Financial Development Policy Research Articles

THE INFLUENCE OF FINANCIAL POLICY ON THE DEVELOPMENT OF REGIONS IN THE TERMS OF DECENTRALIZATION

Considerable attention is paid to the study of the influence of financial decentralization on the social and economic development of the regions. It is noted that the practice of decentralization reforms is ambiguous and differentiated. It also depends on many factors: budget structure of the state, financial provision of regions, peculiarities of economic development, etc. The obtained results allow formulating practical recommendations for improving the effectiveness of the formation and implementation of financial policy development of the regions of Ukraine.

Challenges and Implementation of Financial Institutions Development Policy in Laos on 2016-2020

This study focuses on the financial system development policy in 5 years of the Lao PDR which referring to "Lao strategic financial system development plan 2016-2025 and vision to 2030". The main policies include the upgrading and implementation of the supervision system, innovation in financial infrastructures with effective risk management, develop and stabilize banking system and non-banking financial institutions. Increasing number of the listed company and financial products creates diversification in the capital market. From the synthesizer environment and current situation of financial development in the country, the policy implementation challenges are analyzed from empirical environment of financial system in the country. Additionally, other challenges on supervision tools, under capitalization, less product types, small size of capital market, and risk management challenge which came from unconnected information system and uncompleted of related institutions are also discussed. Moreover, effective policy to address the challenges and the missing points for further policies are also discussed.

Relationship between FDI and Environment: Evidence from Emerging Countries

This paper uses generalized method of moments (GMM) panel estimator, proposed by Arellano-Bond and Blundell-Bond, to examine the relationship between FDI and environment for the period of 2000-2010 for a sample of 16 emerging countries. The effect of financial development, institutional quality and macroeconomic policy related variables are controlled for from the macroeconomic literature. The OLS based regression results reveal that environmental quality is not significant in explaining FDI inflows in emerging countries. However, based on dynamic panel data analysis, environmental quality is significant in explaining FDI. Using a number of controls it is found that stock market capitalisation to GDP, gross saving to GDP, gross capital stock to GDP, market size , and economic freedom (institutional quality) exercised by the host countries are important determinants in FDI inflows. However, the influence of such determinants is mixed in direction and magnitude at different significance levels. Thus, climate change and its mitigation strategy and overall environment policy have important implications for attracting FDI in the countries in question. In addition, the results highlight the role of institutional quality and financial development in attracting FDI.

Banks, Stock Market Development and Economic Growth in Kenya: An Empirical Investigation

ABSTRACTIn this paper, we have examined the impact of both bank- and market-based financial development on economic growth in Kenya during the period 1980 to 2012, using the autoregressive distributed lag bounds testing approach. To capture as far as possible the breadth and depth of the Kenyan bank- and market-based financial systems, the study employs the method of means-removed average to construct both bank- and market-based financial development indices from an array of banking sector and stock market variables. The empirical results of this study show that market-based financial development has a positive impact on economic growth in Kenya. However, the results have also shown that bank-based financial development has no impact on economic growth in the study country. These results apply irrespective of whether the regression analysis is conducted in the long run or in the short run. The findings of this study, therefore, lend more support to pro-market-based financial development policies in Kenya.

Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints

We show that an increase in aggregate uncertainty—measured by stock market volatility—reduces productivity growth more in industries that depend heavily on external finance. This effect is larger during recessions, when financing constraints are more likely to be binding, than during expansions. Our statistical method—a difference-in-difference approach using productivity growth for 25 industries for 18 advanced economies over the period 1985-2010—mitigates concerns with omitted variable bias and reverse causality. The results are robust to the inclusion of other sources of interaction effects, such as financial development (Rajan and Zingales, 1998) and counter-cyclical fiscal policy (Aghion et al., 2014). The results also hold if economic policy uncertainty (Baker et al., 2015) is used instead of stock market volatility as the measure of aggregate uncertainty.

Policy Lessons from Financing Innovative Firms

There has been increasing global concern from policy makers over the lack of access to finance for young innovative firms. As a result, governments in many OECD countries have sought to address the financing gap and perceived market failures by supporting the seed and early stage market. This paper seeks to summarise the lessons learned in seed and early stage finance based on OECD work focused on policies related to financing high growth firms, including angel investment and venture capital. Growth in seed and early stage finance policies highlights the role that financial development and other policies play in firm dynamics and job creation.

