Level Of Financial Development Research Articles

The impact of finance on income inequality: a threshold analysis

We identify the optimal level of financial development for income inequality in a panel of countries employing a non-linear panel Generalized Method of Moments approach. The impact of financial development is statistically significant above and below the optimal level, but its impact on income inequality is not asymmetric, with the costs of financial ‘under-development’ being greater than those for ‘over-development’.

Financial Development and Subnational Export Performance: Evidence from the Indian States

The present study investigates the relationship between export performance and the level of financial development for 30 Indian states and union territories (UTs) from 2011–12 to 2020–21. The study first ranks the states and UTs on the parameters of financial development and physical infrastructure using the robust principal component analysis method. By applying the instrumental variable fixed effects panel data technique, the study observes that the level of financial development has a significant positive impact on the export performance of the states. The study also finds a positive effect of the availability of physical infrastructure, quality of governance and fiscal position on states’ export performance but does not observe a significant role of political stability in this context. The results suggest that export growth in the economically laggard and Himalayan states can come through policy interventions to improve financial development. In contrast, landlocked states need better physical infrastructure to facilitate easier production and transportation of export goods. The study lends new perspectives to the nascent literature on inter-regional disparities in India’s export performance and is expected to provide insights into improving the sub-national export performance of other developing countries as well. JEL Codes: F14, F36, F4

Study on the Efficiency, Evolutionary Trend, and Influencing Factors of Rural–Urban Integration Development in Sichuan and Chongqing Regions under the Background of Dual Carbon

Re-evaluating how urban and rural development can be integrated is a necessary step towards achieving the “dual-carbon” objective and facilitating a thorough transition towards a green and low-carbon economy and society. This study empirically investigates the geographical disparities, evolving patterns, and determinants of the effectiveness of urban–rural integration development in Sichuan and Chongqing. Results of the study indicate that (1) the effectiveness of urban–rural integration development in Sichuan and Chongqing is generally poor, and external environmental factors adversely affect the urban–rural integration of economically developed cities; (2) the urban–rural integration development efficiency in Sichuan and Chongqing does not show a more obvious polarization phenomenon, but the gap between the cities gradually widens; and (3) regarding influencing factors, market dynamics are favorable to overall urban–rural integration development in the Sichuan and Chongqing regions, while the development of the digital economy and the level of financial development can exacerbate the imbalance of regional urban–rural integration development. Based on this premise, pertinent policy suggestions are offered to facilitate the merger of urban and rural areas and foster efficient development in the regions of Sichuan and Chongqing.

Why do some populist presidents erode liberal democratic institutions more than others in Latin America?

ABSTRACT This paper contributes to the current literature on the relationship between populist rule and liberal democracy by conducting quantitative research with a time-series cross-sectional dataset covering 18 Latin American countries from 1991 to 2017. The findings reveal an overall negative correlation between populist rule and the quality of liberal democratic institutions, highlighting their inherent incompatibility. Nevertheless, this paper argues that several factors influence the governing populists' ability to erode liberal democracy. Specifically, it is observed that the negative impact of populist rule on the quality of liberal democratic institutions is amplified in the presence of higher levels of natural resource rents and lower levels of industrial employment and financial development. Moreover, it is found that the impact of these moderating variables on the relationship between populist rule and liberal democracy is contingent upon the ideological orientation of governing populists.

Financial development and central bank bilateral currency swaps: Is there trade effect?

Purpose ― This paper aims to empirically investigate the impact of currency swaps on international trade, given China's differential level of financial development and its currency swap partners. Methods ― The study employes an empirical structural gravity model using datasets encompassing financial development, trade, and intuitive gravity equation variables for 27 countries from 1980 to 2013. The level of financial development and swaps was captured by the interaction term of the disaggregated measure of financial development, such as access, depth, and efficiency, each interacting with currency swaps.Findings ― The findings suggest that currency swaps are essential for trade and exhibit a large trade effect, especially for countries with relatively low levels of financial development. The paper substantiates empirical evidence indicating disparities in financial development across countries, and such differences are important in determining trade patterns. Implication ― Strong financial systems promote trade in advanced economies, whereas the opposite holds true for developing countries. The examination of the influence of financial systems on trade through empirical tests remains important on the research agenda of policymakers and researchers, especially those looking at industry-level import and export data.Originality ― The study delves into the nexus between financial development and trade within the framework of the Central Bank bilateral currency swap network by highlighting the role of financial institutions and market size (depth), activity (access), and efficiency. In addition, it addresses the drawbacks of previous empirical research that largely focuses on the private credit-to-GDP ratio as a key proxy for financial development.

