Financial Sector Development Research Articles

УЧАСТЬ FATF В МІЖНАРОДНО-ПРАВОВОМУ РЕГУЛЮВАННІ ПРОТИДІЇ ФІНАНСУВАННЮ ТЕРОРИЗМУ: ОЦІНКА МОЖЛИВОСТЕЙ ДЛЯ УКРАЇНИ

In the conditions of the modern development of the international financial sector, the importance of the anti-money laundering and terrorist financing system is particularly important. This system is regulated using FATF standards. The study of the elements of this system should take into account the situation that is happening in the world, in particular, political and military. The purpose of the article is to reveal the specifics of the FATF's activities in order to determine the possibilities of using this group's tools in the fight against Russia's military aggression against Ukraine. Based on the study of literary sources, the peculiarities of FATF functioning are summarized according to such characteristics as the purpose; sphere of interests; term of existence; the organizational structure; forms of cooperation; decision-making procedures at plenary meetings; budget; methods and mechanisms used in the activity. The article provides a retrospective analysis of the FATF's activities, provides an assessment of its expansion in thematic, subject, and geographical aspects. This made it possible to predict the effectiveness of the implementation of FATF tools in combating the financing of terrorism, taking into account the collective efforts of world political actors. The trends of FATF activity were analyzed (identification of state jurisdictions with strategic deficiencies and a weak system; fight against terrorist financing; working out the issue of "virtual assets"). It has been established that all of them are aimed at combating the financing of terrorism. Significant risks from Russia's financing of terrorism during the aggression against Ukraine were emphasized. This violates the requirements and principles of the FATF. In connection with the military aggression, Ukraine is currently trying and taking all possible actions to completely remove Russia from the FATF, as well as blacklisting it. The potential consequences (deterioration of the country's authority; complication of trade operations; reduction of funding for military operations) of the implementation of these procedures and obstacles to their implementation (significant time spent; possibility of blocking from Russia's position; insufficiently high level of effectiveness of the procedure) are identified.

ЗАОЩАДЖЕННЯ ТА ІНВЕСТИЦІЇ В ТЕОРІЇ ЕКОНОМІЧНОГО РОСТУ

The article is devoted to the research of the place of savings and investments in stimulating economic growth from the stand-point of economic theory, taking into account economic realities and prospects of developed society. The role of savings and in-vestment in the theory of economic growth is defined, in particular, it is emphasized that the role of investment in the short term is to stimulate production through the impact on aggregate demand, and long-term – to impact on economic growth through gross fixed capital formation. It is identified that the accumulation of social capital is formed mainly through investment, then for the economy are important general economic savings, which are a source of investment. Thus, investment is a connecting element, which with the involvement of the labor force ensures the transformation of national savings into a major source of economic growth.It is found that the representatives of the leading directions of political economy emphasize two aspects of the problem of accumulation: demand for capital goods and supply of capital goods; matching savings and investments. It is established that the imbalance in these aspects causes market imbalance. It is generalized that the accumulation of capital is inextricably linked with the formation of savings and investments, which through the prism of the abstract-logical approach determine the macroeconomic balance, in ensure the stability of supply and demand for public goods. It is catch out that the savings that turn into the form of investment are the basis of economic growth, which is determined by the size and structure of investment, qual-ity and speed of their implementation.It is revealed that nowadays a number of factors depend on the possibility of converting savings into investments, such as: wages, employment, interest rates, scientific and technical progress, foreign trade, capital armament, public policy, public institutions, development of financial and economic sectors and their ratios, virtualization of economy and globalization processes. Taking these factors into account should be key in shaping economic policies aimed at stimulating investment and economic growth.

