Financial Development and Its Effect on Inequality: A Case of Fair Profit Maximization, Favoritism, or Discrimination?

2020 ◽  
Vol 66 (3) ◽  
pp. 179-207
Author(s):  
Yaron Zelekha ◽  
Michal Weber
Keyword(s):  
Small Business ◽  
Financial Development ◽  
Profit Maximization ◽  
Financial System ◽  
Policy Implications ◽  
Financial Systems ◽  
Important Policy ◽  
Negative Effect ◽  
Majority Groups

Financial development negatively affects inequality and poverty in many countries. This research uniquely examines whether the negative effect of financial development on inequality in Israel is also significantly dependent on the gender, ethnic, and religious characteristics of the population. The results suggest that a part of the role that underdeveloped financial systems play in inequality may be due to favoritism toward advantaged majority groups regarding allocation of small business credit. The research has important policy implications regarding the role of financial system regulation and the effect of favoritism in determining inequality and poverty patterns.

The persistent effect of banking crises on investment and the role of financial markets

2014 ◽  
Vol 6 (1) ◽  
pp. 64-77 ◽  
Author(s):  
Felix Rioja ◽  
Fernando Rios-Avila ◽  
Neven Valev
Keyword(s):  
Financial Markets ◽  
Financial Development ◽  
Banking Crisis ◽  
Banking Crises ◽  
Output Growth ◽  
Long Term Effects ◽  
Content Type ◽  
Negative Effect

Purpose – While the literature studying the effect of banking crises on real output growth rates has found short-lived effects, recent work has focused on the level effects showing that banking crises can reduce output below its trend for several years. This paper aims to investigate the effect of banking crises on investment finding a prolonged negative effect. Design/methodology/approach – The authors test to see whether investment declines after a banking crisis and, if it does, for how long and by how much. The paper uses data for 148 countries from 1963 to 2007. Econometrically, the authors test how banking crises episodes affect investment in future years after controlling for other potential determinants. Findings – The authors find that the investment to GDP ratio is on average about 1.7 percent lower for about eight years following a banking crisis. These results are robust after controlling for credit availability, institutional characteristics, and a host of other factors. Furthermore, the authors find that the size and duration of this adverse effect on investment varies according to the level of financial development of a country. The largest and longer-lasting decrease in investment is found in countries in a middle region of financial development, where finance plays its most important role according to theory. Originality/value – The authors contribute by finding that banking crisis can have long-term effects on investment of up to nine years. Further, the authors contribute by finding that the level of development of the country's financial markets affects the duration of this decrease in investment.

scholarly journals Information asymmetry and conditional financial sector development

2017 ◽  
Vol 9 (4) ◽  
pp. 372-392
Author(s):  
Simplice Asongu ◽  
Jacinta Nwachukwu
Keyword(s):  
Information Asymmetry ◽  
Financial Development ◽  
Financial Sector ◽  
Policy Implications ◽  
African Countries ◽  
Content Type ◽  
Mean Values ◽  
Financial Sector Development ◽  
Negative Effect ◽  
The Impact

Purpose The purpose of this study is to examine the role of reducing information asymmetry (IA) on conditional financial sector development in 53 African countries for the period 2004-2011. Design/methodology/approach The empirical evidence is based on contemporary and non-contemporary quantile regressions. Instruments for reducing IA include public credit registries (PCRs) and private credit bureaus (PCBs). Hitherto unexplored dimensions of financial sector development are used, namely, financial sector dynamics of formalization, informalization, semi-formalization and non-formalization. Findings The following findings are established. First, the positive (negative) effect of information sharing offices (ISO) on formal (informal) financial development is consistent with theory. Second, ISOs consistently increase formal financial development, with the incidence of PCRs higher in terms of magnitude, and financial sector formalization, with the impact of PCBs higher for the most part. Third, only PCBs significantly decrease informal financial development and both ISOs decrease financial sector informalization. Policy implications are discussed. Originality/value The study assesses the effect of reducing IA on financial development when existing levels of it matter because current studies based on mean values of financial development provide blanket policy implications which are unlikely to be effective unless they are contingent on prevailing levels of financial development and tailored differently across countries with high, intermediate and low initial levels of financial development.

