Showing papers on "Financial sector development published in 2016"

Introducing a New Broad-based Index of Financial Development

Abstract: There is a vast body of literature estimating the impact of financial development on economic growth, inequality, and economic stability. A typical empirical study approximates financial development with either one of two measures of financial depth – the ratio of private credit to GDP or stock market capitalization to GDP. However, these indicators do not take into account the complex multidimensional nature of financial development. The contribution of this paper is to create nine indices that summarize how developed financial institutions and financial markets are in terms of their depth, access, and efficiency. These indices are then aggregated into an overall index of financial development. With the coverage of 183 countries on annual frequency between 1980 and 2013, the database should offer a useful analytical tool for researchers and policy makers.

Introducing a New Broad-based Index of Financial Development

Abstract: There is a vast body of literature estimating the impact of financial development on economic growth, inequality, and economic stability. A typical empirical study approximates financial development with either one of two measures of financial depth – the ratio of private credit to GDP or stock market capitalization to GDP. However, these indicators do not take into account the complex multidimensional nature of financial development. The contribution of this paper is to create nine indices that summarize how developed financial institutions and financial markets are in terms of their depth, access, and efficiency. These indices are then aggregated into an overall index of financial development. With the coverage of 183 countries on annual frequency between 1980 and 2013, the database should offer a useful analytical tool for researchers and policy makers.

Institutional Quality, Trade Openness, and Financial Sector Development in Asia: An Empirical Investigation

Abstract: We examine the determinants of financial sector development in Asia and the Pacific from 1995 to 2011. In terms of economic growth, over the last twenty years the region has outperformed other parts of the world and has also experienced major developments in its traditionally bank-dominated financial system since the 1997 Asian financial crisis. We apply the dynamic generalized method of moments to a panel data set of twenty-six economies in the region. The estimations were done for the whole panel as well as for subpanels of developed and developing economies. We find that better governance and institutional quality foster financial sector development in developing economies while economic growth and trade openness are key determinants of financial depth in developed economies.

Modeling Causality Between Financial Deepening and Poverty Reduction in Egypt

Abstract: This study deals with the linkages between financial development and poverty reduction in Egypt using data for the period of 1975Q1–2011Q4. The stationarity properties of the variables are tested by applying Zivot–Andrews structural break unit root test. The structural break autoregressive distributed lag-bounds testing approach to cointegration is used to examine long run relationship between the variables. Our results show evidence of cointegration which confirms the presence of long run relationship between financial deepening, economic growth and poverty reduction. The results indicate that financial development reduces poverty when domestic credit to the private sector is used as proxy for financial development. The direct channel that financial sector development can lead to enabling the poor to access or broaden their access to financial services, such as credit and insurance-risk services, is therefore confirmed in case of Egypt. Furthermore, the indirect channel where financial sector development contributes to poverty reduction through economic growth is also confirmed for Egypt. This is only found when M2 is used as a proxy for financial development and infant mortality per capita as proxy for poverty. While our results show that the causal relationship between financial development and poverty reduction in Egypt is sensitive to the proxy used to measure these variables, the results show that the poverty-reduction programs are desirable in Egypt, not only because they reduce poverty but also because they possibly lead to further development of financial sector in long run. Furthermore, our results show that appropriate reforms aimed at developing a financial sector in Egypt that is well-organized and spread throughout the country can help reduce poverty by availing more domestic credit to the poor.

Modern trends of financial sector development under the virtual regionalization conditions

Abstract: The article analyzes the current trends in the development of the financial sector under the virtual regionalization conditions. Based on empirical research with regard to global financial institutions, options for addressing the problems of micro, meso and macro levels in the long-term prospect of the world economy have been suggested, in relation to the technological cycle of Kondratiev waves. In the study, research results of both the economists engaged in the problem of sustainable socio-environmental-economic development under the modernization and post industrialization conditions, and researchers of adjacent scientific fields. The analysis results of the present article allow for the discovery of new horizons and areas for scientific analysis to bring together science and practice, as well as for creating conditions for accelerating scientific and technological progress.

