Well-developed Financial System Research Articles

The relationship between financial stability and transparency in social-environmental policies

PurposeThis work analyzes, through social-environmental reports, whether banks with higher transparency in social-environmental policies better safeguard financial stability in Brazil.Design/methodology/approachThe analysis is carried out through a panel database analysis of the 42 largest Brazilian banks, representing 98% of the Brazilian financial system. Seeking to avoid spurious results, we followed rigorous methodological standards. Hence, we conducted an empirical analysis using a dynamic panel data model, we used the difference generalized method of moments (D-GMM) and the system generalized method of moments (S-GMM).FindingsThe results show that the higher the transparency of social-environmental policies, the lower the chance of possible stress on the financial stability of Brazilian banks. In sum, this study builds evidence that disclosing risks related to policies about sustainability can enhance financial stability. It is essential to highlight that social-environmental transparency does not have as direct objective financial stability.Originality/valueThe manuscript submitted represents an original work that analyzes whether banks with higher transparency in social-environmental policies better safeguard financial stability. Some countries, such as Brazil, have their potential for sustainable policies spotlighted due to their green territory and diverse natural ecosystems. Besides having green potential, Brazil is a developing country with a well-developed financial system. These characteristics make Brazil one of the best laboratories for studying the relationship between transparency in social-environmental policies and financial stability.

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.

Do Financial Development, Institutional Quality and Natural Resources Matter the Outward FDI of G7 Countries? A Panel Gravity Model Approach

Given the global growth of foreign capital flows, foreign investments hold significant potential for achieving sustainable development. Thus, this paper aims to highlight the key factors of FDI. In particular, it analyzes the effects of financial development and natural resources on FDI and how institutional quality and institutional distance can moderate these effects. The study used the dynamic panel gravity framework with two-step system GMM estimators to assess whether the developed financial system, better institutions, and possessing natural resources influence the outward FDI of G7 countries to host countries over the period 2002–2021. The results show that a well-developed financial system and well-functioning institutions in host countries are important prerequisites for FDI inflows. We find that the relationship between financial development and FDI is positively and significantly moderated by both institutional quality and institutional distance. Contrarily, these factors negatively moderate the connection involving natural resources and FDI. The significant negative association between institutional indicators’ interaction with natural resources indicates that natural resources play a key role in FDI, while joint policies for institutions and natural resources considerably decrease FDI inflows. Moreover, we discover that factors like GDP per capita, logistics infrastructure, and population could attract and handle more FDI. Based on the findings, the study recommends that host governments should focus on policies that strengthen the financial system, reduce institutional and legislative barriers, and enhance institutional quality and business environment to grant foreign investors access to all areas of their economies. Moreover, host governments should brand separate policies for institutions and natural resources to improve their economic advantages.

An Exploration of how Intimate Partner Relationships Impact the Mental Wellbeing of Men in the Construction Sector in Aotearoa New Zealand: Understanding the Interplay Between Work, Family, and Employee Mental Health

A well-developed financial system facilitates the financial inclusion and development of people. Digital financial technologies have the potential to reach disadvantaged communities by providing secure, affordable, and stable financial services. The extant research on digital financial services concentrates mainly on the adoption of mobile money applications. Although investigating adoption provides an analytical lens to understand the individual’s intention to use technology, this line of investigation does not scrutinise the actual use of digital financial services and how they contribute to people’s goals in life. This empirical study examines the mechanisms by which individuals use digital financial services to achieve their diverse goals. This research adopts a qualitative approach to analyse experiences, views and feelings of rural individuals living in the villages of the Indian state of Uttar Pradesh. The preliminary findings from the ongoing fieldwork suggest that rural individuals use different digital financial services to meet their personal and professional objectives. While younger rural residents (i.e. 20-45 age group) believe that digital financial services can enhance their economic participation, senior rural community members perceive them as ‘messy’, ‘inconvenient’, and ‘tricky’. My presentation will include an overview of my research project, its significance, research methodology, analysis technique, preliminary findings, and pictures taken during my visits to the target villages.

