Financial Inflows Research Articles

Formal financial penetration and households’ welfare in Pakistan

The studies in recent era exhibit that the financial inclusion has become a scorching issue in playing its vital role while improving the lives of vulnerable and underprivileged households’ well-being. But, the microdata impact of financial inclusion on household welfare is not being analyzed to substantial extent in Pakistan yet. Therefore, it is imperative to examine the effects of financial inclusiveness on the living standards of individuals to persuade them toward formal financial inclusion. Thus, the study attempts to explore the link between an expanded formal financial system and poverty alleviation through smooth consumption levels, providing access to credit and investment facilities to the individuals. For this purpose, the household level data of Household Integrated Economic Survey (HIES) for the time-period of 2013–2014 to evaluate the microlevel effect of formal financial inclusion, realizing solitarily for the remittance receiving households have been used. The well-being of households receiving formal financial inflows got highly affected by facilitating the remittance receivers through instant, reliable and frequent transfer of funds. Therefore, the main objective of the study is to investigate the effect of formal financial transfers on the socio-economic status of remittance receiving and nonreceiving individuals. The outcomes of the study suggest that the household welfare is greatly influenced by the formal financial inclusiveness along with other variables such as annual income, education level of the family, number of earning members, loans borrowed by the family, land and building ownership, and the head employed are found to be positively and significantly determining the household’s welfare.

Analysis of leasing efficiency for the lessor

The article analyzes the conditions under which the economic activity of a leasing company as a necessary link between manufacturers of modern machine-building equipment and machine-building enterprises is cost-effective. Because the lessor can simultaneously act as the lessee or purchaser of equipment from a manufacturer on the one hand, and as the lessor of this equipment for machine-building enterprises on the other hand, analysis of the effectiveness of its activities carried out in the form of efficiency of financial inflows and outflows of the tenant and the landlord as an investment project. Economic and mathematical analysis of lessor’s net present value was carried out for four variants of such a project: there are two variants when the lessor acts as a lessee and lessor, as well as a purchaser and lessor when using equity, and two similar variants when using loan capital. As a result, quantitative ratios are obtained that determine the economic conditions for the effectiveness of the lessor’s activity as a necessary intermediary in the machine-building industry.

English

Zimbabwe’s economic progress is hinged on the performance of the agricultural sector, which supports the majority of the population. Bank credit empowers farmers to adopt inputs and technologies that are key for enhancing productivity and income. This study sought to establish the bank credit access trends among farmers in the Hurungwe District of Mashonaland West Province in Zimbabwe, comparing the current (2019-2015) and past (2014-2000) periods. A questionnaire was administered on a sample of 354 farmers. SPSS was used for data analysis. Credit access was significantly (p<0.05) influenced by the type of farmers, farmers’ education, age, farm size and alternative employment. Credit access was higher (p < 0.05) among Model A2 than Model A1 farmers, farmers with higher educational qualifications, aged between 46-55 years, with more than 35 hectares of farmland, and with alternative occupation. Failure to access bank loans by Model A1 farmers was ascribed to their lack of collateral assets, human capital and weather resilience infrastructure. Government should invest in irrigation infrastructure and create a conducive investment climate to stimulate financial capital inflows. Farmers should invest in physical and human capital to enhance their access to bank credit. Banks should devise collateral substitution models to avoid segregating poor farmers with productivity potential. Key words: Bank credit, capital formation, credit access, Model A1 farmer, Model A2 farmer.

Are current accounts driven by cost competitiveness or asset prices? A synthetic model and an empirical test

AbstractWhile current account imbalances have widened in recent decades, their causes are still debated. Trade-centred approaches highlight the role of cost competitiveness, in particular unit labour costs, and aggregate demand. In contrast, finance-centred approaches focus on gross financial flows, driven by expectations and the return on assets, that impact demand and the exchange rate. This article, first, builds a simple model of the current account that provides a synthesis between the two approaches. Unit labour costs impact the current account via the real exchange rate and income distribution, while financial inflows drive up asset prices, which leads to nominal appreciation and an increase in domestic demand. Second, we estimate a reduced form of this model for 28 OECD countries from 1972 to 2014, controlling for both trade- and finance-centred channels and a wide range of control variables. Our results indicate that finance-centred channels, via equity and residential property prices, drove current account divergence in the OECD, while unit labour costs were less important. They suggest that the effects of gross financial flows deserve more attention in theoretical and empirical models of the current account.