Financial literacy for developing countries in Africa: A review of concept, significance and research opportunities

Abstract: The objective of this review article is to show the concepts and significance of financial literacy and how it can contribute to improving socio economic wellbeing, financial sector development, poverty reduction and sustainable growth in developing countries in Africa. The review covered recent literatures on financial literacy; both theoretical and empirical. The review showed that level of financial literacy is low both in developed and developing countries, but policy and academic response in developing countries in general and Africa in particular is at low level. The results of limited empirical studies implemented to evaluate financial education programs, including those in few African countries, showed that enhancing financial literacy and personal financial decision making capabilities of people would enhance the outcome of financial inclusion and other poverty reduction initiatives for the fact financially literate people can demand and properly use beneficial financial services such as savings, microcredit, insurance. Moreover, enhancing financial literacy is at the advantage of financial service providers and contributes to the development of a stable financial system, a sustainable economic growth. Thus, policy makers and academics in African developing countries need to understand the level of financial literacy in the population in order to devise suitable financial education and other related policy interventions to improve personal financial literacy for its benefits of enhancing individual socio economic welfare and building an inclusive financial system and sustainable economic growth. Key words: Financial literacy, concept and significance, developing countries, African.

Financial development and economic growth: an empirical evidence from the GCC countries using static and dynamic panel data

Abstract: This paper contributes to the existing empirics of finance-growth nexus of all GCC countries with new results based on a larger dataset and longer time period 1975–2012, incorporating additional control variables, FDI, interaction term of FDI & financial development variables, and oil production We employed four estimation techniques, Pooled OLS, Fixed effect estimation, Random effect estimation, and the system GMM estimation and used static and dynamic panel data We obtain a robust finding of consistently a positive effect of financial sector development (FSD) on economic growth of GCC region with implication that a substantial improvement in FSD was in place The results indicate that FDI, Fixed capital formation and oil production contribute positively to the economic growth of this region The study results signify for a continuity of the on-going financial reform process, supervision & monitoring exercises to bring hitherto more dividends to the GCC economies

Measuring Financial Inclusion for Asian Economies

Abstract: Asian economies are at different levels of economic and financial sector development. While Japan, Singapore, and the Republic of Korea belong to the high-income Organisation for Economic Co-operation and Development (OECD) group of countries, on the other end of the wide spectrum are low-income countries that include Cambodia, Nepal, and Bangladesh. Within the middle-income countries of Asia, there are countries such as Malaysia and the Maldives that are far better off than Pakistan and India. The various stages of economic development are also reflected in the diverse stages of financial sector development in these economies. While the literature on economic development has adequately discussed the link between financial sector development and economic development, there has not been much discussion of whether financial development implies financial inclusion. Financial inclusion can be defined as a process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy. It has been observed that even ‘well-developed’ financial systems have not succeeded in being ‘all-inclusive’, and certain segments of the population remain outside the formal financial systems.

The impact of financial development on economic growth: Evidence from SAARC countries

Abstract: Purpose The purpose of this paper is to investigate the possible co-integration and the direction of causality between financial development and economic growth in South-Asian Association for Regional Cooperation (SAARC) countries using annual data from 1994 to 2013. Design/methodology/approach The Carrion-i-Silvestre et al. (2005) stationarity test with structural breaks is used to check the stationarity. The Westerlund (2006) panel co-integration test is employed to examine the long-run relationship among the variables. To carry out tests on the co-integrating vectors, fully modified ordinary least squares (FMOLS) and PDOLS techniques are used and panel Granger causality test is used to examine the direction of the causality. Findings The Westerlund (2006) panel co-integration test confirms the existence of the long-run relationship between financial development and economic growth for SAARC countries. The coefficients of FMOLS and DOLS indicate that index of financial development (IFD) and trade openness supports economic growth in SAARC region. In the short-run, there is unidirectional causality running from IFD to economic growth. Research limitations/implications In the view of these findings it is recommended that countries in the region should adopt policies geared toward financial sector development to attain high economic growth. Originality/value To the best of the author’s knowledge, no studies have looked into SAARC countries to study the relationship between financial development and economic growth, this study is the first of its kind.

