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on Financial Development and Growth |
| By: | Asada, Hidekatsu |
| Abstract: | Determinants of regional foreign direct investment inflows in China from 2008 to 2019 are analysed in terms of the progress of the marketisation such as non-state-owned sectors’ share of output, investment and employment, the state of price controls in commodity markets, the state of development of factor markets such as finance and labour, and the state of development of the institutional system supporting the market economy system. Additionally, human capital development, infrastructure development and industrial structure are incorporated as control variables. Key results of the analysis of China’s regional FDI inflows include: 1) the progress of marketisation had a positive impact; 2) an increase in per capita GDP had a positive impact, and 3) the increase in the ratio of the secondary industry to GDP had a negative impact, while the tertiary industry had a positive impact. This result reflects the ongoing shift from vertical FDI in export-oriented labour-intensive manufacturing industries to horizontal FDI oriented toward sales to the local market. |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:4xu36 |
| By: | Ying Xu |
| Abstract: | Using a novel data set with bank-sector-level annual loan data from 137 commercial banks in China from 2004 to 2021 and a quantified industrial policy data set based on text analysis, this paper explores the effects of industrial policy on bank credit provision. While the paper finds no conclusive evidence that commercial banks allocate, on average, more credit to sectors promoted by the central government, it does find heterogenous sensitivities of banks to industrial policy. Rural commercial banks tend to respond most positively to industrial policy compared to other commercial banks. Banks that have lower asset quality, are smaller, have a higher liquidity ratio, and are not listed are more responsive to industrial policy. In addition, sectors dominated by state-owned enterprises (SOEs) benefit more when there is an industrial policy announcement, while policies in SOE-dominated sectors will crowd out credit to other sectors, because SOEs are less risky, both economically and politically. Therefore, banks face a trade-off between political pressure and profitability in response to industrial policy, leading to distortions of financial resource allocation in favor of SOEs. |
| Keywords: | Industrial Policy; State Ownership; Bank Credit |
| Date: | 2024–12–23 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/262 |
| By: | Henri-Louis Vedie |
| Abstract: | L’Afrique est plurielle, comme le sont les investissements chinois sur son continent. Cette étude montre que, contrairement à ce que l’on mettait en avant durant la décennie 2010, ces investissements ne se limitent pas à l’exploitation du sous-sol africain. Les opérateurs chinois, privilégiant le long terme, se montrent le plus souvent patients et discrets, ne ciblant pas les seuls investissements miniers. Concernant les secteurs principalement bénéficiaires de ces investissements, cette étude en recense une dizaine, le secteur des transports et celui de l’énergie mobilisant à eux seuls 60 % de l’enveloppe sur la période 2005-2013. Enfin, aujourd’hui l’Algérie et l’Ethiopie sont les deux pays principalement concernés par cette présence. Cette analyse a été initialement publiée dans le rapport " MONNAIES, FINANCES, DÉVELOPPEMENTS - 62e Congrès de l’Association Internationale des Economistes de Langue Française". |
| Date: | 2023–03 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbcoen:pbnn_29 |
| By: | International Monetary Fund |
| Abstract: | 2024 Selected Issues |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2024/363 |
| By: | Thea Kolasa (University of Zurich - Department of Finance; Swiss Finance Institute); Steven Ongena (University of Zurich); Chris Humphrey (ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)) |
| Abstract: | Multilateral development banks (MDBs) play a key role in development finance. MDBs raise capital by issuing a substantial quantity of bonds, both in terms of face value and volume. We are the first to analyze the bond issuance behavior and yield spread determinants of MDBs. Our findings highlight the increase in bond issues over time, driven by new MDB establishments and an increase in bonds issued per MDB. We also observe a shift from long-term to short-term bonds post-global financial crisis. Additionally, our analysis identifies factors such as credit ratings, governance indicators, and shareholder conflict as determinants of bond yield spreads. |
| Keywords: | Development finance, bonds, multilateral development banks |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2487 |
| By: | Thea Kolasa (University of Zurich - Department of Finance; Swiss Finance Institute); Steven Ongena (University of Zurich); Chris Humphrey (ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)) |