The role of institutions in output growth volatility-financial development nexus

2016 ◽  
Vol 43 (6) ◽  
pp. 910-927 ◽  
Author(s):  
Ibrahim Dolapo Raheem ◽  
Kazeem Bello Ajide ◽  
Oluwatosin Adeniyi
Keyword(s):  
Financial Development ◽  
Measurement Errors ◽  
Output Growth ◽  
Policy Implications ◽  
Output Volatility ◽  
Reverse Causality ◽  
Data Set ◽  
Content Type ◽  
Growth Volatility

Purpose The purpose of this paper is to investigate the role of institutions in the financial development-output growth volatility nexus. It provides new channels through which financial development can dampen the output growth volatilities of the countries under investigation. Design/methodology/approach A comprehensive data set for 71 countries covering the period from 1996 to 2012 and the System GMM approach were used. The choice of the methodology is to deal with endogeneity issues such as measurement errors, reverse causality among other issues. Findings A number of findings were emanated from the empirical analysis. First, the estimates provided evidence of the volatility-reducing effect of financial development. Second, institutions do not have the same reducing influence on output growth volatility. Third, the interaction of financial development and institutions showed that the output volatility reduction arising from financial development is enhanced in the presence of improved institutions. Research limitations/implications The policy implications derived from this study are in twofolds: first, it is important for policymakers to formulate policies that would ensure and enhance the development of the financial sectors, since its importance in minimizing output volatility has been established. Second, institutional quality should be developed so as to further enhance the growth volatility-reducing influence of financial development. Particularly, institutions should be improved along the multiple dimensions captured in the analysis. Originality/value To the best knowledge, the novelty of this study to the literature is the introduction of institutions, which is hypothesized to increase the dampening effects of financial development in output growth volatility.

scholarly journals Does Foreign Aid Promote Financial Development in the Economic Community of West African States (ECOWAS)?

2020 ◽  
Vol 5 (2) ◽  
pp. p39
Author(s):  
W. Jean Marie Kébré
Keyword(s):  
Foreign Aid ◽  
Financial Development ◽  
Developed Countries ◽  
Ordinary Least Squares ◽  
West African ◽  
International Financial Institutions ◽  
Economic Community ◽  
Development Indicators ◽  
Negative Effect

This article analyzes relationship between foreign aid and financial development in ECOWAS countries. These countries receive aid flows from developed countries and from international financial institutions. The article’s idea is to evaluate this aid effects on financial development and to assess role of governance on this relationship. The analysis uses panel data from ECOWAS countries over the period 1984-2016. The estimations’ results, based on Dynamic ordinary least squares (DOLS) estimator, show that aid is negatively and significantly linked with financial development indicators used. These results suggest that aid is an obstacle to financial development. Governance role tests do not change the negative effect of aid on financial development. However, the magnitude of the negative effect of interactive variables (with governance variables) is less than aid direct effect on financial development. These results suggest that an additional effort to improve governance in these countries would reduce aid negative effect on financial development, or even reverse this effect.

scholarly journals How Does Institutional Quality Moderate the Influence of Financial Development on Environmental Pollution? Evidence From G20 Countries

2021 ◽  
Author(s):  
Toyo Amegnonna Marcel Dossou ◽  
Emmanuelle Kambaye Ndomandji
Keyword(s):  
Environmental Pollution ◽  
Co2 Emissions ◽  
Financial Development ◽  
Institutional Quality ◽  
Moderating Effect ◽  
Policy Implications ◽  
Standard Errors ◽  
Negative Effect ◽  
The Relationship ◽  
Econometric Technique

Abstract Unlike previous studies that focused mainly on the relationship between financial development and CO2 emissions, the current study examined the moderating effect of institutional quality on the influence of financial development on environmental pollution in G20 countries over the period 2003-2015. The panel corrected standard errors (PCSE) is employed as an econometric technique. The findings are established as follows: First, the findings show that institutional quality appears to have a mixed (positive and negative) effect on environmental pollution. Second, the findings show that financial development has mixed (positive and negative) effect on environmental pollution. Third, the findings also show that the interaction between institutional quality and financial development has a negative and statistically significant on environmental pollution, meaning that institutional quality complements financial sector to reduce environmental pollution. Policy implications are discussed.

The Need for News Forms of Financial Intermediation

2017 ◽  
pp. 143-161
Author(s):  
Tristan Auvray ◽  
Thomas Dallery ◽  
Sandra Rigot
Keyword(s):  
Economic Growth ◽  
Institutional Investors ◽  
Financial Intermediation ◽  
Financial System ◽  
Financial Sector ◽  
Policy Implications ◽  
Financial Intermediaries

This chapter deals with intermediaries in the financial sector such as banks and institutional investors. These actors are expected to play a central role in economic growth via the funding of investment because they are supposed to match creditors' desires (households) with borrowers' needs (firms) at a macroeconomic level. It aims to reassess the theoretical role of financial intermediation related to the allocation of savings in a context of a structural decline in overall investment for thirty years. To achieve this goal, it studies the evolution of financial intermediaries' behaviour in their capacity to finance investment and identifies the weaknesses of our current financial system which does not allocate optimally savings to firms' productive projects. Then it suggests some policy implications defining new forms of financial intermediation in which public financial intermediaries would have to play a greater role.

