financial development and barriers to the cross border diffusion of financial innovation this paper explores the determinants of financial development by focusing on the role played by barriers to the diffusion of financial technology these barriers are measured using human genetic distance from the technology frontier the results based on cross sectional data for 123 countries suggest that genetic distance to the global frontier has an economically and statistically significant effect on financial development in that countries that are genetically far from the technology leader tend to have lower levels of financial development genetic distance is found to have the largest effect even after controlling for other determinants of financial development established in the literature these findings indicate that cultural barriers to the diffusion of financial technology across borders impact financial development by influencing the follower countries ability to adopt and adapt innovations from the frontier

more mortgages lower growth in newly collected data on 46 economies over 1990 2011 we show that financial development since 1990 was mostly due to growth in credit to real estate and other asset markets which has a negative growth coefficient we also distinguish between growth effects of stocks and flows of credit we find positive growth effects for credit flows to nonfinancial business but not for mortgage and other asset market credit flows by accounting for the composition of credit stocks and for the effect of credit flows we explain the insignificant or negative growth effects of financial development in recent times what was true in the 1960s 1970s and 1980s when the field of empirical credit growth studies blossomed is no longer true in the 1990s and 2000s new bank lending is not primarily to nonfinancial business and financial development may no longer be good for growth these trends predate the 2008 crisis they prompt a rethink of the role of banks in the process of economic growth jel e44 o16 o40 c33

crises and exchange rate regimes time to break down the bipolar view we revisit the link between crises and exchange rate regimes err using a panel of 90 developed and developing countries over the period 1980 2009 we find that corner err are not more prone to crises compared to intermediate err this finding holds for different types of crises banking currency and debt and is robust to a wide set of alternative specifications consequently we clearly break down the traditional bipolar view countries that aim at preventing crisis episodes should focus less on the choice of the err and instead implement sound structural macroeconomic policies

does economic structure determine financial structure abstract in this paper we examine the relationship between the structure of the real economy and a country s financial system we consider whether the development of the real economic structure can predict the direction of evolution of a country s financial structure using data for 108 countries we find a significant relationship between real economic structure and financial structure next we exploit shocks to the economies in india finland and sweden and south korea and show that changes in the economic structure of a country influence the evolution of its financial system this suggests that financial institutions and capital markets change in response to the structure of industries

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

how housing slumps end we construct a simple model of the end of housing slumps we show that the probability that real housing prices stop falling is higher the smaller was the pre slump house price run up the greater has been the cumulative house price decline the faster is gdp growth and most importantly the lower are mortgage interest rates slumps are longer where the construction sector is more responsive allowing booms to create larger supply overhangs but shorter the more developed are financial markets and institutions enabling new buyers to access credit and enter the market falling house prices can lead to lower private sector credit flows in turn limiting the scope for new home purchases and creating the danger of a vicious spiral of slumping housing prices and distressed financial institutions this suggests that policymakers should take steps to break the link between the housing market problems and banking problems by intervening to recapitalize distressed banking systems while using quantitative easing and credit easing to lower mortgage interest rates and help revive the housing market directly agustin s benetrix barry eichengreen and kevin h o rourke

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

financial development financial fragility and growth the authors study the apparent contradiction between two strands of the literature on the effects of financial intermediation on economic activity on the one hand the empirical growth literature finds a positive effect of financial depth as measured by for instance private domestic credit and liquid liabilities for example levine loayza and beck 2000 on the other hand the banking and currency crisis literature finds that monetary aggregates such as domestic credit are among the best predictors of crises and their related economic downturns for example kaminski and reinhart 1999 the authors account for these contrasting effects based on the distinction between the short and long run impacts of financial intermediation working with a panel of cross country and time series observations they estimate an encompassing model of short and long run effects using the pooled mean group estimator developed by pesaran shin and smith 1999 their conclusion from this analysis is that a positive long run relationship between financial intermediation and output growth coexists with a mostly negative short run relationship the authors further develop an explanation for these contrasting effects by relating them to recent theoretical models by linking the estimated short run effects to measures of financial fragility namely banking crises and financial volatility and by jointly analyzing the effects of financial depth and fragility in classic panel growth regressions