| Abstract: | We show that credit rating downgrades do not consistently impact multilateral development banks (MDBs) in the same way as they do firms and sovereigns. Unlike other entities, MDBs do not experience significant market reaction in bond yield spreads following credit rating downgrades. Additionally, downgrades of shareholder countries' credit ratings do not systematically affect bond yield spreads for MDBs. The study suggests that the unique attributes of MDBs, such as preferred creditor treatment and callable capital, may account for these differences. Furthermore, MDBs' bond issuance behavior is not significantly altered by credit rating downgrades. |
| Keywords: | Development finance, bonds, multilateral development banks |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp24100 |
| By: | Morelli, Salvatore; Asher, Twisha; Di Biase, Frincasco; Disslbacher, Franziska (Vienna University of Economics and Business); Flores, Ignacio; Giangregorio, Luca; Johnson, Adam Rego; Longmuir, Max; Rella, Giacomo; Schechtl, Manuel |
| Abstract: | The GC Wealth Project has launched an updated version of its data warehouse. Key improvements include new data concepts, refinements to the structure of existing databases, and expanded coverage of regions, countries, and time periods. Updates have been made to the sections on Wealth Topography, Wealth Inequality Trends, and Estate, Inheritance, and Gift Taxes (EIG). Furthermore, a new section dedicated to Inheritance Trends is scheduled for release in the coming months. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:pwm2e |
| By: | Brunetti, Roberto; Gaigné, Carl; Moizeau, Fabien |
| Abstract: | We examine the role of land in wealth dynamics, and its consequences on efficiency and inequality by focusing on the interplay among agents’ bidding for location, mortgage market imperfections, and inheritance. We develop a model in which altruistic agents leave to their heirs a financial bequest and their housing wealth. The borrowing constraint generates a housing return premium and spatial wealth sorting, which translate into persistent inequality. Since altruism and the borrowing constraint distort land price formation, we discuss different corrective tax schedules. Land taxation cannot be disconnected from inheritance taxation, and must be levied on the inheriting generation. |
| Keywords: | Community/Rural/Urban Development, Consumer/Household Economics, Land Economics/Use, Public Economics |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:ags:inrasl:348477 |
| By: | Manthos D. Delis (Audencia Business School); Emilios C. Galariotis (School of Production Engineering and Management); Maria Iosifidi (Montpellier Business School); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Corporate taxation can have redistributive effects on income and wealth. We hypothesize and empirically establish such an effect working via bank credit. We use a unique sample of small majority- owned firms that apply for credit, where only some firms (treated) experience a corporate tax cut. We show that after the decrease in corporate tax rates, the treated poorer business owners get easier access to credit. However, this policy also considerably increases loan amounts and decreases loan spreads for the treated richer. Ultimately, reducing the corporate tax rate predominantly increases the future income and wealth of richer business owners. |
| Keywords: | Corporate taxes, Economic inequality, Bank credit, Credit score |
| JEL: | G20 G21 H25 D63 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2481 |
| By: | Carol C. Bertaut; Stephanie E. Curcuru; Ester Faia; Pierre-Olivier Gourinchas |
| Abstract: | The allocative efficiency of capital flows is one of the oldest and most contentious questions. We answer it by matching cross-border securities holdings reported in the US external statistics from 1995 to 2022 with the corresponding firm-level measures of allocative efficiency. We find that US investors tilt their international equity investment toward firms with high MRPK and markups, thereby fostering their potential for growth. Foreign investors tilt their holdings toward US firms with high productivity and intangible capital. A horse race shows that productivity is the best predictor of foreign investment in US firms and MRPK for US investment in foreign firms. Both US and foreign firms that receive more international funding increase spending on intangible capital, and foreign firms also increase tangible capital. The results are stronger for more productive firms. |
| Keywords: | Productivity; Capital allocation; capital flows |
| JEL: | E20 F30 F60 |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1399 |
