Level Of Financial Development Research Articles

Financial development and environmental degradation: insights from European countries

ABSTRACT We investigate the relationship between financial development and environmental quality during 1996–2019 in a panel analysis of 40 European countries, of which 28 EU and 12 non-EU member countries. We built four empirical models to check the connection between financial development and environmental degradation while controlling for GDP growth, trade openness, FDI, and energy consumption. We applied the Dynamic Common Correlated Effects (DCCE) estimator because of cross-sectional dependence (CSD) among the panel cross-sections. Our findings report a positive association between financial development and environmental degradation for the entire panel of European countries. The subsequent analysis of sub-groups shows that this is particularly the case for non-EU member countries and countries with a high level of financial development. Furthermore, there is a bidirectional causality between financial development, energy consumption or trade openness, and environmental degradation in European countries.

The mediating effect of trust on financial development and stock market comovement in BRICS economies

This study examines the effects of financial development on the stock market comovement of Brazil, Russia, India, China and South Africa (BRICS) on the one hand and the US Dow Jones on the other. Its main goal is to find out if trust has a mediating effect on financial development using data from the World Bank and the World Value Survey (WVS). Panel data analysis along with ARDL methods helped the authors obtain robust results. It was found that financial development plays a significant role in determining stock market comovement among the countries in question and that trust also has a moderating impact. The analysis was extended to the institutional and market factors of financial development. The paper introduces trust as a mediating variable that positively affects financial development, which in turn promotes stock market integration and comovement. Its results imply that investors should consider financial development and trust levels of a country when considering portfolio allocation for global diversification purposes, especially in emerging markets. Countries with insufficient trust levels, like Brazil, could benefit from improving their trust score through enhancing financial development and stability.

Tác động của công nghệ tài chính, tài chính toàn diện và mức độ phát triển tài chính đến bất bình đẳng thu nhập tại các quốc gia trên thế giới

This research uses data from 157 countries in the period 2011-2022, divided into developed, developing and underdeveloped country groups, to find out the relationship between financial technology , financial inclusion and the level of financial development to income inequality in these country groups. This research uses panel data with three estimation models OLS, FEM and REM, then use F test, Breusch-Pagan Lagrangian and Hausman test to select the appropriate model. To check the robustness of the model, the research performed the Wald and Wooldridge tests, and finally adjusted the GLS model if defects existed Research results show that, in developed countries, income inequality is strongly affected by the level of financial development, financial technology and financial inclusion. For the group of developing countries, financial development, saving at financial institutions significantly impact on income inequality. Meanwhile, in underdeveloped countries, there are two factors of financial inclusion including the proportion of people with accounts at financial institutions and the proportion of people borrowing from official financial institutions significantly influence on income inequality.

Does digital infrastructure construction impact urban carbon emission reduction? Evidence from China's smart city construction.

As the cornerstone of the digital economy, the construction of digital infrastructure plays a crucial role in promoting China's high-quality economic growth.. Against the backdrop of the "dual-carbon" goals, the development of digital infrastructure will provide new momentum for carbon emissions reduction in urban areas. This study utilizes unbalanced panel data from 277 prefecture-level cities in China between 2008 and 2019, treating the smart city construction as a quasi-natural experiment, to systematically evaluate the impact of the pilot construction of smart city on urban carbon emissions intensity. The research findings reveal that the construction of the smart city has significantly contributed to the reduction of urban carbon emissions intensity, indicating that digital infrastructure contributes to urban carbon emission reduction. The reduction of carbon emissions resulting from smart city construction is particularly significant in the East and Central regions., as well as regions with high financial development levels, regions with high human capital levels and non resource-based cities. The construction of the smart city primarily achieves the reduction of urban carbon emissions intensity through two main pathways: improving the penetration rate of digital infrastructure and enhancing technological innovation capability. Therefore, this study recommends that local governments strengthen the integration and penetration of digital infrastructure with traditional industries, foster urban innovation vitality, and accelerate the transformation towards green and low-carbon cities.

The impact of financial sanctions on financial risk of target countries

ABSTRACT By using panel data of 181 countries of which 83 countries have been subjected to financial sanctions from 1980 to 2020, this article employs a Time-Varying difference-in-differences (DID) model and explores the nexus between financial sanctions and financial risk. This article finds firstly that financial sanctions significantly increase the fin ancial risk of target countries. Second, we conclude that financial sanctions increase the financial risks of target countries by limiting international capital flows and foreign aids. Third, financial sanctions affect the risk for foreign debt, risk for debt service and risk for international liquidity significantly, however financial sanctions have no impact on risk for exchange rate stability and risk for current account. Last but not least, financial sanctions increase the financial risk significantly for countries with low political stability and financial development level, however the effect is not significant in countries with high level of political stability and financial development. In the light of this, our research should help policymakers in many nations develop valuable policies from the perspective of international politics and finance.

Corporate financialization and green technological innovation: Evidence from China

Corporate financialization and changes in the external financial environment have important but unexplored implications for firms' green technological innovation (GTI). Taking a sample of non-financial listed companies in China's A-share market from 2010 to 2020, and using panel and mediation models, this paper investigates the role of corporate financialization on GTI. We reveal that: (1) corporate financialization notably dampens GTI, especially substantive GTI. (2) The “crowding-out” effect proved the main mechanism by which corporate financialization affects GTI and there was no “reservoir” effect during the sample period. (3) Corporate financialization has a larger dark impact on GTI when firms with higher environmental, social, and governance scores and levels of industrial innovation, lower levels of digital financial development and industrial knowledge spillovers, and when firms are younger or non-state owned.

Financial Development, Financial Openness, and Policy Effectiveness

This study explores how financial development and openness influence the effectiveness of fiscal and monetary policies. An analysis of data from about 100 countries between 1980 and 2018 reveals that both financial openness and development weaken the impact of monetary and fiscal policies. Our results further show that financial development in a country diminishes policy effectiveness depending on the country’s level of financial development; specifically, the more developed a country, the less effective the policies would be. Additionally, through a detailed examination employing a dynamic panel GMM approach, the study investigates the global repercussions of economic downturns in the US and how financial maturity shapes policy effectiveness during these times. We also discuss some policy implications that show that the positive impacts of monetary policy on output growth are lessened during crisis periods, and policymakers should act accordingly.

THE IMPACT OF R&D EFFICIENCY ON ECONOMIC GROWTH IN CHINA: NON-LINEAR THRESHOLD EFFECTS

This study uses a threshold estimation technique to examine whether the effect of R&D efficiency on economic growth in China differs according to the level of financial development. The results broadly confirm a nonlinear relationship between R&D efficiency and economic growth due to the dynamic and static threshold effects of financial development and R&D expenditure. This finding suggests that R&D efficiency does not significantly impact growth in the low and middle-financial development provinces at conventional levels. Hence, the benefit of R&D efficiency in China could stem from the positive effect of R&D in highly financially developed provinces. Though R&D efficiency is poor, R&D investment still enhances economic growth because the amount of R&D investment is enormous. This finding suggests that while it is most important to not unthinkingly expand R&D gross investment, it is also necessary to make full use of R&D investment by improving R&D efficiency.

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.