LONG-TERM INVESTMENT AND NET-WORTH BUILDING WITH LIMITED CONTRACT ENFORCEMENT

This paper develops a firm dynamics model augmented with an endogenous net-worth-building feature at the firm level and investigates how opportunities for entrepreneurs to accumulate wealth can mitigate the implications of limited enforceability for resource allocation, productivity, and macroeconomic development. In the steady-state equilibrium of the model, financially constrained entrepreneurs select short-term investment projects because short-term investment enhances net-worth building and relaxes credit constraints. The limited contract enforceability suppresses macroeconomic output; however, entrepreneurial net-worth building offsets the per capita income losses. I calibrate the steady state of the model for the U.S. economy as a baseline and conduct quantitative exercises. The counterfactual simulations reveal that net-worth building could reduce, for instance, about two-thirds of the per capita income discrepancy between the United States and Brazil that can be attributed to limited enforcement. The theoretical and quantitative results from the paper are highly relevant to financial development and entrepreneurship policies implemented in developing countries.

Financial development dynamic thresholds of financial globalization

Purpose – The issue of which financial initial conditions are necessary to materialize the benefits of financial globalization remains open to debate in the literature. In this paper, the author tries to put some empirical structure on the concept of financial threshold conditions in order to give policymakers guidance on the Kose et al. and Henry hypothesis. Its object is to assess whether financial benefits of financial globalization are questionable until greater domestic financial development has taken place in African countries. The paper aims to discuss these issues. Design/methodology/approach – In framing the financial dimension in a more concrete and tractable manner, the author examines the concerns of how domestic financial initial dynamics of depth (economic and financial systems), efficiency (banking and financial systems), activity (banking and financial systems) and size, play out in the financial development benefits of financial globalization. The estimation approach consists of assessing the impact of financial globalization through out the conditional distributions of domestic financial development dynamics. Findings – The introduction of previously missing financial dimensions into the debate generates a number of important findings. Only financial initial (threshold) conditions of size are necessary to materialize the benefits of financial globalization. While financial depth only partially validates the hypothesis, dynamics of efficiency and activity (credit) do not confirm the hypothesis. Practical implications – Addressing the issue of surplus liquidity in African financial institutions could improve the benefits of financial size and potentially reverse the trends of financial efficiency and activity. Depending on the context of sampled countries, the appropriate role of policy has always been either to stem the tide of capital flows or encourage them. Policymakers who have been viewing their challenges exclusively from the latter perspective for benefits in growth (finance) might be getting the financial dynamics badly wrong. Originality/value – Blanket financial development policies may not reap the financial benefits of financial globalization until domestic financial dynamics of depth, efficiency, activity and size are critically considered. The introduction of the last three previously missing components in the literature sheds more light on the globalization-development nexus.

Fiscal Responses after Catastrophes and the Enabling Role of Financial Development

Natural disasters may constitute a major shock to public finances and debt sustainability because of their impact on output and the need for government response with reconstruction and relief expenses. The question arises of whether governments can use financial development policy as the means to mitigate or insure against this negative fiscal impact. This paper uses a panel vector autoregressive model, estimated on annual data for high- and middle-income countries over 1975–2008, to study the role of debt market development and insurance penetration in enabling fiscal response after catastrophes. The authors find that countries with higher debt market development suffer smaller real consequences from disasters but that their deficits expand further followingthe mitigating fiscal response. Disasters in countries with high insurance penetration also experience smaller real consequences of disasters but without the need for further deficit expansions. From an ex-post perspective, the availability of insurance could offer the best mitigation approach against the real and fiscal consequences of disasters.

Why does natural resource abundance not always lead to better outcomes? Limited financial development versus political impatience

Is the failure of natural resource abundance to achieve better economic outcomes due to limited financial development or fiscal policy short-termism? I answer this question in a precautionary savings model where both resource revenues and asset returns are uncertain. Calibrating for Colombia, I find that under policy impatience, welfare costs are large, net assets are insufficient and net discretionary expenditures are too sensitive to resource revenues. If financial markets are underdeveloped, we can generate welfare costs of the same magnitude but not also explain why there are insufficient net effective assets, nor the heightened sensitivity to revenues.

أثر الفقر و البطالة على السلوك الجرمي في المجتمع الأردني من وجهة نظر العاملين في جهاز الأمن العام = The Impact of Poverty and Unemployment on Criminal Behavior in the Jordanian Society from the Perspective of Workers in the GSS

This study aims to identify the impact of poverty and unemployment on the criminal behavior in the Jordanian society from the perspective of the workers in the General Security Service of Jordan. To achieve the objectives of this study, we had developed and designed a questionnaire to collect data. A simple random sample method has been used to determine the study sample. The reached samples were 350. After analyzing the questionnaire, the study found the following results; there is an effect for the poverty variable on changing criminal behaviors in the Jordanian society, there is also an effect for the variable of unemployment on criminal behaviors in the Jordanian society. The study recommends that there is a need for the government to raise income of individuals in the community through the development of financial policies to ensure the provision of a decent living in the Jordanian society, and the imposition of new legislation on venture capitalists and investors to raise the salaries of employees and to provide financial assistance to them to reduce the motivations that lead to committing criminal behavior, and the provision of decent jobs is working to reduce the commission of criminal behavior in the society.