| By: | Bertay, Ata (Tilburg University, School of Economics and Management); Huizinga, Harry (Tilburg University, School of Economics and Management) |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:c755d114-ca99-4591-be7d-9a1093df9e13 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Evidence from a 160-year-long panel of U.S. banks suggests that the ultimate cause of bank failures and banking crises is almost always a deterioration of bank fundamentals that leads to insolvency. As described in our previous post, bank failures—including those that involve bank runs—are typically preceded by a slow deterioration of bank fundamentals and are hence remarkably predictable. In this final post of our three-part series, we relate the findings discussed previously to theories of bank failures, and we discuss the policy implications of our findings. |
| Keywords: | bank runs; financial crises; deposit insurance; bank failures |
| JEL: | G01 G2 |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99176 |
| By: | Po-Lin Chen (Graduate School of Economics, Waseda University) |
| Abstract: | I estimate a structural model of the Japanese bank deposit market, and evaluate the welfare impact of the mega-bank mergers in the early 2000s. Banks compete for deposits through their deposit rates to achieve profit maximization, whereas depositors choose among banks with given deposit rates. The estimation results show that depositors’ demand is insensitive to the deposit rate. Moreover, I find that the demand for deposits decreases when banks experience financial distress, even with deposit insurance coverage. Furthermore, when calculating welfare, I find that most of the mega-bank mergers lead to a reduction in consumer surplus compared with the counterfactual case of no mergers. The contributions of this study are that it quantifies the welfare effect of the mergers for the deposit market in Japan, where the financial market is heavily dominated by banks, and that it is likely to encourage future research on bank consolidation in Japan, which may contribute to verifying and resolving the long-discussed problem of overbanking in the Japanese financial market. |
| Keywords: | : : Deposit market; Discrete choice; Consumer welfare; Banking; Mergers and acquisitions |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2408 |
| By: | W. Blake Marsh; David Rodziewicz; Rajdeep Sengupta |
| Abstract: | We exploit the 2014 decline in oil prices to understand how banks change contract terms for distressed firms. Using panel data on new and existing loans, we find that firms most financially affected by the 2010 oil price shock initially increased their use of credit. However, those same firms ultimately saw increased borrowing costs, smaller loan sizes, and fewer originations and renewals than less affected firms as the oil price decline persisted. We then demonstrate that credit spreads rose more than might be predicted based on changes in firm risk alone, suggesting that lending standards tightened for distressed firms. Our results suggest that bank credit can cushion the effect of transitory economic shocks while amplifying more persistent downturns. |
| Keywords: | bank credit; loan standards; financial accelerator; oil price shocks |
| JEL: | E44 G21 G28 |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:99295 |
| By: | Mathias Drehmann; Mikael Juselius; Sarah Quincy |
| Abstract: | This paper reviews the debt service ratio (DSR) as a theoretically well-grounded indicator of systemic risk. The DSR has the desirable feature that it fluctuates around a stable level which makes its early warning signals easy to understand and communicate. In contrast, current early warning indicators (EWIs) based on credit-developments lack clear economic interpretations and require statistical detrending, which can reduce their accuracy and usefulness for macroprudential policymakers. The review of the literature shows that the DSR provides highly accurate early warning signals for crises and future economic slowdowns, outperforming traditional credit-based indicators. By extending the measurement of the DSR back to the 1920s – a novel contribution in this paper – we demonstrate its EWI effectiveness across different historical periods and show that the DSR acts as an upper limit on benign financial deepening. The paper also outlines questions for future research. |
| JEL: | E32 E44 G01 N20 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33306 |
| By: | Anusha Chari; Karlye Dilts Stedman; Christian T. Lundblad |
| Abstract: | A new, high frequency measure of investor sentiment outperforms similar measures in forecasting investment activity in emerging markets. |
| Keywords: | risk-on/risk-off; global investor risk aversion; extreme events; tail risk; portfolio reallocation; return predictability |
| JEL: | F21 F36 F65 G11 G12 G15 G23 |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:99293 |
| By: | Mahalakshmi Manian (Research Scholar); Parthajit Kayal ((corresponding author), Assistant Professor Madras School of Economics, Chennai) |
