Showing papers on "Financial sector development published in 2019"

Determinants and Impacts of Financial Literacy in Cambodia and Viet Nam

Abstract: Our paper extends the literature on the determinants and impacts of financial literacy by conducting the OECD/INFE survey in two relatively low-income Asian economies—Cambodia and Viet Nam—and analyzing the determinants of financial literacy and the effects of financial literacy on savings and financial inclusion. Generally, our study corroborates the findings of studies of other countries, but uncovers some differences as well. The main determinants of financial literacy are found to be educational level, income, age, and occupational status. Both financial literacy and general education levels are found to be positively and significantly related to savings behavior and financial inclusion, and these results generally hold even when correcting for possible endogeneity of financial literacy.

Human capital, financial sector development and inclusive growth in sub-Saharan Africa

Abstract: This paper examines the role of financial development in the human capital-growth relationship. The core activity of this study involves the use of different measures of human capital (school enrolment and total factor productivity) in the examination of its impact on inclusive growth and interrogating how financial sector serves as catalyst in this process. We explore the system generalized method of moments estimation technique to examine this relationship in 19 sub-Saharan African countries between 1999 and 2014. The findings show indications of largely positive direct impact of both human capital and financial development on inclusive growth. The results also show that financial development promotes the extent to which human capital can facilitate inclusive growth, however the choice of measures of both human capital and financial development are important in examining their complemental influence on inclusive growth. Thus, enhancing the efficiency of the financial sector through reforms would have greater spillover effect on human capital development thereby promoting growth inclusiveness.

The Quest for Pro-Poor and Inclusive Growth : The Role of Governance

Abstract: This paper analyses the role of good governance in fostering pro-poor and inclusive growth. Using a sample of 112 countries over 1975–2012, it shows that growth is generally pro-poor. However, growth has not been inclusive, as illustrated by a decline in the bottom 20 percent of the income distribution. While all features of good governance support income growth and reduce poverty, only government effectiveness and the rule of law are found to enhance inclusive growth. The investigation of the determinants of pro-poor and inclusive growth highlights that education, infrastructure improvement, and financial development are the key factors in poverty reduction and inclusive growth. Relying on the panel smooth transition regression (PSTR) model following Gonzalez, Tersvirta and Dijk (2005), the paper identifies a nonlinear relationship between governance and pro-poor growth, while the impact of governance on inclusive growth appears to be linear.

The Impact of Financial Sector Development and Sophistication on Sustainable Economic Growth

Abstract: The drivers of economic growth and development are among the most important issues explored by economic theory. Sustainability of economic development was previously linked by various economic schools of thought to natural resources (agriculture, land, minerals, metals etc.), labor force (including skills, productivity, and education), entrepreneurship or technology and innovation. Capital was later introduced by classical economic theory as the key element. Without significant capital accumulation, all other production factors remain idle. The value added of the production process is a result of the existence, the accessibility and the cost of capital. Therefore, the development and the sophistication of the financial sector has gradually become very important for any nation interested in sustainable growth. This paper investigates the impact of financial sector development, sophistication and performance on economic growth based on a panel regression methodology. We found statistically significant results that confirm the importance of this connection and that are very consistent with economic theory and previous relevant articles and studies.

Understanding Export Diversification: Key Drivers and Policy Implications

Abstract: We identify key factors, from large set of potential determinants, that explain the variation in export diversification across countries and over time using Bayesian Model Averaging (BMA), which addresses model uncertainty and ranks factors in order of importance vis-a-vis their explanatory power. Our analysis suggests, in order to diversify, policy makers should prioritize human capital accumulation and reduce barriers to trade. Other policy areas include improving quality of institutions and developing the financial sector. For commodity exporters reducing barriers to trade is the most important driver of diversification, followed by improving education outcomes at the secondary level and financial sector development.

Can cryptocurrency, mobile phones, and internet herald sustainable financial sector development in emerging markets?

Abstract: This study investigates the relationship between cryptocurrency, internet, mobile phones, financial inclusion, and financial sector development in China, India, Nigeria, and South Africa fo...

