Degree Of Financial Development Research Articles

A new view on estimating China's capital flight through the travel channel

AbstractThis paper proposes a novel approach to quantitatively estimating the magnitude of China's capital flight through the travel channel from 2014 to 2019. We set 2014 as the break point to account for a change in the methodology of compiling outbound travel expenditure and adopt a counterfactual method to calculate the magnitude of China's capital flight through the travel channel. Our results show that, from 2014 to 2019, China's capital flight through the travel channel reached a total of US$602 billion, with a quarterly average of about US$25 billion, accounting for about 40% of the total Chinese outbound travel expenditure. We further construct a gravity model using data from the United Nations' World Tourism Organisation to empirically show that China's capital flight tends to flow to economies with a high degree of financial development and often appears when the RMB depreciates against the US dollar.

Experimenting with Unconventional Monetary Policy: Quantitative Easing in Emerging Markets During Covid-19

The Covid-19 Global Health Pandemic introduced a number of economic challenges to countries around the world. Notably, most policymakers implemented greater fiscal spending and monetary stimulus. For the first time, 15 emerging market economies experimented quantitative easing. Most were not constrained by the zero-lower-bound condition, and the degree of financial depth, central bank independence, and central bank transparency varied significantly. This research yields three critical findings. First, emerging markets experienced declines in capital flows and depreciation pressure stemming from quantitative easing. Second, quantitative easing in advanced economies had a more sizable and significant effect than domestic policies. Finally, the degree of financial development and central bank independence are key drivers in how quantitative easing impacts exchange rates specifically. More developed financial systems and greater central bank independence correspond to dampening the effect of quantitative easing on exchange rates.

How does the green credit policy affect corporate ESG performance?

This study employed the difference-in-difference (DID) method to examine the impact of the 2012 Green Credit Guidelines (GCG) policy on enterprises' ESG performance. The findings demonstrated that, compared to enterprises in non-heavily polluted industries, highly polluting enterprises were compelled by the GCG policy to strategically enhance their environmental performance due to financial constraints and the effects of environmental disclosure. This affected the ESG performance. However, the effects on social and governance performance were not significantly different. Additionally, the GCG policy had a notably positive impact on the ESG performance of state-owned, large, and mature companies, while it negatively affected the ESG performance of companies in the growth phase. The effective implementation of the policy was supported by stringent environmental regulations and a high degree of financial development. Finally, based on the empirical results, this study offers recommendations for policy adjustments, raising enterprise awareness, and improving the external environment.

NEW EVIDENCE CONCERNING THE INEQUALITY – FINANCIAL DEVELOPMENT NEXUS IN ROMANIA. A COINTEGRATION APPROACH

This paper revisits the ambiguous effect of financial development on income inequality in emerging countries by investigating the presence of cointegration between concepts in Romania. Since financial deepening seems to be beneficial in the income-disparities fight in advanced countries, opposite findings are found in the case of less developed or transition ones. Therefore, we employ a time-series model that accounts for inequality, financial deepening and economic growth as the main variables spanning more than 30 years of Romanian history. On average, a higher degree of financial development harms income distribution in the long term, while economic productivity manifests a non-significant influence on inequality. These outcomes are robust to other novel measures of finance that account for the global dimension of financial development: financial institutions, markets and private sector credits. To control for the potential bias of inequality’s transmission channels, we include a proxy for inflation in our specification. By capturing the impact of financial expansion on inequality in the presence of inflationary pressure, our results reflect the sensitivity of the low-income groups to this phenomenon. In this regard, policymakers should pay attention to inflation-targeting strategies to support the condition of poor individuals who often cannot take advantage of the benefits of financial development.

Economic freedom, financial development and the determinants of fraud and scandal: The United Kingdom, 1900–2010

The paper argues that the incidence of financial fraud and scandals has systemic macro-economic determinants. While not denying organisation specific causes, short-run triggering events, and key players’ motivations, it shows that the extent of fraud and the number of financial scandals depend on the opportunities created by the financial system’s evolution. Using archival and quantitative evidence from the United Kingdom, it specifies aggregate changes in the incidence of fraud and scandal between 1900 and 2010. The evidence shows that economic freedom, including the degree of financial development, the availability of credit, the relative importance of the financial sector, international capital mobility and secrecy, and banking stability, contribute to the prevalence of fraud and scandal. Financial repression explains a generalised reduction in a 25-year period after the Second World War. Conversely, economic liberalisation from 1979 onwards has increased the incidence of fraud and financial scandal.

