Financial Depth Research Articles

Growth and risk: A view from international trade

This paper studies the cross-country patterns of risky innovation and growth through the lens of international trade. We use a simple theoretical framework of risky quality upgrading by firms under varying levels of financial development to derive two predictions. First, the mean rate of quality growth and the corresponding cross-sectional variance of quality growth in a country are positively correlated. Second, both the mean and variance of quality changes are positively correlated with the country's level of financial development. We then test these two hypotheses using data on disaggregated (HS10) bilateral exports to the United States. The patterns in the data are consistent with the theory. The mean and the variance of quality growth are strongly positively correlated with each other. Countries with greater financial depth are systematically characterized by higher mean and higher variance in the growth of product quality. Our findings suggest a mean-variance trade-off in product quality improvements along the development path. Increases in financial depth do not imply lower variability of changes in the product space.

THE ASSOCIATION AMONG DIMENSIONS OF FINANCIAL DEVELOPMENT AND LOGISTICS PERFORMANCE

Although value of financial development for logistics industry is stressed by literature, the studies examining the impact of the dimensions of financial development -depth, access, and efficiency- on logistics performance are limited. Hence, the purpose of this paper is to contribute to the literature by empirically examining the association among logistics performance, financial depth, access and efficiency, by adding global competitiveness and good governance variables into the model. Test results show that good governance has the largest impact on all. Importantly, financial depth, access, and efficiency have a significant and positive impact on logistics performance. One-unit change in financial depth, access, and efficiency leads 0,272, 0,195 and 0,164 unit change in logistics performance, respectively. Interestingly, we are not able to find statistically significant support for the linkage between financial depth and global competitiveness, but we find that financial access has the largest impact on global competitiveness compared to financial efficiency.

Financial development, economic growth and the role of fiscal policy during normal and stress times: Evidence for 26 EU countries

AbstractThis article empirically explores the finance‐growth relationship and the performance of the financial system measured by financial depth, accessibility, and efficiency of both financial sectors, that is, institutions and stock markets. It also examines the role of fiscal policy in conjunction with the performance of financial development during both normal and stress times. The data consists of a panel of 26 European Union countries over the period 1990–2020. The results show that during normal times, the finance‐led growth relationship and the stock market are greatly important, while during stress times the relationship becomes insignificant. Interestingly, financial institutions are found to be more effective at promoting growth and there is clear evidence that a potentially dynamic positive effect of institutions to growth is absorbed by macroeconomic shocks. In addition, there is evidence for a threshold at a lower level compared to those previously identified in the literature. This latter finding can be attributed to different measures of financial institutions used and the impact of macroeconomic shocks. The inability of both financial sectors to enhance economic activity seems to exhibit persistence from the occurrence of the global financial crisis until the onset of the recent Covid‐19 pandemic.

A novel EKC perspective: do agricultural production, energy transition, and urban agglomeration achieve ecological sustainability?

We aim to analyze the existence of a novel agricultural production-augmented environmental Kuznets curve (EKC-AP) theory for energy transition, urban agglomeration, and financial depth. To conduct this research, we use a global panel of selected 54 countries belonging to low, medium, and high levels of economic development from 1971 to 2017. Since our data are distributed into three development levels, it is highly likely to face cross-sectional dependence across the countries within and between the development levels, which may provide biased empirical results. To outpace such possibility, we employ advanced econometric strategies, which are robust to cross-sectional dependence and slope heterogeneity issues. We found that agricultural production, energy transition, urban agglomeration, financial depth, and ecological degradation experience a long-term cointegrating equilibrium association. We also confirm that exists an EKC-AP linkage of agricultural production with ecological degradation in highly developed economies, while those at the low and medium levels of development reveal a positive exponential and monotonic impact, respectively, of agricultural production on ecological degradation. The energy transition is found to promote ecological sustainability in developed countries through technique impact, while it deteriorates the ecological quality in countries at the medium development level. Moreover, urban agglomeration adversely impacts the ecological quality in the economies at low and medium development levels, whereas it improves the ecological sustainability in developed economies. Besides, financial depth proves harmful to ecological sustainability, with less subtle effects in developed economies. Based on our findings, for countries at low and medium levels of development, we propose advancing farming techniques using ecologically friendly technologies, promoting green energy transition, expanding the share of the services sector, and providing green financial systems to support green investment projects to achieve the Sustainable Development agenda of the United Nations.

