Financial Development In Countries Research Articles

Islamic Banking and Financial Development: A Cross-Country Analysis

Islamic banking has become an integral part of the modern financial system. Therefore, this study examined the effect of Islamic banking on financial development in countries with a matured practice of Islamic finance. These countries include Iran, Saudi Arabia, Malaysia, UAE, Kuwait, Qatar, Turkey, Bangladesh and Indonesia. Besides, we collected data on Islamic banks' assets and financial development indicators over nine (9) years between 2012 and 2020. The study applied heteroscedastic panel corrected standard errors (HPCSE) regression model to estimate results. The findings indicated that Islamic banks contribute significantly to improving financial development after controlling for banking characteristics (credit risk and capital adequacy ratio) and macroeconomic factors (real per capita GDP, inflation and trade openness). Due to data limitations, this study covers only nine countries over nine years (2012 -2020). The findings provided insight into the contribution of Islamic banks to financial development, which can motivate regulatory authorities and policymakers to improve the practice of Islamic banking and finance through the provisions of enabling and motivational regulations and policies. This study provided a novel contribution as this issue is underresearched. Most existing studies concentrate on the macroeconomic and institutional determinants of financial development, thus relegating the role of Islamic banking in spurring financial development.

The Effects of IMF Financial Soundness Indicators of Turkish Commercial Banks on the Financial Development Index

The financial soundness of banks, which are the building blocks of the financial system, is an important indicator that reflects the effectiveness of the financial system. It can be stated that the financial development of countries with an effective financial system will be positively affected by this situation. The paper aims to evaluate the effects of IMF financial soundness indicators of the Turkish commercial banks which have an important share in the Turkish banks, on the financial development index of Türkiye. In this paper, an evaluation was made based on the IMF Financial development index and IMF financial soundness indicators. Panel data analysis was used and panel least squares model estimation was made within the analysis. In line with the findings, it has been determined that sensitivity to profitability, liquidity, and market risks of commercial banks negatively affect financial development while the capital adequacy and asset quality of commercial banks positively affect financial development.

Does transparency pay? Natural resources, financial development and the extractive industries transparency initiative (EITI)

Natural resources are known to hinder financial development in countries with weak institutions. We hypothesize that the Extractive Industries Transparency Initiative, an international norm aimed at promoting transparency in natural resource management, can mitigate this effect. Using fixed effects and entropy balancing methods, we provide empirical support for this hypothesis in a panel of 71 resource-rich countries between 1995 and 2019. Our results are robust to the use of alternative specifications and alternative measures of financial development. Finally, we provide a discussion of the transmission channels through which the financial resource curse may occur.

Yenilenebilir Enerji Tüketimi ve Piyasa Kapitalizasyonu ile Karbon Emisyonu Arasındaki İlişki: G20 Ülkeleri Örneği”

The research question of whether carbon emissions affect the economic growth and financial development of countries is discussed in the literature. Based on this, this study examines the relationship between carbon emissions (CO2) market capitalisation and renewable energy consumption, which are financial development indicators. The model established with the carbon emissions, renewable energy consumption, market value, fixed capital investments and gross domestic product indicators of the G20 countries between 1992 and 2018 was tested with panel data cointegration analysis and panel causality analysis. As a result of the empirical analysis, it has been found that there is a statistically significant and negative relationship between renewable energy consumption, market capitalisation and carbon emissions, and there is a bidirectional causality relationship between market capitalisation and carbon emissions. The results are that the effective use of energy and the developments in the financial system will contribute to sustainable development policies.

External finance dependence, financial development and exports: a firm-level study from India