КАТАЛІЗАТОРИ ТА ІНГІБІТОРИ ФУНКЦІОНУВАННЯ ТА РОЗВИТКУ ФІНАНСОВОГО СЕКТОРУ ТА ОРГАНІВ ПУБЛІЧНОЇ ВЛАДИ

The modern functioning of the financial sector and public authorities is characterized by increased attention to forecasting and predicting the behavioral aspects of citizens' decisions. This situation has arisen due to the importance of maintaining trusting relations between the government, the financial sector, and the population to ensure financial and macroeconomic stability in the country. The article analyzes the relationship between behavioral factors, trust, and the development of the financial and public sectors. The purpose of this paper is to analyze in detail the main behavioral factors of financial sector and government development in order to identify the vector of their influence. Depending on their influence on public trust, all behavioral factors are proposed to be divided into “catalysts” that accelerate and stimulate the effective functioning and development of the financial sector and the state authorities, respectively, as a result of the increase in public trust and “inhibitors” that deteriorate the level of public trust, create conditions for slowing the development of the financial sector and public authorities. The article examines the relationship between financial literacy and public trust in the financial and public sectors. Analysis of the state of financial literacy was carried out thanks to the USAID survey "Financial Sector Transformation." The study includes a structural analysis of social inequality covering the period from 2006 to 2020. A comparative analysis of the perception of corruption in Ukraine with Poland, and the leader in terms of the lowest perception of corruption in Europe - Denmark, was carried out. The article identifies the social and individual well-being of citizens of Ukraine. It analyzes the general dynamics of fluctuations in the indicator of satisfaction with public online services in the UN member states. The study provides an explanation of how the tendency to panic affects public trust. The research results are of practical importance and can be the basis for solving tasks and challenges related to public trust in the financial sector and public authorities.

DNIPRO CITY IN UKRAINE, STAGES OF ITS HISTORICAL-ARCHITECTURAL DEVELOPMENT

The current state of the historical cities of Ukraine is characterized by the presence of problems related to the detailed study and preservation of the historical and cultural heritage. Оne of this problems is the need to improve the composition of the cities and ensure the authenticity of the historically formed environment. This is due to the current state of the theory and practice of architecture in Ukraine, to which, first of all, was brought about by the statesmanship of the Soviet Union, whose policy was aimed at destroying the national identity of national minorities, i.e. republics such as Ukraine, Moldova, Georgia and others. Because of such policy, the study and generalization of the architectural activity experience took place in a fragmentary manner. The architectural and aesthetic aspects of the revitalization of historical cities were purposefully not taken into account, but instead, the reconstruction of the historical environment with the planting of new Soviet architecture was in the first place. Such a policy mostly led to the loss of a valuable historical environment. The Dnipro city is located on both banks of the Dnipro River. Historically, the construction of the city was carried out on the right – high bank, for which later some people called it “the city on three hills”. Today, Dnipro city is an important transport hub, including for river transport. A passenger and cargo river port is located here. Industrial facilities occupy almost half of the city’s territory and make up a significant part of its economy (metallurgical complex, machine and rocket engineering, light industry, etc.). The volume of production decreased significantly during the independence of Ukraine, as a result of which some industrial facilities are currently abandoned and neglected. The revitalization of former industrial zones and the establishment of technoparks are an urgent urban planning issue. One of these projects has been implemented. In addition to industry, the city has a developed financial and economic sector, with two stock exchanges and numerous enterprises operating. This study analyzed the historical and architectural development of the Dnipro city, and identified four main periods of the city’s development. The practical value of this study is that today, in the conditions of the unjustified Russian military invasion of Ukraine, the question of studying existing cities, their declaration, is very relevant. The purpose of the study is to analyze historical cartographic materials, to highlight the main stages of the development of the Dnipro city.

MACROECONOMIC DETERMINANTS OF EMPLOYMENT IN NIGERIA’S SERVICES SECTOR: DO FOREIGN DIRECT INVESTMENT AND EXCHANGE RATE MATTER?

