Role Of Financial Development Research Articles

The Effect of Financial Development on Inflation Rate in Rwanda

A well-developed financial system plays an important role in the economic performance of a country. Thus, the role of financial development and its functions in stimulating economic performance is concrete. However, the economy of Rwanda has experienced an accelerated inflation rate in recent times. The study adopted an ex post facto design to ascertain the effect of financial development on the inflation rate in Rwanda over a period of 12 years. Time series data were collected from 2011-2022. Ordinary Least Squares (OLS) were also adopted. The findings revealed that financial liberalization, domestic credit to the private sector, monetary policy rate, market capitalization, and all share indexes jointly did not influence the inflation rate in Rwanda (Adj.R2 = 14.39%, p = 0.3524 > 0.05, F-stat = 1.3699). The study concluded that financial development did not affect the inflation rate in Rwanda during the period under review. The study recommends that the government of Rwanda should improve on financial development through improving macroeconomic factors such as liberalization of the financial sector and strengthening the channels of credit to the private sector.

The Role of Financial Development in Economic Growth using WPM Method

Financial development is possible investments creating information about and allocation of capital, monitoring of companies and corporate administration, commerce, diversification and risk management, accumulation and accumulation of savings, exchange of goods and services in activities like facilitation includes improvements. provided by financial institutions economic theory, at best and efficient financing institutions-banks, stock markets and bond markets-which capital it’s for high production applications paying is for economic growth beneficial. development of developing Asia strong to retain and efficient financial systems particularly important are because the performance of the investment as a driver of the region's development reduces the amount of investment. Since the early 1990s the region's financial systems are deep and diversified data indicate. 125 countries more formal econometrics on panel data quantitative analysis, financial development significant in development positive effect confirms having, especially in developing countries. of financial development in the development of the region impact than elsewhere significantly different thatno, for the asian financial crisis since then its influence has weakened the results also indicate that financial intermediaries, these teachers are bankers finance in the weakness of the sector effect of liberalization Is it a temporary effect will check that, that is, in the following years only this is observed. beginning of liberalization. this is not the case. of the banking sector weaknesses will only become apparent over time. however, in developing countries financial Liberalization Policy as an important part of the reform has Among some researchers, it is about virtues reflects overall confidence financial liberalization is that of the banking sector lead to weakness significant factor is, also of economics status even after controlling that there is this effect they found, the first one below income in the area earning funds summarize the implications the first one below review the area we do. income, cost and Savings, investment and wealth accumulation financial statements of we briefly reviewed do. The second division financial institutions orrole of intermediaries deals with The third section income, interest and money conventional theories about funding for real development between growth and development for important contacts enough attention that he did not pay some theoretical adaptations proposes and argues. The purpose of this paper is tofield-projectseveral in conjunction with the detain determinations and measurement perceived at a distance water using data for productivity mapping (WPM)methods and protocols is to create. Stock Market Investments, Real Estate Investments, Cryptocurrency Investments, Peer-to-Peer Lending and Startups and Venture Capital. Risk Management, Return on Investment (ROI), Portfolio Diversification and Costs and Fees. the Ranking of Financial development. Real Estate Investments is got the first rank whereas is the Cryptocurrency Investments the Lowest rank.

Financial development, environmental regulation, and corporate green technology innovation: Evidence from Chinese listed companies

Examining Chinese publicly listed companies from 2010 to 2018, our research employs a difference-in-difference-in-differences approach to assess the impact of environmental regulations on corporate green technology innovation, with a focus on the role of financial development in the Chinese context. We find that environmental regulations significantly boost green technology innovation, and this effect is further magnified by financial development. We observe variations in the influence of financial development on corporate green technology innovation across different geographical regions and ownership structures within China.

The relationship between exchange rate volatility and capital inflows in emerging markets: The role of financial development

The relationship between exchange rate volatility and capital inflows in emerging markets: The role of financial development

The Impact of Climate Change on Economic Growth in South Asian Countries: The Role of Financial Development, Trade Openness and Renewable Energy Consumption

