Level Of Financial Sector Development Research Articles

Does Nigeria’s underdeveloped financial sector harm non-crude oil export trade? Empirical evidence from linear and non-linear models

The purpose of this study is to determine the effect of financial sector development on Nigeria’s non-crude oil export trade. For this reason, we employ a battery of econometric models and tools, including the Autoregressive Distributed Lag model and the sequentially determined threshold model. The study found that financial sector development and export of non-crude oil merchandise are unrelated in the long term, which challenges theoretical view that financial sector development and trade are linked at any time. The study further showed that, in the short term, the country's level of financial sector development, though shallow and seeming underdeveloped, is able to support exports of non-crude oil products. This finding challenges theoretical view that lower levels of financial sector development could hinder non-crude oil export trade flows. The study, however, found a threshold effect showing a minimum level of financial sector development that promotes non-crude oil export trade, which indicates that the relationship between financial sector development and non-crude oil export is non-linear, which contradicts the theoretical view. The study recommends that Nigerian policymakers and the government adhere strictly to the minimum level of financial sector development; otherwise, non-crude oil export trade may worsen.

FDI–Growth Nexus in Emerging Economies: Role of Financial Sector Development

This paper examined the relationship between foreign direct investment (FDI) inflows and the growth rate in emerging and developing economies (EMDEs) and whether the development of the financial sector affects the growth-effect of FDI inflows for these economies. FDI enhances capital accumulation in the economy, and the level of financial sector development (FSD) affects the financial intermediation of funds, thereby enhancing the absorptive capability from investment. Using the dynamic panel threshold model (DPTM) for a balanced panel of 71 countries over the period 2000–2019, the paper finds a U-shaped relationship between the measures of FSD and the growth rate of an economy and does not find evidence for the ‘vanishing effect of finance’ for EMDEs. The growth-enhancing effect of FDI is much stronger for countries with a higher level of FSD. Our estimation techniques control for cross-sectional dependence and endogeneity in the case of a dynamic framework. The robustness results estimated using four-year non-overlapping averages as an observational unit support the findings. JEL Codes: F23, F36, O16

Investigating the effect of an underdeveloped financial sector on non-oil export in Nigeria

Several policies have been implemented in Nigeria to shift the export trade from oil to non-oil goods; yet the share of non-oil export in total exports remains very small compared to oil export, which may be due to the low level of financial sector development in the country. Unlike previous studies on Nigeria that focused exclusively on financial sector development and aggregate export (combined exports of oil and non-oil goods), this study concentrates on financial sector development and non-oil export using an autoregressive distributed lag technique, the dynamic ordinary least squares technique, and the non-linear autoregressive distributed lag technique over the period 1986-2020. The empirical results showed that the relationship between financial sector development and non-oil export is linear. Results also showed that, in the short term, the country?s level of financial sector development worsens exports of non-oil products. However, in the long term, there is no connection between non-oil export and financial sector development, which challenges the theoretical view that trade and financial sector development are linked at any given time period. The study recommends that the government and policymakers in Nigeria should make sure that the financial sector is sufficiently developed, otherwise the goal to diversify the export base may not be achieved.

Governance Quality and Financial Development in Africa

The study examines the effect of governance quality on financial sector development using an empirical panel dataset from 45 African countries for the period 1996–2018. To this end, four bundled governance quality indicators (i.e., general, political, economic, and institutional) variables are employed. The empirical estimation is based on Quantile Regression and other subsidiary Model. The inspiration for this estimation technique is based on the argument that the effect of governance quality is contingent on the existing level of financial development, and governance – financial development policies, to be effective, need to be tailored differently across countries with low, intermediate and high levels of financial sector development. The general findings are as follows: First, development in governance institutions promotes financial sector development. Second, in most of the cases, the impact of governance quality is higher in terms of magnitude in the upper quantiles of the general, political, economic and institutional governance distributions. Third, the effect of governance institutions is significantly higher in terms of magnitude in the top quantiles of the economic governance distribution. The results remain robust over alternative econometric estimation techniques.