PurposeThis study aims to add to the growing literature on the trade–finance nexus by exploring the interplay between a country's level of financial development, the external finance dependence of firms and their exporting decisions.Design/methodology/approachThe study first develops a theoretical model to motivate the idea that a firm's liquidity (financial) position and its home country's level of financial development act as substitute factors in its export market entry decisions. It then empirically tests whether an improvement in a country's financial development level enhances the number of entrants in the foreign markets and boosts the exports of incumbent exporters using firm-level data of manufacturing firms in India for the period 1993–2020.FindingsEmpirical results suggest that a higher level of financial development helps increase the exporting probability of firms that rely more on external finance for their operations. Further, the study finds that the sunk costs-induced hysteresis effect plays a major role in firms' exporting decisions and financial factors don't play a significant role in the exporting activities of incumbent exporters.Practical implicationsThe findings suggest that a well-developed financial market is necessary to help more and more firms initiate their foreign market operations. The results underscore that trade-liberalisation measures alone may not increase India's exports and the government must complement them with financial sector reforms.Originality/valueStudies highlighting the role of financial sector development in helping financially-constrained Indian firms overcome the entry barriers associated with exporting are extremely limited. This study contributes to this nascent literature by conducting an empirical investigation on an extensive database of Indian manufacturing firms. Moreover, in contrast to the previous firm-level studies in this area, this empirical analysis uses the actual values of external finance raised by the firms as a critical factor in determining their extensive and intensive margin of exports instead of the usual balance sheet variables such as liquidity and leverage.

Inclusive bank based financial development in countries with special needs: A semiparametric analysis

What is the role of bank based financial development in inclusive sustainable development? Our paper tries to answer this question with a novel methodology that provides an estimate of the inequality-finance relationship for every country-year observation, allowing us to examine the distribution of the relationship of interest for various country groups. Unlike other papers in the literature, our estimates are free of both functional form mis-specification bias as well as bias from endogenous regressors. Our results indicate that financial development lowers income inequality in low income countries and countries that invest in primary education. This inequality-finance relationship is also sensitive to a country’s size of financial sector and quality of institutions. Our findings should be of particular interest to scholars and domestic policy makers of Countries with Special Needs, who face unique challenges meeting the goals set by United Nation’s 2030 Agenda for Sustainable Development.

The causal relationship among trade openness, financial development, and economic growth: Recent evidence from newly industrialized countries (NICs)

A country's financial development and trade openness are important indicators that affect integration into the economic system at the international level. Especially in newly industrializing countries, these variables can be beneficial in ensuring economic growth. Financial development supports economic development through the mobilization and effective use of capital. Trade openness is one of the unifying forces of productivity and economic growth. The effectiveness of trade openness is highly dependent on structural reforms. Newly industrialized countries are motivated to attract large amounts of capital and investment from the global economy. These countries tend to encourage exports while ensuring their industrialization. This research investigates the relationships between financial development, trade openness, and economic growth for ten newly industrializing countries. Research data contained the period from 1990 to 2020. The Dumitrescu-Hurlin panel causality test was used in the analysis. Considering the results, there is a uni-directional causality relationship between trade openness to economic growth and financial development to trade openness. Moreover, a bidirectional relationship between economic growth and financial development has been observed.

FINANCIAL SUPPORT FOR SUSTAINABLE DEVELOPMENT OF THE SOCIETY

Today, humanity is at a stage where further development is possible only if economic, environmental and social factors are effectively combined to ensure sustainable development of the society. Their implementation largely depends on the available financial resources. The COVID-19 pandemic and the russian federation’s war against Ukraine have increased the risk of a divergence between the developed and developing countries. The article notes that there are various forms of sustainability, including environmental (biodiversity conservation), economic (achieving a balance between the economic efficiency of enterprises and environmental issues) and social (ensuring social justice). The factors that have led to an increase in the financing gap for sustainable development goals are outlined: a decline in income in developing countries; an increase in public spending in these countries. The impact of the COVID-19 pandemic and the russian-Ukrainian war on the financial development of countries is determined. It is established that in order to achieve the Sustainable Development Goals by 2030, developing countries need additional funding, which can come from four sources: domestic public resources (or revenues), international public resources, domestic private resources or international private resources. Sources of external financing include international trade, foreign direct investment and other private flows (from businesses and individuals), international financial and technical cooperation, and external debt. One of the priority domestic sources of financing is tax revenues. Combating tax evasion and illicit financial flows is also important. Factors to facilitate the strategic planning and financing for sustainable development at the national and regional levels in Ukraine include: developing an integrated national financial system; conducting a rapid integrated assessment of the inclusion of sustainable development goals in national and subnational planning; reviewing of all current methods of financing sustainable development; and assessing the system of budgeting for sustainable development. The paper also reflects the key points of the EBA's research on sustainable development in Ukraine.