НАПРЯМИ РОЗВИТКУ ФІНАНСОВОЇ ПОЛІТИКИ ОКРЕМИХ СУБ’ЄКТІВ ФІНАНСОВОЇ СФЕРИ

Корнєєв М. В. Напрями розвитку фінансової політики окремих суб’єктів фінансової сфери. У статті визначено суть, завдання, умови результативності, особливості реалізації фінансової політики окремих суб’єктів фінансової сфери. Охарактеризовано види, складові елементи фінансової політики окремих суб’єктів фінансової сфери, встановлено взаємозв’язок між ними. Запропоновано напрями розвитку фінансової політики окремих суб’єктів фінансової сфери. Зроблено висновок, що діяльність окремих суб'єктів фінансового сектору є важливим елементом соціально–економічного розвитку суспільства. Фінансова політика таких суб'єктів має специфічні особливості та включає в себе на інвестиційний, соціальний, податковий напрями тощо. Дані елементи взаємопов’язані між собою та складають єдине ціле. За іншими підходами розрізняють класичну, кептивну та схемну фінансову політику, фінансову стратегію і тактику. Факторами впливу на досліджувану політику є економічна та політична нестабільність країни, недосконалість законодавчої бази, низький рівень фінансової культури, загальна відносна нерозвиненість фінансового ринку держави. В сучасних умовах важливе значення має саме правильний вибір моделі фінансової політики конкретних суб'єктів фінансового сектору, розрахунок її можливостей, умов, напрямів, врахування існуючого рівня державного регулювання. Продуманість такої політики приведе до загального розвитку фінансової системи. Саме ефективна фінансова політика визначає ефективність фінансової системи та підвищує довіру до неї. Запропонована система напрямів розвитку фінансової політики окремих суб'єктів фінансового сектору буде не тільки підвищувати ефективність діяльності таких суб'єктів, але й буде сприяти стабільному, стійкому розвитку фінансової системи, вдосконалить сучасний фінансовий ринок. Korneyev M. Directions of development of financial policy of separate subjects of financial sphere. In the article the essence, task, terms of effectiveness, feature of realization of financial policy of separate subjects of financial sphere are certain. Prospects, component elements of financial policy of separate subjects of financial sphere are described, intercommunication is set between them. Directions of development of financial policy of separate subjects of financial sphere are offered. It is concluded that the activity of individual subjects of the financial sector is an important element of socio - economic development of society . Financial policies of such entities has specific features and includes investment , tax and social direction etc.. These elements are interrelated and integrated. For other approaches distinguish classical circuit and financial policy , financial strategy and tactics. Factors influence the politicians is the economic and political instability in the country, inadequate legislative base , low financial culture , the overall relative underdevelopment of the financial market of the state. In modern conditions it is important to model the right choice of financial policy specific subjects of the financial sector , the calculation of its possibilities , conditions , trends , taking into account the current level of government regulation. Reasonableness of such a policy will lead to the overall development of the financial system. It is an effective fiscal policy determines the efficiency of the financial system and increase its credibility . The proposed system of financial policy directions of the individual subjects of the financial sector will not only enhance the effectiveness of such entities, but also contribute to stable and sustainable development of the financial system , improves the modern financial market. Корнеев М. В. Направления развития финансовой политики отдельных субъектов финансовой сферы. В статье определены сущность, задания, условия результативности, особенности реализации финансовой политики отдельных субъектов финансовой сферы. Охарактеризованы виды, составляющие элементы финансовой политики отдельных субъектов финансовой сферы, установлена взаимосвязь между ними. Предложены направления развития финансовой политики отдельных субъектов финансовой сферы. Сделан вывод, что деятельность отдельных субъектов финансового сектора является важным элементом социально - экономического развития общества. Финансовая политика таких субъектов имеет специфические особенности и включает в себя инвестиционное, социальное и налоговое направления т.п.. Данные элементы взаимосвязаны между собой и составляют единое целое. По другим подходам различают классическую и схемную финансовую политику, финансовую стратегию и тактику. Факторами влияния на исследуемую политику является экономическая и политическая нестабильность в стране, несовершенство законодательной базы, низкий уровень финансовой культуры, общая относительная неразвитость финансового рынка государства. В современных условиях важное значение имеет именно правильный выбор модели финансовой политики конкретных субъектов финансового сектора, расчет ее возможностей, условий, направлений, учета существующего уровня государственного регулирования. Продуманность такой политики приведет к общему развитию финансовой системы. Именно эффективная финансовая политика определяет эффективность финансовой системы и повышает доверие к ней. Предложенная система направлений развития финансовой политики отдельных субъектов финансового сектора будет не только повышать эффективность деятельности таких субъектов, но и будет способствовать стабильному, устойчивому развитию финансовой системы, усовершенствует современный финансовый рынок.