The effect of Financial Development on Pro-Poor Growth: evidence from Sub-Saharan African Countries

ABSTRACT This paper extends the empirical analysis establishing the significant and positive/negative influence of finance on growth/poverty by examining the contribution of financial development to pro-poor growth. We investigate the relationship between financial development and pro-poor growth in a panel of 29 countries from sub-Saharan Africa over the period 1994–2019. We focus on the vast majority income as the main indicator of pro-poor growth. We use the recent financial development index as a measure of financial development. Using Pooled Mean Group-ARDL estimation in a dynamic heterogeneous panel framework, we obtain the following results: (i) from linear analysis, there is a positive and significant effect of financial access, financial efficiency and the overall financial development index on pro-poor growth in the short run, while in the long run, only financial efficiency affects negatively and significantly pro-poor growth; (ii) results show that the nonlinear relation is not verified in the short run, while in the long run, there is an inverted U-shaped relationship between the financial development index, financial access and financial depth and pro-poor growth. This suggests that too much finance can be detrimental to pro-poor growth in SSA. Financial inclusion of the poor combined with governance is necessary to improve pro-poor growth.

What's at Stake? The empirical importance of government revenue and debt and renewable energy for environmental neutrality in the US economy

Environmental taxes and pollution reduction have been the subject of several studies. By factoring the costs of pollution and other environmental costs into pricing, environmental taxes assist in correcting erroneous price mechanisms in the marketplace. It did, however, overlook the government's potential to facilitate the use of efficient energy sources, which is critical for environmental neutrality. The competence of a government is determined by its tax revenues, which allow the state to participate more in renewable energy technologies, offer an excellent opportunity to reduce greenhouse gas emissions and global warming by replacing traditional energy sources. To that aim, the impact of government revenues and debts, as well as renewable energy on environmental neutrality in the United States, is the only motive to conduct this research. A significant outcome of the renewable energy-environment nexus is revealed by tax revenue and debt. Since there seems to be no causation in the first moment, but higher-order interconnectedness emerges, as the quarterly data from 1990Q1 to 2020Q4 has been obtained to test for causality-in-mean and causality-in-variance employing novel non-parametric causality-in-quantiles algorithms. The findings reveal that renewable energy consumption and financial depth have significant predictive power for ecological footprint, uncovering asymmetric prediction across ecological transmission. Also, tax revenues and government debts found a significant connection and predictive potential in estimating the environmental footprint level. Thus, out of multiple suggestions, the study suggests that the government push tax reform policies to obtain investment in renewable energy sources. This shift toward renewable technology innovation allows the US to go green and retain environmental sustainability, which is also an utmost urgency of the UN's Sustainable development Goals (SDG-7).

Towards the dream of go green: An empirical importance of green innovation and financial depth for environmental neutrality in world's top 10 greenest economies

Going green is a wise choice regarding economic progress, social prosperity, and environmental neutrality. This topic is a concern worldwide and has been the heart of every strategy for decades. Therefore, the current study explores the key determinants that could be the way forward for policymakers. In this study, we analyze the importance of green innovation, technological innovation, financial depth index, information communication technology, GDP regarding CO2 emissions, and ecological footprint for the 10 greenest economies in the world from 1980 to 2019. The research is innovative in that it incorporates the concept of financial depth interaction with green and technological innovation. For analysis, the Banerjee and Carrion-i-Silvestre (2017) approach was applied for cointegration, while the innovative Method of Moments Quantile Regression (MMQR) and Dumitrescu and Hurlin (2012) causality test were used to examine the link among the variables. The outcome confirmed that green innovation and financial depth significantly reduce carbon emissions and ecological footprint, while the rise in information communication technology significantly increases emissions and ecological footprint in various quantiles. However, GDP significantly upsurges ecological footprint from the 25th and 50th quantiles. Finally, DH's causality (2012) also endorsed the outcome. Overall, findings suggest that investment in green innovation reduces environmental deterioration among the world's greenest nations. This study recommends improving nature conservation tax laws, promoting green investment, and implementing environmentally friendly policies to achieve SDGs.