Financial development and poverty reduction in India: an empirical investigation

Abstract: Purpose – The purpose of this paper is to examine the relationship between financial sector development and poverty reduction in India using annual data from 1970 to 2012. The paper attempts to answer the critical question: does financial sector development lead to poverty reduction? Design/methodology/approach – Stationarity properties of the series are checked by using Ng-Perron unit root test. The paper uses the Auto Regressive Distributed Lag (ARDL) bound testing approach to co-integration to examine the existence of long-run relationship; error-correction mechanism for the short-run dynamics and Granger non-causality test to test the direction of causality. Findings – The co-integration test confirms a long-run relationship between financial development and poverty reduction for India. The ARDL test results suggest that financial development and economic growth reduces poverty in both long run and short run. The causality test confirms that there is a positive and unidirectional causality running fro...

Financial Inclusion in the Digital Age

Abstract: The policies needed to promote financial inclusion in the digital age were discussed at an international conference held at the Asian Development Bank Institute. The event took place on 7–8 April 2016 and was attended by approximately 100 high-level government officials and banking sector employees. Key issues and policy suggestions arising from the conference form the basis of the following discussion. [Policy Brief no. No. 2016-7 December].

The political economy of financial inclusion: tailoring donor policy to fit

Abstract: Financial inclusion has recently become a globally acclaimed policy objective. This provokes the need to review policy in this sector, particularly in light of the tensions that arise between donor approaches founded on market modernism and governments with more activist leanings. This is done here in the context of efforts to move donor development policy beyond ‘best practice’ institutional blue-prints to those which are ‘good enough’, which seek to understand underlying political economy dynamics in order to find space to engage with governments. In doing so, it is argued that there is scope for ‘working with the grain’ and harnessing the political economy of government policy in order to produce financial inclusion outcomes.

Are financial cooperatives crowded out by commercial banks in the process of financial sector development

Abstract: This paper investigates whether financial cooperatives are crowded out by commercial banks in the process of financial sector development. We use a self-constructed database (1990-2011) of financial cooperatives in 55 developing countries. Our empirical results are threefold. First, financial cooperatives tend to reach more members in countries where the commercial banking sector is weak. This validates their role as a market failure solution. Second, in the process of commercial bank expansion, financial cooperatives run the risk of being crowded out. Third, financial cooperatives seem to benefit from some kind of bank presence, especially as far as savings mobilization is concerned.

Financial Development and Shadow Economy in European Union Transition Economies

Abstract: The shadow economy has been a serious problem with varying dimensions in all the income group economies and has significant adverse effects on the development of economies. Therefore, all the countries have tried to combat with the shadow economy by taking various measures. This study researches the interaction among shadow economy, development of financial sector and institutional quality during 2003–2014 period in European Union transition economies employing panel data analysis. The empirical findings suggested a cointegrating relationship among shadow economy, financial sector development and institutional quality. Furthermore, financial development and institutional quality affected the shadow economy negatively in the long term.

Financial Innovations and Money Velocity in Uganda

Abstract: This paper investigates the impact of financial innovations on the stability of money velocity. The paper contributes to the existing literature in three ways; first, we develop a simple analytical framework for money velocity taking into account the effect of financial innovations. Second, we test the model on Ugandan time series data using the ARDL bounds testing approach. Third, we check for the stability of the long-run money velocity function. Results show significant negative and positive effects of financial innovations on the money velocity in the short and long run, respectively. In addition, the long-run money velocity equation is stable despite the financial innovations that have evolved over time. Furthermore, other macroeconomic determinants of money velocity, including real income, the 91-day treasury bill rates, inflation expectations and the exchange rate exhibited a significant and positive long-run relationship with money velocity except for real income. These results suggest that financial innovations have not altered the long-run stability of money velocity in Uganda. Thus, given the importance of financial innovations in enhancing the access to financial services, we recommend that more technological advances and diversification of financial products should be enhanced so as to improve financial sector development and overall economic growth.