Does landscape ecology matter to a country's financial development? Evidence from China

Landscape ecology is vital and significantly contributes to the country's social and economic growth. This concept is directly linked with sustainable development goals, and a growing potential exists that landscape ecology will replace conventional landscaping practices as the authoritative framework for environmentally responsible landscaping. Decentralizing spatial planning policy requires local actors to work together to determine what physical changes must be made to the environment to reflect their respective values. To be applicable in such bottom‐up landscape‐development processes, this study checks the relationship between the landscape ecological perspective and the financial development of China over the period 1995–2021 by using the autoregressive distributed lag model. The findings indicated that green investment, environmental pressure and energy consumption play a significant role in China's financial development. Landscape ecological research should pay more attention to these dilemmas as a unifying common ground to produce a joint knowledge base that can be incorporated into multifunctional, actor‐led landscape development. This research adds value to the modern pattern‐process model in landscape ecology by developing this idea into a knowledgeable framework. Subsequently, this study promotes green investment activities and consumption of energy sources so that landscape ecology aims should be obtained through interdisciplinary research. Future research can be done by taking the emerging economies into account.

RELATIONSHIP BETWEEN COMPETITION AND FINANCIAL DEVELOPMENT IN COUNTRIES: COMPARISON OF TURKEY-BRICS COUNTRIES

The purpose of this study is to examine the impact of competition on the financial development of countries. For this purpose, Turkey, and BRICS countries (Brazil, Russia, India, China, South Africa) were selected as sample countries for the study. A 17-year dataset was created with country data from 2005 to 2021 as the time period. The competitiveness factor is included in the analysis as an independent variable, using data from the Global Competitiveness Index published by the World Bank. The indices of the most traded stocks on the stock exchanges, which represent the financial performance of countries, were used as the dependent variable. The methods used in the study were the Westerlund cointegration test, Augmented Mean Group (AMG) estimation and Common Correlated Effects (CCE) estimation. The analyzes conducted showed that competition has a positive and significant impact on the financial performance of the sample countries.

A look beyond climate risk exposure: the impact of incapacity to cope with natural hazards on financial development.

We provide a comprehensive cross-country analysis on the impact of national incapacity to cope with natural hazards (i.e., social shocks, political stability, health care, infrastructure, and material security needed to reduce the harmful effects of natural disasters) on financial development. The panel quantile regression analyses on a global sample of 130 countries generally confirm that the financial development of countries with lower capacity to cope is indeed significantly hampered compared to their peers, especially in countries with low financial development levels. Seemingly unrelated regression (SUR) analyses, which acknowledge the dynamic co-existence between both financial institutions and financial market sectors in a given economy simultaneously, offer notable finer details. For example, the handicapping effect on both sectors tends to apply to only countries with higher climate risks. Lack of coping capacity also exert negative effects on the development of financial institutions in countries of all levels of income but only affect financial markets of high-income group. The more detailed look into different dimensions (financial efficiency, financial access, and financial depth) of financial development is also given in our study. Overall, our findings highlight the vital and complex role of "coping capacity" aspect of climate risk on the sustainable development of financial sectors.

The Relationship between Financial Development and Inflation Rate in Egypt

This study investigated the relationship between financial development and inflation in Egypt from 1980-2018. The study employed various econometric techniques, such as Johansen's test for co-integration, error correction model, Granger's causality test, Toda-Yamamoto causality test, and dynamic ordinary least squares model. The findings indicated that financial development had not significantly reduced inflation in Egypt over the studied period. Additionally, inflation was an obstacle to the country's financial development. The results also suggested a long-term equilibrium relationship between financial development and inflation, which is unidirectional and runs from inflation to financial development. The results revealed that the inflation rate, economic growth, exchange rate, and trade openness jointly impact financial development in the short and long term. It implied that the past values of these variables could be used to predict the current and future values of financial development. However, it was not possible to use the financial development index to predict the inflation rate in Egypt in the short and long term.

How Catalytic Is Digital Technology in the Nexus between Migrants’ Remittance and Financial Development in Sub-Saharan African Countries?