Financial Development and Economic Growth in ASEAN-5 Countries:

Abstract: This article explores the relationship between financial sector development and economic growth, using a sample of ASEAN-5 countries (Malaysia, Indonesia, Singapore, Thailand and Philippines) from ...

Financial inclusion and financial sector development in Sub-Saharan Africa: a panel VAR approach

Abstract: The purpose of this paper is to investigate the dynamic link between financial inclusion and financial sector development (FSD) in Sub-Saharan Africa.,This paper employs a panel vector autoregressive framework to examine the dynamic link between financial inclusion and FSD in Sub-Saharan Africa.,The findings indicate that there is a reverse causality between FSD and financial inclusion in both the Sub-Saharan Africa countries sample and the full sample. It is evident that financial inclusion is a driver of FSD and vice versa.,The practical implication of this study is that financial inclusion should not only be pursued as a policy objective but it could also be an outcome variable of FSD and vice versa. This implies that African economies and governments in their effort to enhance financial inclusion, FSD can serve as a policy tool. This means that policies aimed at promoting financial inclusion will not impede FSD because the two are complementary. This suggests that we can achieve financial inclusion without sacrificing FSD and vice versa.,This paper provides first empirical evidence of the link between financial inclusion and FSD from the Sub-Saharan Africa perspective using data sourced from World Development Indicators spanning from 1990 to 2014 for 48 Sub-Saharan African economies and 217 economies in the world for the full sample.

External debt stock, foreign direct investment and financial development: Evidence from African economies

Abstract: The purpose of this paper is to examine the role external debt and foreign direct investment play in influencing financial development in Africa.,Annual data on external debt, foreign direct investment and financial development were extracted from the World Bank World Development Indicators from 2002 to 2015. The data employed were analysed within causal research design and the dynamic panel using generalized method of moment estimation approach.,The findings revealed that external debt and foreign direct investment have a significant positive relationship with financial development in African economies. Governments of the sampled economies should enact policies that would help attract high level of foreign direct investment as it contributes positively to financial development. Finally, governments of the sampled African economies should ensure foreign direct investment and external funds borrowed are channelled to productive sectors.,The paper analysed the relationship between external debt, FDI inflows and financial sector development. The paper is the first in terms of such analysis within the framework of the dual-gap framework, which is the first time in these kinds of studies. Previous studies have concentrated on the effect of financial sector on FDI and not the other way around.

Networking for Foreign Direct Investment in Africa: How important are ICT Environment and Financial Sector Development?

Abstract: Studies on the drivers of Foreign Direct Investment (FDI) in Africa have not rigorously examined whether recent advances in the continent’s Information, Communication and Technology (ICT) infrastructure and financial development have any role in attracting foreign capital. This study re-examines the determinants of FDI inflows, paying special attention to the ICT and financial sector environments. By relying on a panel dataset covering 46 countries in sub-Saharan Africa over the period 1980~2016, using the generalized method of moments (GMM) method, our study shows that well–developed ICT infrastructure robustly spurs FDI regardless of the measure of ICT. On the other hand, the impact of domestic financial development on FDI is conditioned on the proxy of finance. Specifically, while domestic (private) credit to GDP inhibits (promotes) foreign capital inflows, higher levels of ICT in the environment dampen the deleterious effect of finance on FDI. We document the threshold levels of ICT necessary to exert such dampening effects.

Financial Development and Income Inequality in Emerging Markets: A New Approach

Abstract: Financial development has been considered an efficient and effective mechanism for the sustainable economic growth and development of emerging markets in past decades. However, various concerns have emerged in relation to the influences of financial sector development on income inequality. It is the claim of this paper that findings from the current literature are incomplete. This is because various proxies have been utilized inconsistently for both financial development and income inequality in previous empirical studies. This study extends the current literature on this important finance–inequality nexus by examining a sample of 21 emerging countries for the period of 1961–2017. Various estimation techniques were employed with the aim of ensuring robust findings. Findings from this paper confirm the existence of an inverted U-curve relationship between financial development and income inequality, implying that income inequality may rise at the early stage of financial development and fall after a certain level is achieved. Policy implications have emerged from the findings of this study.

