Credit Expansion Research Articles

Fintech development and green innovation: Evidence from China

This study created a new financial technology (Fintech) development index by combining the PKU-DFIC index with data from Fintech companies collected manually through the ‘TianYanCha’ credit platform. By matching the index with data on listed enterprises, we analysed the impact of Fintech development on green innovation in businesses and explored the underlying pathways of ‘credit expansion’ and ‘fiscal expansion’. Our findings reveal that firms located in cities with advanced levels of Fintech development obtain larger scale and greater efficiency in green innovation. Furthermore, the results of the exploration of impact pathways show that Fintech development increases the size of credit in the city as well as the government's fiscal support for businesses. Fintech enables enterprises to achieve higher performance of green innovation through these two pathways. The methodology used to construct the Fintech indicators and conduct this study provides more precise insights into the relationship between Fintech development and the environmentally focused development of the real economy.

Digital economy, credit expansion, and modernization of industrial structure in China

Digital economy promotes the modernization of industrial structure by influencing the rationalization and upgrading of industrial structure through technical level and factor level; while excessive credit expansion hinders the modernization of industrial structure. This paper uses panel data from 31 jurisdictions in China to conduct empirical analysis, and finds that digital economy development shows a year-on-year rising trend, and there is a large gap between different regions. The conclusion still holds after the robustness test and regional heterogeneity analysis, thus enriching the understanding of mechanisms and regional differentiation of digital economy, credit expansion on industrial structure modernization.

The linkages between trade, financial openness, and economic growth in China: an ARDL-bound test approach

ABSTRACT This research examines the linkages between trade, financial openness, and economic growth in China from 1992 to 2021, using Granger causality analysis in the ECM model to identify the trend of a causal relationship between the variables. The results confirm the validity of export-led growth and the supply-leading hypotheses in China. Moreover, China’s broad money is output-oriented, and the significance of exports to China’s economy is supported by the influence of real income and imports caused by exports. Lastly, the research highlights that domestic credit expansion by the banking industry stimulates global trade growth; however, import changes cause broad money fluctuations. Policymakers can utilize these findings to identify the trend of the growth and development of the trade and financial industry of the economy, as there is substantial proof that a meaningful relationship is occurring between economic growth, trade, and the financial development sectors of the economy.

Quasi‐experimental evidence on the employment effects of the 2021 fully refundable monthly child tax credit

AbstractIn this paper, we estimate the impact on employment of the 2021 Child Tax Credit (CTC) expansion, which increased the size of the benefit, made it fully refundable, and allowed for monthly receipt. We harness exogenous variation in monthly CTC eligibility by comparing employment among caregivers to that of childless workers before and after monthly payments commenced on July 15, 2021, using event study and difference‐in‐differences frameworks. Our preferred estimates suggest that monthly CTC payments were, at most, associated with a relatively small decline in employment among caregivers. Our primary difference‐in‐differences estimates indicate a statistically nonsignificant decline in employment of approximately 344,000 to 495,000 caregivers relative to childless adults. Our treatment intensity estimates suggest an increase in employment among caregivers with two or more children relative to those with one child. Our findings contribute to the cost‐benefit calculus of the current debate over whether to establish a permanent fully refundable monthly CTC.

Turkey in Turbulence: Heterodoxy or a New Chapter in Neoliberal Peripheral Development?

ABSTRACTWhile global monetary tightening by central banks, led by the US Federal Reserve, has heightened concerns about a slowdown in the world's economy and an increased likelihood of debt crises across developing countries, Turkey has attracted attention for doing the opposite. Indeed, the country's economic policy makers have intensified monetary easing towards credit expansion at the risk of increased exchange rate instability. This article analyses the Turkish case and makes four contributions. First, it establishes a framework through which we can understand and interpret the policy choices of the government. Second, it shows the binding effects of the trilemma in the context of an economy fully integrated in the global economy and discusses how the government tried to tackle these effects through a series of ad hoc policy measures. Third, the article discloses the distributional consequences of such policy manoeuvres and argues that the burden of adjustment fell on the shoulders of wage labour, while various competing rentier interests benefited from these policies. Fourth, the authors analyse these policies from a broader perspective of whether they can be interpreted as a courageous attempt by a peripheral developing economy to claim some policy space, or whether these policy choices in essence only amount to a deepening of neoliberal peripheralization.

Capital liberalization, growth and moral hazard: Lessons from the global financial crisis

The 2008 global crisis, initiated in the USA, a developed country, is significant as it's the last global crisis caused by capital flows. This study investigates the link between capital account liberalization and economic growth during the 2008 global crisis in 105 countries, including moral hazard. Furthermore, it considers portfolio equity and debt flows as asset characteristics and tests two moral hazard channels (i.e., sudden stop and credit booms) employing the OLS estimation technique. The findings show that capital inflows promote growth, with portfolio equity flows having more contribution and stability than portfolio debt flows. The hypothesis is verified that the excessive risk-taking behavior of financial institutions caused the 2008 crisis. Capital accumulation and credit expansion contribute to growth, but trade openness, sudden stop and labor force participation decrease growth. Decision-makers should evaluate capital inflows independently based on asset characteristics and implement distinct policies. Microeconomic strategies (such as revising limited liability) might mitigate the risks in capital account liberalization.

