Financial Development and Growth http://lists.repec.org/mailman/listinfo/nep-fdg Financial Development and Growth 2026-06-29 The macroeconomics of stablecoins https://d.repec.org/n?u=RePEc:bis:biswps:1363&r=&r=fdg We analyse the macroeconomic impact of stablecoins using a quantitative macroeconomic model. Stablecoins influence the economy through two opposing channels: (i) a bank lending channel, as household demand for stablecoins raises deposit rates, increases bank funding costs, and reduces loan supply; and (ii) a fiscal space channel, as stablecoin issuers' demand for Treasury bills lowers sovereign borrowing costs, expands fiscal space for tax reductions or higher spending. Calibrated to the U.S., the model predicts that widespread stablecoin adoption modestly reduces long-run output, as the bank lending channel outweighs the fiscal space channel. However, the overall long-run impact may shift under alternative scenarios about stablecoin reserve asset regulation, the level of public debt and the strength of foreign demand. Moreover, the fiscal space channel activates more quickly than the bank lending channel, resulting in significantly positive short-term output effects during the transition phase. Additionally, the model suggests a strengthening of monetary policy transmission via the bank lending channel. Boris Hofmann Matthias Kaldorf Matthias Rottner stablecoins, macroeconomic model, regulation, credit supply, fiscal policy, monetary policy 2026-06 Stablecoin remuneration on centralised exchanges https://d.repec.org/n?u=RePEc:bis:bisblt:125&r=&r=fdg Centralised exchanges remunerate stablecoin holders, using the return on the issuer's reserve assets or income from market activity. Under the reserve-based model, yields track policy rates – akin to yields on cash-management instruments – whereas under the activity-based model, yields are much more volatile. By turning stablecoins into substitutes for bank deposits or money market funds or into funding instruments for exchanges' risky activities, remuneration models may shape the macro financial implications of wide stablecoin adoption in the future. Wenqian Huang Nikola Tarashev Xinyi Wang 2026-06-19 Macroeconomic Drivers of Corporate Investment in the United Kingdom: A Multivariate Analysis https://d.repec.org/n?u=RePEc:boh:wpaper:03_2026&r=&r=fdg This study examines the macroeconomic drivers of corporate investment in the United Kingdom using a multivariate time-series framework. Focusing on five key variables-interest rates, inflation, GDP growth, exchange rates, and corporate profits-the analysis investigates their combined effects on aggregate corporate investment using annual data from 1990 to 2022. By concentrating on macroeconomic determinants rather than firm-level factors, the study provides evidence on how monetary and real-sector conditions shape investment behavior in a mature, market-based economy. The contribution of this study lies in integrating long-run macroeconomic trends within a multivariate econometric framework that captures interactions between corporate profits, inflation, and exchange-rate movements in the UK over three decades of evolving policy regimes. Given the mixed order of integration among the variables, the study employs an Autoregressive Distributed Lag (ARDL) bounds testing approach to examine long-run relationships and short-run adjustment dynamics. OLS and Two-Stage Least Squares (2SLS) estimates are retained as benchmark and robustness checks. The results indicate that higher interest rates exert a significant positive effect on corporate investment, consistent with the endogenous and pro-cyclical nature of UK monetary policy. Corporate profits have a strong positive influence, highlighting the importance of internal finance. Inflation exhibits a negative and significant impact, while GDP growth shows a weak accelerator effect and exchange-rate movements are statistically insignificant. These findings underscore the dominance of profitability and policy credibility in driving UK investment and offer relevant insights for sustaining long-term capital formation. Mike Djesa corporate investment, United Kingdom, monetary policy, interest rates, inflation, exchange rate, corporate profits, ARDL bounds testing, 2SLS 2026-06-09 Access to Credit Market and the Role of Intermediation https://d.repec.org/n?u=RePEc:cns:cnscwp:202605&r=&r=fdg This study analyzes how imperfect information regarding collateral value affects credit market access, liquidity, and aggregate economic wealth. Building upon a framework adapted from Gorton and Ordonez (2014), we introduce an financial intermediary as a distinct strategic economic agent designed to optimize the matching process between the demand and supply of credit. The intermediary possesses specialized evaluation