of Economics, University of Copenhagen); Anders Rahbek (Department of Economics, University of Copenhagen); Morten Nyboe Tabor (Institute for New Economic Thinking)
    Abstract: We extend Lucas's classic asset-price model by opening the stochastic process driving dividends to Knightian uncertainty arising from unforeseeable change. Implementing Muth's hypothesis, we represent participants' expectations as being consistent with our model's predictions and formalize their ambiguity-averse decisions with maximization of intertemporal multiple-priors utility. We characterize the asset-price function with a stochastic Euler equation and derive a novel prediction that the relationship between prices and dividends undergoes unforeseeable change. Our approach accords participants' expectations, driven by both fundamental and psychological factors, an autonomous role in driving the asset price over time, without presuming that participants are irrational.
    Keywords: Asset Prices; Unforeseeable Change; Knightian Uncertainty; Muth's Hypothesis; Model Ambiguity; Rational Expectations (REH); Behavioral Finance.
    JEL: D84 E00 G12 G41
    Date: 2021–12–07
  4. By: Barney Hartman-Glaser; Simon Mayer; Konstantin Milbradt
    Abstract: We consider a firm with infrequent access to capital markets, continuous access to financing by a risk-averse intermediary, and a cost of holding cash. The intermediary absorbs a fraction of cash-flow risk that decreases with the firm’s liquidity reserves and acquires a stake in the firm under distress. Implementing the optimal contract suggests an overlapping pecking order. The firm simultaneously finances shortfalls with cash reserves and a credit line and sells equity to the intermediary when it runs out of cash. The model helps explain empirical facts and trends in financial intermediation, such as the rise of private equity.
    JEL: D86 G32 G35
    Date: 2022–01
  5. By: Kabinet Kaba (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Mahamat Moustapha (Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, LEDa - Laboratoire d'Economie de Dauphine - CNRS - Centre National de la Recherche Scientifique - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres)
    Abstract: Sub-Saharan African firms face enormous obstacles to their development. The main constraints to business performance identified are poor access to finance and a weak domestic market. In this paper, we examine how international remittances affect firms' performance. Specifically, we investigate the role of remittances on capital accumulation, sales, and employment in 34,010 firms operating in 42 Sub-Saharan African countries between 2006 and 2020. Using a fixed-effect instrumental variable approach to control for the endogeneity of remittances, we find that international remittances positively affect the share of capital held by nationals in manufacturing firms. Moreover, international remittances positively affect sales in non-manufacturing firms, while a negative effect on the sales of manufacturing firms is observed. Regarding the effect of remittances on employment, we find a positive impact on both manufacturing and non-manufacturing firms. Heterogeneity tests suggest that the effect of remittances on firms' performance is larger in less financially developed and non-resource-rich countries. As for the negative impact of remittances on sales in manufacturing firms, the results show that it is entirely due to small firms. Finally, using remittances per capita instead of remittances relative to GDP, similar result are found.
    Keywords: Remittances,Firm Performance,Entrepreneurship,Saving and Capital Investment,Firm Employment,Africa
    Date: 2021
  6. By: Misati, Roseline Nyakerario; Osoro, Jared; Odongo, Maureen
    Abstract: This study examined the implication of financial innovation on financial depth and economic growth in Kenya using quarterly data covering the period 2009 to 2020. Based on autoregressive distributive lag models, we demonstrate a positive relationship between financial innovation and financial depth with the strongest impact emanating from internet usage and mobile financial services and the lowest impact from the number of bank branches and automated teller machines. The results also further reveal a significant positive impact of financial depth on economic growth consistent with the supply-leading finance theory. The study recommends investment in technology-enabling infrastructure for digital financial services, design strategies to ensure affordability of mobile devices and prioritisation of financial literacy to bridge the gap between people and technology.
    Keywords: Financial Innovation,Financial Depth,Growth
    Date: 2021

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