Level Of Financial Development Research Articles

Has digital technology promoted the restructuring of global value chains? Evidence from China

Reconstruction is necessary for the GVC in the digital age. This paper examines the impact of digital technology input on China's participation in the reconstruction of the global value chain. The relative position of the GVC and the degree of bilateral cooperation in the GVC were constructed as an index to measure a country's participation in the reconstruction of the global value chain from a bilateral perspective. The study found that investment in digital technology has a significant positive impact on China's relative standing in the GVC and the level of bilateral cooperation within the GVC. Additional heterogeneity analysis demonstrates that digital technology input in capital-intensive industries has a more pronounced effect on China's participation in the reconstruction of the global value chain. The aforementioned promotion effects are amplified when developed economies and economies with a high level of financial development serve as trading partners. Examining the OBOR sample further reveals that the aforementioned promotion effects are similarly significant. Examining the mechanism reveals that digital technology input promotes China's participation in the reconstruction of the global value chain via two channels: increasing the export scale of high-tech products and exporting domestic added value.

On the channels of “resource curse of the financial sector”

Aim. To identify the channels of the “resource curse of the financial sector”.Objectives. Systematization of the main approaches to describing the relationship between the state of the financial sector and resource dependence; classification of the identified channels of the “resource curse of the financial sector”.Methods. This article is based on the analysis and systematization of existing empirical and theoretical studies in the field of “resource curse of the financial sector” and related areas. The author used the methods of synthesis, generalization, classification and system analysis.Results. The description of possible channels of resource dependence influence on financial development has been carried out. The channels of “resource curse”, investment and savings, “Dutch disease”, volatility, human and social capital, “interest groups”, institutional channels are considered. The identified channels of the “resource curse of the financial sector” (or channels of the influence of resource dependence on the state of the financial sector) include a different set of chains of cause-effect relations. Some channels (the “resource curse” channel, channels related to the “Dutch disease”, etc.) involve explanations of the “resource curse” affecting the processes of economic growth and the resource curse hypothesis itself. Such channels are classified as specific. Depending on the nature of the impact of resource endowment on the state of the financial sector, three groups of channels are identified: “resource curse”, “conditional resource curse” and “resource blessing”.Conclusions. The hypothesis of “resource curse of the financial sector” can be considered as an element of a comprehensive approach to analyzing the peculiarities of the functioning of the economy under conditions of resource dependence. One of the formulations of this hypothesis assumes a relatively lower level of financial development, at which structural changes occur in the financial sector of countries specializing in the production and export of natural resources. The nature of the channels identified allows us to argue that only under a certain set of conditions the “resource curse of the financial sector” can occur, in which the fact of resource dependence of the economy or its consequences is a constraint for the development of the financial sector. The introduced channels need empirical verification. The developed classification of channels of “resource curse of the financial sector” can serve as a starting point for such an analysis.

Impact of Financial Development on Greenhouse Gas Emissions in Indonesia: A Comprehensive Analysis (2000-2019)

This study aims to comprehensively analyze the impact of financial development on greenhouse gas emissions in Indonesia during the period from 2000 to 2019. Using ordinary least squares with robust standard errors, the study revealed a positive and significant relationship between financial development and total greenhouse gas emissions. The study revealed a positive and significant relationship between financial development and total greenhouse gas emissions by employing utilizing a comprehensive financial development index. The findings indicate that higher levels of financial development by employing utilizing a comprehensive financial development index led to increased greenhouse gas emissions. Moreover, sector-specific analyses demonstrated that financial development significantly and positively influences emissions across various sectors, including the energy sector, agriculture, forest, and other land uses, peatland fires, and waste. However, intriguingly, financial development was found to have a significant and negative impact on greenhouse gas emissions in the industrial processes and product use sector, suggesting its role in promoting sustainable practices and contributing to emissions reduction in this specific domain.

