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on Financial Development and Growth |
| By: | Ye, Dezhu (Jinan University); Deng, Jie (Jinan University); Zeng, Fanqing (Jinan University) |
| Abstract: | New Structural Economics suggests that there is no universally optimal financial structure for all countries,only when the financial structure match well with the technical level, it can effectively promote economic growth. Following corporate finance literatures, we try to discuss the measurement of regression residual on the abnormal level of the explained variables, regard the residual after the regression of each country’s financial structure on technical level as the main substitute variable, and then test the issue. The empirical results show that the matching degree between financial structure and technical level is significantly positively correlated to economic development, and the effect tends to be more obvious in developing countries. This paper also uses the alternative measure financial structure, the sociology’s hierarchical matching method to measure the matching degree between financial structure and technical level,and the instrumental variables method to deal with the possible endogenous problems, all empirical results supportthe same conclusions. To make a comparison, we add the gap variables of the optimal financial structure which regards OECD countries as the optimal criterion into our regression equation, the results indicate that our coordination variables are more significant and have stronger explanatory power on economic growth.Further research finds that promoting the growth of TFP is the mechanism through which the matching relationship affects economic development. |
| Keywords: | New Structural Economics, the Optimal Financial Structure, the Matching Degree of Financial Structure—Technical Level, Economic Development |
| JEL: | E44 G00 O16 |
| Date: | 2017–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:xjt:rieiwp:2017-09&r=fdg |
| By: | Muyambiri, Brian; Odhiambo, Nicholas M |
| Abstract: | This study investigates the causal relationship between financial development andinvestment in South Africa during the period from 1976 to 2014. The studyincorporates both bank-based and market-based segments of financial sectordevelopment. In addition, composite indices for bank-based and market-basedfinancial development indicators are used as explanatory variables. The studyincorporates savings as an intermittent variable ??? thereby creating a simple trivariateGranger-causality model. Using the ARDL bounds testing approach to cointegrationand the ECM-based Granger-causality test, the study finds a unidirectional causalflow from investment to financial development, but only in the short run. In the longrun, the study fails to find any causal relationship between financial development andinvestment. These results apply irrespective of whether bank-based or market-basedfinancial development is used as a proxy for financial sector development. Thefindings of this study have important policy implications. |
| Keywords: | South Africa, Investment, Bank-based financial development, Market-based financial development,Trivariate Granger-causality |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:22657&r=fdg |
| By: | Daniele Tori (Open University); Özlem Onaran |
| Abstract: | In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets by the NFCs. This finding is robust for both the pool of all Western European firms and single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies' size: financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only small, relatively more credit-constrained companies. Furthermore, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies' investment. This finding challenges the common wisdom on 'finance-growth nexus'. Our findings support the 'financialization thesis' that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term stagnation in productivity. |
| Keywords: | financialization, financial development, firm-level data, Europe |
| JEL: | C23 D22 G31 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1705&r=fdg |
| By: | Flavia Corneli (Bank of Italy) |
| Abstract: | We show that, in a two-country model where the two economies differ in their level of financial market development and initial capital endowment, financial integration has sizeable transitory as well as permanent effects. We confirm that, consistent with the Lucas paradox, financial integration in the medium term can reduce capital accumulation and increase savings in the financially less developed country, characterized by domestic capital market distortions, due to a higher risk premium in production activities. In the long run, however, integration produces higher levels of capital than in the autarky steady state. The opposite happens to the financially advanced economy, where integration initially boosts consumption and leads to a lower saving rate, and in the long run causes a reduction in capital compared with the autarky steady state. Two forces drive these results: precautionary saving and the propensity to move resources from risky capital to safe assets until the risk-adjusted return on capital equalizes the risk-free interest rate; assuming a constant relative risk aversion (CRRA) utility function, these forces are both decreasing in wealth. |
| Keywords: | financial integration, international capital movements, incomplete markets, economic growth |
| JEL: | F36 F43 G11 O16 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1120_17&r=fdg |
| By: | Effiong, Ekpeno; Esu, Godwin; Chuku, Chuku |
| Abstract: | As African countries await the birth of her monetary union, the link between economic policies and the real economy will continue to dominate policy debate. This paper investigates whether financial development influences the effectiveness of monetary policy on output and inflation in Africa. We apply standard panel data techniques to annual data from 1990--2015 for a panel of 39 African countries, and find a weak relationship between financial development and monetary policy effectiveness in Africa. The results show no statistical evidence of the relationship for output growth, whereas a negative relationship exist in the case of inflation, but only at their contemporaneous levels. Thus, there is need to strengthen the monetary transmission mechanism in African countries through deliberate efforts to deepen financial sector development. |
| Keywords: | Financial Development; Monetary Policy; Africa. |
| JEL: | C33 E52 G21 O55 |
| Date: | 2017–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79732&r=fdg |
| By: | Asongu, Simplice; Nwachukwu, Jacinta |
| Abstract: | The overarching question tackled in this paper is: to what degree has financial development contributed to providing opportunities of human development for those on low-incomes and by what information technology mechanisms? We survey about 180 recently published papers to provide recent information technology advances in finance for inclusive development. Retained financial innovations are structured along three themes. They are: (i) the rural-urban divide, (ii) women empowerment and (iii) human capital in terms of skills and training. The financial instruments are articulated with case studies, innovations and investment strategies with particular emphasis, inter alia on: informal finance, microfinance, mobile banking, crowd funding, microinsurance, Islamic finance, remittances, Payment for Environmental Services (PES) and the Diaspora Investment in Agriculture (DIA) initiative. |
| Keywords: | Finance; Inclusive Growth; Economic Development |
| JEL: | G20 I10 I20 I30 O10 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79638&r=fdg |
| By: | Asongu, Simplice; Anyanwu, John; Tchamyou, Vanessa |
| Abstract: | Information technology is increasingly facilitating mechanisms by which information asymmetry between lenders and borrowers in the financial sector can be reduced in order to enhance financial access for human and economic development in developing countries. We examine conditional financial development from ICT-driven information sharing in 53 African countries for the period 2004-2011, using contemporary and non-contemporary quantile regressions. ICT is measured with mobile phone penetration and internet penetration whereas information sharing offices are public credit registries and private credit bureaus. The following findings are established. First, there are positive effects with positive thresholds from ICT-driven information sharing on financial depth (money supply and liquid liabilities) and financial activity (at banking and financial system levels). Second, for financial intermediation efficiency, the positive effects from mobile-driven information sharing are apparent exclusively in certain levels of financial efficiency. Third, with regard to financial size, mobile-driven information sharing is positive with a negative threshold, whereas, internet-driven information sharing is positive exclusively among countries in the bottom half of financial size. Positive thresholds are defined as decreasing negative or increasing positive estimated effects from information sharing offices and vice-versa for negative thresholds. Policy implications are discussed. |
| Keywords: | Information Sharing; Financial Development; Quantile regression |
| JEL: | C52 G20 G29 O16 O55 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79640&r=fdg |