Nexus among financial development and equity market on green economic finance: Fresh insights from European Union

The EU has led efforts to promote green economic financing, crucial to achieving sustainable development objectives and transitioning to a greener economy. This paper explores the link between financial development, the stock market, and green economic financing in the EU from 2000 to 2020. We reveal the relationship between these factors using panel quantile regression analysis. The paper examines how financial development and equity markets promote green economic financing, which helps achieve sustainable development objectives and solve environmental issues. Financial development and stock market effects on green economic financing vary among quantiles. Financial development has a favorable and considerable influence on green economic financing, suggesting that a well-developed financial system may promote sustainable and environmentally friendly investments. The equity market is also linked with green economic financing, implying that a healthy stock market may increase green project funding. We also find threshold effects, demonstrating that financial development and stock markets affect green economic financing unevenly. At higher quantiles, financial development and stock market advantages on green economic finance are more significant for nations with more significant green investment.These results affect EU officials and investors. Policymakers may promote a greener economy by permitting sustainable investments.

Determinants of Project Finance success for renewable energy

World electricity consumption has grown permanently since 1990, dramatically increasing the emission of greenhouse gases. The worldwide efforts to reduce them and address climate change are leading to the massive electrification of different end-users, increasing the power demand. Therefore, achieving Sustainable Development Goals regarding affordable and clean energy requires the extensive availability of capital investments in electricity generation from renewable sources. Project Finance (PF) is a suitable financing alternative for large projects. This paper presents the advantages of PF contracts in allocating risks to appropriate counterparts and reducing the likelihood of default. Additionally, this study analyzes the characteristics that favor PF financing for renewable energy projects. The results reveal that country's governance levels, well-developed financial systems, and project costs affect the financing probability of a PF initiative, particularly for low and middle-income countries. Therefore, public policies aimed at increasing the availability of resources to renewable projects must tackle these factors.

The effects of financial institutions on the green energy transition: A cross-sectional panel study

A growing body of literature has focused on exploring the potential determinants of the green energy transition. This study focuses on financial institutions’ roles and efforts. This study is probably the first study to be conducted on a sample of 214 countries/regions worldwide between 1960 and 2017. We use four proxies to measure the performance of the four aspects of financial institutions: financial depth, access, efficiency, and stability. Apart from the global sample, we conduct panel data analysis on a subsample of countries/regions at different income levels. A panel-corrected standard error technique was adopted to obtain robust standard errors. Empirical evidence supports a strong causal relationship between financial institutions and green energy for the global sample. Depth and access to the development of financial institutions have a substantial impact on the green energy transition. However, there are considerable differences in the estimates for the different subsamples. The positive effect of high-income countries/regions is significantly higher than the global average. This demonstrates that high-income countries/regions with well-developed financial systems can provide a particular mix of financial instruments for green energy investment and innovation. However, the stability of financial institutions seems to hinder the further development of green energy deployment. Moreover, in low-and lower-middle-income countries/regions, the development of financial institutions hinders green energy transition, and inadequate financing conditions remain a major challenge. Finally, the policy implications of these findings are provided.

The role of financial development in enhancing trades in environmental goods: International insights from 119 countries

This paper attempts to empirically examine the influences of financial development (FIN) on the trade in environmental goods (TEG). Through the application of diverse econometric techniques to a global sample of 85 developing and 34 developed countries from 2000 to 2019, the estimation results demonstrate that the financialization captured by nine indices from the Financial Development Index database has a light influence on the trade values of environmental goods. The development of both financial institutions and market positively influences the trade activities of environmental goods, but financial institutions' role is more critical. We find robust results by utilizing various econometric techniques and adding more explanatory variables. Furthermore, there is evidence on the long-term cointegration between financial development and TEG, and our results confirm its effects in the long term. Finally, the nexus between the two samples: developing and developed countries, but the importance of both financial institutions is more evident, especially in the developed countries. Finally, the effects of uncertainty or risk on TEG value become less sizable if these economies have a well-developed financial system.