Why Can Natural Resource Abundance Make Things Worse? - Limited Financial Development or Political Impatience?

Is the failure of natural resource abundance to achieve better economic outcomes due to limited financial development or fiscal policy short-termism? I answer this question in a precautionary savings model where both resource revenues and asset returns are uncertain. Calibrating for Colombia, I find that under policy impatience, welfare costs are large, net assets are insufficient and discretionary expenditures are too sensitive to resource revenues. If financial markets are underdeveloped, we can generate welfare costs of the same magnitude but not also explain why there are insufficient net effective assets, nor the heightened sensitivity to revenues.

Macroeconomic Environment and Remittances in Post-Independent Sub-Saharan Africa: Magnitudes, Trends and Stylised Facts

This paper examines macroeconomic performance and policy environment of post-independent sub-Saharan Africa (SSA) vis-à- vis remittance flows to the sub-region. The paper finds that SSA is the only developing region in the world that still depends on foreign aid as its leading external non-debt capital and attracts the least remittances, notwithstanding the positive growth trend since the pursuit of economic policy reforms in the 1980s. In general, low inflation, higher real income growth, domestic savings, investment, exports, financial development, and fiscal policy effectiveness strongly and positively correlate with remittance inflows. This implies remittances are likely to be driven by sound macroeconomic environment in recipient countries. An affirmation of this finding is that, in SSA, (and, indeed, for all developing economies), remittances are pro-cyclical and positively correlate with macroeconomic performance and stability.

Asian Financial System: Development and Challenges

Postcrisis policy responses tilted in favor of strengthening the global regulatory system and financial stability have limited the attention paid to the role of finance in supporting sustained economic growth and development. This has special implications for Asia which, despite being the new engine of growth to the world economy, continues to be challenged by the persistent gap between developments in its financial and real sectors. This paper examines how Asia’s financial and economic landscapes have improved under the wave of regional macroeconomic and financial management reform, yet continue to be beset by highly bank-dominated local financial systems, financial infrastructures anemic in proper legal and regulatory frameworks, and shallow regional financial markets. The situation compromises Asia’s ability to respond to the financial needs of its vast small and medium enterprise sector, infrastructure deficits, and poor households, constraining prospects for sustained high growth, development, and poverty reduction. The paper concludes that the financial development policy agenda in developing Asia should be focused on: (i) supporting economic growth and development, (ii) promoting financial inclusion, (iii) balancing regulation and innovation, and (iv) strengthening crisis prevention and management mechanisms.

Investment Composition and Productivity with Heterogeneous Entrepreneurs

We develop an overlapping-generations economy to analyze the effects of financier patience on the investment horizon choice of a distribution of heterogeneous entrepreneurs. The purpose of our enquiry is to show that while the lack of financier patience might affect the supply of investable funds allocated at productivity enhancing long-term entrepreneurial projects, depending on the distribution of talent, a composition within the financial sector which favors short-term lending, does not necessarily retard the aggregate economic performance when the entrepreneurial sector of the society consists of economic agents with divergent interests in adopting long-term investment projects. We provide conditions under which there is a non-linear relationship between the level of financier patience and macroeconomic development. Our analytical results have important implications for financial development policies implemented in developing countries.

Are Financial Benefits of Financial Globalization Questionable Until Greater Domestic Financial Development Has Taken Place?