Disentangling Land Financialisation: Insights from Santiago de Chile's Land Lease‐Purchase Contracts

AbstractNon‐depreciation gives to land a central role in the credit expansion process of the modern economy and constitutes the foundation of the relationship between finance and real estate. To understand the process by which land becomes an underlying asset in the financial market, this paper's theoretical model formalises a set of propositions derived from asset price theory and real options theory. Theoretically, vacant land speculation results from rational behaviour; thus, land becomes valued as a real investment option. This real option can later operate as an underlying asset for credits and financial options, which explains the financialisation of vacant land. This work evidences the process of formation of landbanks by insurance companies in Santiago, Chile, showing that their acquisitions are, partly, carried out via Lease‐Purchase Contracts. Besides, it is demonstrated that Lease‐Purchase Contracts tend to locate in geographical areas with greater growth rate in land price and deviations in this rate.

Foreseen risks

Large crises tend to follow rapid credit expansions. Causality, however, is far from obvious. We show how this pattern arises naturally when financial intermediaries optimally exploit economic rents that drive their franchise value. As this franchise value fluctuates over the business cycle, so too do the incentives to engage in risky lending. The model leads to novel insights on the effects of unconventional monetary policies in developed economies. We argue that bank lending might have responded less than expected to these interventions because they enhanced franchise value, inadvertently encouraging banks to pursue safer investments in low-risk government securities.

Credit expansion, leverage, and banking distress: the puzzle of interwar Italy

Abstract This study analyses the relationship between lending growth, leverage, and distress at the individual bank level for interwar Italy, which experienced remarkable credit expansion in the 1920s. Novel data from archival research based on banking supervision classified documents reveals a large, albeit forgotten, crisis. A puzzle emerges: regression analysis on individual bank balance sheets indicates that leverage and lending growth are not predictors of distress. Complementary indicators show that the features highlighted in the literature on leveraged credit booms do not apply to Italy. Italy’s credit expansion was not a leverage-fuelled credit boom but a process of financial development.

Inclusive business, private sector credit and economic welfare: evidence from Africa

PurposeThis paper seeks to examine the interrelationship between inclusive business, private sector credit and economic welfare in Africa.Design/methodology/approachThe study uses the seemingly unrelated regression, system generalized method of moments and bootstrap quantile regression in a panel of 54 economies in Africa, over the period 2006–2020.FindingsThe authors show that countries that provide more credit to the private sector have better incentives to enhance the ease of doing business. The authors find that ease of doing business and domestic credit to the private sector have a positive and significant effect on economic welfare at higher quantile levels. The authors find that ease of doing business substitutes private sector credit to boost economic welfare, while business account complements private sector credit to boost economic welfare. The authors show that the marginal effect of inclusive business on economic welfare is greater in countries that provide more credit to the private sector.Practical implicationsThe implication is that countries that focus on developing their private sector (through credit expansion) should be able to encourage or facilitate the inclusion of businesses to achieve a sustainable economic welfare.Social implicationsThe implication is that policymakers should be able to develop their business environment through inclusive financing so as to build business confidence in the society.Originality/valueThe paper examines the interrelationship between inclusive business, private sector credit and economic welfare in Africa.

Reducing Poverty and Building Capacity—Perceived Child and Family Impacts of the Child Tax Credit Expansion

This study aims to evaluate the perceived impact of the Child Tax Credit expansion on families’ physical, mental, and financial well-being utilizing rigorous qualitative methodology. Parents (n = 40, ages: 20–49 years, median income: $36,000–48,000/year) in the southeastern USA completed interviews in October–November of 2020 after they received 3–4 monthly Child Tax Credit payments. Parents were classified into two groups (e.g., household income above [n = 21] vs. below [n = 19] 200% of the federal poverty line) for qualitative inductive analysis. Pre-ECTC themes were mapped onto the Hidden Dimensions of Poverty Framework. Across income groups, the expansion positively impacted family relationships, reduced stress, and facilitated meeting routine needs (e.g., food, housing costs). Parents with low-income were empowered to purchase greater volumes of food and invest in quality-of-life improvements (e.g., child extracurricular programming, family outings) for their children. Parents expressed disappointment around the expansion’s termination in December of 2021. The expanded Child Tax Credit empowered families to improve their well-being and reduced financial and emotional burdens. Personal anecdotes of public experiences with policy change can have a significant impact on federal policy decision-making. Parents perceived the ECTC improved their family well-being and desired its maintenance. This unconditional income assistance may be a viable strategy to significantly improve quality of life, if sustained long term. The health impacts and the cost benefit of this policy change should be evaluated.