Technical and scale efficiency of Tanzanian saving and credit cooperatives

Abstract: The financial sector plays a critical role in economic growth and economic development (Beck & Levine 2004; Levine 1998). However, the impact of the financial sector on economic growth is realized if the sector is efficiently managed and well monitored. The corollary to this is that if the financial sector is not effectively monitored and regulated it may lead to economic crisis. As argued by Sufian (2011) the health of the financial sector is critical for the health of the economy at large. Given the relationship between the financial sector development and economic growth, knowledge about the efficiency of financial institutions and the underlying factors that influence efficiency is crucial. Such knowledge is necessary to provide insights for managers, regulators, policy makers and other stakeholders to formulate policies to improve the efficiency of the financial sector. Despite the importance of knowledge on health industry as articulated above, there is paucity of empirical literature on the performance of financial cooperatives in developing countries and Tanzania in particular. Thus, the objective of this paper is to empirically analyze the efficiency of Tanzanian Saving and Credit Cooperatives. Efficiency analysis was decomposed into three dimensions to explore possible sources of inefficiency. The first dimension was technical efficiency, which explored the overall effectiveness of transforming the productive inputs into desired outputs compared to the data-driven frontier of best practice. The second dimension was pure technical efficiency, which captured managerial efficiency in the intermediation process. The third dimension was scale efficiency, which explored whether firms were operating in an optimal scale of operation. The study used a sample of 103 audited financial statements during 2011. Data envelopment analysis was employed to explore the efficiency scores. The results show that average scores are 42%, 52% and 76% for technical, pure technical and scale efficiencies respectively. Since most of the inefficiencies are either technical or scale in nature, the study recommends increasing the operating scale for smaller firms. Firms operating beyond the optimal scale may need to downsize. Also the managers from technically inefficient firms should reduce the wastage of the productive resources by utilizing their inputs more efficiently.

Fiscal Management in Resource-Rich Countries: Essentials for Economists, Public Finance Professionals, and Policy Makers

Abstract: The extractive industries (EI) sector occupies an outsize space in the economies of many developing countries. Economists, public finance professionals, and policy makers working in these countries are frequently confronted with issues that require an in-depth understanding of the sector—its economics, governance, and policy challenges, as well as the implications of natural resource wealth for fiscal and public financial management. The objective of the two-volume Essentials for Economists, Public Finance Professionals, and Policy Makers, published in the World Bank Studies series, is to provide a concise overview of the EI-related topics these professionals are likely to encounter. This second volume, Fiscal Management in Resource-Rich Countries, addresses the critical challenges that volatile, uncertain, and exhaustible revenues from the EI sector pose to fiscal policies in these countries. The volume discusses fiscal policy across four related dimensions: policies for short-run stabilization; management of fiscal risks and vulnerabilities; promotion of long-term sustainability; and the importance of good public financial management, public investment systems, and fiscal transparency. Institutional mechanisms used to help fiscal management are examined, including medium-term expenditure frameworks, fiscal rules, fiscal councils, and resource funds. The volume also discusses revenue earmarking and the resource prices used in the government budget and outlines important fiscal indicators for resource-rich countries. The authors hope that economists, public finance professionals, and policy makers working in resource-rich countries, including decision makers in ministries of finance, international organizations, and other relevant entities, will find the volume useful to their understanding and analysis of fiscal policy and public financial management.