export response to trade liberalization in bangladesh a cointegration analysis this paper investigates the response of bangladesh s aggregate merchandise exports to a real exchange rate based trade liberalization programme during the period 1974 1995 the cointegration and error correction modelling approaches have been applied the empirical results suggest that there exists a unique long run or equilibrium relationship among real quantities of export relative export price and export weighted real effective exchange rate the short term dynamic behaviour of bangladesh s export supply has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant relative export price lagged two quarters real effective exchange rate predicted values of real gdp lagged one quarter and a dummy variable capturing the effects of trade liberalization programme have all emerged as important determinants of an aggregate export supply function for bangladesh the error correction model has also been

the signaling effect of corporate social responsibility in emerging economies what signals do firms in emerging economies send to stakeholders when they adopt corporate social responsibility csr practices we argue that in emerging economies firms that adopt csr practices positively signal investors that their firms have superior capabilities for filling institutional voids from an institution based view we hypothesize that the institutional environment moderates the signaling effect of csr on a firm s financial performance based on a sample of firms from ten asian emerging economies we find a positive relationship between csr practices and financial performance this positive relationship is stronger in the less developed capital market than in the more developed one the financial benefits of csr practices are also more salient in the low information diffusion market than in the high one we emphasize that signaling theory and the institution based view can jointly contribute to the csr literature

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

tranching in the syndicated loan market around the world loan tranching allows banks to manage risk and facilitate firm financing which may be essential for firms that cannot access investors from stock markets we analyze the determinants and benefits of loan tranching by pooling the tranches of individual loans to create the largest cross country sample of syndicated loans covering more than 150 000 loans from multinational and domestic firms we find that in addition to market deal and borrower characteristics legal and institutional differences impact loan tranching strong creditor protection and efficient debt collection increase the probability of tranching and reduce tranche spreads ultimately promoting firms access to debt we also find evidence that tranching facilitates the financing of multinational firms abroad due to the transfer of legal and cultural institutions to foreign subsidiaries overall our results suggest that tranching plays an important role in reducing a country s financial development gap and promotes firms access to debt

parameters measuring bank risk and their estimation the paper develops estimation of three parameters of banking risk based on an explicit model of expected utility maximization by financial institutions subject to the classical technology restrictions of neoclassical production theory the parameters are risk aversion prudence or downside risk aversion and generalized risk resulting from a factor model of loan prices the model can be estimated using standard econometric techniques like gmm for dynamic panel data and latent factor analysis for the estimation of covariance matrices an explicit functional form for the utility function is not needed and we show how measures of risk aversion and prudence downside risk aversion can be derived and estimated from the model the model is estimated using data for eurozone countries and we focus particularly on i the use of the modeling approach as a device close to an early warning mechanism ii the bank and country specific estimates of risk aversion and prudence downside risk aversion and iii the derivation of a generalized measure of risk that relies on loan price uncertainty moreover the model provides estimates of loan price distortions and thus allocative efficiency

remittances transaction costs and informality abstract recorded workers remittances to developing countries reached 167 billion in 2005 bringing increasing attention to these flows as a potential tool for development in this paper we explore the determinants of remittances and their associated transaction costs we find that recorded remittances depend positively on the stock of migrants and negatively on transfer costs and exchange rate restrictions in turn transfer costs are lower when financial systems are more developed and exchange rates less volatile the negative impact of transactions costs on remittances suggests that migrants either refrain from sending money home or else remit through informal channels when costs are high we provide evidence from household surveys supportive of a sizeable informal sector

net foreign asset com position does financial development matter abstract we investigate the relationship between a country s domestic financial development and the composition of its net foreign asset position using a pooled mean group estimator and data for 50 countries for the 1970 2007 period the results show that financial development reduces a country s long run net foreign asset position in addition financial development leads to higher net equity and lower net debt positions these findings confirm the theoretical predictions of mendoza et al 2009 the results are robust to using different indicators of financial development and inclusion of the level of development of a country in the cointegrating relationship

financial institutions and markets across countries and over time the updated financial development and structure database this article introduces the updated and expanded version of the financial development and structure database the database includes indicators on the size efficiency and stability of banks nonbank financial institutions and equity and bond markets over 1960 2007 it also contains indicators of financial globalization