The study employs the ARDL modeling technique to investigate the determinants of employment generation in Nigeria’s services sector, focusing mainly on the roles of foreign direct investment and exchange rate movements during the 1991-2019 period. The study finds that in the short-run, FDI positively affects employment generation in the services sector while currency depreciation adversely affects it with a one-year lag. The long run employment generation effect of the FDI in the services sector remains positive, but loses its statistical significance, while the effect of currency depreciation on services sector employment is positive and significant. It is also found that economic growth positively affects service sector employment generation in the short-and long-run, though the effect is only significant in the short-run. The effect of trade openness is positive and significant in the short-run, but also turns out to be non-significant in the long-run. Financial sector development favours employment generation in the services sector in the short-and long-run. Based on the evidence it is recommended that the government make effort to enhance the attractiveness of various sectors of the economy to FDI and guard against undue appreciation of the nation’s currency. It is also recommended that economic growth and the development of financial system be prioritized. In view of the transience of the effect of trade openness on employment generation in the services sector, caution must be exercised in implementing trade liberalization policies. These measures, if implemented, are expected to enhance job-creation in the nation’s services sector.

Влияние уровня развития финансового сектора на неравенство в доходах в российских регионах

This paper examines the factors of income inequality, among which financial development is under the spotlight. The degree of financial sector development determines ease of borrowing for population and their access to higher education, impacts entrepreneurial activity. Mixed empirical implications on the link between finance and inequality and lack of research conducted for the Russian regions explain the motivation of this paper. Regional financial system is characterized by financial depth indicators, a ratio of consumer credit to regional GDP and of consumer deposits to regional GDP along with the statistics on opened bank accounts. Estimations obtained using a panel dataset and models with different dependent variable provide evidence that the level of development of the financial sector has a significant impact on income inequality in the Russian regions. The empirical implications suggest that inequality tends to be positively associated with the volume of consumer loans. Nevertheless, increased placement of consumer deposits and improvement in bank infrastructure cause reduction in income inequality.

Rethinking the Role of Financial Sector Development in the Foreign Direct Investment-Economic Growth Nexus: Evidence From Ghana

Rethinking the Role of Financial Sector Development in the Foreign Direct Investment-Economic Growth Nexus: Evidence From Ghana

Inflation and financial development in sub-Saharan Africa

This paper analyses the relationship between inflation and financial development in sub-Saharan Africa. This issue is important because the level beyond which the inflation rate affects financial development in sub-Saharan Africa is not known, despite the underdeveloped financial system in the region. This paper presents a model in which inflation is endogenously determined, and uses a dynamic panel threshold approach which takes this factor into consideration to ensure improved results. The pure cross-section method and non-dynamic panel threshold approaches were also utilised. Strong evidence of a negative impact of inflation on financial development is obtained, which increases with a rise in inflation. An average inflation threshold of about 5% is established, below which a positive impact on financial development is found. There is, however, a negative relationship beyond the observed threshold. The paper provides policy recommendations as to how authorities should contain inflation to facilitate financial sector development in the region.

Asymmetrical and Symmetrical Relationship between Financial Sector Development and Economic Growth: Evidence From Nepal

The financial sector plays a pivotal role in accumulating and mobilizing funds within the economy, the sector that produces feedback effects for the economic progress of the nation. This paper examines the symmetrical and asymmetrical relationship between financial sector development and economic growth in Nepal. With time series data spanning from 1975 to 2019 AD, both symmetric autoregressive distributed lag (ARDL) and asymmetric effect ARDL (NARDL) models were employed in this paper. Furthermore, the study applied principal component analysis (PCA) to develop the financial sector development indicator. The findings revealed the pivotal role of financial sector development in driving economic growth in Nepal, although significant negative asymmetrical effects posed challenges to long-term growth. Additionally, alongside financial sector progress, factors—such as inflation and learning by doing—contributed to growth, while trade alone failed to have sufficient potency to spur economic expansion. While financial sector development enhanced Nepal's productive capacity, it was not observed singularly driving trade-led growth. Policymakers must prioritize relaxing policies and funneling resources effectively toward fostering financial sector growth and counteract potential negative impacts on economic development.