Is the digital economy an effective tool for decreasing energy vulnerability? A global case

Energy vulnerability is gaining attention in light of global economic, social, and political conflicts. The digital economy has the potential to become a vital tool in addressing current issues. This paper explores the relationship, mechanisms, and heterogeneity between the digital economy and energy vulnerability for 110 economies by using a generalized method of moments (GMM) model. Our key findings are as follows: (1) The digital economy effectively reduces energy vulnerability, with digital infrastructure and social impact as the main contributors to this effect. (2) The digital economy helps upgrade the industrial structure and the level of financial development, thereby reducing energy vulnerability. (3) Heterogeneity results show that the negative impact of the digital economy on energy vulnerability is more significant in regions with higher income levels, particularly Europe and North America. (4) The level of economic development acts as a practical threshold variable, with the digital economy having a more pronounced negative impact on energy vulnerability at higher threshold levels. These findings provide new development ideas for improving global energy security and energy efficiency, and reducing energy vulnerability.

Financial integration and economic growth: directional heterogeneity and threshold effect

Despite voluminous studies, the growth effects of international financial integration remain unresolved. Recent studies have shown that the effects depend on a wide variety of factors including the level of economic and financial development, the type of financial flows (debt or equity), the direction of flows (inflows or outflows), and the existence of the investment or saving constraint with the economy. In this paper, we implement a model that embodies double threshold effects where the thresholds are defined in terms of (i) per capita GDP and (ii) the economic growth rate. The results support the single threshold of the growth rate, which is expected to capture the existence of the investment or saving constraint with the economy. We find that developed and slowly developing economies are likely to benefit from capital outflows for higher investment incomes whereas emerging economies with growth rate higher than 3.4—5.7 percent can successfully take advantage of financial integration and resulting capital inflows. The findings are robust to changes in variable definition, model specification and data selection.

An analysis of the determinants of money laundering in the United Arab Emirates (UAE)

PurposeIt is widely argued that money laundering (ML) is not a new phenomenon and the pervasiveness of ML is associated with some severe economic, social and political costs. Due to the lack of studies on the ML’s issue in the UAE, this study aims to examine the determinants of ML in the country between 1975 and 2020.Design/methodology/approachThe autoregressive distributed lag bounds testing results demonstrate the presence of long-run relationship between ML and the selected macroeconomics variables. The analysis is validated by the dynamic ordinary least squares, the fully modified ordinary least squares and the canonical co-integration regression estimators.FindingsThe estimation result reveals that while the real estate market, outflow of money, arms procurement and size of the underground economy influences the size of ML positively, gold trade, the level of financial development and the size of economic activities are negatively associated with ML, both in the short- and long-run.Originality/valueUp to date from a country-level analysis, no study has been devoted to the ML in UAE, except for Aljassmi et al. (2023). To the best of the authors’ knowledge, this study is the first to investigate the determinants of laundered money in the UAE economy. Based on these outcomes, strategies and measures which will deter the laundering of illicit funds through the real estate and gold market, remittance system, financial system and arms procurement contracts in the UAE are recommended.

Does smart city pilot improve urban green economic efficiency: Accelerator or inhibitor

Improving urban green economic efficiency is a necessary response to environmental constraints and the transformation of economic development mode, and how to improve green economic efficiency through smart city pilot has become an important consideration. In this study, we construct the Date Envelopment Analysis-Slack Based Model to measure the green economic efficiency, and further evaluate the impacts of smart city on green economic efficiency using the propensity score matching-Differences-in-Differences (PSM-DID) model. The mainly results are as follows. The urban green economic efficiency can be improved by smart city pilot, and be improved by smart city through technology effect, structure effect and energy effect. Smart city with the dual attributes, information technology and environmental regulation, acts as a role of accelerator that both promote economic efficiency and environment, and thus accelerates the improvement of green economic efficiency. Smart city plays a significant role in cities with high level of talent aggregation and financial development, low level of population density, network infrastructure and urban expansion. The results of this paper provide the policy implications for the construction of smart city and sustainable development.