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

capital market development and firm restructuring during an economic shock we conceptualize capital markets in terms of resource access and governance and argue that more developed capital markets facilitate firm restructuring through more effective provision of capital and governance of transactions we then develop a contingency model that specifies that the effects of capital market development on restructuring vary by 1 types of restructuring 2 the nature of the economic environments and 3 firms access to resources we evaluate a broad range of restructuring actions among independent firms and business group affiliates in singapore and south korea before and during the economic shock of 1998 1999 results support our predictions of the impact of capital market development and of contingencies and highlight the value of incorporating an external capital markets perspective to complement internally focused theoretical explanations for firm restructuring

commodity prices and bank lending we analyze the transmission of changes in commodity prices to bank lending in a large sample of developing countries a bank level analysis shows that a fall in commodity net export prices is associated with a reduction of bank lending particularly for commodity exporters and during episodes of terms of trade decline we complement this analysis with loan level data from a credit register which allows us to identify the effect of a commodity price shock on the supply of credit controlling for unobserved factors that could drive borrowers credit demand results show that banks with relatively lower deposits and poor asset quality transmit the changes in commodity prices to lending more aggressively jel f30 f34 g21 q02

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

what matters in the finance growth nexus of advanced economies evidence from oecd countries over the last decades a large strand of finance and growth literature has provided ample evidence on the importance of financial deepening for economic development yet recently the focus of pub

the fiscal roots of financial underdevelopment why do some countries indulge in financial repression harming economic development in the process whereas others promote financial development three main explanations have been put forth market failures due to information asymmetries mean that credit is rationed even when lenders could potentially benefit from making loans readily available political failures due to state capture mean that credit will be rationed as a way of generating rents for politically powerful financial incumbents the state might however have its own fiscal reasons for politicizing the supply and price of credit since financial repression provides easy to collect revenues i draw on the third approach to argue that the state s fiscal imperative is usually the primary reason behind financial repression and even when private actors benefit they are subordinate to this concern a dynamic panel analysis that exploits instrumental variables and a case study of mexico adduce strong empirical support for my fiscal transaction cost theory

economic demographic and institutional determinants of life insurance consumption across countries life insurance has become an increasingly important part of the financial sector over the past 40 years providing a range of financial services for consumers and becoming a major source of investment in the capital market but what drives the large variation in life insurance consumption across countries remains unclear using a panel with data aggregated at different frequencies for 68 economies in 1961 2000 this article finds that economic indicators such as inflation income per capita and banking sector development and religious and institutional indicators are the most robust predictors of the use of life insurance education life expectancy the young dependency ratio and the size of the social security system appear to have no robust association with life insurance consumption the results highlight the importance of price stability and banking sector development in fully realizing the savings and investment functions of life insurance in an economy

local versus international crises and bank stability does bank foreign expansion make a difference abstractwe investigate the impact of global and local crises on bank stability in the mena region and examine the effect of owning bank subsidiaries in other countries we consider banks that experienced both types of crises during our sample period our findings highlight a negative impact of the global financial crisis of 2007 2008 on bank stability but on the whole no negative impact of the local crisis a deeper investigation shows that owning bank subsidiaries outside the home country is a source of increased fragility during normal times yet a source of higher stability during the local crisis but not during the international crisis moreover owning foreign subsidiaries in one or two world regions is insufficient to neutralize both types of crises while being present in three or more regions is more stabilizing during a local crisis but also more destabilizing during an international crisis our findings contribute to the literature examining bank stability and have several policy implications