Determinants of real exchange rate movements in 15 emerging market economies

ABSTRACT Previous work has established that an appreciation of the real effective exchange rate (REER) contributes to premature deindustrialization, less productive investment and dependence on commodity booms and busts in emerging markets economies (EME). From the literature, it is less clear, however, what the most important drivers for the cyclical REER movements in EME are. The aim of this study is to provide empirical evidence about the determinants of the REER movements of 15 emerging markets during the last two decades, using statistical analysis and a dynamic panel fixed effects model approach. Our analysis shows that although “commodity” and “industrial” EME are heterogeneous, REER volatility tends to be higher among the former. EME that had more stable REER fared better than those that had a depreciating or appreciating trend (with the notable exception of China). As theoretically expected, commodity prices are an important structural driver of REER movements in “commodity EME”. Moreover, the results confirm the existence of the Harrod-Balassa-Samuelson effect, and show the importance of financial inflows. Further, the interventions of central banks were partially successful to avoid more substantial appreciations (depreciations). Finally, we find that lower country risk and, at least in some periods, growing broad money in OECD countries has led to REER appreciations in our sample countries.

DO FOREIGN FINANCIAL INFLOWS IMPACT ON ECONOMIC GROWTH? EVIDENCE FROM SUB-SAHARAN AFRICA

The study examines the impact of financial inflows, proxied by Foreign Direct Investment, Official Development Assistance and remittances on Economics growth in Sub-Saharan Africa using the Generalized Method of Moments technique and panel data for 47 Sub Saharan African countries for the period 1995-2017, while controlling for domestic investment, human capital, government expenditure, trade openness, inflation, financial development, political rights and civil liberty. The results indicate that remittances and Foreign Direct Investment are growth-enhancing as they impact positively on economic growth consistent with Solow neoclassical model. However, Official Development Assistance reduces economic growth possibly as a result of weak institutional quality. While government expenditure, domestic investment and inflation positively impact on Economics growth, trade openness and Secondary School Enrolment had a negative impact on growth. We recommend countries in the sub-region to come up with policies that encourage Foreign Direct Investment and remittances inflow while ensuring that institutional structures are improved to ensure the efficiency of Official Development Assistance and the better allocation of such resources. Countries also need to focus more on internal sources of finance for government expenditure.

Determining the Interaction of the International Portfolio Flows with Exchange Rate Volatility in Developing Countries

The aim of this study is to examine the effect of the bond portfolio and equity inflows on the exchange rate dynamics for a set of developing countries, including Turkey, Hungary, New Zealand, India, Russia, Poland, Brazil and Argentina over the period 1997:01-2017:12 by using a Markov-switching model. According to the analysis results, the net bond inflows lead to an increase in the likelihood of a high volatility regime in Turkey and Russia and increases the probability of transition from the high volatility regime to the low volatility regime in Hungary. Additionally, the net bond inflows from New Zealand and Poland to the United States (US) rise the possibility of remaining in the low volatility regime. The net equity inflows from Turkey and Poland to the US lead to a rise in the possibility of remaining in the high volatility regime. Besides, the net equity inflows from Brazil and Argentina to the US lead to a decline in the possibility of remaining in the low volatility state. In the light of the empirical results supporting the return chasing hypothesis, this paper argues that credit controls on short-term financial inflows could be an effective means in stabilizing the foreign exchange market.

Georgia

Georgia’s performance under the Extended Arrangement has been good, but the country is now facing a pronounced economic slowdown and an urgent balance of payments need due to the COVID-19 pandemic. Real GDP is expected to decline by 4 percent in 2020, but projections are subject to more than the usual uncertainty. Lower exports, no tourism, and weaker remittances are expected to widen the current account deficit to 11? percent of GDP in 2020. Rising global risk aversion is likely to reduce private financial inflows and delay investment. The authorities have sought to contain the COVID-19 pandemic and cushion its economic impact but face a balance of payments gap of $1.8 billion for 2020-21 (11.4 percent of GDP).