Modeling the impacts of technological innovation and financial development on environmental sustainability: New evidence from the world's top 14 financially developed countries

Developing a sustainable economic system in the wake of unprecedented environmental challenges is the major cry of the day. This study aims to investigate the impacts of financial development, technological innovation, globalization, trade openness, and renewable energy consumption on the ecological footprint of 14 countries with the highest levels of financial development. The utilized econometrics battery include slope homogeneity tests, Westerlund cointegration, panel Augmented Mean Group (AMG), and Dumitrescu-Hurlin (2012) causality approaches. The study period spans from 1990 to 2018. The empirical outcomes indicate that financial development negatively affects environmental sustainability. The results further reveal that globalization technological innovation, trade openness, and renewable energy consumption bolster environmental quality. Based on the causality outcomes, a bidirectional causal link is witnessed between technological innovation, globalization, renewable energy consumption, and ecological footprint; however, a unidirectional causality relationship exists from trade openness and financial development to ecological footprint. The study findings underscore the importance of globalization, technological innovation, trade openness, and renewable energy consumption in fine-tuning environmental policies and improving environmental quality in these countries.

Dishonesty Level, Financial Development and Foreign Direct Investment

Based on the panel data of 244 prefecture-level cities from 2004 to 2018, this paper empirically analyzes the impact of dishonesty level on foreign direct investment, and tests the difference of the impact of dishonesty level on foreign direct investment under different levels of financial development. The empirical results show that: First, the improvement of the level of dishonesty has a significant inhibitory effect on foreign direct investment. Second, when the level of financial development is low, the level of dishonesty has no significant impact on foreign direct investment, and when the level of financial development is high, the level of dishonesty has a significant inhibitory effect on foreign direct investment. Third, from the analysis of regional heterogeneity, the level of dishonesty has a significant inhibitory effect on foreign direct investment, but it is more significant in non-eastern regions than in eastern regions.

External finance dependence, financial development and exports: a firm-level study from India

PurposeThis study aims to add to the growing literature on the trade–finance nexus by exploring the interplay between a country's level of financial development, the external finance dependence of firms and their exporting decisions.Design/methodology/approachThe study first develops a theoretical model to motivate the idea that a firm's liquidity (financial) position and its home country's level of financial development act as substitute factors in its export market entry decisions. It then empirically tests whether an improvement in a country's financial development level enhances the number of entrants in the foreign markets and boosts the exports of incumbent exporters using firm-level data of manufacturing firms in India for the period 1993–2020.FindingsEmpirical results suggest that a higher level of financial development helps increase the exporting probability of firms that rely more on external finance for their operations. Further, the study finds that the sunk costs-induced hysteresis effect plays a major role in firms' exporting decisions and financial factors don't play a significant role in the exporting activities of incumbent exporters.Practical implicationsThe findings suggest that a well-developed financial market is necessary to help more and more firms initiate their foreign market operations. The results underscore that trade-liberalisation measures alone may not increase India's exports and the government must complement them with financial sector reforms.Originality/valueStudies highlighting the role of financial sector development in helping financially-constrained Indian firms overcome the entry barriers associated with exporting are extremely limited. This study contributes to this nascent literature by conducting an empirical investigation on an extensive database of Indian manufacturing firms. Moreover, in contrast to the previous firm-level studies in this area, this empirical analysis uses the actual values of external finance raised by the firms as a critical factor in determining their extensive and intensive margin of exports instead of the usual balance sheet variables such as liquidity and leverage.

Central Bank Independence and Inflation in India: The Role of Financial Development

Using a legal or de jure measure of central bank independence, the present study attempts to examine the impact of central bank independence (CBI) on the inflation in case of Indian economy over the period, 1980–1981 to 2018–2019. To ascertain the possible dependence of association on the institutional quality proxied by level of financial development, we incorporated a non-linear logistic smooth transition framework with ratio of private credit to GDP as an appropriate transition variable. We found a statistically significant regime dependency with respect to the impact of CBI on inflation. In both the short-run and long run, increase in value of CBI is found to increase inflation when the level of financial development is below threshold value, however, beyond this threshold, any increase in CBI would decrease it. The impact of other control variables like GDP growth, oil price inflation & lagged inflation is found to be positive and statistically significant. However, currency appreciation is found to lower inflation. Our findings signify an appreciable role for the degree of financial development in the transmission of central bank’s monetary policy stances to maintain low inflation.