Given the indisputable roles of remittance and financial development in countries’ economic performance, enhancing the nexus between the two variables has become pertinent. The remittance–financial development literature has surged, with a growing argument that making the relationship work is conditioned on mediating roles of certain economic indicators. Despite the overwhelming evidence of the transformative roles of digital technology, the assessment of its possible mediating role in the remittance–financial development nexus is lacking in the literature. Hence, using pooled data of 35 Sub-Saharan African (SSA) countries sourced from the World Bank’s Development Indicators, this study examined the mediating effect of digital technology in the relationship between remittance inflows and financial development. Using two indicators of ICT—fixed broadband and mobile cellular subscription—the results of the generalized method of moment analysis suggest that digital technology spurs remittance inflows to promote financial development in SSA. The results are consistent for both measures. These findings imply that remittance and digital technology are complementary in promoting financial development in the sub-region. Based on these outcomes, the study therefore advances the enactment of policies aimed at fostering diffusion of digital technology and achieving the sustainable development goal’s recommendation of lower transaction cost of remittances.

Assessment and Analysis of Stock Market Integration Among the Countries of the D8 Group

The D8 group pursues different goals, and one of the most important ones is in the field of economy and economic development of the member countries. The present study thoroughly assesses financial integration and its effective variants. Due to the relatively low physical capital interruption and the more intrinsic consumption fluctuations, developing economies benefit from financial integration. Four criteria have been used to assess the financial integration among the D8 group: foreign assets, foreign debts, volume criteria, and investment criteria. The data is based on Eviews software, and the least-squares method (EGLS) for 2000-2019 has been analyzed. The present study results confirm the effect of financial development and international trade integration on financial integration, and between the two, based on the estimated model coefficients, the impact of international trade integration on financial integration is more significant. Also, among the three criteria of financial development, the development of the banking sector is not a good measure of the financial development in countries and has less of an impact on D8 Group's financial integration.

The Effect of Perceptions on Tourism: An Econometric Analysis of the Impacts and Opportunities for Economic and Financial Development in Albania and Kosovo

Today, tourism plays an important role in the economic and financial development of countries, and its impact is greater than ever. Therefore, for sustainable economic and financial growth and well-planned development, public and private investments should be directed to areas of priority tourism development. Research on the effect of perceptions on the behavior of tourists in these two countries has not been carried out before, thus, the purpose of this research is to determine whether the effects of the perception of tourists has an impact on economic and financial development based on factors (F1 (f.1.1 and f.1.2) and F2 (f.2.1 and f. 2.2)). For this study, the data were provided by respondents from several cities in Albania and Kosovo. A total of 1002 questionnaires divided into three sessions were analyzed using factor analysis, data reliability analysis, and multiple regression analysis. All analyses were performed using SPSS version 23.0 for Windows. In this case, 23 variables were tested and divided into two factors and five sub-factors. The results showed that special attention should be paid to the following factors: (a) awareness of tourists of facilities in tourist destinations where they would like to visit; (b) greater knowledge of foreign languages for residents of both countries, which could facilitate communication with tourists during purchases or other requests; (c) attracting new investors and the creation by the government bodies of conditions and security for both investors and tourists; (d) supporting the marketing and sale of local products for tourists; (e) the need for infrastructure support from government bodies in both countries in order to increase economic and financial well-being through tourism; (f) the need to implement strategies focusing on the sustainable development of both countries through tourism should be strengthened; (g) in terms of sustainable development and regional competitiveness, Kosovo and Albania should follow development trends and be competitive with other countries in the region. The implications of this paper relate only to certain studied variables, and only in certain cities of Albania and Kosovo. In case of future analysis by different researchers, other variables can be analyzed for different locales by making comparisons with the presented data.

The Role of Corruption in Natural Resource-Financial Development Nexus: Evidence from MENA Region

This paper contributes to the literature on resource curse by investigating the impact of natural resource abundance on financial development while accounting for the interactive effect of natural resources and corruption in 11 resource-rich MENA countries over the period of 1987 to 2015. Using pooled mean group (PMG) estimation technique, our results show that abundance of natural resource weakens the pace of financial development in countries with high level of corruption. Thus, resource rich countries in the MENA region will boost the level of financial development through minimising the degree of corruption in their financial sectors. Therefore, policymakers should control the corruption, which plays a significant role to mitigate the adverse effect of natural resources on financial development. This is through building strong institutions, which help to check corruption, enhancing rule of law and protecting investors. Our results are consistent and robust to alternative measures of natural resource abundance and financial development.