NEW INSIGHTS ON FINANCIAL DEVELOPMENT: THE IMPORTANCE OF FINANCIAL REGULATORY TRANSPARENCY IN MIDDLE-LOW INCOME COUNTRIES

The purpose of this paper is to examine the relationship between financial regulatory transparency and financial development. To achieve this goal, we collect data for 33 middle-low-income countries over the period 1998–2014 and estimate a dynamic panel by the two-step system generalized method of moments. We find that, beyond the standard factors, a higher disclosure of information about macroprudential data of financial institutions is a prerequisite for a well-developed financial system. The positive association between financial regulatory transparency and financial development implies that a transparency-based policy is mandatory to ensure the development of financial systems in middle-low-income economies. We further analyze the potential mediating role of two proxies of financial instability (banking crisis and non-performing loans (NPLs)) in explaining the effect of financial regulatory transparency on financial development. In doing so, our paper provides new evidence and insights into the long-standing discussion of the determinants of financial development.

Capital account liberalization, financial dependence and technological innovation: Cross-country evidence

We study how capital account liberalization affects technological innovation. We provide robust evidence that industries more dependent on external finance have disproportionately higher innovation performance in economies with a more liberalized capital account. Among the components of capital account liberalization, although both equity market liberalization and outward FDI by domestic firms have sizable effects on innovation, they affect it differently. While equity market liberalization helps alleviate financial constraints by facilitating access to external finance, outward FDI by domestic firms promotes innovative activities by increasing internal finance from foreign operations. Further analysis indicates that the innovation-enhancing effects of capital account liberalization are limited mainly to countries with relatively well-developed financial systems and strong institutional quality, even in periods of financial crisis.

Digital Financial Services for Achieving Life Goals: Analysing Experiences of Rural Individuals in India

A well-developed financial system facilitates the financial inclusion and development of people. Digital financial technologies have the potential to reach disadvantaged communities by providing secure, affordable, and stable financial services. The extant research on digital financial services concentrates mainly on the adoption of mobile money applications. Although investigating adoption provides an analytical lens to understand the individual’s intention to use technology, this line of investigation does not scrutinise the actual use of digital financial services and how they contribute to people’s goals in life. This empirical study examines the mechanisms by which individuals use digital financial services to achieve their diverse goals. This research adopts a qualitative approach to analyse experiences, views and feelings of rural individuals living in the villages of the Indian state of Uttar Pradesh. The preliminary findings from the ongoing fieldwork suggest that rural individuals use different digital financial services to meet their personal and professional objectives. While younger rural residents (i.e. 20-45 age group) believe that digital financial services can enhance their economic participation, senior rural community members perceive them as ‘messy’, ‘inconvenient’, and ‘tricky’. My presentation will include an overview of my research project, its significance, research methodology, analysis technique, preliminary findings, and pictures taken during my visits to the target villages.

The Role of Banks in Financing the Slovak Agricultural Sector

A well-developed financial system plays an important role in financing individual sectors in the country. In this paper, we analyse credit development in the agricultural sector in the Slovak Republic from various perspectives. We examine the relationship between the agricultural sector's characteristics and the volume of funding at the regional level. The paper's methodology is based on a k-means algorithm for clustering the Slovak regions with four criteria. Then we examine the relationship between financial development and agricultural growth by employing the Cobb-Douglas production function. This study uses annual data covering the period from 2008 to 2019. The results reveal that financial development has a significant and positive effect on agricultural production and agricultural growth.

The Problems with Financializing the Economy

While a well-developed financial system can contribute to economic prosperity, if it grows too large or is inadequately regulated it may actually cause more harm than good – adversely affecting socio-economic outcomes and people’s wellbeing. This is one of the key conclusions of a recent survey of the literature in which we document the role of the financial system in society’s development. We find that the trend towards financialization, observed over the past four decades, has gradually transformed modern finance from ‘hero’ to ‘villain’.

Does Financial Development Contribute to Fertility Decline in Developed and Developing Countries?