Central Bank Independence and Inflation in India: The Role of Financial Development

Using a legal or de jure measure of central bank independence, the present study attempts to examine the impact of central bank independence (CBI) on the inflation in case of Indian economy over the period, 1980–1981 to 2018–2019. To ascertain the possible dependence of association on the institutional quality proxied by level of financial development, we incorporated a non-linear logistic smooth transition framework with ratio of private credit to GDP as an appropriate transition variable. We found a statistically significant regime dependency with respect to the impact of CBI on inflation. In both the short-run and long run, increase in value of CBI is found to increase inflation when the level of financial development is below threshold value, however, beyond this threshold, any increase in CBI would decrease it. The impact of other control variables like GDP growth, oil price inflation & lagged inflation is found to be positive and statistically significant. However, currency appreciation is found to lower inflation. Our findings signify an appreciable role for the degree of financial development in the transmission of central bank’s monetary policy stances to maintain low inflation.

Do climate risks influence foreign direct investment inflows to emerging and developing economies?

ABSTRACT Foreign direct investment (FDI) inflows are considered to be an important source of private financing for several emerging markets and developing economies (EMDEs). However, the high susceptibility of these countries to climate change impacts vis-à-vis their developed counterparts may reduce their attractiveness as a favourable destination for FDI inflows. EMDEs with significant exposure to physical climate risks present a higher incidence of financial risks for foreign investors, which may in turn discourage them from locating themselves in such jurisdictions where their profitability and operations could be jeopardized by climate disasters. Given this context, we empirically investigate how physical climate risks influence FDI inflows to 68 EMDEs using data from over two decades, from 1995 to 2017. We contribute to an emerging body of literature that assesses the impact of climate risks on macro-financial variables by focusing specifically on FDI inflows. Although we abstain from making strong causal claims in our paper, we account for endogeneity concerns extensively and our empirical results show that higher climate risks adversely impact FDI inflows to EMDEs. However, we find these negative effects can be mitigated to a significant degree by strengthening financial sector development in the host country, as it increases their capacity to absorb some of these climate risks more effectively. Key policy insights Emerging markets and developing economies (EMDEs) that are more vulnerable and exposed to physical climate risks tend to be less attractive destinations for FDI inflows. Negative effects of physical climate risks on FDI inflows tend to be mitigated in EMDEs with a high degree of financial development. Well-developed, deep, and inclusive financial markets give EMDEs the capacity to absorb and manage various financial risks including those arising from climate change impacts.

Ways to improve cross-regional resource allocation: Does the development of digitalization matter?

<p><big>The long-term extensive economic development has caused China's resource and environmental problems, especially the resource misallocation. The way China prioritises its limited resources is being significantly impacted by the rise of the digital economy and the interconnectedness of new technologies and the real economy. This paper quantitatively examines the linear and nonlinear impacts and mechanisms of digital development represented by internet development. With a series of empirical tests, we found that the internet development has significantly inhibited the resources misallocation, and the conclusion is still valid in the robustness test with internet popularization and internet infrastructure as the core explanatory variables. In addition to the marketization, internet development can further inhibit resource misallocation by promoting financial development, openness, urbanization and industrial structure. The findings of threshold regression suggest that the inhibitory effect of internet growth on resource misallocation becomes more visible as the degree of financial development and industrial structure increases; with the higher degree of urbanisation and marketization, although the internet development has always played an inhibitory role on resource mismatch, the inhibitory effect first increases and then decreases; with the improvement of openness, the hindering impact of internet growth on resource mismatch becomes more visible as the degree of financial development and industrial structure increases.</big></p>

