Financial Sector Reforms Research Articles

National Savings and Financial Sector Reforms in Nigeria: Econometric Evidence

National Savings and Financial Sector Reforms in Nigeria: Econometric Evidence

Money, Finance and Climate: The Elusive Quest for a Truly Integrated Assessment Model

In this paper, we show how existing IAMs generally omit any representation of a financial sector. We then discuss the potential impacts of climate change policies and climate change events on the financial sector as shown in the existing literature. We underline how the structure of the financial sector itself could impact the carbon trend of the economy. We then see how these specific linkages between the financial and the climate sector can be represented in new types of IAMs, and how they have already started to be addressed, notably in the stock-flow consistent models literature. We conclude on the necessary convergence agenda between climate policies addressing the financial goals in article 2 of the Paris Agreement and financial sector reforms to dampen the intrinsic financial instability.

Analyzing the Capital Market Movements and Saving Patterns of South Asian Countries: Evidence from Pakistan, Bangladesh and Sri Lanka

This paper examines the role of capital market and saving pattern in the acceleration of economic growth in Sri Lanka, Pakistan and Bangladesh with special emphasis on the impact of financial sector reforms initiated in 2000. The data used in this study was collected from the period of 2000 to 2012 of three South Asian countries namely, Pakistan, India and Sri Lanka. The result showed that Pakistan was tried to improve its saving patterns but didn’t achieve its goal. Pakistan achieved its higher saving pattern in 2003. Pakistan was trying to strengthen its stock market as it is considered as a proxy of economy. Pakistan achieved its goal during the period of 2002-07. Pakistan was trying to focus on its “human development” Pakistan started achieving its goal in 2011 & 2012, which was the period of “Pakistan People’s Party (PPP)”, as PPP is most dominant in Pakistan in terms of pay structure reforms. Bangladesh was trying to improve its saving patterns and has also achieved its goal. Bangladesh achieved its higher saving pattern in 2009. Bangladesh was trying to strengthen its stock market as it is considered as a proxy of economy. Bangladesh was continuously achieving its goal during the period of 2002-11. Bangladesh was trying to focus on its “human development”, but Bangladesh didn’t achieve its goal because of some mismanagement of policies. Sri Lanka was trying to improve its saving patterns but didn’t achieve its goal appropriately because of too much uncertainty & fluctuations. Sri Lanka was trying to strengthen its stock market as it is considered as a proxy of economy. Sri Lanka was continuously achieving its goal during the period of 2002-06. Sri Lanka tried to focus on its “human development”, but Sri Lanka didn’t achieve its goal because of some negligence of strategies. Sri Lanka achieved its higher saving pattern in 2005.

Revisiting the Economic Case for Fiscal Union in the Euro Area

After significant progress as an immediate result of the euro crisis, the drive to complete Europe's Economic and Monetary Union (EMU) has decelerated. While there is a broad consensus in Europe that EMU needs further development, the exact nature and timing of the reform agenda remains controversial. This paper makes an analytical contribution to the ongoing discussion about the euro area's institutional setup. An in-depth look at the remaining gaps in the euro's architecture, and the trade-offs that repairing them would present, suggests the need for long-run progress along three mutually supportive tracks. First is more fiscal risk sharing, which will help enhance the credibility of the sovereign no bailout rule. Second is complementary financial sector reforms to delink sovereigns and banks. Third is more effective rules to discourage moral hazard. Helpfully, this evolution would ensure that financial markets provide more incentives for fiscal discipline than they do now. Introducing more fiscal union comes with myriad legal, technical, operational, and political problems, however, raising questions well beyond the domain of economics. These difficulties notwithstanding, without decisive progress to foster fiscal risk sharing, EMU will continue to face existential risks.

Do Firms Care About Investment Opportunities? Evidence from China.

What drives a firm's investment decisions in China? While most literature focuses on the role of financial factors (such as cash flow), we explore this most important question in corporate finance from the perspective of economic fundamentals. Empirical results show that private firms cherish investment opportunities more in China. State-owned enterprises respond more to the investment opportunities from the supply side, but much less so to demand-side shocks. These findings provide interesting policy implications for China's on-going ownership and financial sector reforms.