Impact of financial development on bank profitability

PurposeThis paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank profitability.Design/methodology/approachThe ordinary least square and the generalized method of moments regression methods were used to analyze the impact of financial development on the profitability of the Nigerian banking sector.FindingsThe authors find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, the authors observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.Practical implicationsIt is recommended that regulators should establish market-enabling policies that encourage new banks to emerge in the banking industry. The entry of new banks can lead to increase in financial system deposits and credit supply for economic growth. Regulators also need to understand the role of Nigerian banks in promoting financial development and find ways to collaborate with banks towards financial sector development. Another implication of the findings for asset managers is that asset managers will need to take into account the prevailing level of financial development, particularly the size of the financial system, in their asset pricing and investment decisions. This will ensure that investors get value for their investments in Nigeria. The financial implication of the study is that the level of financial development in Nigeria can improve the finance-growth linkages in Nigeria through the efficient allocation of credit and capital to crucial sectors of the Nigerian economy to spur growth in those sectors.Originality/valueEvidence dealing with how financial development affects the profitability of the banking sector in African countries is scarce in the literature, and is completely absent for Nigeria. This paper addresses this research gap.

Does Financial Development Advanced Environmental Quality in Thailand: Evidenced from ARDL

This study investigates the long-term effects of financial-sector development, energy consumption, and economic growth on Thailand's carbon emission from 1970 to 2018. Firstly, use the conventional unit-root test, augmented Dickey-Fuller root (ADF), and (PP) Phillips-Perron unit root tests to confirm stationarity of variables. Later, Autoregressive Distributive lag (ARDL) test used to examine the cointegration level with long and short-run estimates. ARDL bound test verifies that there exists a long-run association among the model. Empirical results indicate that the financial sector improves the quality of the environment, while energy consumption inversely affects the environment. Furthermore, they indicate the presence of EKC hypothesis validation in Thailand by confirming the negative and positive effects of economic and square economic expansion towards carbon emission levels. Financial development is proxied by domestic credit to private divisions with a detrimental impact on a carbon production level. This study could pave the way for policymakers to capture the essential environmental pollutants better and develop efficient and effective energy in the presence of well-organized economic policies. That can significantly reduce carbon dioxide (CO2) emissions in the presence of economic development. It is the only research to examine the long-term influence of the financial sector on (CO2) carbon dioxide emission, using a cointegration-approach. Therefore, this research is a moderate demand to reduce the possibility of biased estimation of econometric variables and to close gaps in the existing literature.

The joint effects of financial development and the business environment on firm growth: Evidence from Vietnam

This work examines the complementary effects of local financial development and the business environment on the growth of Vietnamese firms. For the period from 2009 to 2013, we combine firm-level data covering more than 40,000 firms from the Vietnam Enterprise Survey with province-level data from the Vietnam Provincial Competitiveness Indicators. Our estimation strategy builds upon a novel copula-based estimator that accounts for potential endogeneity biases without requiring external instruments. Our results show that financial development and a favourable business environment generally promote firm growth, but some components of the business environment, such as low entry costs, access to land and business service support, foster firm growth more strongly than financial development. Most importantly, financial development and the business environment interact positively in their effects on firm growth. The impact of local financial development on firm growth is higher in provinces with a competitive business environment. Conversely, improvements in provincial competitiveness have a greater impact on firm growth in provinces with a more developed financial sector. The results clearly show that policies to promote local financial development need to be coordinated with measures to improve the broader business environment.

What Drives Financial Sector Development in Africa? Insights from Machine Learning

ABSTRACT This study uses machine learning techniques to identify the key drivers of financial development in Africa. To this end, four regularization techniques – the Standard lasso, Adaptive lasso, the minimum Schwarz Bayesian information criterion lasso, and the Elasticnet– are trained based on a dataset containing 86 covariates of financial development for the period 1990 - 2019. The results show that variables such as cell phones, economic globalization, institutional effectiveness, and literacy are crucial for financial sector development in Africa. Evidence from the Partialing-out lasso instrumental variable regression reveals that while inflation and agricultural sector employment suppress financial sector development, cell phones and institutional effectiveness are remarkable in spurring financial sector development in Africa. Policy recommendations are provided in line with the rise in globalization, and technological progress in Africa.