Fintech and Financial Literacy in the Lao PDR

Abstract: A growing literature has examined the role of financial literacy in an individual’s income, saving behavior and the use of various financial products. However, so far, no one has examined the relationship between financial literacy and the awareness and adoption of financial technology (fintech) products, i.e., financial products provided via internet-based and mobile-based platforms. This paper examines this relationship in a developing country, the Lao People’s Democratic Republic (PDR). We use information collected in the Lao PDR using the standardized questionnaire developed by the Organization for Economic Cooperation and Development International Network on Financial Education (OECD/INFE) to calculate our financial literacy. We find that a higher level of financial literacy has strong and positive effects on an individual’s awareness of fintech products. This result still holds when we use a set of instrumental variables for the financial literacy variable. However, there is insufficient data to find a significant relationship between financial literacy and the use of fintech products.

Taming Financial Development to Reduce Crises

Abstract: This paper assesses whether and how financial development triggers the occurrence of banking crises It builds on a database that includes financial development as well as financial access, depth and efficiency for almost 100 countries Through estimation of a dynamic logit panel model, it appears that financial development, from an institutional dimension and to a lesser extent from a market dimension, triggers financial instability within a one- to two-year horizon Additionally, whereas financial access is destabilizing for advanced countries, it is stabilizing for emerging and low income ones Both results have important implications for macroprudential policies and financial regulations

The role of financial sector in energy demand and climate changes: evidence from the developed and developing countries

Abstract: This paper searches the role of financial sector development in energy sector and therefore in climate changes in the case of developing and developed countries. Panel data ranging from 1960 to 2014 on an annual basis has been selected from 176 countries. Results suggest that carbon dioxide emissions in developed and developing countries are in long-term equilibrium relationship with financial sector; trade and finance sectors have long-term significant impacts on carbon emissions and therefore carbon emissions converge to their long-term equilibrium levels through the channels of finance and trade sectors. Impulse response analyses proved that finance and trade sectors have negative (reducing) impact on the emission levels in the case of developed economies while they have positive impact in the case of developing economies. These sectors exert significant effects on energy consumption of countries as well. Results confirm that developed countries are more successful in energy conservation policies compared to developing countries. Therefore, authorities in developing countries need to implement conservation policies effectively by mainly encouraging and supporting investments in alternative energy uses in order to prevent increases in emission levels through expansion in financial and trade sectors.

Does Financial Development Reduce Poverty? Empirical Evidence from Indonesia

Abstract: This paper contributes to the literature by providing empirical evidence on the relationship between financial development, economic growth, and poverty in Indonesia in the period of 1980–2014. This issue is of importance for developing economies such as Indonesia given the high rate of poverty in the country despite the rapid growth of the financial sector. The Autoregressive distributed lag (ARDL) approach to cointegration is used to examine the long-run relationship between the financial sector development and poverty, while the Granger causality based on the VECM approach is used to ascertain the direction of the causal relationship between the variables. In arriving at robust findings, we investigated two models, each using different indicators of financial sector growth, namely money supply (M2), and ratio of domestic credit to private sector to gross domestic product. The study finds that there was a long-run relationship between the financial sector, economic growth, and poverty in Indonesia, while in the short run, a bi-directional causal relationship exists between the financial sector and poverty. Based on these findings, it is recommended that in efforts to reduce poverty, the government should focus on facilitating the channelling of funds from the financial sector into specific segment of the population to ensure fair accessibility of credit, especially to the low-income group in Indonesia.

ICT, Financial Sector Development and Financial Access

Abstract: This study assesses the role of ICT (internet and mobile phone penetration) in complementing financial sector development (financial formalization and informalization) for financial access. The empirical evidence is based on generalized method of moments with 53 African countries for the period 2004–2011. The following findings are established from linkages between ICT, financial sector development and financial activity. First, the interaction between ICT and financial formalization (informalization) decreases (increases) financial activity. Second, with regard to net effects, the expected signs are established for the most part. In spite of the negative marginal effects from financial informalization, the overall net effects are positive. Third, the potentially appealing interaction between ICT and informalization produces positive thresholds that are within ranges. Policy implications are discussed in three main strands. They include implications for (i) mobile/internet banking, (ii) a quiet life and (iii) ICT in reducing information asymmetry and surplus liquidity.

