Financial sector development

About: Financial sector development is a research topic. Over the lifetime, 1674 publications have been published within this topic receiving 90787 citations.

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

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

Macroeconomic Variables and Private Investment: A Two Dimensional Study from Nigeria Economy

Abstract: The study investigated the impact of macroeconomic variables on private investment in Nigeria for the period 1990 to 2016. To achieve these objectives, the study tests for the study modeled private equity and private real investment as the function exchange rate, financial sector development, and interest rate, openness of the economy, real gross domestic product, inflation rate and broad money supply. Ordinary least square method of data analysis was used. From model one, the study found that real gross domestic product have positive but insignificant effect, openness of the economy have positive and insignificant effect, interest rate have positive and significant effect, financial deepening have positive and insignificant effect while interest rate, inflation rate and exchange rate have negative effect on private real investment. The coefficient of determination (R2) proved that the independent variables can explain 62 percent variation on private real investment; the f- statistics found that the model is significant while the Durbin Watson statistics proved the presence of serial autocorrelation. The effect of macroeconomic variables on private equity investment was presented in model two. The study found that openness of the economy; real gross domestic products, broad money supply, and interest rate have negative and insignificant effect on private equity investment except openness of the economy with significant effect. Inflation rate, financial sector deepening and exchange rate have positive and insignificant effect on private equity investment except financial deepening with significant effect. The R2 proved that the independent variables can predict 66.9 percent variation on private equity investment. The f- statistics found that the model is significant while the Durbin Watson statistics proved the presence of serial autocorrelation. We conclude that macroeconomic variable have significant effect on private investment in Nigeria. We recommend that interest rate must be able to encourage higher private investment by increasing the real interstate on private savings or household savings so that larger amount of income would be saved to accumulate more capital and hence private investment. Policies should be formulated by investors and government to discourage factors that affect negatively private investment.

Exploring the finance and growth relationship for emerging market economies

Abstract: This study focuses on alternative ways to measure financial sector development and the external factors that both directly and indirectly influence economic growth. The empirical results based upon panel data from 1985 to 2003 for a sample of emerging countries suggest three major conclusions. First, by including a range of alternative financial sector development measures and a variety of external policy-related factors in the model, the importance of supplying basic liquidity services, as measured by M3, becomes less important for emerging countries. Second, the empirical results suggest that while a basic level of deposit insurance protection might prove stabilizing for emerging economies, excessive levels of insurance may promote undue risk. Third, several competitive market structure and regulatory variables designed to measure efficiency in the intermediation process, such as net interest margin, and managerial efficiency as measured by overhead costs, are found to have a statistically significant, and in certain cases, unexpected impacts.

Louis Kasekende: Bank of Uganda's role in monetary policy, regulation and financial sector development

Abstract: The global financial crisis that erupted in 2008 prompted a re-thinking by central banks around the globe of how they approach economic and financial stability. In particular, there has been a recognition in the advanced economies that “light touch regulation” allowed financial institutions too much leeway to take reckless risks. Central banks have also embraced the need for what is termed a macroprudential approach to analysing risks to the financial stability.

Financial Structure, Misallocation and TFP

Abstract: This paper studies the quantitative relevance of the cross-sectional dispersion of firm financial structure in explaining the intra-industry allocation efficiency of productive factors. I solve a heterogenous firms model with financial constraints and distortions to the marginal rental-rate of capital, and develop a measure for the intra-industry misallocation of factors of production. The distribution of rental rate of capital and two types of firm-level balance sheet characteristics (pledgeability and collateralizable asset positions) determine the extent of misallocation and industry level total factor productivity (TFP). In the model firms that face high capital rental rates borrow in the financial market to lower the marginal cost of production and increase the scale of investment up to the limit that is allowed by the balance sheet positions. Using Compustat data, I calibrate the model for seven major industry clusters from the U.S. economy. The counterfactual policy experiments show that weakening the observed balance sheet positions for financially constrained firms leads to a reallocation of production factors from firms that face high cost distortions to firms with low cost distortions and cause industry level TFP losses. The value added from firm-level financial access for aggregate industry performance varies across sectors: For example, in IT and Textile & Fabrics industries where external finance dependence plays an important role for industry performance shutting down financial access lowers aggregate industry TFP to 50% of the existing level. The results suggest that the aggregate economic benefits from financial sector development vary with external finance dependence of industries confirming the results obtained by Rajan and Zingales (1998).