technology capable of determining the true quality of collateral at a cost ω, allowing lenders to substitute their high independent information production cost, γ, with a lower intermediation fee, α (α < γ). However, delegating information production introduces agency problems, specifically the threat of unfair behavior through borrower-intermediary collusion via side payments (δ) to misreport bad collateral as good. We derive the optimal contract boundaries, characterizing the exact lower bound (α0 = ω) and upper bound (αc) required to ensure truthful reporting in an information-sensitive regime without collusion. Our comparative statics demonstrate that by minimizing resource waste during information acquisition, efficient intermediation expands borrower expected profits relative to un-intermediated regimes, safely prevents dangerous pooling-induced credit booms, and optimizes the distribution of economic liquidity to maximize total societal wealth. M. Tedde Financial intermediation, Collateral Quality, Information Asymmetry, Credit Market Access, Incentive Compatibility 2026 Market Transparency and Information Frictions https://d.repec.org/n?u=RePEc:cns:cnscwp:202606&r=&r=fdg This paper examines how imperfect information, potential adverse selection, and endogenous information frictions shape credit market access and corporate debt issuance. Building upon the foundational framework of Gorton and Ordoñez (2014), we introduce a model where the cost of information production serves as a proxy for market transparency. We extend this setup by incorporating an endogenous friction parameter, σ, representing a cost deployed by borrowers to purposely obscure collateral quality, thereby raising lenders' information acquisition costs to ϕ = γ(1 + σ). While conventional literature frames information frictions and market opacity as negative economic externalities, we demonstrate that under specific institutional and parametric constraints, borrower-induced frictions can prevent premature information revelation and costly separating equilibria. Consequently, these frictions can expand the information-insensitive pooling region, facilitate broader credit access for viable production projects, and generate higher aggregate economic wealth. Finally, we map the complete set of model equilibria and characterize the precise conditions under which an increase in information frictions triggers a credit expansion rather than a credit crunch. M. Tedde Market Transparency, Information Frictions, Collateral Quality, Information-Insensitive Debt, Pooling Equilibrium 2026 Macroprudential Policies and Inequalities in Europe: The Role of Household Portfolio Composition https://d.repec.org/n?u=RePEc:aim:wpaimx:2617&r=&r=fdg We study the effects of macroprudential policies on income and wealth inequality across 18 Eurozone countries over the period 2000–2024. We focus on the financially constrained Wealthy Hand-to-Mouth households for whom the regulation changes are likely to be consequential. We present insights from a stylised two-economy incomplete-markets model where the heterogeneity in household portfolio composition shapes the effects on inequalities of borrower-based regulation. Using panel regressions and local projections, we test empirically the model's predictions that macroprudential policies matter for inequalities and their effects differ depending on the concentration of housing or pension assets in the Wealthy Hand-to-Mouth households' illiquid portfolios. The empirical findings underscore that in housing dominant economies, the reduction of the LTV ratio improves wealth inequalities in the short term through a collateral-leverage mechanism, whereas it persistently widens wealth disparities in pension-dominant economies through credit exclusion effects. Marie-Hélène Gagnon Céline Gimet Uros Herman Loan-to-value regulation; Macroprudential policy; Eurozone; Local projections; Wealthy hand-to-mouth; Heterogeneity; Portfolio; Wealth inequalities 2026-06-01 Revisiting the resource curse: Does volatility matter? https://d.repec.org/n?u=RePEc:hal:journl:hal-05623684&r=&r=fdg Countries with abundant natural resources often possess greater wealth, yet the impact of these resources on economic growth remains unclear. Yassine Kirat 2024-06-17 The Economic Impact of the USAID Shutdown https://d.repec.org/n?u=RePEc:iza:izadps:dp18698&r=&r=fdg On 28 January 2025 the second Trump administration issued a blanket stop-work order on the United States Agency for International Development (USAID), terminating the largest national bilateral aid programme worldwide. We use this natural experiment to estimate the impact of the aid cut on two outcomes in Africa: local economic activity, measured through nighttime light radiance around USAID project sites; and acute food