A Study On Performance Of Financial Institutions In Ghana

The aim of this study is to investigate the performance of Ghanaian financial institutions. This study has used four proxies intended to measure the performance of financial institutions namely: financial access, financial depth, financial efficiency and financial stability. The overall proxies are consisted of thirty variables. In the study, there are four objectives: measuring service of financial access in Ghanaian financial institutions is the first one. The second objective is to examine the size of Ghanaian financial institutions. The third and fourth objectives are to measure the efficiency and stability of Ghanaian financial sector. We created a development of financial performance model describing the variables in this study. The main analysis of the study is Mean calculation and Weighted Least Squares Multiple Regression Analysis (WLS.) This study investigated secondary data. The data was analyzed by using Statistical Package for Social Sciences (SPSS) in descriptive statistics and Excel Software. The result showed significance in financial access (F= 43.352 P= .000) with r-value (r= 949**) and financial depth (F= 42.973 P= .000) with r-value (r= 925**) while financial efficiency and stability showed insignificance. This holistic study that combined access, depth, efficiency and stability proved that Ghanaian financial institutions are inefficient and there is instability as well.

An Analysis of Financial System Development and Banking Sector Performance in Nigeria

The study assessed the impact of financial system development on the banking sub-sector performance in Nigeria by using indices representing financial access, financial efficiency and financial depth as its explanatory variables. The proxy used for banking sector performance is the capital adequacy ratio. Due to the paucity of high-frequency data for the relevant variables, the study converted the sourced annual data spanning from 2004 to 2021 to monthly data. The preliminary data investigation indicated that the ARDL model is appropriate for the analysis. An ARDL-ECM model was then estimated using the Ordinary Least Square estimation technique. The results reveal that the financial market’s activities are significant determinants of banking performance in Nigeria. The paper recommends that making the capital market and other non-bank institutions more attractive to investors should be a priority policy

Retracted: Empirical Analysis of Financial Depth and Width Based on Convolutional Neural Network.

[This retracts the article DOI: 10.1155/2021/8650059.].

Investment Bank, Financial Performance, Economic growth and Development: An Empirical Analysis of Investment Banking Activities and Financial Market in an emerging Economy: A case study of Nigeria

The investment bank's performance was researched and critically analysed, and how such performance might contribute to economic growth notably in Nigeria. This study is unique in the Nigerian financial market since it empirically studied connected characteristics that potentially impact investment bank performance in Nigeria. This study spanned the years 1996 through 2022. The period was marked by a credit boom, a financial recession, a rebound, and strong economic expansion. Because of the nature of the study topics, a quantitative approach was taken. The study discovered that bank-specific characteristics, industry-specific factors, macroeconomic drivers, and institutional factors are relevant in evaluating the performance of Nigerian investment banks. That is, a critical examination of the performance of Nigerian investment banks is centred on bank-specific characteristics. This suggests that the capacity of investment banks to fulfil their essential functions is determined by internal factors such as capital, credit risk, operating expenditures, and size. Additionally, the industry strength demonstrated that the financial market's depth had an influence on investment banks. The significance of competitiveness was underlined. Macroeconomic factors such as GDP growth, interest rates, inflation rates, and oil prices shown that a strong macroeconomic environment is required for vibrant investment banks. Lastly, institutional variables such as a developed insurance industry, political stability, the rule of law, and effective government policies can all have an impact on the success of Nigerian investment banks. The research recommended that, in order to significantly improve the performance of investment banks in Nigeria, the following strategies be pursued aggressively: cost reduction strategy, cultural transformation, adopting a customer-centric approach to business, technological development, financial depth development, and development of a sustainable investment bank framework. This study believes that if the recommendations are adopted, investment banks' profits would improve, allowing them to execute their core functions and contribute to the growth of the economy, particularly in a rising economy like Nigeria. &nbsp

Effect of Pension and Insurance Funds on Financial Deepening in Nigeria

This study examines the effect of pension and insurance funds on financial deepening in Nigeria for the period 2012Q1 to 2023Q1. Quarterly time series data for pension funds, insurance funds and financial deepening were collected from the Central Bank of Nigeria statistical bulletin. Philip Perron test was used to test the stationarity of the data and the ARDL Bound cointegration test was utilized to determine the presence of long-run relationship. The Fully Modified Ordinary Least Squares regression method was used to test the effect of pension and insurance funds on financial deepening in Nigeria. The findings showed that there was no long-run relationship among the variables, while pension funds have a significant effect on financial deepening in Nigeria, insurance funds do not have a significant effect on financial deepening in Nigeria. It was recommended that, in other to increase the financial depth of the Nigerian economy, a critical upward review of the investment outlet available to pension fund administrators should be done. On the other hand, the Central Bank of Nigeria in collaboration with the National Insurance Commission can take advantage of opportunities in the insurance industry, especially by enforcing all the mandatory insurance policies given by law.