does institutional quality resolve the lucas paradox the lucas paradox observes that capital flows predominantly to relatively rich countries contradicting the neoclassical prediction that it should flow to poorer capital scarce countries in an inf

determinants of non life insurance expenditure in developed and developing countries an empirical investigation the determinants of non life insurance expenditure in a panel data set covering 36 developed countries and 31 developing countries for the period 2000 2011 are analysed results of our instrumental variable analysis indicate that economic freedom income bank development urbanization culture and law systems are the key drivers of the non life insurance expenditure across countries however their impacts differ significantly between the groups of developed and developing countries suggesting that the heterogeneity among countries in terms of the level of development plays an important role the global financial crisis is also found to influence the direction of those effects especially in developed countries the article yields useful policy and economic implications for governments and multinational non life insurance companies with regard to the development of the non life insurance sector an important engine for economic growth and prosperity

funding growth in bank based and market based financial systems evidence from firm level data the authors investigate whether firms access to external financing to fund growth differs between market based and bank based financial systems using firm level data for forty countries they compute the proportion of firms in each country that relies on external finance and examine how that proportion differs across financial systems they find that the development of a country s legal system predicts access to external finance and that stock markets and the banking system have different effects on access to external markets the development of securities markets is related more to the availability of long term financing whereas the development of the banking sector is related more to the availability of short term financing they find no evidence however that firms access to external financing is predicted by an index of the development of stock markets relative to the development of the banking system

credit booms and macrofinancial stability this paper explores several questions about credit booms and busts when do credit booms occur when do they end up in busts and when do they not what are the implications for different policies if curbing credit growth and or mitigating the associated risks is an objective we find that credit booms are often associated with financial reform and economic growth they also tend to be more frequent in fixed exchange rate regimes only one in three credit boom episodes are followed by a financial crisis these booms tend to be larger and last longer macroprudential tools have at times proven effective in containing booms and more often in limiting the consequences of busts due to the buffers they helped to build

fiscal cyclicality and emu abstract for the set of emu member countries we examine cyclical patterns in fiscal outcomes we find that there is significant time variation in fiscal cyclicality with an improvement in the wake of the maastricht treaty but a deterioration after the creation of emu furthermore we show that the fiscal cycle is affected by the financial cycle in addition to the output cycle the lessons for the current reforms of european economic and fiscal governance are manifest

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

reassessing the law finance and growth nexus after the recent great recession abstract the paper provides a reassessment of the relationship between financial structure financial development and economic growth conducting cross section and panel econometric analyses for a sample of 62 countries over 1980 2016 in line with the traditional literature we confirm the existence of a positive cross country relationship between the legal system financial development and growth even including the experience of the recent great recession in addition when jointly assessing the effect of financial structure and financial development on growth it emerges that a more bank oriented economy enjoys higher benefits in terms of long run real gdp per capita growth than a market oriented one when we consider variations across countries and over time we find that both financial structure and financial development affect growth but in an opposite way as the cross section analysis in particular when we control for their joint effect on growth we observe a positive impact of market based financial systems and a negative impact of the overall financial development we also provide evidence of the existence of a positive and significant relationship between economic growth and shadow banking during the 2002 2016 period highlighting the crucial role played by non bank financial intermediation in complementing traditional banking and in affecting the real economy

price scissors and the structure of the economy this paper undertakes three sets of tasks i it analyzes positive and normative aspects of price scissors the domestic terms of trade between agriculture and industry within nonsocialist as well as socialist ldcs the critical role of the economy s institutional features e g external trade environment wage and income determination and wage productivity effects is emphasized certain aspects of the soviet industrialization debate and subsequent collectivization are interpreted ii it develops simple rules to delineate who gains and who loses within agriculture from changes in terms of trade iii it presents powerful and informationally parsimonious rules for pareto improving price reforms for cash crops and agricultural inputs