Browsing by Subject "financial development"

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  • Stolbov, Mikhail (2015)
    BOFIT Discussion Papers 15/2015
    Causality between the ratio of domestic private credit to GDP and growth in real GDP per capita is investigated in a country-by-country time-series framework for 24 OECD economies over the period 1980–2013. The proposed threefold methodology to test for causal linkages integrates (i) lag-augmented VAR Granger causality tests, (ii) Breitung-Candelon causality tests in the frequency domain, and (iii) testing for causal inference based on a fully modified OLS (FMOLS) approach. For 12 of 24 countries in the sample, the three tests yield uniform results in terms of causality presence (absence) and direction. Causality running from credit depth to economic growth is found for the UK, Australia, Switzerland, and Greece. The findings lend no support to the view that financial development shifts from a supply-leading to demand-following pattern as economic development proceeds. The aggregate results mesh well with the current discussion on “too much finance” and disintermediation effects. However, idiosyncratic country determinants also appear significant.
  • Fidrmuc, Jarko; Fungáčová, Zuzana; Weill, Laurent (2015)
    BOFIT Discussion Papers 7/2015
    Published in Open Economies Review, Volume 26, Issue 3, April 2015: 479-496.
    ​The financial crisis has shown that the liquidity creation function of banks is critical for the economy. In this paper, we empirically investigate whether bank liquidity creation fosters economic growth in a large emerging market, Russia. We follow the methodology of Berger and Bouwman (2009) to measure bank liquidity creation using a rich and exhaustive dataset of Russian banks. We perform fixed effects and GMM estimations to examine the relation of liquidity creation to economic growth for Russian regions in the period 2004–2012. Our results suggest that bank liquidity creation fosters economic growth. This effect was not washed out by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia.
  • Hattendorff, Christian (2015)
    BOFIT Discussion Papers 18/2015
    ​The paper investigates the relationship between economic concentration and level of financial development to illuminate the linkage of real economy structure and financial markets. Using data from 81 Russian regions for the period 2005–2011, empirical evidence is offered to show that poor diversification weakens credit. Geographical variables are used as instruments of concentration in accounting for endogeneity. This work supports previous findings at the national level that policymakers seeking to promote economic development should place stronger emphasis on output diversification.
  • Ikonen, Pasi (2017)
    Bank of Finland. Scientific monographs. E 51
    This thesis applies several econometric methods to a selection of country panels to study how growth is influenced by financial development and government debt. The first part presents the thesis discussion, including a synthesis on financial development, government debt, money supply, and economic growth. The second part deepens the discussion with three stand-alone essays. The first essay models how financial development affects growth through utilization of technological innovation. Based on explicit modeling of the innovation channel of finance, the results show a significant and positive sign for the interaction term between the measure of a country’s own innovation and financial development in the most important specifications. This suggests that the innovation channel of finance is likely to be positively relevant to growth. The second essay examines effects of venture capital investment on economic growth in a similar framework. The findings demonstrate that the interaction of venture capital with innovation has a positive and statistically significant coefficient. Further, the joint impact related to venture capital and its interactions is positive in most specifications, suggesting that venture capital is probably a relevant factor for growth. The third essay delves deeply in the effects of general government debt and general government external debt on growth of real GDP. It explores the long-standing endogeneity problem, includes other relevant debt concepts besides government total debt, revisits the issue whether there are threshold values for the government debt ratio, examines the effect of debt on GDP components and structure, uses timely and extensive datasets and extensive robustness analysis, and runs meta-regressions of the results of this and a many of other studies. Even with correction for endogeneity, the study finds modest evidence of a negative and significant growth impact for government debt. The evidence is not robust over all samples and specifications. The final essay also reports evidence of a negative and significant effect of government external debt in the sample of developed economies. The findings overall comport with those of recent papers that conclude that there is no universal threshold value for a government debt ratio that would hold across all countries. Further, government debt appears to decrease the private-investment-to-GDP ratio, but increases the GDP ratio for household consumption. The meta-regression analysis shows that the study’s results on how specification features affect the estimate of the government debt coefficient are broadly in line with those of other studies.
  • Horvath, Roman; Horvatova, Eva; Siranova, Maria (2017)
    BOFIT Discussion Papers 12/2017
    We examine the determinants of financial development using our global sample and employing a rich set of measures of financial development that assess the degree of depth, access, stability and efficiency of financial intermediaries. We use Bayesian model averaging to test competing theories within this unifying framework. Examining nearly 40 potential determinants of financial development, we find that the rule of law and the level of economic development are the most important. Wealth inequality is irrelevant for banking sector development but positively associated with stock market development. Finally, our results suggest that financial market regulations matter for stock market efficiency and financial stability.