Bank-based Financial Development Research Articles

Remittance inflows and financial development in Sub-Saharan African countries: Does governance matter?

BackgroundThe surge in remittances in most sub-Saharan African countries motivated this study to establish whether remittance inflows enhance financial development and whether governance plays any significant mediating role in the nexus between financial development and remittance inflows. PurposeThe study examines the impact of remittance inflows on bank-based financial development in 26 sub-Saharan African (SSA) countries using three proxies of bank-based financial development. The study also examines whether government regulatory quality and effectiveness modulate the impact of remittance on bank-based financial development. MethodThe generalised method of moments (GMM) estimation technique is used to examine this linkage. ResultsThe results show that when financial development is proxied by liquid liabilities and bank deposits, remittance inflow is found to have an unconditional positive impact on bank-based financial development, while governance is found to reinforce the positive relationship between remittance and financial development. However, when financial development is proxied by deposit money bank assets, remittance is found to have no profound effect on bank-based financial development, but it was found to interact with government effectiveness to yield a positive influence on financial development. ConclusionOverall, remittance inflows were found to have an overwhelming positive impact on the banking sector development. It was also found that good governance generally tends to reinforce the positive impact of remittances on banking sector development. NoveltyThis study adds value to the extant literature by providing answers to the role that governance plays in enhancing the impact of remittances on financial development in sub-Saharan African countries.

Exploring the Causal Links of Public Spending on Bank-Based Financial Development in African Economies

This work examined the causal impact of types of government spending on bank-based financial development. It tests the influences of both government productive and non-productive spending on bank-based financial development. Selected 37 African economies between 1980-2018 were sampled. Both the short –run and long –run effects were assessed using either Feasible Generalized Least Squares (FGLS), Mean Group (MG), Pooled Mean Group (PMG) and Dynamic Common Correlated Effects Mean Group (DCCEMG) estimators. Evidences support the hypotheses that both types of spending contribute positively to bank-based financial development. Bank-based financial development is more responsive to non-productive spending than it is to productive spending. Also, confirm the supportive roles of trade openness and GDP per capita, and the detriment of inflation to bank-based financial development. This study comprehensively unearths the impact of government spending on bank-based financial development in Africa by isolating spending into productive and non-productive types. Governments need to promote dual policies that address spending and financial development. They should avoid detrimental spending and promote enhancing spending within each type above. Spending that attract private agents, investments, saving, and liquidity in the financial sector, trade openness, and economic output should be promoted since these enhances bank-based financial development.

Government expenditure impacts on financial development: Do population age structures moderations matter?

PurposeThis study examined the roles of public spending and population moderating characteristic structure of selected African economies on bank-based financial development through credit to private sector.Design/methodology/approachThe study sampled 37 selected African economies for the years 1991–2018, and it applied a pooled mean group (PMG) estimator to account for short-run and long-run causal effects, and confirmed short-run adjustments towards the long-run convergences between the variables. Specific suitable tests were also applied.FindingsEvidence confirms positive impacts of both capital formation and final consumption expenditures on financial development in the short run and long run. The moderation of population structures on expenditure structures help to speed up convergences.Originality/valueThis work attests its innovation by accounting for the separate effects of the expenditure types, the moderation effects of young and mature populations for capital and final consumption expenditure on financial development among selected economies in Africa.

DOES TOURISM INFLUENCE FINANCIAL DEVELOPMENT IN KENYA?

Objective: In this study, we investigate the impact of tourism on financial development in Kenya using time series data from 1995 to 2017. The study uses the autoregressive distributed lag (ARDL) bound testing approach to cointegration and error correction model to examine this connection. To increase the robustness of the results, the study uses two proxies of financial development, namely broad money (bank-based financial development proxy) and total value of stocks traded (market-based financial development proxy). Results show that tourism has an insignificant impact on financial development in Kenya – both in the short run and in the long run. The results are relevant regardless of whether the financial development is proxied by a bank-based financial development indicator or by a market-based financial development indicator. This finding points to the fact that, although tourism is one of the main sources of foreign exchange in Kenya, it has no direct impact on financial development. The findings from this study add value to policy makers in Kenya by revealing the insignificant impact that tourism has on financial development, although this is in contrast to other studies that found a positive contribution. Based on the findings, Kenya may not anchor its financial development policies on tourism.