IMPACTS OF FINANCIAL INCLUSION ON POVERTY AND INCOME INEQUALITY IN DEVELOPING ASIA

This study investigates the impacts of financial inclusion on poverty and income inequality in 27 developing countries in Asia during 2004–2019 based on a composite financial inclusion index (FII) constructed using principal component analysis (PCA). The generalized method of moments (GMM) was employed for the estimation. The results show that financial inclusion can influence the reduction in both poverty and income inequality. The empirical findings also reveal the contribution of such control variables as economic growth in decreasing income disparity and trade openness in helping improve the standard of living of poor households despite its tendency to co-vary with income inequality. The present empirical evidence supporting the role of financial inclusion in reducing poverty and income inequality in developing countries has led to a policy implication that financial sector development should focus on the availability, usage, and depth of credit to cover all poor households or low-income groups to help improve their access to financial services, enable them to increase their income, and reduce the income gap between poor and rich households.

The mechanisms linking the finance-growth relationship in view of the financial crisis: an empirical investigation of the EU countries

PurposeThe paper aims to explore the mechanisms linking the impact of financial development on economic growth and focuses on the long-term post-global financial crisis.Design/methodology/approachThe study employs panel data for twenty-five European Union countries over the period 1995–2017. Principal Component Analysis is employed to produce two aggregate indices, namely financial banking sector development and stock market sector development. The empirical analysis is based on estimates through the autoregressive distributed lag (ARDL) method.FindingsThe results suggest that the outbreak of the crisis has led to a disruption of the positive finance-growth relationship, and the banking sector dominates in this adverse effect. The foreknowledge of the current study is that the linking mechanisms of the negative impact of financial development on economic growth, ten years after the global financial crisis, are household debt, private debt, and non-performing loans for the banking sector, while for the equity market this is the case through savings. Interestingly, the results reveal that unemployment increase excessively the borrowers' debt level and then the non-performing loans.Research limitations/implicationsAn implication is that the increase of credit supply and any monetary expansion along with lack of regulatory control and monitoring can lead banks to a higher risk exposure through household and private debt as well as non-performing loans. Besides, the higher levels of unemployment rates call attention for the trade-off between prudential regulation on the supply of loans and economic activity, since higher unemployment affect the non-performing loans and, as a consequence discourage the demand, increase precautionary savings, and cancel or postpone investment decisions, thus, affecting the equity market.Originality/valueThe paper provides useful insights to economists and policymakers who are interested in understanding the weakness of banking and stock market sectors to promote economic growth for a long time after the global financial crisis.

Examining the sustainable development approach of migrants' remittances and financial development in sub‐Saharan African countries

AbstractIn achieving a desirable sustainable economic growth in developing countries, the role of financial development and international migrant remittances cannot be underplayed. This study attempts to investigate the dynamic interactions between the migrant remittances and the financial sector development from a multidimensional perspective in 22 sub‐Sahara African countries using a panel vector autoregression model over the period 2004–2017. Specifically, the study focuses on the multidimensions of financial development including financial depth, financial access, and financial efficiency in financial institutions (FI) and their relationship with the remittances. The findings suggest that: First, the migrant's remittances are detrimental for the overall FI while the FI are found to positively influence the remittances inflows. Second, the relationship between the remittances and the FI varies with the dimensions of FI. There is a positive dynamic interaction between the remittances, the financial efficiency, and financial access, except for the financial depth. The analysis in this investigation offers relevant policy directives especially on the role of remittances in building stable FI of the sub‐Saharan African economies and other developing states.