The Need for News Forms of Financial Intermediation

2020 ◽  
pp. 1978-1996
Author(s):  
Tristan Auvray ◽  
Thomas Dallery ◽  
Sandra Rigot
Keyword(s):  
Economic Growth ◽  
Institutional Investors ◽  
Financial Intermediation ◽  
Financial System ◽  
Financial Sector ◽  
Policy Implications ◽  
Financial Intermediaries

This chapter deals with intermediaries in the financial sector such as banks and institutional investors. These actors are expected to play a central role in economic growth via the funding of investment because they are supposed to match creditors' desires (households) with borrowers' needs (firms) at a macroeconomic level. It aims to reassess the theoretical role of financial intermediation related to the allocation of savings in a context of a structural decline in overall investment for thirty years. To achieve this goal, it studies the evolution of financial intermediaries' behaviour in their capacity to finance investment and identifies the weaknesses of our current financial system which does not allocate optimally savings to firms' productive projects. Then it suggests some policy implications defining new forms of financial intermediation in which public financial intermediaries would have to play a greater role.

Resource–Economic Growth Nexus, Role of Governance, Financial Development, Globalisation and War: Dynamic Approach

2019 ◽  
Author(s):  
Sorush Niknamian
Keyword(s):  
Economic Growth ◽  
Time Series ◽  
Financial Development ◽  
Time Series Data ◽  
Good Governance ◽  
Series Data ◽  
Negative Effect ◽  
The Government ◽  
Rich Countries

This study reassesses the resource–economic growth nexus by incorporating several channels. Advanced panel time series techniques are used to analyse panel time series data from 1980 to 2015 in 31 oil-rich countries. Results show that oil rent augments economic growth; thus, oil rent is conducive rather than impediment for economic growth. The role of governance in economic growth is significant in the selected countries. Oil rent exerts a positive significant impact on economic growth in countries with good governance compare to countries with poor governance. Financial development is an unimportant channel in the resource–growth nexus because FD is often unable to mobilise oil rent from the government to the private sector in oil-rich countries. Globalisation is advantageous for countries and promote economic growth. Moreover, war exerts a significant negative effect on growth in the long term.

scholarly journals The Effects of the Exchange Rate on Value-Added International Trade to Enhance Free Trade Sustainability in GVCs

2019 ◽  
Vol 11 (10) ◽  
pp. 2740 ◽  
Author(s):  
Myoung Shik Choi ◽  
Bongsuk Sung ◽  
Woo-Yong Song
Keyword(s):  
International Trade ◽  
Exchange Rate ◽  
Free Trade ◽  
Bilateral Trade ◽  
Value Added ◽  
Policy Implications ◽  
Negative Effect ◽  
The Exchange Rate ◽  
Positive Effect

This study investigates the role of value-added bilateral trade focused on global value chains to achieve sustainable economic development. Our findings address trade policy implications that help to mitigate the global imbalances and exchange rate conflicts. These policies are expected to provide a competitive advantage that can be crucial to the sustainability of free trade. We apply traditional trade models to the value-added framework to examine the effects on value-added trade. Empirically, we investigate the bilateral value-added trade for recent years. Our major findings are that currency devaluation has a positive effect on value-added exports but has a negative effect on gross exports because of the effect on intermediate goods trading dominating the effect on international trade, i.e., the effect on foreign content of intermediate imports dominating the effect on the domestic content of exports. The same effect applies to imports. Also, we confirm that foreign income has a positive effect on exports and value-added exports, and domestic income has a positive effect on imports and value-added imports. However, their effects on trade balance are not consistent. Our major findings imply that the analysis of value-added trade can best contribute to the sustainability of global free trade by considering trade policies as a result of reflecting the easing of the global imbalance and the exchange rate war.

scholarly journals Resource–Economic Growth Nexus, Role of Governance, Financial Development, Globalisation and War: Dynamic Approach

2019 ◽  
Author(s):  
Sorush Niknamian
Keyword(s):  
Economic Growth ◽  
Time Series ◽  
Financial Development ◽  
Time Series Data ◽  
Good Governance ◽  
Series Data ◽  
Negative Effect ◽  
The Government ◽  
Rich Countries

This study reassesses the resource–economic growth nexus by incorporating several channels. Advanced panel time series techniques are used to analyse panel time series data from 1980 to 2015 in 31 oil-rich countries. Results show that oil rent augments economic growth; thus, oil rent is conducive rather than impediment for economic growth. The role of governance in economic growth is significant in the selected countries. Oil rent exerts a positive significant impact on economic growth in countries with good governance compare to countries with poor governance. Financial development is an unimportant channel in the resource–growth nexus because FD is often unable to mobilise oil rent from the government to the private sector in oil-rich countries. Globalisation is advantageous for countries and promote economic growth. Moreover, war exerts a significant negative effect on growth in the long term.

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