Foreign Direct Investment and Inclusive Growth: The Role of the Financial Sector Development

This study examined the role of the domestic financial sector development in the relationship between foreign direct investment (FDI) inflows and inclusive growth in Nigeria over the period, 1981-2020 using annual time series. Analytically, the study employed the autoregressive distributed lag approach of cointegration. The bound test result shows that there is a long-run relationship between inclusive growth and financial sector development, as well as the other underlying variables. Empirically, the result reveals that the FDI exerted a significant positive effect on inclusive growth when the domestic financial sector has reached a certain minimum level of development. The result further shows that the FDI alone has a significant negative effect on inclusive growth. This means that FDI alone does not necessarily increase the well-being of the people, except when a certain minimum level of financial sector development is attained. This is evidence that the domestic financial sector development is a pre-condition for FDI to effectively promote inclusive growth in Nigeria. Therefore, the study recommends that the development of the domestic absorptive capacity-financial sector development should be extended by promoting reforms that will translate FDI inflow into inclusive growth.

Do Innovations in Lending Help SMEs?

As new digital technologies emerge that make the provision of financial services more efficient, they hold the potential to address barriers that SMEs face in accessing credit. This paper found empirical evidence that crowdfunding for SMEs improved SMEs’ timeliness to pay debt in Singapore. Anecdotal evidence from growing SMEs suggests that getting crowdfunding loans also induced financing from banks, leading to more efficient allocation of credit. In just four years, Singapore’s crowdfunding volume has grown rapidly to make it the top crowdfunding hub in Southeast Asia in 2017. The rapid development of Singapore’s crowdfunding industry can be attributed to its higher GDP per capita, higher level of financial sector development and greater availability of venture capital. Our results suggest that policies do matter to the development of the crowdfunding industry and we identify some policy considerations at national level. The paper concludes with a discussion on implications of crowdfunding on banks’ business models and analysis of policy makers’ regulatory approach to crowdfunding.

TRADE CREDIT POLICY: REVISITING TARGETING OF TRADE PAYABLES AND RECEIVABLES IN BRICS LISTED FIRMS

The study investigates if firms in BRICS countries pursue a target optimal level of trade credit policy. Trade payables levels may not always at the desired levels and firms take time to adjust from real to target levels. The level of financial sector development may influence firms’ speed and cost adjustment. Employing a dynamic panel data model estimated with the difference and system Generalized Method of Moments estimation techniques on a panel of 3353 listed BRICS non-financial firms, the study established that in pursuit of growth opportunities firms have a deliberate trade credit target levels. Firms pursue a target optimal level of trade payables and trade receivables and firm size affects creditworthiness and access to capital markets, which influences speed of adjustment from current to desired levels of trade payables. Investment in trade receivables require access to capital for additional funding and poorly developed financial sectors makes it costly to adjust towards optimal credit level. Different levels of financial sector development affect access to alternative sources capital which influences optimal trade credit policy.

Threshold Effects of Financial Sector Development on International Trade in Africa

AbstractEarlier studies on threshold effects of financial sector development on international trade have relied on rudimentary approach which assumes exogenous inclusion of quadratic square terms of finance. However, findings from such studies are not instructive as it obscures country's unique domestic conditions such as differences in the levels of financial sector development. By relying on 46 countries in Africa over the period 1980–2016, this study employs a sample splitting and threshold estimation approach which allows finance–international trade to be mediated by the level of domestic financial sector development. We find evidence of threshold effects for a number of the countries suggesting that the precise impact of financial development on international trade is threshold–specific given the various indicators of finance. The study highlights that whether finance supports or limits international trade crucially depends on the attainment of a certain threshold which is both country and indicator–specific.