Estimating the Importance of Civil Construction for the Brazilian Economy Through Hypothetical Extraction of the Input-Output Matrix

This paper aims to undertake a systemic analysis of civil construction to verify whether public investments made from 2007 onwards were able to increase the sector's productive linkages in the Brazilian economy. For this, the hypothetical extraction method of the input-output matrix and the official matrices of the country from 2005 and 2015 are used. The results show that the importance of the productive structure of the construction sector - total extraction - exceeds 7.42% of GDP in 2005 to 10.06% in 2015. This fact reveals that the civil construction sector in 2005 was the seventh most important moving to the fourth in 2015 in a total of twelve sectors considered. Another important finding lies in the fact that despite the construction sector presenting an increase in the complexity of its productive structure, it showed strong backward linkage, but low forward linkage, in both analyzed periods. Through these results, it is possible to conclude that the tax exemption of some inputs, reduction of real estate interest, expansion of credit for housing through public housing and infrastructure policies may have been essential for the increase in the complexity of the sector's productive chains between the years' from 2005 and 2015. Such findings are useful for the scientific literature that investigates the sector by bringing evidence to Brazil and to policymakers given that possibly the construction sector can be used as a strategy to promote and stimulate economic activity in times of crisis.

A normative argument towards the independence of public debt management

We explore the links between credit expansion, inflation, and inflation expectations, and show that active public debt management can trigger a non-interest rate channel of credit expansion. This creates incentives for the government to use debt management for promoting non-debt management goals, thus, choosing debt maturity structure that differs from its optimal. Through a theoretical monetary policy game, we show that it is welfare improving to delegate public debt management to an independent office separate from the fiscal authority.

Sectoral implications of policy induced household credit expansions

This paper analyses the sectoral implications of household credit expansions in a two-sector open economy model. In the model, policy-induced expansion in banks’ willingness and ability to lend to households results in new lending, boosting aggregate demand and average wages in the nontradable sector. Under fixed relative wages and mark-up pricing in the tradable sector, wage pressures translate into inflationary pressures. The inflation-targeting central bank increases the policy rate to contain inflationary pressures. This intervention causes a real exchange rate appreciation, followed by a reduction in international competitiveness and a contraction of the tradable sector output. This way, the model illustrates that consumer credit expansions can trigger premature deindustrialisation, shifting the sectoral structure away from the high-productivity tradable sector towards the lower-productivity nontradable sector. Key macroeconomic developments from the Turkish economy between 2002 and 2013 are presented to motivate the model.

Long-Run Effects of Incentivizing Work After Childbirth

This paper identifies the impact of increasing post-childbirth work incentives on mothers’ long-run careers. We exploit variation in work incentives across mothers based on the timing of a first birth and eligibility for the 1993 expansion of the Earned Income Tax Credit. Ten to nineteen years after a first birth, single mothers who were exposed to the expansion immediately after birth (“early”), rather than 3 6 years later (“late”), have 0.62 more years of work experience and 4.2% higher earnings conditional on working. We show that higher earnings are primarily explained by improved wages due to greater work experience.

A REVIEW OF A FINTECH FINANCING PLATFORM: POTENTIAL AND CHALLENGES OF ISLAMIC CROWDFUNDING TO ENTREPRENEURS

The emergence of financial technology, known as fintech, has altered the landscape of traditional financial institutions. Broadly defined, fintech is the application of technology in finance. Conventional and Islamic crowdfunding platforms are fintech innovations that offer a great alternative to traditional financial lenders like banks. This paper aims to provide insights regarding crowdfunding as an alternative fundraising source for entrepreneurs, especially start-ups, who usually face financial challenges. This paper uses a deskresearch methodology to review the extant literature on crowdfunding as an entrepreneur's funding source. Findings show that crowdfunding adoption is rapidly increasing and is embraced by many underserved entrepreneurs. As a promising alternative, it offers excellent potential by providing services at a lower transaction cost and greater efficiency. It also covers a broader market penetration. Islamic crowdfunding benefits even more, as the nature of Islamic financing helps to curb excessive credit expansion, thus helpingto stabilise the economy. The application and importance of Islamic crowdfunding are in line with the three classes of Maqasid-Shariah, which are darūrāt (necessities), ḥājīyāt (needs), and taḥsīnīyāt (luxuries). Nevertheless, crowdfunding is not without problems and challenges. Major problems usually arise from regulatory and fraud issues, such as stolen ideas and lack of proper regulations. This paper may help create awareness about crowdfunding, its potential, and its challenges to entrepreneurs. The findings may alsoserve as reference points for future researchers to examine further the issues and challenges in the crowdfunding industry, especially Islamic crowdfunding, in promoting competency and sustainability for entrepreneurs' interests.