ФІНАНСОВА ГЛИБИНА ЕКОНОМІКИ УКРАЇНИ: СЕКТОРАЛЬНИЙ РОЗРІЗ

Визначення диспропорцій у формуванні фінансової глибини економіки дозволило відстежити невідповідності в розвитку банківського, небанківського секторів і ринку капіталу і, як наслідок, виявити розбалансованість усього процесу фінансового поглиблення. Кількісна оцінка банківського сектору України за період 2000 р. – серпень 2022 р. за допомогою показників монетизації економіки (співвідношення грошової бази до ВВП, М3 до ВВП), активів банківської системи (співвідношення активів НБУ і банків до ВВП, банківських кредитів до ВВП, вкладень банків у цінні папери до ВВП, частки наданих банківських кредитів суб’єктам господарювання і фізичним особам, частки наданих банківських кредитів строком до одного року, частки споживчих та іпотечних кредитів фізичних осіб), співвідношення капіталу й зобов’язань банків до ВВП (частки депозитів суб’єктів господарювання і фізичних осіб, частки строкових депозитів) свідчить про відрив банківської глибини від потреб реального сектору, а саме про відсутність «довгих» фінансових ресурсів і орієнтацію банків на швидкий дохід. Кількісна оцінка глибини небанківського сектору за період 2005 р. – II квартал 2022 р. (за допомогою співвідношення активів небанківського сектору до активів фінансового сектору; обсягів послуг, наданих страховими компаніями, кредитними спілками, фінансовими компаніями і лізингодавцями, ломбардами, недержавними пенсійними фондами) свідчить про зростання частки активів фінансових компаній і витіснення страхової галузі з 2015 р. Кількісна оцінка глибини ринку капіталу з 2000-х років говорить про його низьку роль у формуванні фінансової глибини через відсутність фінансових інструментів з високими інвестиційними властивостями і незначні обсяги ліквідності біржового обігу цінних паперів. Активізація банківського кредитування й біржової торгівлі цінними паперами виокремлено як напрями покращення формування фінансової глибини економіки України.

What Drives the Development of Life Insurance Sector? Empirical Evidence from Tanzania

The study was conducted to examine determinants of life insurance development in Tanzania where by inflation rate, interest rates, income level, domestic savings and financial depth as independents variables while life insurance development specified by premium written was a dependent variable. The study guided by, the ex post facto research design. The study population consist the whole macroeconomic environment where sample of five aspects named interest rates, income level, domestic savings, financial depth and inflation rate selected with coverage of twenty-three (23) years from 1996 to 2018. The study employed a purposeful sampling technique to select five aspects of macroeconomic factors. The study employed secondary data pooled from the Tanzania Insurance Regulatory Authority (TIRA), Bank of Tanzania (BOT) and National Bureau of Statistics (NBS). Basing on the hypotheses testing the study found that financial depth and interest rate have a statistically positive influence on life insurance development. Moreover, inflation rate, income level and domestic savings have a statistically negative influence on life insurance development at 5% significant level. The study findings provide insights from a practical point of view on the determinants of life insurance development in developing countries like Tanzania, thus filling the gap in the literature reviews. The study findings serve as guidance to regulators and policymakers on what set of factors to review and incorporate into policy in order to foster positive development of life insurance in Tanzania.

فاعلية مكونات المحفظة المالية في تحقيق العمق المالي: دراسة تطبيقية على عينة شركات مدرجة في سوق العراق للأوراق المالية للمدة 2011-2020

The study aimed to clarify the role of the Financial portfolio with its real and financial tools and components in the economy and how to mix investment assets to reach an investment portfolio capable of diversifying sources of income and increasing its effectiveness, which works to increase its financial depth in the economy by raising its market value. The researchers used the (Penal Date) model using the financial statements of (60) companies listed on the Iraqi Stock Exchange during the period 2011-2020 to measure the effectiveness of the Financial portfolio components in achieving economic growth. A number of conclusions were reached, the most important of which is that the components of the Financial portfolio exercise a moral influence in achieving the financial depth of the market, with the exception of the investment component. As for the recommendations, the most important of which was the need to focus on short-term investment as one of the components of the investment portfolio because of the material returns it achieves and the low degree of risk, thus activating its role in influencing the financial depth.