The effect of financial development on economic Growth: Evidence from south Asian developing countries

The debate on financial development and economic growth has been comprehensively growing for a long time in the theoretical and empirical literature but there is still conflicting views on this association. Several studies have been conducted on different regions and countries whether banks or stock market finance have any influence on economic growth but the results are still far from a significant conclusion. The empirical findings inclined the view that both banks and stock markets have positive impact on economic growth however some studies support the negative association which may varies on different sample of countries, methodology of the study, proxies for financial development and over time. Based on the ongoing debate, the current study examines the impact of both stock markets and bank based financial development on economic growth in four developing countries of south Asia for the period of 1980-2017. The study use static, dynamic and long run estimators to efficiently investigate this association. The outcomes specify that both market-based and bank-based financial development indices affect economic growth significantly and positively which indicates that the development of banking system and stock markets perform a very propounding role in strengthening economic growth in the sample countries. The long-run estimators also confirm the presence of long run association between variables. The robustness tests confirm the results of all models that both banks and stock markets development are important and contribute to economic growth in the same way in the sample countries and can’t be differentiated. The findings of this study have important policy suggestions to the sample countries government’s channels, regulatory and supervisory efforts on further improvement of both stock markets and bank-based development in order to attain higher economic growth.

Does financial development influence renewable energy consumption to achieve carbon neutrality in the USA?

In order to achieve the goal of carbon neutrality, as defined in the Paris climate agreement, the United States, the second-largest greenhouse gas emitter, must intensify its use of zero-carbon sources such as renewable energy. In this paper, we use the nonlinear autoregressive distributed lags (NARDL) model to investigate the influence of financial development on renewable energy consumption in the U.S. from 1975Q1 to 2019Q4. More precisely, three measures of financial development are considered: the overall financial development, bank-based financial development, and stock-based financial development indices. The model is augmented to control for the effects of real oil prices, real GDP, and trade openness. The empirical results show evidence of a long-run asymmetric effect of overall and stock-based financial development measures. Positive and negative changes in financial development measures dictate renewable energy consumption. In the short run, only negative changes of overall and stock-based financial development measures significantly impact renewable energy consumption. The latter impact is contemporaneously positive and negative at the one-lagged period. Renewable energy consumption does not react to a short-run change in bank-based financial development. Our empirical findings possess important policy implications.

On the nexus between economic growth and bank-based financial development: evidence from Morocco

ABSTRACT In this paper, we investigate the causal link between bank-based financial development and economic growth in Morocco between 2003 and 2018 using a vector autoregression framework. We test for causality between economic growth and four different measures of bank-based financial development in both the short and the long run. Our results show that bank-based financial development causes economic growth in the short and the long run. Moreover, our results show that economic growth only causes bank-based financial development in the long run. At last, we show that the Moroccan banking sector’s integration with the international financial markets only affects the causal link between economic growth and bank-based financial development by providing short-run liquidity to Moroccan banks. Based on these results, barriers to the financial development of the Moroccan banking sector should be investigated and public policy should focus on designing appropriate policies and programs to alleviate these barriers in order to stimulate the growth of the Moroccan economy.

Impact of financial structure on environmental quality: evidence from panel and disaggregated data

ABSTRACTThis paper examines two unresolved issues regarding the nexus between financial system development and environmental quality. (i) Does the structure of the financial system matter? (ii) Is there a nonlinear relationship? We employ the newly developed dynamic common correlated effect (CCE) and the dynamic panel generalized method of moments (GMM) estimators in order to address potential endogeneity, heterogeneity and cross-sectional dependence in a panel of 58 countries. The panel data analysis reveals that the structure of the financial system matters in safeguarding environmental quality. More precisely, bank-based financial development enhances environmental quality, whereas the impact of market-based financial development is tenuous. We find some evidences of a nonlinear relationship between financial system development and environmental quality. The disaggregated data reveals the countries where financial structure matters for environmental quality, and countries where a nonlinear relationship exists between the variables. Therefore, countries that want to maintain environmental quality should strengthen the development of bank-based financial system. Moreover, effort to develop and reposition the stock markets should be prioritized in countries’ environmental policies with a view to sustaining environmental quality.