Analyzing the effect of public private partnership mode on sewage treatment in China

The public–private partnership (PPP) mode is one of the main ways to promote environmental governance through marketization in the sewage treatment industry. This mode is crucial for environmental protection and livelihood improvement. In order to investigate the impact of PPP mode on sewage treatment, the influence of financial development and the government–business relationship on the effectiveness of sewage treatment under PPP mode, and the role of government in this context, an empirical model is established. To achieve this, data from 284 prefecture-level and above cities in China from 2009 to 2017 has been selected as research samples. The total amount of regional sewage treatment PPP projects is used as the proxy variable for participation in the PPP mode. The findings reveal that the PPP mode of sewage treatment effectively reduces the intensity and amount of sewage discharge. Moreover, the results indicate that a higher level of financial development and a more perfect financial system are associated with better sewage treatment effects under the PPP mode. Similarly, a more harmonious government–business relationship and a higher health index of this relationship correspond to improved sewage treatment effects under the PPP mode. The government should actively enhance government transparency, formulate appropriate corporate taxes and fees, clarify the responsibilities and obligations of the government and enterprises, and optimize the business environment in order to optimize the sewage treatment effect of the PPP mode.

Environmental pollution, green finance, and enterprise growth based on the environmental Kuznets curve perspective

This study empirically examines the impact of environmental pollution on enterprise growth using data from the Chinese Enterprise Database and the Environmental Pollution Database. Results revealed (1) an inverted U-shaped impact of environmental pollution on enterprise growth. (2)After Furthermore, adding an interaction term between green finance and environmental pollution could significantly promote enterprise growth in the target and neighboring regions. (3) Market competition was found to moderate the inverted U-shaped relation between environmental pollution and enterprise growth. (4) Additionally, this relation was more pronounced in regions with lower levels of financial development.

The impact of green finance on renewable energy development efficiency in the context of energy security: Evidence from China

The influence of green finance (GF) on renewable energy development efficiency (REDE) has garnered considerable attention from both academia and society. To study the changes in China's REDE in recent years and GF's effect on it, this research first evaluates 30 provinces’ REDE from 2010 to 2019 using a non-radial directional distance function (NDDF) based on global technical assumptions. Second, we evaluate the direct impact of GF on REDE. Finally, we explore the internal mechanism for how GF influences REDE. The results of this study are as follows. (1) GF has a significant promoting effect on REDE. (2) The improvement of renewable energy (RE) technological innovation level and the increase of foreign investment strengthen GE's promoting effect on REDE. (3) The positive effect of GF on REDE is prominent in regions with lower environmental regulations and carbon intensities and higher financial development levels. This paper offers relevant policy suggestions to improve REDE and to enhance GF development.

Nexus between technological innovation and environmental pollution in selected OECD countries

AbstractAddressing environmental pollution is fundamental to establishing sustainable development across the globe. While navigating the Fourth Industrial Revolution, it is of critical relevance for economies worldwide to come up with innovative measures that can withstand the factors driving environmental pollution. On that note, this study explores the technological innovation‐environmental pollution linkages in the context of 10 members of the Organization for Economic Cooperation and Development (OECD) using data spanning from 1994 to 2018. Notably, considering ecological footprints as the environmental proxy, the analysis controls for the corresponding levels of economic growth, financial development, and renewable energy consumption in the concerned countries. In addition, the long‐term estimates are investigated using Augmented Mean Group, Common Correlation Effects Mean Group, Fully Modified Ordinary Least Square, and Dynamic Ordinary Least Square techniques while the causality relationship is determined by Dumitrescu‐Hurlin panel bootstrapped causality test. The results establish the long‐term cointegrating linkages among the variables considered. It is also observed that economic growth increases the ecological footprint level, while technological innovation, renewable energy consumption, and financial development reduce it. Moreover, the results reveal that technological innovation and ecological footprint causally influence each other, while there are one‐way causalities moving from economic growth and financial development to ecological footprint. Furthermore, a two‐way causality concerning renewable energy consumption and ecological footprint is also detected. Considering these results, it is pertinent for the selected OECD countries to improve energy efficiency rates, scale investment for developing the renewable energy sector, and execute policies that support investments in initiatives concerning low‐carbon technological development. Additionally, these countries should look to implement policies that are compatible with the objectives of establishing green growth so that low‐emission development can take place to tackle climate change‐related problems.