Contribution of workers’ remittances to economic growth in Pakistan: exploring the role of financial sector development

Abstract: Since overseas workers’ remittances are the most important source of foreign exchange earnings in Pakistan, their contribution to economic growth has not been rigorously analysed. In this study, we attempt to investigate whether a country’s absorption capacity affects remittances’ response to economic growth or not. The absorption capacity is confined to the development of local financial sector that comprises three different components of financial development. The index of financial sector development is constructed through principal components analysis. To test our hypothesis, we used the autoregressive distributed lag-bound testing approach of co-integration, which is based on time-series data over the period from 1972 to 2011. Our empirical findings validate the hypothesis that the local financial sector development enhances the contribution of overseas workers’ remittances to economic growth in Pakistan.

Which Factors Drive the Regional Expansion of Microfinance Institutions? Evidence from Peru

Abstract: This paper analyses the location decisions and geographical expansion of microfinance institutions (MFIs) across Peru. To this end, econometric analyses are performed on a self-constructed dataset that covers MFI presence and expansion in the 1832 districts of Peru, and this for 39 MFIs and 13 commercial banks over the period 2001–2008. The paper shows that Peruvian MFIs have expanded considerably during the last decade. MFIs especially increase access in districts with higher levels of development and therefore seem to follow principally a commercial logic. Districts with banks have also a higher probability of an MFI opening. Copyright © 2015 John Wiley & Sons, Ltd.

Do Financial and Trade Openness Lead to Financial Sector Development in Nigeria

Abstract: With so many countries of the world now open to global capital and trade, this study identi?es whether ?nancial and trade openness contribute to the development of Nigeria’s ?nancial system by considering both ?nancial depth and access to ?nance indicators. To achieve this objective, we applied the Simultaneous Openness Hypothesis as our theoretical framework and the Generalized Method of Moments (GMM) as our estimation method. Our ?ndings reveal that opening trade while neglecting capital (vice versa) may be detrimental to the development of Nigeria ?nancial system. In view of this evidence, we recommend that the simultaneous opening of trade and ?nance is a more guaranteed way of ensuring improved ?nancial development in Nigeria. JEL Classification: F1; F3; G1; G2

Do Financial Sector Activities Affect Tax Revenue in Pakistan

Abstract: 1.IntroductionThe development of financial markets is crucial to the economic growth of developing countries such as Pakistan. As early as 1912, Schumpeter found that financial development stemming from a country's individual savings could improve social wellbeing and stimulate economic growth. Subsequent studies have supported the view that financial development has a positive impact on economic growth. Additionally, the effectiveness and efficiency of the tax collection mechanism is very important because tax revenues are needed to meet the government's development and nondevelopment expenditures. However, taxes should be levied in such a way that they do not discourage investment (Padda & Akram, 2009).Fiscal policy affects the overall economy and growth in various ways, of which financial markets are an important transmission channel (Arin, Mamun & Purushothman, 2009). The key issues that need to be examined are whether taxes affect financial sector development and the role of the financial sector in tax collection. Assuming that both financial and investment activities are similar, an increase in the tax rate can distort financial system development (Clark, 2007). Golob (1995) argues that taxes affect financial markets through three different channels: (i) interest on loans, (ii) municipal securities and (iii) firms' publicly traded shares, which are taxable.Numerous studies have analyzed the impact of taxation on investment decisions, generally finding that tax policy has a strong impact on financial sector activities. Most studies suggest that an increase in taxes has a negative impact on the activities of the financial sector and that the tax structure significantly influences stock market returns. Taxes have a negative impact on banking activities for foreign banks and a positive impact for domestic banks (see Tavares & Valkanov, 2001; Laopodis, 2009; Clark, 2007; Arin et al., 2009; Ardagna, 2009; DemirgucKunt & Huizinga, 2001).Banks, other financial institutions and insurance companies supply liquidity to both businesses and consumers by providing different types of payment systems that are essential for noncash transactions (Elliott, 2010). If a country's financial institutions are well developed, transparent and efficient, then businesses and taxpayers will use them to conduct their transactions. In turn, the tax collecting authorities can obtain valuable information from these institutions on taxpayers' income and assets. However, in the case of underdeveloped financial institutions, the size of the underground economy increases and it becomes difficult to collect accurate tax information. Hence, the development of the financial sector is also an important determinant of tax revenue.A review of the literature suggests that the impact of financial development on taxation is relatively under-investigated in the context of developing countries. Bohn (1990) concludes that there is a positive relationship between financial development and tax revenue. Boyd (2009) emphasizes the significant impact of a downturn in investment in capital markets on tax revenue collection, concluding that, since financial sector development helps determine investment, it also has an impact on tax revenue.Hung and Lee (2010) find that tax policies play an important role in the development of the banking system, while the taxes paid by foreign banks increase only slightly with the local statutory tax. Taha, Colombage and Maslyuk (2010) establish a two-way relationship between direct tax revenue and the financial sector. They find that direct tax revenue has a significant relationship with financial activities. Similarly, the development of the bonds and stocks market has a crucial role in revenue generation.Although tax revenue is the main source of government income, Pakistan has, over the years, failed to collect adequate tax revenue. In FY2014, the tax-to-GDP rate was only 10. …