Gulf Cooperation Council Countries (GCC): How Developed and Inclusive are Financial Systems in the GCC?

Financial systems in the GCC have developed significantly over the last couple of decades, but there appears to be further room for progress. The development of bank and equity markets has been supported by a combination of buoyant economic activity, a booming Islamic finance sector, and financial sector reforms. As a result, financial systems have deepened and, overall, the level of financial development compares well with emerging markets. However, it still lags advanced economies and, other than for Saudi Arabia, appears to be lower than would be expected given economic fundamentals, such as income levels. Financial development in the GCC has relied to a large extent on banks, while debt markets and nonbank financial institutions are less developed and access to equity markets is narrow. The non-bank financial institutions—pension funds, asset management and finance companies, and insurance—remain small. Domestic debt markets are underdeveloped. While equity markets appear to be well developed by market size, they are dominated by a few large (and often public-sector) companies. GCC countries have made progress on financial inclusion, but gaps remain in some important areas. Access to finance for SMEs, women, and youth, in particular, appears relatively low. This may partly reflect social norms, low levels of participation of women in the labor market and private sector activity, and the high level of youth unemployment. Further financial development and inclusion is likely to be associated with stronger economic growth in the GCC countries. While there is uncertainty surrounding the empirical estimates in the paper, further progress with financial development and/or inclusion is likely to go hand-in-hand with stronger growth. The growth benefits, however, are likely to vary across countries depending on the current level of financial development and inclusion. To realize these growth benefits, reforms to strengthen access to finance for SMEs, women, and youth are needed. Addressing institutional weaknesses and promoting financial sector competition would help boost access to finance for SMEs. Reforms to enhance financial literacy and improve SME governance structures and insolvency frameworks are critical. Other reforms encouraging female and youth employment and the use of emerging technologies in finance also appear promising. Additional reforms to foster financial development should focus on developing debt markets and making stock markets more accessible to a larger pool of companies and investors. To grow domestic debt markets, the authorities should develop a government yield curve, seek to increase market liquidity through secondary market trading, and ensure requirements for private issuance are not onerous. Stock market reforms should focus on enhancing corporate governance and investor protection, removing restrictions on foreign ownership, and encouraging financial market competition. The latter would also help the development of non-bank financial institutions.

Measuring Competition in the Banking Sector of Pakistan: An Application of Boone Indicator

The banking sector of Pakistan has witnessed a notable transformation in its structure and business activities following the implementation of financial sector reforms since the early 1990s. Specifically, the reforms helped transform a repressed financial sector into a market oriented and sound financial sector, predominantly owned and managed by the private sector. How these developments have impacted competition among the banks is still an open question. This study attempts to answer this question with the application of a new approach to measure competition: Boone Indicator of competitiveness. This measure postulates that inefficient firms (banks) in a competitive environment are punished harshly, and there is an output reallocation from inefficient to efficient firms/banks. We have estimated elasticity of market share to marginal costs for 24 banks in Pakistan, using a balanced panel of bank level (annual) data for the year 1996 to 2015. Marginal costs are obtained indirectly by first estimating a translog cost function using earning assets as an output, and cost of financial capital, physical capital and labor as inputs. The estimated Boone Indicator value of negative 0.31 is significant and suggests that inefficient banks have been losing their market share to efficient banks over the estimation period: a reflection of underlying competitive environment. Increasing value of Boone Indicator (in absolute terms) over the period of study suggests that competition among the banks in Pakistan has increased over time.

THE REFORMS IN THE EMU TOWARDS BANKING AND CAPITAL UNION: CONSEQUENCES AND CHALLENGES TO THE FINANCIAL SECTOR IN BULGARIA

The еconomic and financial integration of Bulgaria to the European Union (EU) since the start of its official membership in 2007 coincided with the worst Global financial and economic crisis for the last seven decades and with the European sovereign crisis in the European Moneraty Union (EMU) as the “core’ of the EU integration. The paper discusses the adjustment of the Bulgarian economy to the integration process in the EU which has been challenged by the deep institutional reform process as crucial for overcoming the crisis by making the normative power of the EU stronger. The macroeconomic performance of Bulgaria is revealed with regard to the compliance with the macroeconomic convergence criteria for the EMU. The financial sector reform is discussed to outline its ongoing reform with the EU law and regulation. Conclusions are summarized for the EMU’s entry as a challenge and opportunity for further integration of Bulgaria the EU.