This study examines the complex correlation between climate change and economic growth in South Asian nations, focusing specifically on the significant influences of financial development, trade openness, and renewable energy usage. This research endeavors to address the existing information gaps pertaining to the impact of climate change on economic development, with a specific focus on the susceptibility of South Asian nations. This study employs quantitative research approach. Economic indicators, climate data, and relevant financial and trade metrics are scrutinized to discern patterns and relationships. The methodology incorporates a multi-faceted approach to capture the complexity of the interactions between climate change variables and economic parameters. The study’s results provide significant insights into the intricate relationship among climate change, financial growth, trade openness, and renewable energy use in the South Asian region. The research elucidates how climate-induced disruptions impact economic sectors crucial to the region’s development. Moreover, it dissects the specific mechanisms through which financial structures, trade policies, and renewable energy initiatives influence economic resilience in the effect of climate challenges. Based on the findings, the study offers a set of targeted recommendations for policymakers, emphasizing the need for integrated approaches to climate change alleviation and adjustment. These recommendations encompass strategies for enhancing financial mechanisms, optimizing trade policies, and promoting sustainable practices in renewable energy consumption. By aligning economic policies with environmental sustainability goals, the recommendations aim to guide South Asian countries toward resilient and sustainable development pathways amidst the evolving landscape of climate change challenges.

A threshold panel model for exploring the nonlinear connection between entrepreneurship and economic growth

The paper examines the relationship between entrepreneurship and economic growth, specifically focusing on the role of financial development as a factor that can influence this relationship. The authors employ the panel transition regression (PTR) model to analyze data from 96 countries spanning the years 2003 to 2020. The analysis reveals the presence of a threshold that determines the impact of entrepreneurship on economic growth. In the first regime, characterized by a lower level of financial development, the study finds no statistically significant influence of increased entrepreneurial activities on economic growth. This suggests that below a certain level of financial development, entrepreneurship alone may not contribute significantly to economic growth. However, in the second regime, which corresponds to a higher level of financial development, the study demonstrates a positive effect of increased entrepreneurial activity on economic growth. In this regime, an expansion of entrepreneurial endeavors leads to a beneficial impact on the overall economic growth of a country. These findings imply that there exists a minimum threshold of financial development required before it starts significantly contributing to economic growth. Once this threshold is surpassed, with the presence of adequate financial development, an increase in entrepreneurial activity can have a positive and substantial effect on a country's economic growth.

The role of financial development and good governance in economic growth and environmental sustainability

New Zealand's environmental policies and political situation may have had an impact on all energy and non-energy factors that affect economic growth and CO2 emissions. Therefore, it is important to understand the impacts of these factors on NZ's CO2 emissions and economic growth, as the interconnectedness of these factors provides policymakers with valuable insights. This study assesses the various influences of energy, financial, government, and other non-energy factors on both economic growth and carbon emissions in New Zealand. To estimate the impact variables, this study uses the autoregressive distributed lag method using annual data from 1990 to 2020. The results suggest that renewable and non-renewable energy consumption, foreign direct investment, and good governance stimulate economic growth. Natural resource rents, on the other hand, have a negative impact on economic growth due to their high cost to the economy. Furthermore, the use of renewable energy, financial development, and good governance significantly reduce CO2 emissions. The exchange rate also contributes to reducing carbon emissions due to its negative impact on economic growth and trade. Finally, fossil fuel consumption is the major contributor to higher CO2 emissions. Promoting clean foreign direct investment can boost economic growth and preserve environmental quality when supported by good governance and stable exchange rates.

Achieving environmental sustainability through environmentally friendly technologies in OECD countries: The role of financial development

Achieving environmental sustainability through environmentally friendly technologies in OECD countries: The role of financial development

Does Informality Hinder Financial Development Convergence?

This paper sheds light on the role of informal economy, defined as all economic activities that are hidden from official authorities for various reasons, in financial development convergence. Using panel data from 156 countries over the period of 1991-2017, we find that financial development (as measured by credit as share of GDP) tends to converge across countries over time, particularly when informality is lower. As the size of informal economy becomes larger, however, financial development convergence weakens, and eventually can turn out to be divergence. This finding suggests that policies addressing informality can help countries with lower levels of financial development catch up with the countries with more developed financial systems. It also has implications for the evolution of cross-country income differences, considering the role of financial development in economic performance. In the last part of the paper, we find evidence consistent with this. The results show that higher informality is also associated with weaker income convergence across countries over time.

External shocks and macroeconomic volatility in Nigeria: does financial development moderate the effect?