Финансирование терроризма: новые вызовы для международной безопасности1

Despite efforts by the international community to curb international terrorism, it remains one of the main threats to international security. A main reason for this is that international terrorism has significant financial inflows and their routes transform faster than the international countermeasures designed to stop them. The aim of this article is to identify existing and potential financial channels. The authors analyze antiterrorist legislation to define the theoretical and legal framework for this research and draw on empirical content from the reports of international organizations, the Group of 20 (G20), the International Centre for the Study of Radicalisation, and others. This article shows that the main sources of terrorism financing include taxes paid by foreign enterprises functioning in the occupied lands, taxes paid by local populations, profits from resource and goods trade, captured treasures trade, payments from non-governmental organizations, and financial fraud. The authors discuss the role of cryptocurrencies in international terrorism financing and note that while foreign experts deny the possibility and feasibility of their usage, Russians take an opposite view. The authors conclude that the Russian arguments should be heard and carefully considered by the international community. The Russian Federation has significant experience fighting terrorism. For this reason, the authors recommend that the G20 and other international organizations pay more attention to this issue and work out international standards to counter the use of cryptocurrencies by terrorists

The effects of health expenditure on infant mortality in sub-Saharan Africa: evidence from panel data analysis

IntroductionAlthough health expenditure in sub-Saharan African countries is the lowest compared with other regions in the world, most African countries have improved their budget allocations to health care over the past 15 years. The majority of health care sources in sub-Saharan Africa are private and largely involve out-of-pocket expenditure, which may prevent healthcare access. Access to healthcare is a known predictor of infant mortality. Therefore the objective of this study is to determine the impact of health care expenditure on infant mortality in sub-Saharan Africa.MethodsThe study used panel data from World Bank Development Indictors (WDI) from 2000 to 2015 covering 46 countries in sub-Saharan Africa. The random effects model was selected over the fixed effects model based on the Hausman test to assess the effect of health care expenditure on infant and neonatal mortality.ResultsBoth public and external health care spending showed a significant negative association with infant and neonatal mortality. However, private health expenditure was not significantly associated with either infant or neonatal mortality. In this study, private expenditure includes funds from households, corporations and non-profit organizations. Public expenditure include domestic revenue as internal transfers and grants, transfers, subsidies to voluntary health insurance beneficiaries, non-profit institutions serving households or enterprise financing schemes as well as compulsory prepayment and social health insurance contributions. External health expenditure is composed of direct foreign transfers and foreign transfers distributed by government encompassing all financial inflows into the national health system from outside the country.ConclusionHealth care expenditure remains a crucial component of reducing infant and neonatal mortality in sub-Saharan African countries. In the region, where health infrastructure is largely underdeveloped, increasing health expenditure will contribute to progress towards reducing infant and neonatal mortality during the Sustainable Development Goals (SDGs) era. Therefore, governments in the region need to increase amounts allocated to health care service delivery in order to reduce infant mortality.

Foreign Financial Inflows and Poverty in Nigeria

This paper aims to study the effect of foreign financial inflows on poverty in Nigeria (1981-2015). The impetus for this study stems from the paradoxical observation that, although Nigeria is blessed with a high influx of foreign financial inflows (FFI), the country grieves from severe and lasting poverty. It is expected for every economy that there is existence of foreign financial inflows that the rate of poverty should be at its minimal level. The major objective of this research work is to examine how foreign financial inflows influences poverty in Nigeria. In the process of carrying out this research work, various variables such as inflation, gross domestic product, exchange rate, foreign direct investment, remittance, oil revenue and non-oil revenue were adopted. The data used in this research were secondary data obtained from the Central Bank of Nigeria Statistical Bulletin 2016 and World Development Indicators (WDI). The augmented dickey fuller test (ADF) for unit root test, Correlation analysis, Bound test and Autoregressive Distributed Lag Model (ARDL) were used in the estimation to this paper work. Findings were drawn from the research that foreign direct investment and oil revenue are significant to poverty reduction in Nigeria while the rest of the variables adopted were insignificant. Therefore, recommendation is suggested that the government should create a conducive environment for investors to be willing to invest so as to increase the foreign direct investment and also encourage the export of oil product in order to increase revenue from it.