Does Remittance Inflow Granger-Cause Economic Growth in South Africa? A Dynamic Multivariate Causality Test

In this study, we examine the dynamic causal relationship between remittances and economic growth in South Africa during the period from 1970 to 2017. Although South Africa is well-known for being a source of cross-border remittances to various countries, especially in the African continent, remittance inflows to South Africa have grown in the recent past. The growth in remittances, on one hand, and the need to fight against poverty and inequality in South Africa and ultimately improve economic growth, on the other hand, prompted the need for this study. The study uses the autoregressive distributed lag (ARDL) approach within a multivariate Granger-causality setting to examine the remittance-growth causal link—in an effort to address the variable-omission bias. The empirical findings of the study show that remittances and economic growth are not causally related in South Africa, irrespective of whether the estimations are done in the long run or in the short run. This finding, though contrary to the expectation, is not surprising, given the level of financial sector development in South Africa.

External sector liberalization, financial development and income in South Asia

The paper provides an analysis on the impact of external sector openness and financial sector development on per capita income in the South Asian economies of Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka. For the annual series from 1980 to 2015, the instrumental variable model using a generalized method of moments (GMM) approach is estimated. The results show that liberalizing the external sector raises per capita income, conditional on the level of financial sector development. The large-economy influence analysis shows that India will benefit the most from external sector liberalization and other economies involved in this study still need to focus on financial sector development as opposed to on liberalizing capital flows. It further indicates that premature external liberalization in small and poor economies tends to be beneficial to the large neighbouring economy, which in this case is India, leading to resource exploitation. Accordingly, unless financial markets and institutions are strong enough to effectively deal with domestic resource mobilization, opening up the external sector alone may impede the economic development process.

Does Financial Sector Development Augment Cross-Border Capital Flows?

ABSTRACTThe sharp increase in volatility of capital flows in recent years has resulted in many countries altering the regulations governing the flow of foreign capital only to find such changes having a limited impact. We postulate that one reason for the limited effectiveness of such changes in regulations is the level of financial sector development in the country. As a country enhances its level of financial sector development, it also develops more and more sophisticated financial instruments. The more advanced the domestic financial instruments are, and the deeper is the integration of the domestic financial markets with the world markets, the greater is the likelihood of developing strategies to bypass capital account management measures. In this paper, we use various empirical techniques to identify the impact of financial sector development on capital flows, after accounting for regulatory regime. The empirical results indicate that there is a threshold effect in the financial sector development capital flow relationship. In particular, financial sector development augments greater integration with global capital flows only above a threshold level. Below the threshold level we find financial development reduces the extent of integration with global capital markets.

Does corruption throw sand into or grease the wheels of financial sector development?

This paper examines the relationship between corruption and financial sector development in 106 countries. Using dummy variables to capture different levels of corruption, and interaction terms to see if financial sector development depends on institutional structures, we find evidence to support the ‘sand the wheels’ hypothesis. The results suggest that a decline in corruption is associated with higher levels of financial sector development.

A NEW APPROACH TO THE NATURE OF ECONOMIC CYCLES AND THEIR ANALYSIS IN THE GLOBAL CONTEXT

The article offers a new product based theory of economic cycles. The theory explains economic activity fluctuations from the point of life-cycle of marketable goods and services. Based on our assumptions, we have created a model of world GDP and described its dynamics for the period from 1960 till 2015. In this article, we consider long-term growth trend as granted and as an independent variable due to the complexity of factors, which influence economic growth, while defining economic cycles as a recurrent process, which is analyzed by the model. Considering that, we used Hodrick-Prescott filter as an approximated function to the trend component and Fast Fourier Transform (FFT) as the method of spectral analysis of the cyclical component after detrending. We have also discovered main features of economic cycles in developed and developing countries along with the dependency of economic cycles’ amplitudes on the level of financial sector development.