Does green finance reform promote corporate green innovation? Evidence from China

In this study, the policy of green finance reform and an innovation pilot site in 2017 was used as a quasi-natural experiment to investigate the influences of green finance reform on corporate green innovation. It was found that corporate green innovation improved significantly after the implementation of green finance reform. According to the mechanism test, green finance reform promoted corporate green innovation by relieving financing constraints, optimizing credit resource allocation, and guiding the fiscal subsidies of the government. It was found in the analysis of heterogeneity that the promoting effect of green finance reform on corporate green innovation concentrated on green enterprises, non-state-owned enterprises, and enterprises in regions with high financial development levels. Furthermore, the PZGFRI could improve market value of enterprises.This study provides clues to disclose the action and mechanism of green finance reform on corporate green innovation and lays a policy foundation for China's green financial development.

Revisiting the linkage between green finance and China’s sustainable development: evidence from the pilot zones for green finance reform innovations

Based on the fundamental logic of “green finance – improvement of ecological environment and new kinetic energy of economic development – sustainable development of economy and society”, this paper conducts quasi-natural experiments using panel data from 30 provinces and cities in China between 2013 and 2021. It explores the effects of pilot policies of the green finance reform and innovation pilot zone on the sustainable development of the economy and society through a double difference model. The study reveals that the establishment of the green finance reform and innovation pilot zone has a significant promoting effect on the sustainable development of the economy and society. This conclusion remains valid even after conducting a series of robustness tests. In further analysis, it is found that the promotion effect of the green finance reform and innovation pilot zone on sustainable development exhibits some temporal characteristics. It is particularly significant in regions with lower levels of financial development and industrialization but higher levels of technological innovation. Mechanism analysis indicates that the pathways through which the green finance reform and innovation pilot zone facilitates economic and social sustainable development are relatively singular, primarily revolving around the improvement of the ecological environment. The key contribution of this paper lies in demonstrating the crucial role of pilot policies in the field of sustainable economic and social development. Additionally, it offers new insights for strengthening the implementation effectiveness of green finance pilot policies.

How Much Financial Development Accentuates Income Inequality in Central and Eastern European Countries?

Financial development is often associated with significant economic growth, but studies have shown that a high level of financial development can be the cause of deepening income inequality in many countries. The main objective of the proposed study is to identify to what extent financial development influences income inequality in Central and Eastern European Countries (CEEC). Thus, for the model specification we used as dependent variable the Gini coefficient and as independent variable the financial development index. The sample period for the analysis was from 2004 to 2019, restricted by the lack of data on the Gini coefficient in CEECs. Data on the financial development index were collected from International Monetary Fund, and data on the Gini coefficient were extracted from the World Bank’s Poverty and Inequality Platform. The study unravels several contributions. First of all, the use of quantile regression allowed for the examination of the effects of financial development across the entire distribution of income inequality. Second of all, the use of a comprehensive financial development index offered a more robust and comprehensive measure of financial development compared to single indicators. Taking into account that the Gini coefficient must be close to zero, this result was a positive one with, in essence, financial development reducing income inequality in CEECs. Thirdly, the specific focus on CEECs fills a gap in the literature. Finally, the findings of this study have important policy implications. The obtained results indicate a negative causal relationship between financial development and income inequality, emphasizing the fact that the relationship between these two components cannot be generalized for all regions. These might include measures to promote financial inclusion, improve financial literacy, and enhance the stability and efficiency of financial systems. Supporting financial development in CEECs and similar transition economies can be an effective strategy for tackling income inequality.

Impact of Internet development on carbon emission efficiency under carbon neutral target: evidence from global 58 economies.

With the introduction of economy carbon neutral target policies one after another worldwide, the carbon emission reduction actions of economies around the world have become a hot topic attracting international attention. Meanwhile, the role of the Internet in energy saving and emissions reduction in economies around the world is also becoming more prominent. However, for now, there is still a lack of in-depth research on the impact and role relationship between Internet development and global economy carbon emission efficiency. Therefore, based on the availability of data, this study used the Malmquist index based on game intersection to measure and analyze carbon emission efficiency based on 58 economies around the world that proposed carbon neutrality targets between 2000 and 2019. The study used a spatial econometric model to explore the impact of Internet development on carbon emission efficiency. The objective was to provide a policy reference for high-, medium-, and low-income economies worldwide to achieve their carbon neutrality targets as soon as possible. The results of the study showed that carbon emission efficiency was closely linked to economic development level in economies around the world, that the gap between the development levels of high- and low-Internet-connected economies is gradually widening, that Internet development significantly improved carbon emission efficiency, that levels of economic and financial development played a mediating role in the relationship between Internet development and carbon emissions efficiency, and that the level of urbanization played a moderating role in the relationship between Internet development and carbon emissions efficiency. Exploring the influence and the mechanism of action between Internet development and carbon emission efficiency will contribute to early achievement of global carbon neutrality targets in all economies.