insecurity, measured through the Integrated Food Security Phase Classification (IPC) at the subnational level. First, the cessation of USAID activities produced a sharp and significant decline in nighttime light radiance within 500 m to 10 km of project sites, attenuating monotonically and undetectable at 25 km. Second, areas more exposed to USAID humanitarian assistance saw relative increases in population in IPC Phase 3 (Crisis) or worse and Phase 4 (Emergency), with effects building over the first post-shock year, amplified in higher-vulnerability regions and approximately fourteen times larger in less democratic countries. Third, both effects are driven by humanitarian-aid cuts; the nightlight effect is also driven by productive-sector cuts. Nicolini, Marcella Sabatini, Fabio foreign aid, USAID, natural experiment, nighttime lights, food security, IPC, difference-in-differences, Africa 2026-05 Learning at Scale : Infrastructure, Aid Effectiveness, and World Bank Performance https://d.repec.org/n?u=RePEc:wbk:wbrwps:11412&r=&r=fdg This paper reexamines aid effectiveness using ex-post economic rates of return from 2, 500 World Bank–financed infrastructure projects over six decades. Three facts emerge. First, average value creation is high: the mean economic rate of return is 24 percent (median 18.5 percent). Second, returns rise over time: after relative stability through the mid‑1980s, economic rates of return increased from the late 1980s onward, consistent with improved selection, design, and delivery. Third, economic rates of return are systematically higher in countries with weak institutions. In such countries, high-quality World Bank performance is associated with about a 12‑point increase in the average economic rate of return. A plausible mechanism is talent deployment. Higher‑quality task team leaders are disproportionately assigned to the most challenging contexts and linked to faster time‑to‑effectiveness and higher economic rates of return, despite longer, more intensive implementation. Overall, alongside country fundamentals, World Bank performance and talent deployment materially raise returns to scarce capital—especially where governance is weak. Lall, Somik V. Su, Xinyi Vagliasindi, Maria 2026-06-09 Official Development Assistance: The Effectiveness Of Altruistic Motivation https://d.repec.org/n?u=RePEc:pra:mprapa:129489&r=&r=fdg The literature has long attempted to study the conditions for the effectiveness of Official development assistance (ODA); however, the conclusions remain ambiguous. This article proposes a cross-country study of ODA effectiveness, taking into account both the donor’s motivation and the recipient’s initial state. Econometric analysis of data from 1991–2019 for 59 recipients showed that for countries with well-developed governance systems, aid is effective regardless of motivation and volume, though its marginal utility diminishes. The result confirms the importance of the recipient country’s initial state for aid effectiveness and the idea that development incentives fade with external funding. In countries with underdeveloped governance systems, ODA is beneficial only with altruistic motives and substantial volumes; otherwise, it leads to a decline in economic growth rate. The result supported the hypothesis that such a recipient cannot resist a donor pursuing self-serving interests or cope with the negative consequences of aid, particularly the Dutch disease syndrome. Substantial volumes of altruistic aid, indicative of donors’ attention to ODA implementation mechanisms, can prevent negative effects. The results expand understanding of the necessary conditions for effective aid delivery. Mikitchuk, Marina Official development assistance, aid conditionality, untying aid, donor motivation, panel data analysis 2025-06 Emerging debt challenges for developing countries: apparent easing, persistent fragilities. Lessons from the new World Bank International Debt Statistics 2025. https://d.repec.org/n?u=RePEc:cpm:notfdl:2604&r=&r=fdg While external debt indicators improved for many low- and lower-middle-income countries in 2024, aggregate trends mask growing divergence. Using a framework that distinguishes between insolvency and illiquidity risks, we identify three groups of countries: those regaining market access at high cost, those facing persistent liquidity shortages without market access, and those in outright insolvency. This paper shows that bond market access has become a key divider, providing temporary relief but increasing future debt-service burdens. Meanwhile, multilateral financing is increasingly used to offset creditor retrenchment and service existing debt rather than support investment, while foreign-exchange constraints are emerging as a central feature of debt distress. These findings have important