Complex Issues of Regional Growth Dependence on the Level of Financial Sector Development

Complex Issues of Regional Growth Dependence on the Level of Financial Sector Development

Complex Issues of Regional Growth Dependence on the Level of Financial Sector Development

Complex Issues of Regional Growth Dependence on the Level of Financial Sector Development

Microfinance institutions’ transparency in Sub-Saharan Africa

ABSTRACTThis study analyses the impact of the ownership structure and macro-level factors on Microfinance institutions’ (MFIs) transparency in Sub-Saharan Africa (SSA). Using cross-sectional data from 223 MFIs in 11 countries, we find that MFI transparency in SSA is low and highly variable. Our results indicate that larger MFIs and non-governmental organizations (NGOs) are associated with greater transparency. Greater transparency of NGOs is consistent with the need to sustain and attract donor funding. Country-level resources, such as the level of financial sector development, also impact MFI transparency.

Establishing an Export Credit Guarantee Scheme to Support Myanmar Exporters?An Exploration

Myanmar's trade deficit has widened dramatically in the past few years. One of the reasons lies in the lack of trade finance for exporters and certain financial sector shortcomings more generally. This policy note introduces the idea of establishing a public Export Credit Guarantee Scheme (ECGS) and explores if and how this policy measure could support the rebalancing of Myanmar's trade deficit. Such a scheme could help relieve export constraints by: first, facilitating access to credit for exporters by mitigating risk and increasing banks' willingness to lend; second, helping exporters to offer better payment terms to importers; and third, contributing to enhance confidence in Myanmar entities (both banks and enterprises) among foreign entities. Looking at the experience of other countries, the policy note also points to a number of guiding principles that policymakers should consider when pondering the idea of setting up an ECGS. Moreover, it highlights that certain challenges have to be expected. First and foremost, given the low level of financial sector development and limited existing knowledge on trade finance, it is questionable whether the necessary skills and capacities to properly operate such a scheme are available in Myanmar. Seeking international support can help to address this issue. A practical way forward might be to pilot an ECGS with a rather small portfolio of products that targets one or a few sectors to test the ground while limiting the public resources at risk. Keywords: Myanmar, export credit guarantee scheme, trade deficit, export promotion, financial market, trade finance. 1. Introduction Despite far-reaching reform efforts, there are still various financial sector constraints that hamper the competitiveness of Myanmar exporters and hold back the expansion and upgrading of exports. These include several financial market regulations and institutional shortcomings that complicate transactions between foreign and Myanmar entities, including businesses and banks, thereby making local suppliers less attractive to foreign buyers. In particular, a lack of access to trade finance (and credit more generally) imposes constraints on the cash flow of exporters. This is particularly grave for Myanmar, given that the country only recently has made a comeback in international trade, which implies that foreign buyers often lack the trust in Myanmar institutions and producers that develop with long-standing international commercial relationships. Generally speaking, whenever they are not paid in advance by the importer, exporters have to bridge a time gap between their expenditures on production and receiving payment. Due to longer transportation times and customs procedures, this time gap tends to be particularly large in international transactions. Exporters are thus often required to pre-finance working capital and/or the purchase of production inputs. They can try to cover these expenses through internal funds or through external funds, for example, by taking out a credit. However, export finance is very scarce in Myanmar. This can create liquidity problems for exporters that disrupt their business. In an extreme scenario, if they cannot obtain the necessary finance, potential exporters may even have to forego the export order. This is a significant issue in Myanmar, whose trade deficit has widened rapidly in recent years so that boosting exports has become a policy imperative. In principle, different policy approaches are possible to tackle trade deficits, and a variety of policy measures have been applied in practice. For example, one possibility is the restriction of imports (such as through tariffs or non-tariff barriers to trade). In this policy note, however, we focus on measures to promote exports. Some countries rely on state-owned development banks to directly lend to (potential) exporters, sometimes at subsidized interest rates, thereby expanding and facilitating exporters' access to finance (Chandrasekhar 2016). …

Сложные вопросы зависимости регионального роста от уровня развития финансового сектора