The Effects on Innovation from Financial Sector Development: Evidence from Developing Countries

Abstract: The subject of financial system development is widely studied in the finance literature as an indicator of economic growth and a driver of technological innovation supporting the mobilization of capital for growth. However, varying results are obtained when examining developed countries compared to the emerging countries. Developing countries are characterized by a lower investment in innovation, and lower levels of competitiveness in terms of research and development funding, fewer research academic institutions, but also lower incentives for private innovation by enterprises. The purpose of this paper is to examine the relationship between financial development indicators and innovation by analyzing data for 15 developing countries within the time frame of 1996-2016. The financial system is analyzed in two main pillars: credit institutions and equity markets. The number of innovation patent applications is the dependent variable of the study, i.e. as an indicator of a country’s innovative performance. The results of the study show that a higher level of crediting by the banking sector will positively affect the number of patent applications. Credit mobilization by other financial intermediaries in the financial system such as equity markets or non-banking institutions show a lower efficiency in boosting innovation activities, resulting in the opposite effects regarding the number of patent applications. Countries with a higher level of education will show more efforts toward innovation and the development of innovative practices. On the other hand, higher competitiveness among companies in terms of technology innovation and processes is expected to boost the demand for funds in the financial system, leading to the improvement in system development.

Effect of financial sector development on energy consumption in Africa: Is it threshold specific?

Abstract: The relationship between financial development and energy consumption has not received much attention in theoretical and empirical literature. The scanty literature on the subject appears to exclud...

The Financial Inclusion Landscape in the Asia-Pacific Region: A Dozen Key Findings

Abstract: Financial inclusion is a multidimensional concept and countries have chosen diverse methods of enhancing financial inclusion with varying degrees of results. The heterogeneity of financial inclusion is particularly striking in the Asia-Pacific region as member countries range from those that are at the cutting edge of financial technology to others that are aiming to provide access to basic financial services. The wide disparity is not only inter-country but also intra-country. The focus of this paper is to take stock of the current state of financial inclusion in the Asia-Pacific region by highlighting twelve stylized facts about the state of financial inclusion in these countries. The paper finds that the state of financial inclusion depends on several factors, but a holistic approach calibrated to specific country conditions may lead to greater financial inclusion.

Finance and Jobs: How Financial Markets and Prudential Regulation Shape Unemployment Dynamics

Abstract: This article explores the impact of financial market regulation on jobs. It argues that understanding the impact of finance on labor markets is key to an understanding of the trade-off between economic stability and financial sector growth. The article combines information on labor market flows with indicators of financial market development and reforms to assess the implications of financial markets on employment dynamics directly, using information from the International Labour Organization (ILO) datatabse on unemployment flows. On the basis of a matching model of the labor market, it analyses the economic, institutional, and policy determinants of unemployment in- and out-flows. Against a set of basic controls, we present evidence regarding the relationship between financial sector development and reforms and their impact on unemployment dynamics. Using scenario analysis, the article demonstrates the importance of broad financial sector re-regulation to stabilize unemployment inflows and to promote faster employment growth. In particular, we find that encompassing financial sector regulation, had it been in place prior to the global financial crisis in 2008, would have helped a faster recovery in jobs.

The Mobile Phone, Information Sharing and Financial Sector Development in Africa: A Quantile Regressions Approach

Abstract: This study investigates linkages between the mobile phone, information sharing offices (ISO) and financial sector development in 53 African countries for the period 2004-2011. ISO are private credit bureaus and public credit registries. The empirical evidence is based on contemporary and non-contemporary quantile regressions. Two main hypotheses are tested: mobile phones complement ISO to enhance the formal financial sector (Hypothesis 1) and mobile phones complement ISO to reduce the informal financial sector (Hypothesis 2). The hypotheses are largely confirmed. This research adds to the existing body of literature by engaging hitherto unexplored dimensions of financial sector development and investigating the role of mobile phones in information sharing for financial sector development.