FINANCIAL FACTOR AS A PART OF THE ENVIRONMENTAL PROTECTION PROBLEM

The environment is constantly changing, including because of human impact. Over the past decades, society has faced many environmental problems that have led to ecosystem deterioration and may become global disasters and tragedies. Their solution is possible through the development of modern methods of rationalizing nature management, transforming the economy, finding optimal financial support mechanisms, and reforming public policy to achieve climate neutrality and sustainable development of society. The study aims to identify the impact of economic factors on environmental protection. The following methods were used during the study: analysis, synthesis, comparison, and generalization. Considering the issue of environmental protection, the author analyzes the effectiveness of environmental and economic policies of different countries based on the Environmental Performance Index, which showed that during 2016-2022 the composition of the top 10 changed dramatically, indicating that measures aimed at preserving the NPS were not systematically taken. It is established that the financial sector has a twofold impact on the environment. The degree of financial development has a positive side effect, while the optimization of the industrial structure has a negative one. The country's economic growth is essential to solving the problems related to environmental protection, which allows investing in environmental protection measures. The downside is the industrialization and urbanization of society, which contributes to economic prosperity and simultaneously leads to ecosystem pollution. One of the main strategies to curb the degradation of the NPS is to implement financial accessibility. Increasing the environmental friendliness of production can be achieved operationally and strategically. Many developing countries are developing and implementing plans to reduce their vulnerability to climate change in their national strategies. The article shows that "green" finance is one of the new ideas related to the responsibilities of the financial sector in addressing the significant challenges of our time in a way that ensures the creation of corporate and social value without harming the environment. Keywords: environment, environmental protection, pollution, finance, green.

Financial market development: A potentiating policy choice for the green transition in G7 economies

Despite the overwhelming literature claiming the environmental benefits of the transition towards a green economy, the evidence favoring these broad claims is still obscure and fuzzy. The present study makes two significant contributions to this important yet unsettled issue. First, we segregate the overall green transition in G7 economies into three different manifestations i.e., Green Energy, Green Industry, and Green Trade, to evaluate their idiosyncratic effects on the environment. Second, we assess the moderating role of financial development in green transition and ultimately in achieving the COP-26 targets. Our findings indicate that the transition towards green energy and the green industrial sector improves environmental quality, and the benefits are more pronounced with a high degree of financial development. In contrast, the transition towards green trade does not help in improving environmental quality and may have some adverse effects; however, financial development could mitigate some of these undesirable effects and help combat carbon emissions. The study emphasizes that policymakers should view financial development as a crucial policy choice to achieve COP-26 targets owing to its benign environmental impact.

Green finance development and environmental sustainability: A panel data analysis

This study considers five regions, i.e., South Asia, South-East Asia, China, Middle Eastern countries, and European countries, and took their data for 15 years. This study makes a significant contribution to the literature by examining the impact of green finance on environmental sustainability. Green finance development is represented by GDP, investment in renewable energy sources, investment in research and development (R&D) for eco-friendly projects, and public–private partnership investment in renewable energy projects. Green financing development in the chosen panel exhibits a distinct geographical cluster effect, with significant regional variances. The most important influencing elements are regional GDP, regional innovation level, and air quality, whereas the degree of financial development and industrial structure optimization are insignificant. The degree of financial development and industrial structure optimization are related to the amount of green finance development mostly via spillover effects. The degree of financial development has a positive spillover impact, but industrial structure optimization has a negative spillover effect. This study reveals that an increase in the production of energy from renewable sources, an increase in R&D, and the evolution of public–private partnership investment in renewable energy reduce CO2 emissions. It is evidenced that green finance in renewable energy sources is necessary to achieve environmental sustainability. There is a strong need to increase green finance in renewable sources to target the minimization of global CO2 emissions. There should be cross-border trade of renewable energy between regions/countries to mitigate CO2 emissions globally. Moreover, this study ranks the regions based on environmental sustainability, which may help researchers and decision-makers to entice foreign direct and private investment in these regions. The implications of the findings of the study suggest that environmental sustainability benefits greatly from green financing and investing in renewable energy sources through public–private partnerships, which represents one of the best ways to ensure environmental sustainability.

The role of cash holdings during financial crises

We examine the role of cash holdings during crises, whether the firm with higher cash holdings could quickly recover the operating performance after the financial crisis. We find that if a firm has higher cash holdings, its operating performance recovers more rapidly after financial crisis; these results hold after accounting for endogeneity and various robustness tests. Regarding possible transmission channels, we find that higher cash holdings increase capital expenditures and R&D expenditures, which improves firms' performance more rapidly after financial crisis. Furthermore, differences in financing constraints, corporate governance, and degree of financial development affect the relationship between cash holdings and post-crisis speed of recovery. Thus, firms should judiciously reserve cash holdings in their accounts to safeguard against unexpected emergencies.

Loan-to-value policy in a bubble-creation economy

This paper provides a theoretical analysis of macroprudential policy in the form of loan-to-value (LTV) restrictions in a bubble-creation economy. Such policy measures have been used intensively in Asia to deal with credit and property price boom-bust cycles while the effectiveness remains unclear, especially the country-specific cases. We find that the effect on investment and size of bubbles depends on the degree of financial development. Specifically, restrictive LTV policies tend to be more effective in dampening asset-price bubbles in economies that have a high degree of financial depth. High (low) financial depth implies that bubbles originally crowd out (in) investment, so that implementation of LTV policies causes bubbles to decrease (remain unchanged). These might explain some mixed empirical results of LTV policy on dampening asset-price growth.