Tourism, Financial Development and Sectoral Development in ECOWAS Countries: Empirical Evidence from the CS-ARDL Approach

This study examines the role of financial development in the relationship between tourism and sectoral development in 12 ECOWAS countries over the period 2003-2020. Methodologically, it mobilized the Cross-sectional Augmented Autoregressive Distributed Lag (CS-ARDL) model developed by Chudik and Pesaran (2015), which takes cross-sectional dependence and heterogeneity into account. The results reveal that tourism hurts the development of the agricultural and industrial sectors in both the short and long term. Financial development harms the agricultural sector, while it improves the development of the industrial sector in both the short and long term. On the other hand, tourism associated with a developed financial sector improves the development of the agricultural sector and also the industrial sector. This result suggests that the contribution of tourism to sectoral development in ECOWAS countries depends on the level of financial development.

How does climate vulnerability affect the just allocation of climate aid funds?

In the process of global climate finance, the perspective of climate justice, especially distributive justice, has received widespread attention. However, how this principle is implemented in the practice of climate finance is still a topic that deserves in-depth discussion. Accordingly, this study aims to empirically examine the impact of climate vulnerability on the just allocation of climate aid (including mitigation and adaptation) funds based on balanced panel data of 89 countries from 2010 to 2020. To better understand this relationship, asymmetry, the moderating effects of government quality and low-carbon technologies, and the threshold effect of financial development are also empirically tested. The empirical results confirm that there is justice in the allocation of climate aid funds. Specifically, countries with higher climate vulnerability tend to receive more mitigation and adaptation funds, with adaptation funds being more responsive. However, this relationship is not universal but asymmetric. In addition, we test the mechanisms behind it. The quality of government and low-carbon technology development can enhance the beneficial effects of climate vulnerability, but government quality can only have an effect on the just allocation of mitigation finance. We also find a single threshold effect of financial development in the allocation of mitigation finance. Climate vulnerability contributes more to improving the just allocation of mitigation finance when the level of financial development exceeds the threshold. Finally, we provide policy implications for donors and recipients, respectively.

VAT credit refunds and firm productivity: Evidence from China's VAT reform

This study exploits the implementation of the value-added tax (VAT) credit refund policy in China as an exogenous shock to examine the policy's impact on firm productivity. We find that pilot firms' total factor productivity increases significantly following the implementation of the tax reform due to higher operating cash flow, increased innovation incentives, and improved human capital investment in highly educated labor. Further tests show that the effect of the VAT credit refund policy is more pronounced among large firms, manufacturing firms, firms with strong financing constraints, and those located in regions with low levels of marketization and financial development. Our results provide novel evidence regarding the economic benefits of the VAT credit refund policy, and highlight its role in fostering firm productivity and economic growth.

Can green finance policy promote ecosystem product value realization? Evidence from a quasi-natural experiment in China

This study takes the Green Finance Pilot Zones (GFPZ) policy in China as a quasi-natural experiment and employs the synthetic control method to test the policy effect of GFPZ on ecosystem product value realization, using the province-level gross ecosystem product (GEP) panel data from 2011 to 2020. The results reveal that GFPZ significantly promotes the value realization of ecosystem products, this positive impact remains robust after the test of spatial placebo studies, leave-one-out estimation, difference-in-differences (DID) method, and controlling the effects of other policy impacts. Meanwhile, the ecological transformation of industries and ecological industry development serves as the critical mechanism pathways for GFPZ to realize the value of ecosystem products. In addition, we identify significant spatial spillover effects resulting from GFPZ implementation. Heterogeneity analysis reveals that the impact of the GFPZ policy on ecosystem product value realization is more significant in the central, the western regions, and the areas with high financial development levels. Moreover, for heterogeneous policy goals, GFPZ has greater policy impacts in ecologically vulnerable regions, followed by industrial upgrading regions, while the impact on the resource development region is not significant. These findings provide empirical evidence on the attributions of green finance policy to sustainable development and underscore the pressing need for enhancing the effective adaptation of green finance policy to local circumstances, making full use of green finance tools to promote ecosystem product value realization and advance sustainable development.