Moderating effects of board equity ownership on the relationship between enterprise risk management, regulatory compliance and firm performance: evidence from nigeria

Abstract: Risk management has become central to the financial sector development of any economy. The collapse of world leading financial institutions in 2008/2009 have raised questions about the role of risk management and compliance with regulatory provisions in shielding firms against failure. Also, the post adverse effects of the global economic meltdown have continued undermined the performance of financial institutions, Nigeria inclusive. The aim of this study is to examine the moderating effect of Board Equity Ownership on the relationship between ERM framework implementation, regulatory compliance and the non-financial performance of financial intuitions in Nigeria. The sample of the study consists of 163 financial institutions in Nigeria. We collected data from the chief risk officers and other top level managers of the organizations. The study utilized PLS-SEM path modelling with the help of SmartPLS 2.0 software to test the research framework. The findings revealed that ERM framework implementation and regulatory compliance have significant positive effects on the non-financial performance. Also, the study supported the third hypothesis that BEO strengthens the positive relationship between ERM framework adoption and the firm non-financial performance. In the case of compliance, the interaction effect (BEO*COP) did not influence the firm non-financial performance. The study recommended the need for regulatory agencies to encourage board equity ownership but with a caveat to prevent interest entrenchment that may lead to abuse.

Financial inclusion, financial stability and economic growth in developing countries

Abstract: The number of individuals and firms that have access and uses formal financial services provided by the mainstream financial sectors determines the performance of the financial sector of the economy; higher level of financial inclusion could automatically increase banking liquidity and hence provides more loanable funds for viable investments, the multiplier effect of this may positively influence the level of employment and reduce income inequality as well poverty. The present study has the overall objective of investigating the impacts of financial inclusion in sustaining financial stability and economic growth in developing countries.The first specific objective intends to examine the effect of migrant workers‟ remittance on financial inclusion in developing countries based on dynamic panel GMM estimation technique. In this objective 46 developing countries were selected and the time period of the study is 2004-2010. The empirical finding reveals that migrant workers remittances have positive and significant impact on financial inclusion in the sample countries.The result reveals that 1% increase in migrant workers remittance could increase financial inclusion by 0.067% in the sample countries. Migrant workers remittance therefore becomes an important financial inflow that stimulates financial sector development in the countries investigated.The second specific objective based on 52 developing countries for the time period of 2004-2010 also applied dynamic panel GMM estimation technique, the objective is to examine the effect of financial inclusion on financial stability in developing countries.The main empirical finding shows that financial inclusion positively influences financial stability, the result suggest that 1% increase in financial inclusion positively stimulates financial stability by 0.375%. This therefore emphasizes the relevance of higher access and usage of formal financial services in controlling the shocks of financial instability, hence financial inclusion stimulates the stability of the financial system.The third specific objective also applied dynamic panel GMM estimation technique across 48 developing countries for the period of 2004-2010; the objective is to investigate the impact of financial inclusion on economic growth in developing countries. The key impirical finding reveals that financial inclusion have positive and significant impact on economic growth in developing countries. The result highlight that 1% increase in financial inclusion could stimulates economic growth to increase by 0.132%, this finding confirmed the essential functions that access and usage of formal financial services plays in promoting the overall economic performance in developing countries. Therefore it is imperative from the policy perspectives to encourage uses as well as provide enabling policies and suitable environments for smooth accessibility of formal financial services considering its diverse positive effects on financial sector development as well as overall economic growth.