implications for debt restructuring, concessional finance, and the design of policy responses across the liquidity-solvency spectrum. Diwan, Ishac London, Melina Morgan, Thomas Sovereign debt, Liquidity constraints, Insolvency, Leakages, Vulnerabilities, Low-income countries 2026-03 Can Renminbi-bonds scale as a viable option for developing countries? https://d.repec.org/n?u=RePEc:cpm:notfdl:2606&r=&r=fdg As China seeks to internationalize the renminbi and EMDEs search for alternative sources of financing, Panda bonds have emerged as a growing funding option. This paper argues that while RMB borrowing can offer advantages over hard-currency debt, headline yields often understate the true cost once credit enhancement and currency risks are considered. Panda bonds have significant potential, but scaling the market will require further regulatory reforms, risk-sharing mechanisms, and stronger participation from multilateral and Chinese policy institutions. Raih, Yoan Luo, Guiliu Panda bonds; Renminbi (RMB) internationalization; Sovereign debt; Emerging and developing economies (EMDEs); External financing; Currency risk; Chinese bond market; Guarantees 2026-03 Small credit, real impact: Lessons on Lazio’s Small Credit Fund https://d.repec.org/n?u=RePEc:oec:cfeaaa:2026/08-en&r=&r=fdg This paper evaluates the Small Credit Fund (Fondo Piccolo Credito), a regional financial instrument introduced by the Lazio Region (Italy) to address credit market gaps faced by micro and small enterprises. Using administrative data for 2017–2023 and a difference in differences approach, the evaluation finds strong financial additionality: subsidised loans increased long term debt without crowding out other financing. The programme improved firm survival and supported higher investment, particularly among smaller and more financially constrained firms. Short term declines in profitability and credit ratings highlight temporary trade offs during the investment and repayment phase. The paper concludes with recommendations to refine programme design, targeting and monitoring, with lessons for similar instruments across OECD countries. OECD credit constraints, Italy, Lazio, policy evaluation, regional development, Small business finance 2026-06-15 Sustainability-Adjusted Credit Guarantee Pricing for Financing Micro, Small, and Medium-Sized Enterprises in Malaysia https://d.repec.org/n?u=RePEc:ris:adbewp:022917&r=&r=fdg As in many Asian economies, Malaysia’s micro, small, and medium-sized enterprises (MSMEs) account for the vast majority of firms and large shares of economic output and employment. Their significant carbon footprint makes them pivotal for achieving carbon neutrality. In bank-dominated financial systems such as Malaysia’s, credit guarantees help facilitate lending to MSMEs. This paper proposes a way to both ease MSME access to finance and incentivize decarbonization and sustainability. It develops a risk-based and sustainability-adjusted credit guarantee pricing framework that integrates an MSME’s financial health, environmental footprint, and the macroeconomic conditions it faces. Using financial data from 2, 000 Malaysian MSMEs, principal component analysis is used to construct a financial health index, followed by K-means clustering to classify firms by risk. A countercyclical pricing model produces a firm‑level credit guarantee fee ranging from 1.08% for the healthiest firms during a recession to 2.58% for the riskiest firms during economic expansion. Firm-level sustainability survey data are used to build a composite performance score which reduces guarantee fees by an average of 0.13 percentage points, with a reduction up to 0.23 percentage points for top-performing firms. Naoyuki Yoshino Farhad Taghizadeh-Hesary Shigehiro Shinozaki optimal credit guarantee;sustainability;access to finance;SME finance;Malaysia 2026-06-17 Land Protection, Credit Access, and the Insurance Gap: The De Soto Trap https://d.repec.org/n?u=RePEc:adv:wpaper:202605&r=&r=fdg Bolivia’s Ley1720(April2026)allowssmallholderstovoluntarilyconvertconstitu- tionally protected pequeña propiedad—land thatcannotbeseizedbycreditors—into pledgeable mediana propiedad, explicitlytargetingthecredit-accesschannelthatHer- nando deSotopopularized.Thispaperdevelopsadynamicmodelshowingthatsuch conversion createsa De Sototrap: thehouseholdsmostlikelytoconvertarethose most desperateforliquidity, notthosebestpositionedtobenefitfromcredit, andthese households facethehighestdefaultprobability.Withoutcomplementaryinsurance, land flowsirreversiblyfromvulnerablesmallholderstothosewithcapitaltopurchase foreclosedproperties.Themodelyieldsthreeresults:(i)adverseselectionintocon- version emergesendogenouslyfromthethresholdconditions;(ii)aggregatesmall- holder landdecaysexponentiallytowardzero—aratchetthatcannotreversewithout policy intervention;(iii)mandatoryinsuranceasaconversionrequirementfiltersout non-viable applicants, boundslandloss, andraisesnetwelfarebyafactoroffour. Calibrated toBolivianagriculturalcensusdata, themodelpredictsthatundercurrent policy, 120, 000householdswilllosetheirlandwithin25years.Thelawaddressesthe channel (credit)forwhichempiricalevidenceisweakestwhileremovingaprotection (implicit insurance through inalienability) whose value the risk literature suggests is large. Bolivia’s reform inverts the optimal policy sequence. Werner Hernani Limarino land tenure, credit constraints, insurance, adverse selection, land reform, Bolivia. 