Financial Market Development and Bank Capitalization Ratio

Financial sector liberalization in many African countries, set in a series of financial sector reforms, aimed at developing the system. Theoretically, reforms that develop the banking sector are expected to improve banks’ performance and reduce excessive bank-risk taking by enhancing bank capital ratio in addition to maintain the stability in the system. Nonetheless, literature also shows that the health of the financial system may be at risk following a liberalization process in the form of contagion effects of financial markets integration. A recent example is the global 2007/2008 global financial crisis. Against this background, this article examines the extent to which banking sector development in selected African countries affect the commercial banks’ capitalization ratio. Employing a dynamic panel regression technique for the examination while controlling for bank-specific and macroeconomic factors over the period 2000–2014, this article finds that banking sector development in the selected countries improves bank capital ratio consistent with the aims of banking sector reforms and the maintenance of stable financial system.

Financial sector development and economic growth: evidence from Cameroon

For decades, African economies have embarked on financial sector reforms. However, the empirical implications of these reforms have been divergent. This paper investigates the impact of financial development on Economic growth using time series data in Cameroon. This investigation was carried out using three common indicators of financial development (broad money, deposit/GDP and domestic credit to private sector). Using the Auto Regressive Distributive Lag (ARDL) technique of estimation, it was discovered that there exist a short-run positive relationship between monetary mass (M2), government expenditure and economic growth, a short run negative relationship between bank deposits, private investment and economic growth equally exists. However in the long run, all indicators of financial development show a positive and significant impact on economic growth. This paper thus confirms the existence of a positive and long-term impact of all the indicators of financial development on economic growth through bound test. It is therefore proposed that the financial reforms in Cameroon should be pushed forward in order to boost the development of the financial sector thus an increase in its role on economic growth.

How successful are banking sector reforms in emerging market economies? Evidence from impact of monetary policy on levels and structures of firm debt in India

ABSTRACTMany emerging markets have undertaken significant financial sector reforms, especially in their banking sectors, that are critical for both financial development and real economic activity. In this paper, we investigate the success of banking reforms in India where significant banking reforms were implemented during the 1990s. Using the argument that well-functioning credit markets would reflect a credit channel for monetary policy at work, we test whether a change in monetary policy has a predictable impact on borrowing behaviour of several types of firms, including business group affiliated, unaffiliated private firms, state-owned firms and foreign firms. The empirical results suggest that unaffiliated private firms have the most vulnerable to monetary policy stance during tight policy regimes. We also find that during tight monetary policy regimes, bank credit of smaller firms is more sensitive to changes in the interest rate than that of large firms. In an easy money regime, monetary policy and the associated change in interest rate does not affect change in bank credit, change in total debt and the proportion of bank credit in total debt for any of the firms. We discuss the policy implications of the findings.

What to Do About the GSEs?

Fannie Mae and Freddie Mac, the two large government-sponsored enterprises (GSEs) that are at the center of US residential mortgage finance, are “elephants in the room” that are being ignored as part of broad-brush financial sector reform. Neither the Dodd–Frank Act nor recently proposed overhauls of Dodd–Frank have addressed reform of the GSEs’ structures, although the GSEs were placed in government conservatorships in early September 2008 and have remained in that state since then. In this article, we review what the GSEs do and how they got themselves into financial difficulties, and we provide an overview of some of the major proposals for reforming the US residential mortgage finance system. We conclude with our own ideas and suggestions for how housing finance, as well as housing policy more generally, should be reformed.