The Evolution of Marxist Theory of Financial Capital in the ACC Payment Model

Abstract Since the late 1970s, a series of profound changes have occurred in developed capitalist countries. The most prominent is the increasing virtualization and financialization of the capitalist economy. Financial leverage has been increasing under the ACC payment model in the financial supply chain. In order to study the evolution of Marxist financial capital theory under the ACC payment model, this paper mathematically models supply chain finance under the ACC payment model by analyzing early payment, immediate payment, and credit payment in the process of ordering, receiving, and selling in the supply chain, followed by the monopoly position of financial capital in the U.S. economy and U.S. national income under economic virtualization. From 1995 to 2016, total U.S. financial assets as a percentage of GDP grew from 113.6% to 425.5%, a growth rate of 274.56%. The average percentage of U.S. government bonds to GDP was 39.16%. U.S. non-financial business as a percentage of GDP has grown at an average annual rate of only 1.62% over the last 20 years. Under economic virtualization, the median annual U.S. household income has largely trended downward since 2002, and in 2016 the median annual U.S. household income fell to $49,100, essentially the same as in 1995. Annual per capita income is also declining in the U.S.; in 2016 was already nearly $2,200 less than in 1995. The ACC payment model allows financial capital to add value by detaching itself from the production process, and the faster it adds value, the more it stimulates credit expansion. From a Marxist perspective, the bourgeoisie’s use of virtual financial capital for the continuous plundering of global capital has led to unbalanced global economic development and a growing gap between the rich and poor of people, thus intensifying the basic contradictions of capitalism, which is a warning for the development of the global economy nowadays.

Determinants of Youth Financial Inclusion and Their Willingness to Become Entrepreneurs in Tanzania

ABSTRACT: Over the last decade or so, Tanzania's economy has registered a significant growth in the rate of financial inclusion. The level of financial exclusion has consistently declined from 55% to 28% between 2009 and 2017 respectively. Moreover, the percentage of the adult population using formal financial services has almost quadrupled between 2009 and 2017. However, available statistics also illustrate that the participation of youth population in the formal banking, insurance, credit and savings products and services remain abysmally low. Furthermore, less than 50 percent of youth borrow from formal financial institutions. Indeed, lack of access to finance is frequently singled out as the major obstacle among youth to engage in entrepreneurial activities. Although much has been done to address financial inclusion, relatively little is known about the determinants of youth financial inclusion as well as the impact of financial inclusion on youth's willingness to engage in entrepreneurship in Tanzania. This study uses World Bank Financial Inclusion Index, (2018) to examine both the determinants of financial inclusion and the effects of financial inclusion on youth willingness to engage in entrepreneurial activities in Tanzania. In doing so, we employ propensity scores matching (PSM) and the treatment effects models. Financial inclusion is measured by using three indicators namely; "formal account", "formal savings" and "formal credit". The results from the logit PSM regression indicate that being employed increases the likelihood of having a current account or a savings account in a formal financial institution amongst the young people. In the case of formal account and formal saving, attaining a secondary education level increases the probability of having a formal account and a formal saving account relative to those with primary education. The estimated results from the Average Treatment Effect, whose computation is built on the propensity scores and the kernel matching algorithm show that having a formal current account, formal saving account and access to formal credit services positively affect the willingness of youths to engage into entrepreneurship. The policy implication is that government policy that enhances expansion of credit to youth remains paramount as a panacea to engage youth in entrepreneurial activities.

Capability of Third Party Funds to Support Credit Distribution and Maintain the Existence of PT. Bank Rakyat Indonesia (Persero) in Micro Credit Expansion

Capability of Third Party Funds to Support Credit Distribution and Maintain the Existence of PT. Bank Rakyat Indonesia (Persero) in Micro Credit Expansion

What Is Inflation? Clarifying and Justifying Rothbard's Definition

Austrian economists have debated issues of monetary theory and inflation extensively, but there is still no agreement on the definition of inflation. Mises (1953, 240) defined inflation as an increase in the supply of money not offset by an increase in the demand for money, leading to a fall in the purchasing power of money (PPM). Rothbard (2009, 990) defined it as an increase of fiduciary media, explicitly excluding increases in the stock of specie. This article will argue that Rothbard’s definition is the most suitable for economic discourse and analysis and can be generalized to any market-selected money. By consistently applying the method of counterfactual reasoning (Hülsmann 2003), it is shown that the processes of money creation lead to very different outcomes depending on the conditions of money production. The term “inflation” is therefore best reserved for money production in the form of bank credit expansion or fiat money creation. These phenomena are external to the market, and the process of redistribution they bring about runs counter to the structure of income and wealth that would have emerged in their absence.