The “old-age security” hypotheses propose that financial market can affect individuals’ decision to have less or more children. In previous literature, children are considered an asset and investment at low level of financial development that could bring returns and security during old age. Nevertheless, at higher level of financial development, individuals have more access to fund and opportunity for investment during old age and as a result the demand for children is less. Furthermore, increase in female labour participation rate in the economic sectors will also discourage them to have more children. The development of commercial bank and non-banking financial institutions (NBFIs) has broadened credit accessibility and investment opportunity to household over the last decades. Well-developed financial system facilitates firms to access to the credit market and enhanced production efficiency and promote increases in wages in the modern market. Household have choice to move from traditional market (low wages, high fertility rate) to work in modern sector (high wages, low fertility rate). The purpose of the study is to investigate the impact of financial development on fertility for selected developed and developing countries. We employ generalized method of moment (GMM) model using annual data from 2005 to 2011. Our results found that financial development and fertility has inverse relationship for both developed and developing countries.

Investigating the Relationship Between Country Competitiveness and Financial Market Development in Times of Crisis

A country’s competitiveness depends on many factors related to general governance, effectiveness of markets, social development, and business perspectives. The role of financial markets for economic growth has been the subject of many scientific studies; most of them concluded that a well-developed financial system should improve the efficiency of financing decisions, favouring a better allocation of resources and thereby economic growth. The financial crisis that started in the summer of 2007 is still testing the strength of the global economic system. It started in the financial sector, but is now having an important impact on the real economy. The aim of this paper is to investigate the relationship between a country’s financial market development and its competitiveness in particular in times of crisis, with the use of a series of econometric models. We find evidence that financial market development is affected (with the anticipated sign of impact) by the Global Competitiveness Index, the GDP per capita and the (un)employment level of a country. It is also related (with an unexpected direction of impact) with the foreign market size and exports, as well as infrastructure. Our findings can be used by the policymakers of countries which wish to improve their competitiveness so as to steer the determining variables in the desired directions and approach their desired competitiveness levels.

Revisiting financial development and renewable energy electricity role in attaining China's carbon neutrality target

During the last few decades, China's transformation from a low-income country to an emerging economy causes carbon emission to rise extensively. Being the largest carbon emitter, China's continuous economic growth may inevitably cause more carbon emissions in the future. To achieve carbon neutrality targets, the country is striving to promote cleaner technologies. However, to finance these environmentally friendly projects, a well-developed financial system is a pre-requisite. This study examines the role of financial development along with output, financial risk index, renewable energy electricity and human capital on carbon emissions. This study uses updated time series data from 1988 to 2018 for China employing novel econometric approaches, i.e., Narayan and Pop unit root test with structural breaks, Maki cointegration and frequency domain causality test for long, short and medium run causality. The empirical outcome shows that improvement in financial development, renewable energy electricity, and human capital index cause to limit carbon emissions. In contrast, gross domestic product, financial risk index and structural break of 2001 increase carbon emissions. Moreover, structural break year of 2008 and financial development index reduces carbon emissions. The negative association between financial development and carbon emissions supports the positive school of thoughts of financial development that promotes a sustainable environment. This study recommends the promotion of quality human capital and green financial development along with increasing the shares of renewable energy in electricity for achieving China 2030 climate targets of reducing pollution.

Adaptability of Securitization Model to Conditions of Volatile Financial Structure

Abstract The Great Financial Crisis of 2008 exposed certain weaknesses in the field of investment banking and the necessity to adapt certain innovative solutions to the newly created economic and financial environment. The process of securitization is a financial innovation, which some financial analysts consider one of the causes of the Great Financial Crisis. Although it is often linked to the emergence of the Great Financial Crisis, the advantages of the securitization model, together with a level of adaptability and enhanced process control throughout all procedural levels, significantly outweigh its perceived shortcomings. The financial system of the Republic of Srpska continues to be characterized by the growth of nonperforming loans in bank assets, mainly caused by increased systemic risk due to the current COVID-19 pandemic and declining economic activity in the country, but also by a well-developed financial system infrastructure, which is necessary in order to allow the application of the securitization model to significantly contribute to increasing financial stability in the conditions of volatile financial structure. The model of securitization of nonperforming loans and its application in the process of bank restructuring can be the mainstay of the stabilization of the financial system. The aim of the research is to demonstrate that the application of the adapted securitization model of nonperforming assets of banks and its application in the process of bank restructuring in the conditions of unstable financial structure may contribute to financial stability and control of increase of a systemic risk. Securitization increases the supply of quality financial instruments, the number of participants in the process of transformation of financial assets and develops a more resilient financial market. The results include emergence of additional funding sources for financial institutions, generation of nonperforming assets’ problems, with additional liquidity and diversification for many of their clients.