Сложные вопросы зависимости регионального роста от уровня развития финансового сектора

Foreign Direct Investment, Financial Development and Economic Growth: A Panel Data Analysis

Using Generalized Method of Moments (GMM) panel data analysis to examine the relationship between Foreign Direct Investment (FDI), financial development and economic growth in a group of 70 developed and developing countries from 1988 to 2002, it is found that the impact of FDI on economic growth is ambiguous. FDI may either increase or decrease the growth rate of the economy, depending on the financial market development indicators used in the study. The findings, however, support the notion that a certain level of financial sector development is a significant prerequisite for FDI to have a positive effect on economic growth. Policy implications are clear that since it has been stated that the economic performance depends to some extent on the development of domestic financial sector, effort should be made to reform and improve the development of domestic financial and banking sector in order to benefit more from the presence of FDI. (ProQuest: ... denotes formulae omitted.) Introduction There are few channels through which Foreign Direct Investment (FDI) permanently affects the growth rate, depending on the different models of economic development. In Solow-type standard neoclassical growth models, FDI is traditionally viewed as a crucial source in increasing the capital stock of a country. According to this school of thought, there is no difference between domestic and foreign capital in affecting economic growth. Moreover, it is suggested that, with the assumption of diminishing returns to capital, the impact of FDI on growth is crucial in the short run, but not persistent in the long run (Barro and Sala-i-Martin, 1995). In endogenous growth models, the potential of FDI in influencing growth is greater. In the literature, the role of FDI in growth can be explored through production function. Different from Solow-growth model, foreign capital will influence the path of domestic capital significantly, that is, either crowd-in or crowd-out domestic investment. If foreign capital produces a crowdin effect on domestic capital (or the relationship is complementary), then the impact of FDI on growth will be larger. Furthermore, if the presence of FDI affects local capital differently, for example, by the way of expanding the variety of intermediate and capital goods, then it can lead to improvement in the productivity level of the recipient country (Borensztein et al., 1998). Besides, FDI also affects labor via job creation. The role of FDI, nevertheless, is more significant in transferring technology and know-how that are embodied in human capital. The effect of FDI would be limited if the recipient country does not meet the minimum threshold of the absorptive capacity in terms of human capital, technological skills and domestic financial development (De Mello, 1997; Levine, 1997; and Borensztein et al., 1998). Therefore, the presence of FDI inflows will entail crucial knowledge transfer in terms of training, skill acquisition, new management practices and organizational arrangements. All of these will contribute to a higher level of productivity and efficiency of human capital or labor, which will lead to a higher level of economic growth. In line with the findings, single-country studies for Australia (Caves, 1974), Canada (Globerman, 1979), and Mexico (Blomstrom and Persson, 1983) found that the presence of Multinational Enterprises (MNEs) had positive effects on local productivity. In contrast, studies for Morocco (Haddad and Harrison, 1993) and Venezuela (Aitken and Harrison, 1999) concluded that there was no evidence that MNEs had a positive effect on the productivity growth of local firms. In another study, Kholdy (1995) determined the causality relationship between FDI and spillover efficiency, as defined by higher labor productivity and capital formation, in Mexico, Brazil, Chile, Singapore and Zambia. However, he argued that there is no causality linkage between FDI and labor productivity in the countries under consideration. …

Heterogeneity in the growth and finance relationship: How does the impact of bank finance vary by country and type of lending?

We explore heterogeneity in the finance-growth relationship by considering the effects of foreign and domestic lending separately. Estimating finite mixture models, we find that the effects of bank finance and foreign bank involvement on growth depend on 1) how well-developed the banking sector is, and 2) if foreign banks are involved via affiliates within the country or via cross-border loans. The experience of lenders with a local presence is important, but only once a threshold level of financial sector development is reached. In countries with underdeveloped banking sectors, the influence of foreign-owned lenders relative to locally-owned banks can hinder growth.