2026-05 The Role of Factoring in Enterprise Development: Empirical Evidence from Peru, 2015–2023 https://d.repec.org/n?u=RePEc:pra:mprapa:129106&r=&r=fdg This study investigates the impact of factoring—implemented through electronic negotiable invoices—on the growth and performance of firms in Peru between 2015 and 2023. Using administrative panel data and a quasi-experimental design based on the difference-indifferences (DiD) method, the analysis compares firms that adopted this financial instrument with those that did not. The findings reveal that factoring adoption significantly increased firm survival rates. In the short term, it also enhanced access to credit, although this effect gradually diminished over time. The results on sales and employment show a heterogeneous pattern: while some firms experienced initial adverse effects, those that consistently utilized factoring reported sustained improvements. These findings contribute to the understanding of alternative financing mechanisms in developing economies and their role in fostering firm resilience and long-term development. The paper provides empirical evidence to inform financial policy and support instruments for micro, small, and medium-sized enterprises (MSMEs) in Peru. Alvarez, Lourdes Broncano, Marlon factoring; electronic invoices; access to credit; firm survival; SME development 2025-10-16 Trade Finance Use by Heterogeneous Firms https://d.repec.org/n?u=RePEc:wbk:wbrwps:11404&r=&r=fdg Letters of credit are a key trade finance instrument that covers more than 10 percent of global trade, with a notably larger role in low- and middle-income economies. Studying detailed trade data from Viet Nam, this paper documents how the use of letters of credit varies with firm characteristics. The paper shows that the probability of using a letter of credit is systematically lower for younger, smaller, and foreign-owned trading firms. Importers that are less diversified or have less trading experience are more likely to use letters of credit. Firm characteristics have the strongest effects in markets where information is scarce and enforcement is weak. These patterns are consistent with a model in which the ability to screen trading partners and the cost of bank intermediation vary with firm characteristics, and where a firm’s screening ability and country institutions are substitutes. Any policy or intervention that aims at increasing the use of bank-intermediated trade finance will therefore need to take firm heterogeneity into account. de Nicola, Francesca Ragoussis, Alexandros Schmidt-Eisenlohr, Tim Tran, Trang Thu 2026-06-01 Credit Capacity and the Propagation of Funding Shocks: Evidence from U.S. and Brazilian Financial Intermediaries https://d.repec.org/n?u=RePEc:arx:papers:2606.11566&r=&r=fdg Why do similar funding shocks generate sharply different credit outcomes across countries? We develop and estimate a dynamic structural model in which intermediary credit capacity governs the transmission of funding disruptions to lending. Using supervisory data on U.S. banks and credit unions and Brazilian banks and cooperatives from 2002--2025, we recover institution-level credit capacity and its dynamics across major crisis episodes. Credit capacity is three to six times larger in the United States than in Brazil, while persistence is similar across countries. As a result, funding shocks generate substantially larger and more persistent lending contractions in Brazil. Counterfactual analysis shows that differences in baseline credit capacity, rather than persistence, account for most cross-country variation in crisis propagation and policy effectiveness. Ayush Jha Ali Jaffri Frank Fabozzi 2026-06 Zombie Prevalence and Bank Health: Exploring Feedback Effects https://d.repec.org/n?u=RePEc:wat:wpaper:26006&r=&r=fdg This paper investigates feedback effects between bank health and zombie firms—financially distressed firms receiving subsidized credit. The literature focuses on how banks create zombies, overlooking zombies’ impact on bank health. Using Spanish firm-bank data (2005-2014), we document a vicious cycle: lower bank capital ratios are associated