DETERMINANTS OF CAPITAL FLIGHT IN POST WAR SIERRA LEONE: AN EMPIRICAL ANALYSIS

The objective of this paper is to investigate the determinants of capital flight in Sierra Leone and the direction of causality between capital flight and key variables, within the context of the autoregressive distributed lag (ARDL) estimation technique and the granger causality framework. The study utilizes quarterly data spanning the period 2000:Q1 to 2019:Q1. The bound test result confirms the existence of cointegration. The long run result reveals that real effective exchange rate, corruption and external debt are the main determinants of capital flight in Sierra Leone. Specifically, the finding indicates that real effective exchange rate, high level of corruption and accumulation of external debt cause an increase in capital flight. Furthermore, the result reveals that lagged capital flight, corruption, external debt and financial deepening are the main drivers of capital flight in the short run. Whilst lagged capital flight, corruption and external debt accumulation increase capital flight, the result reveals that a well-developed financial system reduce capital flight. The finding asserts that any disequilibrium in the model is corrected at the 26% adjustment speed annually. The diagnostic test confirms that the coefficients are stable, given that the CUSUM and CUSUMSQ lie within the critical band. The granger causality test results reveal that, external debt and capital flight exhibits bi-directional causality. However, both inflation and exchange rate demonstrate uni-directional causality, given that these variables granger cause capital flight, with no feedback effect. The study therefore urges the Government to take measures to strengthen the Anti-corruption Commission and the judiciary with a view to intensify the fight against corruption, and reduce capital flight. Also, government should put in place modalities to ensure strict capital controls, deepen the financial market and maintain broad macroeconomic stability as recipe to reduce capital flight.

Can Turkey Implement Malaysian Takaful Know-How into Turkish Market?: A Qualitative Inquiry

The concept of takaful has been introduced after long-continued discussions made by the Islamic scholars. Even though takaful practices have around forty years of history globally, takaful operations are a comparatively new and underdeveloped sector in the Turkish insurance market. Given its dominant Muslim population, well-developed financial system, and the fact that takaful contributions have grown exponentially which is supported by current statistics, Turkey has great potential in prospering its takaful market. Thus, Turkey should develop further policies to develop its own takaful operators. In achieving so, Malaysia, which is considered to be one of the most advanced takaful ecosystems in the world, has been regarded as an example for comparison to probe into its takaful sector and evaluate the opinions of the Malaysian professionals towards the development of the takaful system in Turkey. In this paper, a phenomenological perspective has been used, assuming takaful as the phenomenon. This phenomenon was investigated by examining the experiences of five business professionals and four Shariah scholars through semi-structured interviews. With this technique, it is also aimed to obtain some valuable suggestions for the Turkish takaful industry. It is found that Turkey should firstly develop its regulatory and Shariah governance system and then take gradual steps to regulate to market. In addition, increasing awareness, developing qualified human capital, adapting technology for marketing, and standardising the market practices will help the development of the takaful market in Turkey.

Is there a Causal Relationship between Financial Development and Economic Growth in China? Evidence from the Bootstrap Rolling-Window Approach

This study tests the causal relationship between financial development and economic growth in China applying the bootstrap rolling-window approach. The results show that economic growth has positive effects on financial development and that financial development exerts negative effects on economic growth. Economic growth promotes financial development, indicating the existence of a “demand-following” link. For a developing and repressed economy, it is critical to establish well-developed financial systems, particularly with sound financial intermediation and a liberalised interest rate, all of which promote financial innovation and improvement. It should be noted that a rational and steady relationship between financial development and economic growth is essential for China’s economic prosperity.