Mitigating the shadow economy through financial sector development in Indonesia: some empirical results

We examine the relationship between financial sector development and the shadow economy in Indonesia from 1980 to 2020. We estimate the size of Indonesia's shadow economy using the “Modified Cash to Deposits Ratio” approach. We then construct a long-term model using the size of Indonesia's shadow economy as the dependent variable. We set financial sector development as the main independent variable in our model. We use per capita real gross domestic product, the misery index, and foreign direct investment as control variables in our model. We find that financial sector development and the size of Indonesia's shadow economy have a nonlinear relationship that shows an inverted U-shape curve. The size of the shadow economy expands at the early stages of financial sector development to a turning point and decreases when financial sector development increases further. We also find that foreign direct investment curtails Indonesia's shadow economy. Additionally, increases in income expand Indonesia's shadow economy while misery index shows ambiguous results. We suggest the Indonesian authorities widen access for micro, small, and medium firms to the credit markets and enhance existing programs to reduce poverty and narrow the income gap in the country. These efforts help to narrow the size of Indonesia's shadow economy.

DOES CORRUPTION SAND THE WHEELS OF FINANCIAL SECTOR DEVELOPMENT? EVIDENCE FROM GLOBAL PANEL DATA

This study examines the effects of corruption and political instability and violence on the financial sector development. We estimate the impact for a panel of countries classified by income groups and regulatory quality. The study considers the period from 1996 to 2015 for analysis. The empirical models of this study test the linear as well as nonlinear relationships between corruption and financial sector development. Our analysis utilizes a dynamic panel data model and takes care of the potential endogeneity problem in estimation. The results show that corruption has a negative effect on financial sector development for all as well as different income-group countries. Our results further show that the effects of corruption are nonlinear in nature and indicate that corruption is more financial development-reducing when its level is very high. We also test the joint effect of corruption and political instability and violence on financial development. It largely shows that their combined effect is positive, implying that widespread corruption can positively affect financial development if a country is suffering from an unstable political institution.

Fiscal Deficit, Economic Uncertainty and Macroeconomic Performance in Nigeria

Fiscal deficit, economic uncertainty and macroeconomic performance have gained currency in recent public discussion among policy analysts and economists. The scale of the debates raises a question of whether or not economic uncertainty dampens the ability of deficit financing to achieve its desired objectives. This paper investigated the impact of budget deficit in an uncertain economic environment on gross domestic product (GDP) and inflation. Measures of macroeconomic performance are real GDP and inflation. Other explanatory variables include credit to financial sector (proxy for financial sector development), fiscal deficit, capital and recurrent expenditure. The paper measures economic uncertainty using exchange rate volatility through GARCH model and adopted the Auto-Regressive Distributed Lag (ARDL) bounds methodology. This approach allows the splitting of the variables into expected and unexpected variations which could be estimated using VAR. The results showed that economic uncertainty has an adverse effect on economic performance by creating passive expectation about the future. Uncertainty erodes the confidence of both foreign and domestic investors about future cash-flows and the stability of the economic environment as well as the safety of investors' assets. This impact would be visible in the existence of substantial sunk cost. The results approximate the submission that conducive economic environment along with appropriate mix of fiscal policy promotes real economic activity and stabilizes the price level. Improved economic conditions builds confidence in economic agents to invest in real productive activity, enables fiscal deficit to achieve its desired objective of stimulating economic activity and signals great optimism in the financial transaction system leading to improved funding of the private sector.

Does financial development reinforce ecological footprint in Singapore? Evidence from ARDL and Bayesian analysis.

Singapore has been ranked in the most dynamic financial market and the highest ecological deficit country, indicating that the trade-off hypothesis may exist. The main goal of the present study is to probe the impact of financial development, economic growth, and human capital on ecological footprint in Singapore from 1980 to 2016. The outcomes obtained from the Autoregressive Distributed Lag (ARDL) method have failed to provide a clear impact of financial sector development on ecological footprint. However, the Bayesian analysis reveals that both financial development and economic growth have a harmful influence on EF, while the impact of human capital is beneficial. A theoretical conclusion derived is that monetary expansion policies should be associated with improving human capital to achieve the United Nations SDGs in the context of Singapore. The findings of the study are of particular interest to policymakers for developing sound policy decisions for sustainable economic progress which is not at the cost of environment.