The impact of the digital economy on high-quality agricultural development--Based on the regulatory effects of financial development.

The digital economy, as a new economic form with high information density, provides a new driving force for the realization of high-quality agricultural development. Panel data of 31 provinces in China from 2011 to 2020 were selected for analysis. The static panel data interaction effect model and panel threshold model were used to verify the nonlinear influence mechanism and heterogeneity of financial development in the process of the digital economy affecting high-quality agricultural development. The findings are as follows. (1) During the study period, the high-quality development of China's agriculture showed a steady upward trend; however, the regional differences were significant, and the eastern part was larger than the central and western part. (2) The digital economy can promote high-quality agricultural development. (3) The digital economy has a double threshold effect in the process of affecting high-quality agricultural development, which depends on the level of financial development. When the threshold is exceeded, the digital economy has a more significant promoting effect on high-quality agricultural development. (4) The impact of the digital economy on high-quality agricultural development is heterogeneous. From the perspective of different regions, the impact effect is greatest in the eastern region, while the effect is smaller in the central and western regions. From different resource endowments, the positive impact effect is greatest in the major grain-selling areas, followed by the major grain producing areas, but the positive digital economy driving effect is not significant in the balance of production and sales areas. Finally, three policy suggestions are proposed. First, the Chinese government should increase investments in and support for digital technology to promote the integration of the digital economy and agriculture. Second, the Chinese government should promote the development of digital inclusive finance in areas with financial development below the threshold. Third, different regions should implement differentiated digital economies to promote high-quality agricultural development.

Overflowing waters, diluted investments: The enduring impact of historical Yellow River floods on enterprise fixed assets investments

Unraveling the long shadow of historical natural disasters, this study explores how the Yellow River floods shape enterprise fixed asset investments in an institutional and cultural context. Leveraging the regression discontinuity approach, we uncover a significant negative impact of these floods on investments, primarily due to weakened property rights and increased reliance on religious coping mechanisms. Further analysis suggests that the enduring impact of floods on investment persists even after controlling for confounding short-term natural disasters, financial development level, and the Tangshan Earthquake. In addition, the impact of historical Yellow River flood arises from cumulative consequences, rather than individual flood outcomes. Overall, this study not only sheds light on the dynamics between historical natural disasters and enterprise economic behavior, but also contributes to a deeper understanding regarding the broader, long-term economic impacts of climate change.

Revisiting the relation between financial inclusion and economic growth: a global analysis using panel threshold regression

This study revisits the relationship between financial inclusion and economic growth using data from 153 countries. Despite the extensive discourse on the role of financial inclusion in spurring economic growth, empirical evidence presents mixed outcomes. Financial inclusion, measured as account ownership at a financial institution or with a mobile-money-service provider, is pivotal to integrating the unbanked population into the economic mainstream, fostering inclusive economic growth. Our analysis demonstrates that the relationship exhibits positive yet varying effects across different thresholds of financial development. Thus, while financial inclusion consistently correlates with economic growth, the magnitude and impact of this relationship vary between countries at different levels of financial development, highlighting the importance of the tailoring of financial inclusion policies to consider the specific developmental stage of the financial sector. Results also reveal that the effects of financial inclusion and financial development vary across income groups and regions, and with regard to economic fragility.