PurposeMotivated by the negative effect of external shocks on the domestic economy, this study explores the role of financial sector development in absorbing the effect of external shocks on macroeconomic volatility in Nigeria.Design/methodology/approachAutoregressive distributed lag and fully modify ordinary least square are used to examine the moderating effect of financial development in the link between external shocks and macroeconomic volatilities in Nigeria between 1986Q1 and 2019Q4. External shock is proxy using oil price shock, and financial development is proxy by domestic credit to the private sector and market capitalisation. At the same time, macroeconomic volatility is proxy by output and inflation volatilities. Macroeconomic volatilities are generated using generalised autoregressive conditional heteroskedasticity (GARCH 1,1).FindingsThe results indicate that domestic credit to the private sector significantly reduces output and inflation volatilities in Nigeria in the short and long run. However, market capitalisation promotes macroeconomic volatility. More specifically, financial development indicators play different roles in curtaining macroeconomic volatilities. The results also reveal that external shocks stimulate macroeconomic volatility in Nigeria in the short and long run. Nevertheless, the effects of external shocks on macroeconomic volatilities are reduced when the role of financial development is incorporated.Practical implicationsThis study, therefore, concludes that strong financial sector development serves as a significant shock absorber in reducing the adverse effect of external shock on the domestic economy.Originality/valueThis study contributes to the extant studies by introducing a country-specific analysis into the empirical examination of how financial development can moderate the influence of external shock on macroeconomic volatilities.

Bump in energy prices and their impact on natural resources: Energy transition initiatives in OECD countries

Ecosystems and humans suffer from the over-exploitation of natural resources. A growing inequality and environmental crisis demand action, including increasing producer responsibility, extending supply chain legislation, ensuring green public procurement, and promoting circularity. Considering the roles of financial development and international trade, this paper examines whether energy prices and transitions affect natural resources in OECD countries from 1990 to 2020. Our empirical estimates are based on advanced economic methodologies, Fisher effect cointegration, slope heterogeneity, and continuously updated fully modified (CUP-FM) and bias-corrected (CUP-BC) estimators. The result indicates that the increase in energy prices and the transition to a sustainable energy system have improved natural resources. The result suggests that energy and natural resource companies are developing dynamic pricing capabilities to cope with volatility and inflation. Energy and natural resource companies believed inflation would be short-lived, protecting them from price hikes due to their value chain position. Policymakers engaged in green growth strategies should facilitate the transition to green growth. As part of the pricing process, we recommend more pricing. This recommendation does not oppose valuation studies. Rather than addressing the most fundamental issues, much effort has been put into the technical details. Research limitations and future directions are discussed.

Does the impact of financial development reinforce sustainability ecological footprint? Fresh evidence from middle and high-income economies

In this age of globalization, every country tries to achieve sustainable growth by handling environmental challenges. In the last few decades, massive human activities have been fulfilled by destroying natural resources, and ecological footprint is an excellent way to assess it. Thus, the present study delves into the role of financial development and ecological footprint by controlling urbanization, export diversification, and industrialization. A selected dataset covering 1990 to 2020, containing 43 middle income and 45 high income countries, has been compiled due to data availability. The empirical outcomes were deduced using the Panel Quantile Regression due to outliers and non-normality in the data set. The results demonstrate that financial development suggests the inverted U-shaped curve to determine the ecological footprint in the 25th and 50th quantiles. It shows that a sophisticated financial development declines ecological footprint. Further analysis explores that in middle income countries, only China and higher income countries, Australia, Denmark, Italy, Germany, Japan, France, Korea(R), Netherlands, Luxembourg, Singapore, Switzerland, Spain, the United Kingdom, and the United States have achieved higher financial development, which started declining their ecological footprint. In addition, Industrialization increases the ecological footprint, while export diversification and urbanization have mixed effects across quantiles and countries. This study suggests that the remaining countries should focus on improving their financial development sector to reduce their ecological footprint.

Gender Inequality and Poverty: The Role of Financial Development in Mitigating Poverty in Pakistan

AbstractPoverty and gender inequality are among the major issues in developing countries that can hinder their economic progress and human development. Hence, this research is designed to investigate the impact of financial development on gender imbalance and poverty in the context of Pakistan controlling a number of other variables using the Bayer and Hanck cointegration method and the ARDL bound test on the data from 1985 to 2022. The results of the study indicated cointegration among the variables. The long-run estimates unfolded that financial development decreases the gender imbalance (gender inequality) in the context of Pakistan; however, it boosts poverty levels in the country. In the context of control variables, we found that education is helpful in decreasing gender inequality in Pakistan while economic growth boosts gender inequality. Moreover, economic growth is a reliable tool to decrease the poverty level in Pakistan, and reducing gender inequality can help to alleviate poverty levels in the country. Surprisingly, education is mounting poverty level in Pakistan indicating that the education system in Pakistan is not providing quality education to poor people. Based on these results, the study suggests that government can focus on developing a strategic plan to decrease gender inequality and poverty by introducing suitable policies in the context of the financial sector, education, and economic growth.

Assessing the environmental effects of ICT and renewable energy: roles of financial development, innovation, and trade.