Do financial systems spur economic growth in the USA? An empirical investigation

In this paper, we use the autoregressive distributed lag (ARDL) bounds testing approach to examine the dynamic impact of both bank-based financial development and market-based financial development on economic growth in the United States of America (USA) during the period 1980 to 2012. In order to adequately capture the depth and width of the USA?s financial system, we used both bank-based and marketbased financial development indices as proxies for bank-based and market-based financial systems. These indices were constructed from a number of bank- and market-based financial development indicators, using the method of means-removed average. Our empirical results reveal that both bank-based and market-based financial development have a positive impact on economic growth in the USA. These results apply irrespective of whether the regression analysis is conducted in the long run or in the short run. We, therefore, recommend that both pro-bank-based and pro-market-based financial sector development policies should be pursued in the USA - in order to bolster real sector growth and economic development.

Does bank-based financial development spur economic growth Empirical evidence from the Democratic Republic of Congo

Does bank-based financial development spur economic growth Empirical evidence from the Democratic Republic of Congo

Does bank-based financial development spur economic growth Empirical evidence from the Democratic Republic of Congo

In this study, we examined the dynamic causality between financial development and economic growth in the Democratic Republic of the Congo (DRC), using time-series data from 1965 to 2015. Unlike some previous studies, the current study used three proxies to examine this linkage. In addition, the study used savings and inflation as intermittent variables, thereby creating a multivariate Granger-causality model, and limiting the omission-of-variable bias. Using the ARDL bounds testing approach, the study found that there is a short-run causal relationship between financial development and economic growth in the DRC, but the direction of causality is dependent on the proxy used to measure the level of financial development. The study recommends that policy efforts in the DRC should be directed at developing both the financial and the real sectors in the short run as both sectors have been found to be mutually beneficial to each other, in this study.

The Impact of Financial Development on Investment: a Review of International Literature

This article summarises the empirical literature on the impact of financial development on investment. It presents a topical analysis of empirical research that focuses mainly on the interaction between financial development and investment, determinants and measurement of both financial development and investment, and empirical findings on the relationship between the two variables under discussion. The study concludes that most of the research done on the relationship between financial development and investment is highly skewed towards assessing the relationship using mostly bank-based financial development indicators, as compared to the market-based financial development indicators. Given the number of studies assessed, the impact of financial development on investment appears to be inconclusive, at best. Moreover, the study shows that the relationship between these two macroeconomic variables seems to differ from country to country; it is dependent on the proxies used to measure the level of financial development, as well as the methodology employed.

The Impact of Financial Development on Investment: A Review of International Literature

[full article and abstract in English]
 This article summarises the empirical literature on the impact of financial development on investment. It presents a topical analysis of empirical research that focuses mainly on the interaction between financial development and investment, determinants and measurement of both financial development and investment, and empirical findings on the relationship between the two variables under discussion. The study concludes that most of the research done on the relationship between financial development and investment is highly skewed towards assessing the relationship using mostly bank-based financial development indicators, as compared to the market-based financial development indicators. Given the number of studies assessed, the impact of financial development on investment appears to be inconclusive, at best. Moreover, the study shows that the relationship between these two macroeconomic variables seems to differ from country to country; it is dependent on the proxies used to measure the level of financial development, as well as the methodology employed.

Financial Development and Investment in Botswana: A Multivariate Causality Test

Abstract This paper examines the causal relationship between financial development and investment in Botswana between 1976 and 2014. The autoregressive distributed-lag (ARDL) bounds testing approach and a trivariate Granger-causality model are employed. In order to capture the breadth and depth of the financial sector in the study country, both bank- and market-based financial development indices are used. The results show that there is a bidirectional Granger-causal relationship between both bank-based and market-based financial development and investment in the short run. In the long run, a distinct causal flow is found to prevail only from investment to bank-based financial development. Given the findings, the causal relationship between financial development and investment is not a given as implied in economic literature. For Botswana, policies that enhance both investment and market-based financial development should be employed in the short run.

Finance-Growth Nexus Revisited: Empirical Evidence from Six Countries

Abstract This paper investigates the dynamic causal relationship between bank-based financial development and economic growth, and between market-based financial development and economic growth in six countries during the period from 1980 to 2012. The causal relationship was found to vary largely across countries and over time. In general, bank-based financial development seems to Granger-cause economic growth in the UK and only in the long run in Australia. However, there is a feedback loop in Brazil and Australia, but only in the short run for the latter. In Kenya, South Africa and USA, the results support the neutrality hypothesis. The study results further indicate short-run unidirectional causality from market-based financial development to economic growth in the USA. Evidence of the feedback loop was found in Kenya, while the demand-following hypothesis found support only in South Africa and Brazil. However, the neutrality view was supported in Australia and the UK.