| Abstract: | This research investigates the phenomenon of economic or financial bubbles within the Indian stock market context, characterized by pronounced asset price inflation exceeding the intrinsic worth of the underlying assets. Leveraging data from the NIFTY 500 index spanning the period 2003 to 2021, the study utilizes the Phillips, Shi, and Yu (PSY) method (Phillips et. al., 2015b), which employs a right-tailed unit root test, to discern the presence of financial bubbles. Subsequently, machine learning algorithms are employed to predict real-time occurrences of such bubbles. Analysis reveals the manifestation of financial bubbles within the Indian stock market notably in the years 2007 and 2017. Moreover, empirical evidence underscores the superior predictive efficacy of Artificial Neural Networks, Random Forest, and Gradient Boosting algorithms vis-à-vis conventional statistical methodologies in forecasting financial bubble occurrences within the Indian stock market. Policymakers should use advanced machine learning techniques for real-time financial bubble detection to improve regulation and mitigate market risks. |
| Keywords: | Financial Bubbles; Machine Learning; K-nearest Neighbour; Random Forest Classifier; Artificial Neural Network; Naïve Bayes |
| JEL: | G1 G2 G3 C1 C5 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:mad:wpaper:2024-270 |
| By: | Rasamoelison, Andrianantenaina Michel Edouard |
| Abstract: | The aim of this research is to estimate the term structure of interest rates in Madagascar using the Nelson-Siegel model. The Malagasy financial market consists mainly of the money market, given the absence of a stock exchange and an underdeveloped bond market. This study uses monthly data on treasury bills with maturities of 1, 3, 6, 9 and 13 months for the period from February 2018 to November 2022. Non-linear regression was employed to estimate the model parameters (β0, β1, β2, and λ) using R software. The results indicate the suitability of the Nelson-Siegel model in capturing the observed dynamics of the yield curve, demonstrating a close relationship between estimated and observed rates. The main results show positive and stable long-term yield levels (β0), negative slope coefficients (β1) suggesting potential short-term monetary policy effects, and medium-term curvature factors (β2) reflecting market sensitivity. Despite negative slopes, the yield curve shows an upward trend, highlighting a unique interaction between the coefficients and the underlying macroeconomic environment. This study highlights the applicability of the Nelson-Siegel model to the Malagasy context, and provides insight into the structure of interest rates in an emerging financial market. Future research could explore extensions such as the Svensson model to refine understanding and forecasting capabilities. |
| Keywords: | Keywords : Nelson-Siegel model, Madagascar, term structure of interest rates, monetary policy, financial markets. |
| JEL: | E43 |
| Date: | 2024–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123128 |
| By: | Joaquín Bernal-Ramírez; Carlos A. Arango-Arango; Luis Eduardo Castellanos-Rodríguez |
| Abstract: | En este documento se analiza la evolución del sistema de pagos en Colombia en los cien años transcurridos desde la creación del Banco de la República. El análisis recorre los desarrollos institucionales y hechos estilizados de las tendencias de largo plazo en la adopción, uso y declive relativo del efectivo y el cheque, los cuales dominaron el panorama de pagos durante prácticamente todo el siglo XX, y explora los factores macroeconómicos que han determinado su demanda. Alrededor de esta última se ilustran hitos relevantes del avance del sistema financiero en estos cien años desde una óptica novedosa y poco explorada en nuestro país y en América Latina, y se contextualiza la emergencia de innovaciones en instrumentos y medios de pago electrónicos en busca de reducir costos transaccionales, en un mercado de gran dinamismo desde finales de los años noventa del siglo pasado y las primeras décadas del siglo XXI. **** This document analyzes the evolution of the payment system in Colombia over the hundred years since the creation of the Banco de la República. The analysis covers institutional developments and stylized facts of long-term trends in the adoption, use, and relative decline of cash and checks, which dominated the payment landscape throughout almost the entire 20th century. It explores the macroeconomic factors that have driven their demand. The document illustrates relevant milestones in the advancement of the financial system over these hundred years from a novel and little-explored perspective in Colombia and in Latin America. It also contextualizes the emergence of innovations in electronic payment instruments and methods, aiming to reduce transactional costs in a highly dynamic market since the late 1990s and the first decades of the 21st century. |
| Keywords: | sistema monetario, sistema de pagos, cheques, efectivo, pagos electrónicos, historia financiera de América Latina, compensación interbancaria, medios de pago, instrumentos de pago, monetary system, payment system, checks, cash, electronic payments, financial history of Latin America, interbank clearing, means of payment, payment instruments |