Spillovers from China: Financial Channels

Abstract: Although China’s much-needed transition to a new growth path is proceeding broadly as expected, the transition is still fraught with uncertainty, including regarding the Chinese authorities’ ability to achieve a smooth rebalancing of growth and the extent of the attendant slowdown in activity. Thus, in the short run, the transition process is likely to entail significant spillovers through trade and commodities, and possibly financial channels. This note sheds some light on the size and nature of financial spillovers from China by looking at the impact of developments in China on global financial markets, with a particular emphasis on differentiation across asset classes and markets. The note shows that economic and financial developments in China have a significant impact on global financial markets, but these effects reflect primarily the central role the country plays in goods trade and commodity markets, rather than China’s financial integration in global markets and the direct financial linkages it has with other countries.

The relationship between financial sector development and savings mobilisation in South Africa : an empirical study

Abstract: This article examines the link between financial sector development and savings mobilisation in South Africa for the period 1980–2012. Taking the life-cycle hypothesis as our theoretical background and using Johansen co-integration that allows for hypothesis testing, the empirical results revealed a long-run relationship between savings, interest rates and financial sector development. We find an inverse relationship between the interest rate and savings, implying that South Africans are net borrowers because the income effect overwhelms the substitution effect. This in part explains the low level of savings in recent time. Important policy lessons for boosting the national savings rate are discussed.

A new theory of innovation and growth: the role of banking intermediation and corruption

Abstract: Purpose There has been an increased interest in the role of the financial sector and institutional quality in the development process. Design/methodology/approach This paper addresses the relationship between corruption and financial sector development by constructing a Schumpeterian endogenous growth model, allowing for the entry of competitive firms with an explicit role for politics and banking. Findings Assuming that technologically advanced firms are located in developed countries and backward firms in developing countries, the model in this study suggests that low corruption are more growth enhancing in the former group of countries. Better institutions stimulate entry by reducing banking screening costs and entry is more growth enhancing in sectors closer to the technological frontier. Research limitations/implications The model in this study is a partial equilibrium analysis and one should include a role for labour markets to address the household’s problem and enrich the model’s conclusions. Secondly, the model specification rests on the fact that the degree of corruption is correlated with the level of institutions. Even though this might be subject to some criticism, this is a common practice across the literature and so, it is clearly a matter of taste. Practical implications The main policy conclusion is that anti-corruption policy initiatives should prioritize corruption that distorts incentives with respect to productive investment that directly and negatively affects growth. Originality/value This paper addresses the relationship between corruption and financial sector development by constructing a Schumpeterian endogenous growth model, allowing for the entry of competitive firms with an explicit role for politics and banking.

Role of Financial Sector in the Remittances-Growth Nexus in Fiji

Abstract: Amongst the three kinds of non-debt creating capital transfers, welcomed by capital-short Pacific island countries (PICs) for supplementing their limited domestic savings, remittances presently top the list, the other two being foreign aid and foreign direct investment. Remittances help poor families, reducing poverty. In the long run, however, the contribution of remittances to growth in output and economic development is contingent upon financial sector development (FSD). PICs are now fostering financial sector development by promoting greater financial inclusion. This paper seeks to assess the role of FSD in the nexus between remittances and output by undertaking an empirical study of Fiji.