In today's world of rapidly expanding economies, the fundamental aim of most nations is to raise the quality of living for their citizens. The investigation aims to analyze how environmental rules affect the emergence of environmentally conscious economies. This research focused on China's 26 provinces to investigate the elements influencing green economic development. These components included information and communication technology (ICT), industrial structure (IND), human capital (EDU), and foreign direct investment. Spatial modeling and SBM methods were utilized to show that there is still a connection between the variables after all these years using yearly time series data that began in 2000. Overall, the results suggest that environmental regulation helps green economic development (GDE), whereas industrial structure significantly hinders. Similar to the previous point, information and communication technology has a favorable influence on building a sustainable economy. The problem of ensuring long-term economic growth via information and communication technology is complicated and has scholars engaged in exciting discussion. The expansion of the green economy is also affected by factors such as human capital and foreign direct investment. This study's findings illuminate the economic effects of environmental regulations and support the contention that such laws are necessary for accomplishing the win-win goals of green economic development and environmental protection. This means that the research provides a fresh perspective to consider the monetary effects of environmental restrictions.

The Impact of Renewable Energy Consumption on Environmental Quality in Central European Countries: The Mediating Role of Digitalization and Financial Development

Green initiatives and digital transitions in Central European countries are catalyzing significant transformations within the region’s socio-economic landscape, embedding contemporary technologies into daily life and commercial activities. Consequently, this fosters improved environmental quality through sustainable practices. This research unravels the complex interplay between renewable energy consumption, digitalization, and financial development in various national contexts, providing key insights into their respective and collective impacts on environmental quality. This study investigates the relationship among environmental quality, digitalization, renewable energy consumption, financial development, and economic growth in Central European countries, analyzing data from 1995 to 2019. An analysis of the panel data reveals a statistically significant positive relationship between economic growth and carbon emissions, and a negative relationship among digitalization, renewable energy consumption, and carbon emissions. In Central European nations, including the Czech Republic, Hungary, Latvia, and Slovakia, digitalization serves a mediating role in the relationship between renewable energy consumption and environmental quality. However, the role of financial development as a mediator between renewable energy consumption and environmental quality manifests varied impacts across different countries. These findings hold the potential to guide policy recommendations for the countries under consideration.

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, 1991–1992 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.

Do households react to policy uncertainty by increasing savings?

Studying the impact of policy uncertainty on household savings is essential to understanding how policymaking affects households’ economic behavior. Previous studies suggest that policy uncertainty could dampen consumption and encourage savings. However, these studies did not consider the effects of the business cycle and endogeneity and the roles of financial development and institutional quality in the uncertainty-saving nexus. Using quarterly data from 21 countries from 1987–2021, we find that a one-standard-deviation rise in policy uncertainty increases household saving rates by three percentage points within six quarters. This effect persists even after accounting for the business cycle and endogeneity. In addition, high financial development and institutional quality mitigate the policy uncertainty effect on savings by about 1.1 and 0.7 percentage points, respectively. This study enriches the study on policy uncertainty and household savings while also providing new insights to better identify the impact of policy uncertainty.

Finance and export diversifications Nexus in Russian regions: Role of trade globalization and regional potential

We investigate if financial development (FD) can reduce the export concentration in regional context, corroborating the role of the World Trade Organization (WTO) membership, sanctions and investment potential. Given the considerable heterogeneity in data across regions and over time, we apply the Method of Moments Quantile Regression (MMQR) to analyze panel time-series data from 2009 to 2019. Our finding shows that bank credit disbursement as a proxy of FD drives export diversification in all quantiles (q10-q90), where the role of FD is pronounced at middle to higher quantiles. Besides, the impact of financial development on trade diversification is profound in the regions with higher business potential compared to the lower business potential. We affirm that the adaption of WTO membership elevates trade diversification through promoting competitiveness and providing nascent exporting sectors opportunities to grow. Surprisingly, the economic sanctions imposed in 2014 promoted Russian regional trade diversification. We provided several practical policy implications.

Role of Foreign Remittances, Foreign Aid and Financial Development in Determining Human Development of Selected Asian Countries

Foreign Remittances play a key role in improving growth and development in economies. The inflow of global remittance in developing economies has been observed as increasing extremely since 1990. This study analyzed the impact of remittances, foreign aid, and financial development on human development in selected Asian countries. We have used a random effect technique in this research. Our study results highlight that increased remittances and foreign aid have enhanced living standards and human development in the concerned Asian economies. Moreover, the role of financial development is to contribute towards human development along with increased urban population. Considering the study results, it is recommended that there should be much focus on remittances inflow in Asian economies. These countries must attract more aid by improving their growth and development policies. There should be more access to easy credit facilities for high investments and employment opportunities for the masses in these countries.

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.