| JEL: | E40 E41 E42 E44 N26 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1290 |
| By: | Michell Yoonjei Dong (Green Climate Fund); Hee-Seung Yang (Yonsei University) |
| Abstract: | This paper examines the impact of an earthquake in Indonesia on children’s school and work activities and how that relationship differs by access to credit. We find that the earthquake decreases educational attainment while increasing child labor and the effect is stronger for households with access to credit. Following the 2006 Yogyakarta earthquake, years of schooling for earthquake-affected children aged 7-14 decreased by 0.5 years, but the effect was stronger for those living close to a microfinance institution. Heterogeneity in treatment effects suggests that the opportunity cost of schooling increases as households with micro-loans open up businesses. Our finding indicates the complementary effect between credit and child labor and suggests the need for policies to increase educational investment when providing micro-loans to help households affected by shocks. |
| Keywords: | natural disaster, earthquake, education, child labor, microfinance, Indonesia |
| JEL: | I20 O12 J13 H81 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2024rwp-235 |
| By: | Pamela Cardozo; Andrés Fernández; Jerzy Jiang; Felipe D Rojas |
| Abstract: | Cross-border crypto flows (CBCFs) are not systematically measured and are poorly understood. After defining CBCFs and the channels through which they materialize, we review the various approaches to measure them through two case studies. We also quantify the dynamics and drivers of CBCFs through a push/pull factor SVAR model. We find an increasingly large volume of CBCFs, although considerable heterogeneity remains across estimates. Furthermore, CBCFs are more sensitive to push factors than regular capital flows. Our findings call for accurate and comprehensive measurement and monitoring of CBCFs and the need to rethink capital account restrictions in a more digitalized world. |
| Keywords: | Crypto assets; cross-border flows; capital flows; measurement; push-pull factors; capital account restrictions |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/261 |
| By: | Barbaglia, Luca (European Commission - JRC); Bellia, Mario (European Commission - JRC); Di Girolamo, Francesca (European Commission - JRC); Rho, Caterina (European Commission - JRC) |
| Abstract: | Digital and crypto currencies are becoming an integral part of financial markets. Nevertheless, regulation of these markets seems still at an early stage and the literature evaluating the impact of policy interventions is scarce. We investigate the reaction of crypto markets in the aftermath of a policy announcement using textual information from news and sentiment analysis. Our findings are threefold. First, there is evidence of peaks in news about crypto-assets in correspondence of the date of new developments in EU legislation, in particular about Central Bank Digital currencies. Second, we find that both returns of cryptocurrencies and general stock market returns are directly proportional to the news sentiment about crypto markets. Third, our event study shows that the introduction of regulation on digital and crypto currencies is perceived as a negative shock by financial markets, especially for digital currencies. |
| Keywords: | cryptocurrencies, digital finance, text mining |
| JEL: | C55 E42 G41 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:jrs:wpaper:202407 |
| By: | Mary Amiti; Matthieu Gomez; Sang Hoon Kong; David E. Weinstein |
| Abstract: | During 2018-19, the U.S. levied import tariffs of 10 to 50 percent on more than $300 billion of imports from China, and in response China retaliated with high tariffs of its own on U.S. exports. Estimating the aggregate impact of the trade war on the U.S. economy is challenging because tariffs can affect the economy through many different channels. In addition to changing relative prices, tariffs can impact productivity and economic uncertainty. Moreover, these effects can take years to become apparent in the data, and it is difficult to know what the future implications of a tariff are likely to be. In a recent paper, we argue that financial market data can be very useful in this context because market participants have strong incentives to carefully analyze the implications of a tariff announcement on firm profitability through various channels. We show that researchers can use movements in asset prices on days in which tariffs are announced to obtain estimates of market expectations of the present discounted value of firm cash flows, which then can be used to assess the welfare impact of tariffs. These estimates suggest that the trade war between the U.S. and China between 2018 and 2019 had a negative effect on the U.S. economy that is substantially larger than past estimates. |
| Keywords: | trade war; tariffs; stock returns |
| JEL: | F13 F14 |
| Date: | 2024–12–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99230 |