Urgency of financial markets’ and non-banking financial sector reform

Russian economy slowdown is exhibited by the investment crisis; its termination is a key factor in the resumption of sustainable growth. As the deficit of durable investment resources is acutely felt today, the article demonstrates that the development of the domestic non-banking financial sector can serve as an efficient mechanism for the long-term investment capital formation. The current state of Russian non-banking financial sector is characterized by numerous structural problems so that a special program of measures, both inside the sector and beyond its limits, is required to address these problems and pull the sector out of stagnation. Systemic implementation of this program will lead to important changes at the macro level, including the increase in the capital investment, especially long-term; the expansion of opportunities for structural reforms; the increase and diversification of household incomes and the acceleration of economic growth.

The Transatlantic Trade and Investment Partnership: Limits on negotiating behind the border barriers

AbstractThis special issue focuses on the difficulties of negotiating the Transatlantic Trade and Investment Partnership (TTIP), with contributions by scholars from different perspectives. This introductory article briefly examines the trend to mega-FTAs of which TTIP is a leading example. It then reviews the contributions to this special issue, drawing on an analytical approach that reflects extant work on transnational and transgovernmental relations. This approach, we contend, helps to understand the stark mismatch between the desire of some parties to negotiate binding trade rules on behind-the-border regulatory policies in certain key sectors of national economies and the progress made in TTIP talks. We then highlight the significance of some key actors in a case study of failed E.U. attempts to include financial sector reforms and associated regulatory processes in TTIP.

Analyzing the Capital market movements and saving patterns of South Asian Countries: Evidence from Pakistan, Bangladesh and Sri Lanka

This paper examines the role of capital market and saving pattern in the acceleration of economic growth in Sri Lanka, Pakistan and Bangladesh with special emphasis on the impact of financial sector reforms initiated in 2000. The data used in this study was collected from the period of 2000 to 2012 of 3 South Asian countries namely, Pakistan, India and Sri Lanka. The result showed that Pakistan tryed to improve its saving patterns but didn't achieve its goal. Pakistan achieved its higher saving pattern in 2003.Pakistan was trying to strengthen its stock market as it considered as a proxy of economy. Pakistan achieved its goal during the period of 2002-07. Pakistan was trying to focus on its “human development” Pakistan started achieving its goal in 2011 & 2012, which was the period of “Pakistan People's Party (PPP)”, as PPP is most dominant in Pakistan in terms of pay structure reforms. Bangladesh was trying to improve its saving patterns and has also achieved its goal. Bangladesh achieved its higher saving pattern in 2009.Bangladesh was trying to strengthen its stock market as it considered as a proxy of economy. Bangladesh was continuously achieving its goals during the period of 2002-11. Bangladesh was trying to focus on its “human development”, but Bangladesh didn't achieve its goal because of some mismanagement of policies. Sri Lanka was trying to improve its saving patterns but didn't achieve its goal properly because of too much uncertainty & fluctuations. Sri Lanka was trying to strengthen its stock market as it considered as a proxy of economy. Sri Lanka was continuously achieving its goal during the period of 2002-06. Sri Lanka tryed to focus on its “human development”, but Sri Lanka didn't achieve its goal because of some negligence of strategies. Sri Lanka achieved its higher saving pattern in 2005.

Impact of Credit Constraints on Firms Growth: A Case Study of Manufacturing Sector of Pakistan

This study explores the impact of credit constraint on growth by using firm level data of manufacturing sector of Pakistan for the period of 1974-2010 analyzing via Generalized Method of Moments (1991) one step and two step estimation technique. Result of full sample shows that the firms in manufacturing sector for the period from 1974-2010 are not facing external financial constraints and the effect of sale to capital ratio indicates the availability of investment opportunities for the firms in the manufacturing sector of Pakistan. The results for pre and post financial sector reform era shows that firms are facing tight external financial constraints in pre financial reform era as compared to post financial reform era. Results show that growth of firms having small assets is constrained by internal finance whereas firms having medium and large assets are not constrained by internal finance. Similarly, firms’ growth that is less dependent on debt finance is constrained by internal finance whereas results for the firms that are moderately and highly aggressive in financing with debt indicate that the growth of firms belonging to these groups is not constrained by internal finance. Similarly, low dividend paying firms growth is constrained by internal finance whereas high dividend paying firms’ growth is not constrained by internal finance.