Does Financial Inclusiveness Matter for the Formal Financial Inflows? Evidence from Pakistan

The remittance inflows are the major source of financial transfers received by households to maintain their livelihood. However, the formal inflows can play an immense role in improving the indigenous economy by affecting household welfare, these flows further strengthen the economy at micro and macro levels. Previously, various studies found a determinant relationship between supply-side factors and financial inclusion. Whereas, this paper emphasizes a sweltering issue of formal financial inflows in Pakistan especially focusing on the demand side factors on the household level. The analysis uses Heckman Selection Technique to assess the demand for formal financial inclusion which can only be realized for the households receiving remittances, where the determinants for both depend upon the distinctive demographic, individuals and household characteristics. The study appraises household survey data from the Household Integrated Economic Survey (HIES) for the period 2013–2014. The results demonstrate the strong effects of households' demand-side factors on financial inclusion. The demographic features such as education and the highest earner's age are found to have a positive and significant impact on financial inclusion. Whereas, the household characteristics such as household living conditions, asset accumulation, household savings, and borrowings also strongly affect the formal financial inclusive decision. It is therefore suggested to employ a comprehensive policy regarding the enhancement of households' awareness by the spread of formal and financial literacy.

Does Financial Integration Matter for Financial Development? Evidence from the East Asian and Pacific Region

This paper assesses the impact of financial integration on financial development and establishes thresholds for materializing gains of financial advances from financial globalization using a sample of 34 countries from the East Asian and Pacific region. Following the approaches of Kose et al. (2011) and Asongu and De Moor (2016), we test non-linearity within the financial openness and financial development nexus through semi-parametric ordinary least-squares regression, and then, we develop threshold dynamics models. According to our findings, the effect of financial integration on financial development significantly changes across different financial inflows. When using external debt as a proxy for financial openness, there exists a robust significant inverted U-shaped relationship between financial integration and financial development. The empirical findings also suggest that the financial integration-development nexus is contingent on the level of trade openness, national income, and institutional quality. The results are robust to different measures of financial development and integration, the inclusion of other determinants of financial development, and considerations of endogeneity.

Dimensions and Determinants of Financialisation: Comparing OECD Countries since 1997

ABSTRACT The financialisation literature has grown over the past decades. Despite a generally accepted definition, financialisation has been used to describe different phenomena. We distinguish between financialisation of non-financial companies, households and the financial sector and use activity and vulnerability measures. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries and two time periods, 1997–2007 as well as 2008–17. We find different financialisation measures are only weakly correlated, suggesting the existence of distinct financialisation processes. There is strong evidence that financialisation is linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation. There is limited evidence that market-based financial systems are more financialised. Foreign financial inflows do not seem a main driver. We do not find indication that an investment slowdown precedes financialisation. Our findings suggest financialisation should be understood as a variegated process, playing out differently across economic sectors and countries.

An Empirical Investigation of Foreign Financial Assistance Inflows and Its Fungibility Analyses: Evidence from Bangladesh

The external financing of fiscal deficit is key to bridging public revenue shortfalls within developing economies. However, the public expenditure responses to the incoming foreign financial assistances, as documented in the existing literature, depict ambiguity with respect to the nature of the assistances. Against this milieu, this paper attempts to perform a comprehensive analysis of the dynamics adhering to the foreign financial inflows–government expenditure nexus in Bangladesh tapping annual data from 1985 to 2017. The vector error-correction model approach to short and long-run correlations and causality analyses, variance decomposition technique, and impulse response function exercises comprise the econometric methodologies considered in this paper. In a nutshell, the results from the analyses indicate toward foreign financial inflows crowding out public investments, and reducing the tax and non-tax efforts of the government, while diminishing the amount of local public borrowings in Bangladesh. Conversely, financial assistances in the form of concessional loans and those originating from multilateral sources are found to enhance government expenditure, while the foreign aids intended for the health sector are found to be fungible in nature. Thus, these contrasting findings are expected to generate crucial policy implications with regard to structuring appropriate public policies.