The loss of political connections and the fluctuation of corporate stock prices: Moderating effect based on media attention

This article examines the impact and mechanism of political connections on stock price fluctuations after the resignation of independent directors with “official” status, based on the exogenous influence of Document No. 18 of the Central Organization Department. Using panel data of A-share listed companies on the Shanghai and Shenzhen stock markets from 2012 to 2020, the experimental group and control group for political affiliation deficiency events were determined through propensity score matching (PSM), and a quasi natural experiment was constructed using differences in differences (DID) for empirical research. By examining the relationship between regional financial development, lack of political connections, and stock price fluctuations, we found that regions with higher levels of financial development are more prone to stock price fluctuations due to the lack of political connections, which is related to higher levels of debt financing in regions with higher levels of financial development. In addition, the increasing level of debt exacerbates conflicts and inconsistencies among stakeholders, which is not conducive to the stability of the company's stock price. Through the above research, relevant suggestions have been provided to enterprises, media, and governments. For example, enterprises should clarify the boundary between government and enterprise, focus on long-term strategic goals, build core competitiveness, and thereby enhance their own value; The media should play a correct role in information transmission and public opinion guidance, and play a positive role in the economic development of the industry; The government should promote market-oriented construction and establish positive government enterprise relationships.

Can fintech pave the way for a transition towards low-carbon economy? Examination based on machine learning algorithm.

Realizing the coordination between the economic and environmental systems through a green growth model is an important goal for China to enter the high-quality development stage. Meanwhile, financial technology (fintech) is rapidly developing in China. To explore the relationship between the two, this research uses panel data from 276 cities in China from 2011 to 2022 and empirically tests through constructing econometric models and machine learning algorithms. The empirical result shows that fintech has an impact on green growth. Specifically, there is a U-shaped relationship between fintech and green growth, meaning that before a certain stage, fintech may have a certain inhibitory effect on green growth. After fintech exceeds a certain development level, it will promote the improvement of green growth. Further mediation tests show that innovation plays a mediating role in the impact of fintech on green growth. Additionally, this research also conducts consistency tests based on different criteria including the location, scale, and financial development level of cities. Based on the research findings, policy suggestions are proposed in this paper to promote the development of fintech and stimulate the growth of the green economy. Overall, our research sheds more light on the fintech-green growth linkage and provides new insights into comprehending the role of fintech in advancing towards a low-carbon economy.

Executive team risk appetite, financial development and re-innovation strategy after enterprise innovation failure: evidence from China

PurposeThis article empirically tests the impact of risk appetite of the executive team on the re-innovation strategy after technological innovation failure using a panel regression model from the perspective of regional financial development level of enterprises.Design/methodology/approachBy means of time series global principal component analysis and panel regression model method, the study validated and analyzed the impact of risk appetite of the executive team on the re-innovation strategy after enterprise technological innovation failure.FindingsThe research found that the higher the risk appetite of executive team, the more inclined the enterprise is to choose the “focusing on quantity, ignoring quality” re-innovation strategy after technological innovation failure. The better the financial development level of the region where the enterprise is located, the better it can effectively reduce the re-innovation strategy of “focusing on quantity, ignoring quality” of the enterprise due to the high risk appetite of the executive team.Originality/valueThe findings of this study are helpful in improving the financial development level of the region where the enterprise is located. It can help the executive team of the enterprise to more objectively choose the innovation strategy after technological innovation failure, and reduce the phenomenon that the executive team of the enterprise only pays attention to the quantity of re-innovation and underestimates the quality of re-innovation after technological innovation failure due to its high risk appetite.

Research on the Impact of Sci-Tech Finance on Industrial TFP

The improvement of industrial Total Factor Productivity (TFP) is the basis for the high-quality development of China’s economy. Sci-tech finance affects industrial TFP through screening and allocation mechanism, governance mechanism, and integration mechanism. Based on provincial panel data from 2009 to 2016, this paper constructs a comprehensive index of regional Sci-tech finance and explores the impact of Sci-tech finance on industrial TFP from two perspectives: differences in financial development levels and transmission paths. The results show that Sci-tech finance has a significant role in promoting the industrial TFP, but this promotion needs to meet certain financial development conditions. In high-level financial development areas, the promotion effect is significant. It is not linear. The effect is a threshold effect with the diminishing marginal efficiency. Sci-tech finance mainly promotes industrial TFP through boosting the industry’s scientific and technological innovation capacity. Policies and channels of Sci-tech finance to support science and technology innovation are put forward.