Purpose – The issue of which financial initial conditions are necessary to materialize the benefits of financial globalization remains open to debate in the literature. In this paper, we try to put some empirical structure on the concept of financial threshold conditions in order to give policymakers guidance on the Kose et al.(2011) and Henry(2007) hypothesis. Its object is to assess if financial benefits of financial globalization are questionable until greater domestic financial development has taken place in developing countries. Design/methodology/approach – In framing the financial dimension in a more concrete and tractable manner, we probe into the concerns of how domestic financial initial dynamics of depth(economic and financial systems), efficiency(banking and financial systems), activity (banking and financial systems) and size play-out in the financial development benefits of financial globalization. The estimation approach consists of assessing the impact of financial globalization through-out the conditional distributions of domestic financial development dynamics. Findings – The introduction of previously missing financial dimensions into the debate generates a number of important findings. Only financial initial(threshold) conditions in depth and size are necessary to materialize the benefits of financial globalization. Domestic dynamics of efficiency and activity(credit) do not confirm the hypothesis. Practical implications – Depending on the context of sampled countries, the appropriate role of policy has always been either to stem the tide of capital flows or encourage them. Policymakers who have been viewing their challenges exclusively from the later perspective for benefits in growth(finance) might be getting the financial dynamics badly wrong. Originality/value – Blanket financial development policies may not reap the financial benefits of financial globalization until domestic financial dynamics of depth, efficiency, activity and size are critically considered. The introduction of the last three previously missing components in the literature sheds more light on the globalization-development nexus.

Financial Development Dynamic Thresholds of Financial Globalization: Evidence from Africa

Purpose – The issue of which financial initial conditions are necessary to materialize the benefits of financial globalization remains open to debate in the literature. In this paper, we try to put some empirical structure on the concept of financial threshold conditions in order to give policymakers guidance on the Kose et al. (2011) and Henry (2007) hypothesis. Its object is to assess if financial benefits of financial globalization are questionable until greater domestic financial development has taken place in African countries.Design/Methodology/Approach – In framing the financial dimension in a more concrete and tractable manner, we examine the concerns of how domestic financial initial dynamics of depth (economic and financial systems), efficiency (banking and financial systems), activity (banking and financial systems) and size, play out in the financial development benefits of financial globalization. The estimation approach consists of assessing the impact of financial globalization through-out the conditional distributions of domestic financial development dynamics. Findings – The introduction of previously missing financial dimensions into the debate generates a number of important findings. Only financial initial (threshold) conditions of size are necessary to materialize the benefits of financial globalization. While financial depth only partially validates the hypothesis, dynamics of efficiency and activity (credit) do not confirm the hypothesis.Practical Implications – Addressing the issue of surplus liquidity in African financial institutions could improve the benefits of financial size and potentially reverse the trends of financial efficiency and activity. Depending on the context of sampled countries, the appropriate role of policy has always been either to stem the tide of capital flows or encourage them. Policymakers who have been viewing their challenges exclusively from the latter perspective for benefits in growth (finance) might be getting the financial dynamics badly wrong. Originality/Value – Blanket financial development policies may not reap the financial benefits of financial globalization until domestic financial dynamics of depth, efficiency, activity and size are critically considered. The introduction of the last three previously missing components in the literature sheds more light on the globalization-development nexus.

Asia's contribution to global rebalancing

Developing Asia remains at the core of global payment imbalances. While the geographical concentration of current account imbalances is significant—with the People's Republic of China accounting for the lion's share of the region's current account surplus—how Asia contributes to global rebalancing also depends critically on the newly industrialising economies and larger Association of Southeast Asian Nations economies. Given the region's huge diversity, the necessary national macroeconomic and structural policies will vary significantly across Asia's emerging economies. Whereas near-term rebalancing efforts will be driven primarily by macroeconomic and exchange rate policies, structural reforms are essential for boosting domestic and regional demand as sources of economic growth over medium to long-term. We argue that regional rebalancing will depend critically on the adoption of deeper and more comprehensive structural reforms and further trade liberalisation to unlock the potential of strong domestic and regional spending—thus reducing Asia's high dependence on extra-regional demand. Priority policies should include infrastructure spending, competition, trade, financial development, investment, immigration, and other social policies to reduce national savings.

The Finance-Growth Nexus in the Context of Financial Structure

Over recent decades, stock markets across the globe have developed tremendously taking a major role, similar to banks’ role, in financing firms. This persuaded economists to return with the old debate initiated by Goldsmith (1969) regarding financial structure. The bank-based system advocates favor the role of banks and criticize the role of markets in carrying out the financial growth-enhancing functions, whereas the market-based system proponents favor the role of markets and criticize the role of banks. On the other hand, proponents of the financial services and legal views are skeptical about the whole structure debate. Whether the market bank - based debate is genuine or myth; is a controversial question that should assist governments - especially with underdeveloped financial systems - to direct their financial development policies. This study has attempted to explore the finance-growth nexus in the context of the different financial structure hypotheses. Using pooled data from 65 developed and developing countries over the period 1988-2007 and employing graphical, correlation, and OLS regression analyses, the results support the market-based view over the bank-based and financial services views. Furthermore, by dividing the main sample according to the legal origins, evidence supporting the legal view and the relevancy of market-based systems in better legal environments has been found.