Can Government Financial Inflows Effectively Reduce Poverty in Poverty-Stricken Areas? Evidence from China

ABSTRACT Financial assistance has been found to be an important way to help lift people out of poverty, both theoretically and empirically. However, its effective functioning depends on certain basic conditions. Currently, contiguous poverty-stricken areas, the main areas where impoverished communities live in China, are the main battlefield for poverty alleviation. The Chinese government attaches great importance to the effective functioning of rural finance as a tool to combat poverty in these areas and has invested sizable financial resources. However, the actual impact on rural households of financial infusions has not been analyzed. This article sheds empirical light on the issue using data from a survey of rural households in such areas. The results show that the formal financial transfers from the government and informal finance do not effectively reduce poverty there. Rather, they increase income inequality among households. Nonetheless, cultivation of the human capital, material resources, and social capital of rural households plays a positive role in reducing poverty. Thus, our conclusions may be helpful for adjusting rural financial policies in these areas so as to reduce poverty among those who live there.

The Empirical Evaluation of the Determinants of Industrial Manufacturing in the CEMAC Zone

The aim of this article is to assess the determinants of industrial manufacturing in the CEMAC zone. To achieve this, we make use of a gravity model on a static panel with random effects, according to the methodology proposed by Hausman-Taylor. The results show that the population, value added of the manufacturing sector, colonial links and geographic proximity have significant impacts with the expected signs. On the other hand, the difference in absolute value of per capita GDP, the business climate, financial inflows as well as actual distance are the group variables that arise as constraints to export manufacturing.

Do remittances to emerging countries improve their economic development? Understanding the contingent role of culture

We contribute to extant research that has largely focused on foreign direct investment by examining how an under-studied type of financial inflow (remittances) influences the economic development of recipient Emerging Market Countries (EMCs). We do so by explaining how variations in the cultural context of recipient EMCs influence the value-generating effects of remittances. Our study helps us understand why certain nations can use remittances to improve their economic development (whereas others fail to do so) and the role that cultural contingencies play in determining such outcomes. The empirical analysis of 28 EMCs reveals an interesting pattern, showing that masculinity and power distance increase the economic effects of remittances, whereas uncertainty avoidance and individualism decrease such effects.

ІНФОРМАЦІЙНЕ ЗАБЕЗПЕЧЕННЯ УПРАВЛІННЯ ДЕРЖАВНИМИ ФІНАНСАМИ УКРАЇНИ

The paper seeks to explore the nature of ensuring information support to public financial management. A range of subjects authorized to create and maintain government information systems has been identified. An overview of the systems that contribute to providing management information support to the state budget financial inflows, in particular: “Tax Block”, “Inspector”, “Electronic Check” (e-Receipt) and “ProZorro. Sales” is presented. Special focus is paid to the systems that entail information on the transactions of the State Treasury Service of Ukraine, state budget funds utilization data as well as to the transactions of state-owned business entities, such as "ProZorro public e-procurement system", "SPENDING" and "Transparent budget". The findings revealed that application of the "Automated System for computer-based pension documents processing" and the "Our Family" information system had enhanced the accuracy and transparency of cash outflows from extrabudgetary funds and facilitated the reduction of labor and working time costs of authorized managing officers. A critical review on the information systems capabilities has demonstrated the shortcomings of particular government information systems and their organizational frameworks that hamper the management performance effectiveness. The method of logical generalization was employed to provide a rationale and suggest pathways for improving information support for public financial management in Ukraine. Among the key priorities is the creation of an Electronic Government, a single information portal which will integrate the existing information systems and help to eliminate data duplication across different information systems; ensure public financial management, budget and extrabudgetary funds standardization; enhance the efficiency of financial control including the sectoral one; increase the availability of public goods and services; strengthen the responsibility of each of the authorized managing and executive officers and officials.

Monetary Policy and Economic Growth in Lebanon

Abstract The central bank of Lebanon adopted exchange rate targeting in 1994 and it has exploited several instruments (particularly interest rate) since then to stimulate foreign financial inflows. This study aims at testing the impact of this strategy on economic performance and welfare in both the short- and long-run. In this regard, we exploit monthly data covering the period January 2002-June 2017 and implement cointegration analysis and VEC model. The empirical results suggest that monetary tools exploited by the central bank of Lebanon depress economic growth in the long-run. Moreover, despite their importance for external balance, financial inflows may hinder economic activity in both short- and long-run. On the other hand, monetary policy transmission channels through bank credit and capital play a constructive role for GDP growth.