Technological Change, Financial Innovation, and Diffusion in Indian Banking Sector – A Move towards the Next Orbit

The revolutionary impact brought in banking sector through technological advancement is irresistible. The effective use of technology has a multiplier effect on growth and development. Technology has enabled the banks to conceive deliver, manage and integrate their products in line with the customers' need. It has helped banks to reach the doorsteps of the customer by overcoming the limitations on geographical/ physical reach in branch banking and easing the resource and volume constraints posed by the brick and mortar model Technology enables increased penetration of the banking system, increases cost effectiveness and makes small value transactions viable. Besides making banking products and services affordable and accessible, it simultaneously ensures viability and profitability of providers. It allows transactions to take place faster and offers unparallel convenience through various delivery channels. Technology enhances choices, creates new markets, and improves productivity and efficiency. The Indian banking business is also not untouched by these technological innovations. These, technology, as the differentiator has become the driver of the Indian banking business since the past decade with the financial sector reforms providing firm foundation

Exploring the nexus between financial sector reforms and the emergence of digital banking culture – Evidences from a developing country

Several financial and banking sector reform programs were instituted in different countries over the last three decades. The underlining purpose of these reforms was largely to improve banking sector supervision and regulation, introduce bank privatization mechanism, introduce clearance and settlement systems, infuse competition and to stimulate financial innovation. The objectives of this study are to 1) review the relevant published literature and market survey reports on the financial & banking sector reforms undertaken in Pakistan and elsewhere, 2) analyze how these reform programs develop digital banking culture and increase financial inclusion in the country and 3) guide future research by putting forward a research agenda. The findings of the study suggest a link between the financial and banking sector reforms and the stimulation of financial innovation; the promotion of digital banking culture; and the infusion of financial inclusion in Pakistan. We discuss managerial/policy implications of the study, limitations and presents recommendations for future research.

Venture capital investment, financial development, and economic growth: the case of European single market countries

Venture capital (VC) is a key catalyst for nurturing start-up firms with high-growth potential to undertake innovative endeavors that contribute to national wealth. Existing literature concentrates on the impact of venture capital on firm-level performance. Unlike much of the earlier work, we conduct a macro study examining short-term and long-term relationships between VC investment, the state of the financial sector, and economic growth in 20 European single market countries between 1989 and 2015. We show that major transformations (political, economic, financial and institutional) over the sample period in the Eurozone region have resulted in the data series used in the study (economic growth, financial sector development, and VC investment) to be non-stationary. As such, the vector error-correction model (VECM) and Granger-Causality test are used to examine short-term and long-term relationships between VC investment, financial development, and economic growth for the sample countries. The findings suggest that economic growth strategies and financial sector reforms are critical for a vibrant venture capital industry. In the short term, there are bi-directional relationships between some of the variables. These results suggest that plans to create a vibrant venture capital industry will reinforce financial sector development and economic development, creating a more sustainable economic development model for countries in the Eurozone region.

Fiscal Soundness and the Triangle of Stability

Abstract Average gross general government debt-to-GDP ratios in advanced economies have almost reached their highest levels since WWII. Moreover, growing fiscal risks emerge from adverse fiscal-financial linkages and aging societies. Policy-makers should take advantage of the current economic recovery and extraordinary measures by central banks to pursue growth-friendly fiscal consolidation, supported by comprehensive structural and financial sector reforms to improve the growth potential and reduce future fiscal liabilities. These are fundamental elements to enhance macroeconomic resilience and to pave the way for a timely exit from expansionary monetary policy. In case of EMU, a strict implementation of the EU’s fiscal and banking sector governance is essential. Solide Staatsfinanzen und das Stabilitatsdreieck Zusammenfassung Die Staatsschuldenquoten der Industrielander sind gegenwartig nahe ihrem historischen Hochststand in der Nachkriegszeit. Der Risikoverbund zwischen Finanzsystem und Staatsfinanzen ...