Macroeconomic effects of fiscal policy shocks: panel VAR evidence from MENA countries

ABSTRACT This study examines discretionary fiscal policy effects on output by employing a Panel VAR model in MENA countries during 1990–2018. the results demonstrate fiscal multipliers are larger when public debt is low, at a high institutional quality, and during recession periods. Contrary to empirical studies, we found the response of output to fiscal shocks is larger at a low level of financial development. Our findings have significant policy implications focusing on fiscal policy mix in downturns of an economy, lower levels of public debt, lower levels of financial development, and a higher level of institutional quality.

The Shock Absorbing Role of Cross-border Investments: Net Positions Versus Currency Composition

We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix et al. (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs’ external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks.

Relationship between sustainable development and financial development from the perspective of the European green economy. Fuzzy approach

Introduction: Although a large number of publications are devoted to analyzing the relationship between financial development and economic growth, we focused on the answer to the question that sustainable development is accompanied by financial development in particular European Union countries. To our best knowledge, it is a new and original research approach that addresses important research gaps.Methodology: A synthetic indicator based on 13 variables was built to assess the level of sustainable development, taking into account the financial aspect. Fuzzy logic was used to assess the relationship between the level of sustainable development and financial development. It is an original and novel approach.Results: The research results showed significant differences between the north and south and Europe’s east and west. The highest levels of the synthetic measure for all analyzed periods were recorded for Sweden, Finland, and Denmark, and the lowest for Lithuania (2013), Cyprus (2014–2015), and Bulgaria (2016–2021). Over the nine years covered by the analysis, the level of sustainable development, considering the financial aspect, improved in two countries: Germany and Portugal, but deteriorated in six: Bulgaria, Croatia, Italy, Latvia, Romania, and Slovenia. In all analyzed years, the higher the level of the synthetic measure (sustainable development), the higher the value of the financial development index (FDI index).Discussion: When developing sustainable development policies, policymakers should consider their links with financial development and the policy of developing and regulating financial markets. Financial markets are essential for sustainability, and finance is a crucial driver of sustainable development.

How does Financial Development Affect Regional Economic Growth in China? A Mediating Role of Industrial Structure Optimization

<p style="text-align: justify;">Financial development and industrial structure optimization are two-wheeled engines for promoting high-quality development, but the causal identification of the two is still poorly understood. This paper addresses this research gap by comprehensively analyzing the relationship between them. Regional economic growth is a necessary condition for achieving high-quality development. Taking China as an example, this study empirically examines the role of financial development and industrial structure optimization in high-quality development using the entropy method, fixed effects, mediation effects and instrumental variable regression. The study results show that (i) financial development has actively promoted regional economic growth. (ii) The driving effect on the central and western regions is greater than that on the eastern region. (iii) There are differences in the mediating effect of industrial structure optimization and rationalization between different levels of financial development and economic growth. (iv) In addition, the mediating effect of industrial structure optimization is larger in the eastern region than in the central and western regions. (v) The mediating effect of industrial structure rationalization is not obvious in the eastern region, but has a masking effect in the central and western regions. Our findings provide new strategies for financial development and industrial structure optimization in developing countries.</p>

Shrinking the shadow economy: Experimental insights into the role of financial development

In this experiment-based study, we examined how development in the financial sector influences people’s propensity to participate in the shadow economy. We used a within-subject and between-subject design to examine the impact of various shadow economy structures, with a focus on the credit supply as a common proxy for financial development. Our research shows that people are more likely to operate in the formal economy when the level of financial development is higher, even if it associated with higher tax rate. We also found that the structure of the shadow economy affects people’s propensity toward it only when financial development is sufficiently advanced to create certainty in receiving credit.