Export intensity of foreign subsidiaries of multinational enterprises

PurposeThe author contributes to the theory of the multinational enterprise by examining subsidiary-specific capability in financial management, defined as the stock of knowledge and capability to plan, manage, control and direct financial resources effectively and efficiently, and the perceptions of subsidiary managers of host country financial development as drivers of export intensity (the share of sales that are exported) of foreign subsidiaries of multinational enterprises (MNEs). The author theorizes that subsidiary-specific capability in financial management is conceptually a valuable subsidiary-specific advantage and it is as important as other traditional competitive advantages, such as research and development and marketing intensity. Perceptions of subsidiary managers of host country financial development are argued to be largely related to the characteristics of the host country-specific advantages.Design/methodology/approachThe author uses a survey dataset of the foreign subsidiaries of Western multinational enterprises (MNEs) together with other public data sources.FindingsThe author provides empirical evidence to support for these arguments that export intensity of MNE foreign subsidiaries depends on subsidiary-specific advantages and host country specific advantages.Originality/valueThe study broadens the understanding of the relationships between subsidiary-specific advantage in financial management, host country specific advantage, and export intensity of MNE foreign subsidiaries. In this way, the author makes an original contribution to new internalization theory by emphasizing the internal capability building of subsidiaries. The author discusses the implications of the findings for MNE foreign subsidiary managers, and policy makers because exporting is critical to the overall strategy of foreign subsidiaries, and it also contributes to the balance of trade and economic development of host countries where foreign subsidiaries operate.

Impacts of Earnings Management and Institutional-financial Development on Capital Structure Choice in Latin-American Markets

ABSTRACT We analyzed the effects of accruals-based earnings management practices and institutional-financial qualities of countries on the financing policy of Latin American companies. We used panel data on a sample of 983 companies between 1995 and 2017. Our results indicate that positive discretionary accruals reduce leverage and increase debt maturity. These findings suggest that accounting manipulation activities favor managerial entrenchment and seek to avoid external supervision and liquidity risk. The institutional and financial development of countries promotes leverage and long-term debt issuances. However, its effects do not mitigate the impact of accounting manipulation activities on this policy. The IFRS adoption is an effective means of control that attenuates the effects of earnings management on capital structure. These results are relevant for investors and policymakers due to their implications for firms’ corporate governance and financial policy design.

Impactos de la reforma previsional en el crecimiento inclusivo dela República Dominicana

El trabajo estudia los efectos que tienen los esquemas de capitalización individual para pensiones en el crecimiento inclusivo, para ello se analiza la reforma introducida en 2001 en la República Dominicana, una de las últimas en sumarse a la ola de reformas al estilo del “modelo chileno” iniciada en los ochenta. Así, se encuentra que la introducción del sistema de ahorro individual ha llevado a que la República Dominicana crezca más de un punto porcentual adicional cada año entre el período 2003-2019 en sus estimado medio lo que implica que por cada punto de crecimiento que ha experimentado el PIB dominicano, 22% se explica por el funcionamiento del sistema privado de pensiones. Se ha podido hallar también que el impacto anual sobre la relación ahorro-inversión ha sido de 0.89% anual, lo que ha derivado en que el índice de desarrollo financiero del país mejore a ritmo de 0.21% adicional por año y que el diferencial de tasas de interés se haya reducido en un promedio de 3.15% durante el período de estudio. Como parte del círculo virtuoso propiciado por el sistema privado de pensiones desde su introducción, gracias al funcionamiento del sistema privado de pensiones, hoy la tasa de pobreza es casi 4 puntos más baja respecto a un escenario en el que no se hubiese introducido esta reforma.

Earnings management and country-level characteristics as determinants of stock liquidity in Latin America

ABSTRACT We analysed the effects of accrual-based earnings management and countries’ institutional-financial development on stock liquidity of Latin American firms, specifically in MILA countries. We used a panel data composed of 478 companies between 2000 and 2016. Our results indicate that positive discretional accruals have a positive and non-linear impact on stock liquidity. This effect turns negative when positive discretionay accruals are higher than threshold values. Regardless of the direction of accounting manipulation, earnings management reduces stock liquidity. The IFRS adoption mitigates the effects of earnings management on stock liquidity. These findings suggest that IFRS are an effective control measure that limits discretionary use of accounting criteria by managers. Institutional and financial development of countries promotes stock liquidity. Only institutional development can mitigate the effect of EM on liquidity. These results are relevant for investors and policymakers due to their implications on firms’ corporate governance, investment decisions and financial policy design.