South Africa’s Financial Development and its Role in Investment

Abstract This study investigates the impact of financial development on investment in South Africa between 1976 and 2014. The model estimated is based on the flexible accelerator investment model. Composite indices for bank-based and market-based financial development indicators are used as explanatory variables. The estimated model postulates that both bank-based financial development and market-based financial development have an acceleratorenhancing effect on investment. Results show that market-based financial development has a positive impact on investment in the long run, while bank-based financial development has a negative effect in the short run. Implications are that, for South Africa, market-based financial development has a positive accelerator-enhancing effect on investment in the long run. In contrast, bank-based financial development is found to have a negative accelerator enhancing effect on investment in the short run.

Bank Versus Stock Market Development in Brazil: An ARDL Bounds Testing Approach

Abstract This paper examines the impact of both bank-based and market-based financial development on economic growth in Brazil during the period from 1980 to 2012. To incorporate all of the aspects of financial development into the regression analysis, the study employs a method of means-removed average to construct both bank-based and market-based financial development indices. Based on the ARDL approach, the empirical results show that there is a positive relationship between market-based financial development and economic growth in Brazil in the long run, but not in the short run. The results also show that bank-based financial development in Brazil does not have a positive effect on economic growth. This applies irrespective of whether the regression analysis is conducted in the short run, or in the long run. The study, therefore, concludes that it is the stock market, rather than banking sector development, that drives long-run economic growth in Brazil.

Are Banks and Stock Markets Complements Or Substitutes? Empirical Evidence from Three Countries

This paper has tested whether bank-based financial development and market-based financial development are complements of, or substitutes for, one another in enhancing economic growth in the USA, Brazil and Kenya during the period from 1980 to 2012. These three countries represent a modest cross-section of the general financial structure prevalent in many developed and developing countries. Unlike some of the previous studies, the study employs the newly developed ardl-Bounds-testing approach to carry out the test. The study also employs the method of means-removed average to construct both bank-based and market-based financial development indices. The results of this study show that while in the USA and Brazil, bank-based and market-based financial systems complement each other in enhancing economic growth; in Kenya, the two financial systems seem to be substitutes rather than complements.

Bank-based financial development and economic growth in Ghana: an empirical investigation

This paper examines the impact of bank-based financial development on economic growth in Ghana during the period from 1970 to 2014. Unlike some previous studies, the current study uses four proxies to measure bank-based financial development. In addition to these proxies, the study uses a composite index of bank-based financial development derived from these four proxies - using the method of means-removed average. Using the ARDL bounds testing approach, the empirical results of this study show that the impact of bank-based financial development on economic growth in Ghana is sensitive to the proxy used to measure bank-based financial development. The results also tend to vary over time. Overall, our results show that when the ratio of domestic credit extension to the private sector by banks to GDP, and the composite index are used as proxies, bank-based financial development has a positive impact on economic growth in Ghana. However, when the ratio of deposit money banks' assets to GDP is used as a proxy, bank-based financial development has a negative impact on economic growth. These results apply irrespective of whether the estimation is done in the short run or in the long run.

Bank-based financial development and economic growth in Ghana: an empirical investigation

This paper examines the impact of bank-based financial development on economic growth in Ghana during the period from 1970 to 2014. Unlike some previous studies, the current study uses four proxies to measure bank-based financial development. In addition to these proxies, the study uses a composite index of bank-based financial development derived from these four proxies - using the method of means-removed average. Using the ARDL bounds testing approach, the empirical results of this study show that the impact of bank-based financial development on economic growth in Ghana is sensitive to the proxy used to measure bank-based financial development. The results also tend to vary over time. Overall, our results show that when the ratio of domestic credit extension to the private sector by banks to GDP, and the composite index are used as proxies, bank-based financial development has a positive impact on economic growth in Ghana. However, when the ratio of deposit money banks' assets to GDP is used as a proxy, bank-based financial development has a negative impact on economic growth. These results apply irrespective of whether the estimation is done in the short run or in the long run.