Financial development, portfolio investments and the real economy in Africa

According to the conservative view, capital flows enhance economic growth. Focussing on Africa’s real economy, this study investigates the linkage between portfolio investments and real sector growth, and whether financial sector development strengthens this association. The study covers 30 countries over the period 1990–2017. We adopt the Lewbel instrumental variable general method of moments (IV-GMM) two-step robust estimator, which relies on heteroscedasticity for identification, while dealing with instrument insufficiency, unavailability, endogeneity and omitted variable bias. We found that portfolio equity has no growth impact on Africa’s real sector. Debt flows deter the growth of the overall real sector as well as the manufacturing and industrial sectors, but have no impact on agriculture and service growth. We found that financial development does strengthen the positive association between capital flows and economic growth, but this is dependent on the type of sector and portfolio investment, as well as on the degree of financial development. We control for known determinants of economic growth.

Effects of destination countries financial development and public export credit guarantees on Spanish exports

Without accounting for the period 2008–2009, the evolution of Spanish exports from 2001 to 2015 was marked by constant growth. This period includes an economic recession in Spain from 2008 to 2013, which was accompanied by important credit restrictions to the private sector. This environment pushed Spanish firms abroad for survival, affecting the geographical mapping of exports. With this study, we examined the role played by the degree of financial development in destination countries, and by the export credit guarantees issued by CESCE, the Spanish export credit agency (ECA) in the evolution of such exports. Following previous studies, we proxied the financial development in the destination countries and used CESCE’s new business underwritten on exports between Spain and 161 destination countries. We applied a modified gravity model and a System GMM estimator to show that the effects of the financial development in the destination countries on Spanish exports differed by regions and by periods, becoming statistically non-significant during the period of higher financial stress in Spain. Our results also provide evidence that CESCE behaved countercyclically during this period and contributed to the geographical diversification of Spanish exports.

Regional risk-sharing in Ukraine

This paper analyzes the impact of ethnic heterogeneity and military conflict on the degree of regional consumption risk-sharing in Ukraine. Ethnicity and violent conflicts can influence risk-sharing e.g. through social capital, ethnic fractionalization, migration, and remittances. The sample consists of 25 Ukrainian oblasts and covers the highly volatile period from 2003 to 2016. Our results suggest that the degree of consumption risk-sharing is comparably high, between 70 and 80% on average. Moreover, consumption risk-sharing is significantly higher in the regions with a large Russian minority, which are enjoying special treatment by Russia. By contrast, the degree of financial development, as proxied by deposit and loan share in GRP, does not significantly affect the regional degree of consumption risk-sharing. Furthermore, we apply spatial models to control for spatial dependence across regions. Results are confirmed and it is shown that spatial correlation is important. Finally, we show that the recent geopolitical conflict in east Ukraine changed the regional degree of consumption risk-sharing.

Green technology innovation and financial development: Do environmental regulation and innovation output matter?

This research combines the DEA-SBM (Data Envelopment Analysis-Super Slack Based Measure) model and GML (Global Malmquist-Luenberger) index to measure the efficiency of green technology innovation in 30 provinces of China from 2003 to 2017. It uses financial structure, financial scale, and financial efficiency to describe the degree of financial development and examines the relationship between financial development and green technology innovation. We further analyze the moderating effect of environmental regulation and the mediating effect of innovation output, first offering evidence that there are differences in the impact of financial structure, financial scale, and financial efficiency on green technology innovation. Second, financial structure is conducive to the development of green technology innovation, while financial scale and financial efficiency have a negative impact on green technology innovation. Third, environmental regulation plays a positive role as a moderating effect between financial structure and green technology innovation, but a negative role as a moderating effect between financial efficiency and green technology innovation. Fourth, innovation output has a mediating role between financial development and green technology innovation. Finally, there is an integrated boundary role that environmental regulation has between financial development, innovation output, and green technology innovation.