with higher zombie activity in served industries, while higher zombie prevalence is associated with reduced bank capital. We link this to a previously unexplored mechanism where banks respond appropriately to observable financial distress through higher provisioning, but overlook risks from relationship borrowers receiving subsidized rates. Our findings suggest that this feedback stems not from financial distress alone, but from the combination of distress with interest rate subsidies. Possnig, Clemens Rotarescu, Andreea Song, Kyungchul Zombie lending, Bank-firm-industry feedback, Capital misallocation, Networks, Cross-sectional dependence 2025-08-04 Will Unicorns be Born in Japan? A comparative study of private equity market development and policy reforms https://d.repec.org/n?u=RePEc:eti:dpaper:26051&r=&r=fdg This study explores why Japan has produced relatively few unicorns compared with other advanced and emerging economies, despite strong entrepreneurial potential and abundant savings. It argues that the underdevelopment of Japan’s private equity markets constitutes a key structural bottleneck. We examine institutional causes and policy directions aimed at strengthening private equity markets and supporting high-growth firms. Drawing on experiences from the United States, the European Union, the United Kingdom, China, and the Republic of Korea, we conduct a comparative institutional analysis of core mechanisms for market-based equity financing: small public offerings, equity crowdfunding (ECF), and private placements, as well as secondary trading. Our analysis identifies structural regulatory constraints that raise entry barriers for issuers and limit investor participation in Japan. Based on these findings, we identify institutional issues that are currently lacking, including simplified disclosure frameworks, higher and tiered thresholds for small public offerings, flexible regimes for ECF, modernized rules for private placements and secondary trading, and the expansion of the scope of qualified investors, as well as digitized capital-raising processes. These measures would lower entry barriers, broaden investment opportunities, and improve risk capital allocation, while maintaining market-based investor protection. By fostering vibrant private equity markets, Japan can mobilize idle capital, stimulate entrepreneurship, and enhance competitiveness, thereby supporting innovation-driven economic growth and increasing the likelihood of more unicorns emerging. This study underscores the central role of institutional design in shaping entrepreneurial finance and offers policy-relevant insights for economies seeking to transition toward innovation-driven growth supported by vibrant private equity markets. Hajime TADOKORO Yuji HONJO 2026-06 The Hidden Cost of Stock Market Concentration: When Funds Hit Regulatory Limits https://d.repec.org/n?u=RePEc:cpr:ceprdp:21572&r=&r=fdg As stock market concentration has risen, regulatory limits on fund portfolio concentration have become increasingly binding, especially for large-cap growth funds. When funds approach these limits, they trim their largest holdings and reduce equity exposure. Funds perform worse when constrained. A constraint-based ownership measure predicts stock returns, particularly among the largest firms. These findings suggest that high market concentration can distort stock prices by limiting the ability of optimistic investors to scale their positions. Just like short-sale constraints can produce overpricing by limiting pessimistic investors' views, constraints on long positions can generate underpricing by suppressing optimists' views. Pástor, Luboš Sikorskaya, Taisiya Wang, Jinrui 2026-06 Fool's Gold? How the US Dollar Lost its Shine https://d.repec.org/n?u=RePEc:cpr:ceprdp:21575&r=&r=fdg This paper investigates the determinants of international investors' portfolio choices between gold and sovereign bonds in an environment shaped by economic and geopolitical shocks. We develop an endogenous portfolio choice model where reserve safety has a political dimension — sovereign bonds issued by the dominant reserve country are more liquid but exposed to the issuer's sanctions authority, while gold offers sanctions protection at the cost of lower liquidity. Our model implies that US convenience yields fall during periods of high sanction risk, as safe-asset demand fragments along geopolitical lines. Empirically, periods of elevated geopolitical risk coincide with higher gold prices and 10-year Treasury yields. In such periods, the average composition of official reserves shifts toward gold, with countries less aligned with the US in UN voting patterns increasing their holdings by a greater extent. Arvai, Kai Coimbra, Nuno Pinchetti, Marco Dominant currency; Safe assets; Sanctions; Gold 2026-06