Interactive Effects of Remittances and Financial Sector Development on Economic Growth in Nigeria

Abstract: A well-developed and efficient financial sector together with remittances can serve as a transmission mechanism to ensure well-rounded economic growth because extant literature shows that remittances alone may not be sufficient to promote the desirable level of economic growth. Therefore, this study investigated the interactive effects of remittances and financial sector development on economic growth in Nigeria for the period 1977-2017. The data for this study was obtained from the World Bank’s World Development Indicator (WDI) Database. The data were analysed using the Instrumental Variable Generalised Method of Moments (IV-GMM) estimator. The findings of this study showed that remittances alone had a negatively significant effect on economic growth at 1% significance level but when interacted with financial sector development, they enhance economic growth as revealed by the positive coefficient of the interactive term which is also significant at 1% level. The study concluded that Nigeria’s economy profits from migrants’ remittances in terms of economic growth through the existence of a developed financial sector. This study recommended among other things that the interaction of remittances and financial sector development should be used as an avenue to encourage more savings from remittances by lowering transaction costs and increasing payment of deposits’ interest on remitted funds. Besides, bank financial institutions should find a better match for these savings (in terms of investment opportunities) in order to neutralise the negative effects of remittances on economic growth caused by recipients’ consumption smoothing drive.

The Role of Fintech in Mitigating Information Friction in Supply Chain Finance

Abstract: Micro, small and medium enterprises (MSMEs) in developing countries face severe financing difficulties, especially when trying to grow their businesses internationally. One significant cause of this financing gap is informational friction. Various supply chain finance products and solutions are introduced to mitigate such frictions by leveraging on information from the extended supply chain of the borrower. The recent development in FinTech, which is closely related to information technologies, has offered new opportunities to further improve the efficiency of supply chain finance. In this paper, we propose a conceptual and analytical framework to study how FinTech can close the financing gap by reducing information friction. Under this framework, we classify various types of FinTech into two categories: information processing technology and information collecting technology. The former one (denoted as Type-A), including analytics and artificial intelligence, allows financial institutions to efficiently process and transform raw data into useful information (signals) that can directly guide the decision-making process. The latter one (denoted as Type-B), including blockchain, biometrics and identity management, and digitalization, allows financial institutions to collect additional and accurate data/information to be processed in the decision-making process. Using this framework, we find that both types of FinTech help closing the financing gap by lowering the probability that a good firm is mis-classified as a bad one. The two types of FinTech can be complements or substitutes. Banks' optimal Type-A investment increases in the bank's size, profit margin, and the fraction of good firms in the market. They invest in Type-B if and only if the investment is sufficiently small. Due to double marginalization, the bank's optimal FinTech investment level is lower than the socially optimal level. This calls for additional mechanisms that simulate or complement banks' investment in FinTech.

Inflation and financial sector development in Sub-Saharan African countries

Abstract: The purpose of this paper is to examine the link between inflation and the financial sector performance in Sub-Saharan African (SSA) countries.,The study analyzes the relationship between inflation and the financial sector performance for selected 22 Sub-Saharan countries from 1980 to 2013. The study used panel data and the dynamic panel generalized method of moments econometric method. The study concentrates on the link between inflation and the development of the banking sector.,The findings suggest that inflation does not promote financial sector development in SSA region while trade openness has a positive impact on the selected financial development indicators. Other variables that enhance financial development in SSA include government expenditure and good governance.,The main policy implication of the study is that in order for SSA countries to benefit from a deeper and more active financial sectors, the rates of inflation must be maintained low and be consistently under control. Also, for SSA region financial sectors to become deeper and more active it is crucial to develop stronger economic institutions including independent central banks and sound fiscal authorities.,The study differs from previous studies as it includes more (22) countries from SSA region while previous studies were either regional or country specific. The study also incorporates trade openness and the role of institutional quality in enhancing financial development. This differentiates the study from previous studies on the subject from the region.