The Role of Financial Development and Institutional Quality in Remittance-Growth Nexus in Asia

Workers' remittances represent up to 47 percent of gross domestic product in some Asian countries. Also, workers' remittances to the Asian region were estimated to reach $256 billion out of $483 billion received by developing countries. However, the growth effect of workers' remittance in Asia has, over the years, remained an open empirical question. To this end, this study examines the impact of workers' remittance and its interactive effects with financial development and institutional quality on economic growth. The study used a partial Gram-Schmidt orthogonalization procedure, which enable us to examine whether the marginal effect of workers' remittances depends on the degree of financial development and institutional quality. It also used a Pooled Mean Group (PMG) estimator on panel dataset for a period of 1984-2010 from fifteen (15) remittance-receiving Asian countries. The results of this study shows that, workers' remittance impacts positively on economic growth in remittance-receiving Asian countries. But, the growth effect is higher in Asian countries with improved financial development but relatively weak institutions. According to the findings a percentage point increase in per capita workers' remittance leads to a long-run increase in per capita income by 0.103 percentage points. Moreover, the marginal effect of workers' remittance on economic growth rises with increase in the degree of financial development. But it declines with improvement in institutional environment. The partial derivative of economic growth with respect to workers' remittance at the mean level of financial development is 9.733. Similarly, the derivative evaluated at the minimum and maximum levels of financial development are found to be 1.355, and 32.087 respectively. The proportions of these derivatives at different levels of financial development showed that the marginal growth effect of workers' remittances rises with increase in the degree of financial development in remittance-receiving Asian countries. However, the partial derivative of economic growth with respect to workers' remittance at the mean level of institutional quality is –12.068. But, the partial derivative computed at the maximum and minimum levels of institutional quality take the value of –15.945 and –6.785 respectively. This suggests that the better institutional environment is in a country the lesser will be the growth impact of workers' remittance. Overall, the result suggests that workers' remittance and financial development work as complements in enhancing economic growth. However, the former and institutional quality act as substitutes in promoting economic growth.

Do Countries Adjust the Carbon Intensity of Energy Towards Targets? – The Role of Financial Development on the Adjustment

A sign of emerging downward trends in the carbon intensity of energy (CO2 intensity) is an early indicator of progress in transitioning to low-emission energy. To trade off the obligation of reducing carbon emissions against the cost saving benefits of using fossil fuels, a country may choose an optimal share of using low-emission energy. We apply the partial adjustment to investigate whether countries adjust their CO2 intensities towards specific targets. Using the sample covering 62 economies from 1992 to 2013, we find that the gaps between their actual and target CO2 intensities narrow over time, suggesting adjustment towards their optimal levels in the use of low-emission energy. Important determinants of countries’ target CO2 intensities include GDP growth, the share of fossil fuel consumption, shares of electricity production generated from fossil fuels versus non-fossil fuel sources, emission transfers related to trade activities, and emissions generated in cement production. Financial development is shown to have an asymmetrical moderating effect on the adjustment process towards targets among countries. Specifically, countries with a higher degree of financial development display faster downward than upward speeds of adjustment towards their targets. Indeed, countries with a higher degree of financial development consistently adjusted their CO2 intensities faster downwards and slower upwards towards their targets, while countries with a lower degree of financial development adjusted their CO2 intensities slower downwards and faster upwards. Such findings are not related to the state of economic development of the countries. This demonstrates that financial development plays an important role in mitigating CO2 emissions, given that more developed and deeper financial markets could reallocate investment towards cleaner energy and thus increase the supply of low-emission energy.

Characteristics and Influencing Factors of Green Finance Development in the Yangtze River Delta of China: Analysis Based on the Spatial Durbin Model

Based on urban economic data in the Yangtze River Delta region of China from 2011 to 2017, this study empirically explores the characteristics of green finance development and its influencing factors through the establishment of a time fixed effects Durbin model. The empirical results are as follows: (1) The development of green finance in the Yangtze River Delta has a clear spatial cluster effect, and there are large regional differences. (2) The regional GDP, regional innovation level, and air quality are the most important influencing factors, and the degree of financial development and the optimization of the industrial structure are not significant. (3) Regional GDP is positively correlated with the development of green finance, and regional innovation level and air quality are negatively correlated with the development of green finance. (4) Regional GDP, regional innovation level, and air quality are associated with the development level of green finance mainly through direct effects. The degree of financial development and the optimization of industrial structure are associated with the development level of green finance mainly through spillover effects. The degree of financial development has a positive spillover effect; in contrast, the optimization of the industrial structure has a negative spillover effect. Finally, according to the conclusions, countermeasures and suggestions for improving the level of green finance development in the Yangtze River Delta are proposed.