ASYMMETRIC IMPACTS OF MONETARY POLICY SHOCK ON OUTPUT GAP: EVIDENCE FROM REGIONS IN INDONESIA

We examine the impact of the monetary policy on regional output gaps across 33 Indonesian provinces. Heterogeneous regional responses of the output gap to monetary policy shock are captured using the Vector Autoregressive model. Moreover, the idiosyncratic variations across provinces accounted for different responses are observed with the spatial econometric model. The spatial analysis suggests that economic structure and financial depth positively and significantly determine the aforesaid asymmetric responses. On the other hand, economic size and trade openness have a negative impact on them.

ASYMMETRIC IMPACTS OF MONETARY POLICY SHOCK ON OUTPUT GAP: EVIDENCE FROM REGIONS IN INDONESIA

We examine the impact of the monetary policy on regional output gaps across 33 Indonesian provinces. Heterogeneous regional responses of the output gap to monetary policy shock are captured using the Vector Autoregressive model. Moreover, the idiosyncratic variations across provinces accounted for different responses are observed with the spatial econometric model. The spatial analysis suggests that economic structure and financial depth positively and significantly determine the aforesaid asymmetric responses. On the other hand, economic size and trade openness have a negative impact on them.

Does financial inclusion reduce income inequality? Empirical evidence from Asian economies

PurposeThe present study examines the significance of financial inclusion in reducing income inequality in the Asian context.Design/methodology/approachThis study uses panel estimation techniques such as the Pedroni cointegration test, Kao residual-based test, FMOLS, ARDL and Granger causality, a dataset consisting of the Gini coefficient index, three dimensions of financial inclusion measures and one added variable on financial depth, spanning from 2005 to 2019.FindingsThe study finds that in the long-run, income inequality disparity is highly influenced by financial inclusion indicators, such as the number of bank branches, deposit accounts, outstanding loans and domestic credit to the private sector. Whereas in the short run, disparities in income are unaffected by all the indicators of financial inclusion. Further, unidirectional causality from financial inclusion indicators to income inequality necessitates the need for policymakers to design policies and programs that would enhance access to financial services as an essential mechanism to reduce income disparity.Originality/valueStudies based on a panel of Asian countries that have undergone impressive growth of financial inclusion initiatives since the past decade—but are still facing widening income inequality—are conspicuously rare in the literature. The empirical analysis fills this void by showing the significant role financial inclusion indicators play in steering the Asian economies toward income equality throughout the study period.

Bank‐lending channel of monetary policy transmission in WAEMU: An estimated DSGE model approach

AbstractThis article examines the effectiveness of the banking‐lending channel in the transmission of monetary policy mechanisms in the West African Economic and Monetary Union. We estimated a Dynamic Stochastic General Equilibrium model with an incomplete credit market, where the financial system is based on an active banking sector and the central bank follows a fixed exchange rate regime, using quarterly data from 1985Q1 to 2020Q4. Findings reveal that, first, monetary policy induces an expansionary effect in the real economy when the banking sector loosens borrowing constraints. Second, we found that the banking sector is sensitive to the contraction of monetary policy via its effects on lending rates and deposit rates. Third, findings show that the bank‐lending channel amplifies and propagates monetary policy transmission mechanisms into the real economy. The counterfactual analysis demonstrates that the level of financial depth within the currency union enhances the efficiency of the bank‐lending channel of the monetary policy transmission mechanism. The macroeconomic outcomes and the financial implications of monetary policy via bank‐lending channels are more accentuated for the economies of the currency union with more financial depth than for those with shallow financial sector depth.

Influence of economic policy uncertainty and financial development on renewable energy consumption in the BRICST region

This study investigates the influence of economic policy uncertainty, financial development, environmental governance, and informal economy on renewable energy consumption in BRICST economies using continuously updated fully modified (CUP-FM), and continuously updated bias-corrected (CUP-BC) estimators. Our preliminary findings confirm cross-sectional dependency, data non-stationarity, and cointegration across model variables. The long-run results show that economic policy uncertainty reduces renewable energy consumption, while financial development, environmental regulations, and shadow economy significantly facilitate renewable energy. Manifestly, environmental regulations exhibit the strongest marginal influence on renewable energy consumption. Similar findings are endorsed using alternative estimators and suggest that stringent environmental regulations, stable economic policies, and promoting financial depth, access, and width facilitate the renewable energy transition. Thus, an integrated ecological governance policy is required to regulate and divert financial resources toward green energy and sustained development.