Impacts of remittances on financial development

2020 ◽  
Vol 47 (3) ◽  
pp. 467-477
Author(s):  
SeyedSoroosh Azizi
Keyword(s):  
Developing Countries ◽  
Interest Rates ◽  
Financial Development ◽  
Positive Impact ◽  
National Income ◽  
Fixed Effect Model ◽  
Content Type ◽  
International Remittances ◽  
Long Run ◽  
Percent Increase

PurposeThe purpose of this paper is to examine the impacts of international remittances on financial development in developing countries.Design/methodology/approachThe focus is on a panel of 124 developing countries for the period 1990–2015. The empirical evidence is based on the instrumental variable-fixed effect model.FindingsResults obtained in this study indicate that a 10 percent increase in the remittance to GDP ratio leads to 1.7 percent increase in domestic credit to private sector, 1.9 percent increase in bank credit, 1.2 percent increase in bank deposit, and 0.8 percent increase in liquid liabilities. The positive impact of remittances on financial development in developing countries is particularly important because financial development fosters long-run growth and reduces poverty.Originality/valueTo address the endogeneity of remittances, the study estimates bilateral remittances and use them to create weighted gross national income per capita and real interest rates of remittance-sending countries. To the best of the author’s knowledge, this is the first study to assess the endogeneity of remittances in this way.

Competition and financial institutions and markets development: a dynamic panel data analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Walid Abdmoulah
Keyword(s):  
Sensitivity Analysis ◽  
Developing Countries ◽  
Panel Data ◽  
Financial Markets ◽  
Financial Development ◽  
Financial Institutions ◽  
Positive Impact ◽  
Market Competition ◽  
2008 Financial Crisis ◽  
Content Type

Purpose This study aims to shed new light on the nexus between market competition and financial development (FD), using the new FD index developed by the IMF, covering financial institutions and markets access, depth and efficiency. Design/methodology/approach The author uses panel data from 140 countries over 2000–2014 period and a dynamic generalized method of moments (GMM) model, along with a sensitivity analysis over 2008 financial crisis. Findings Strong evidence of the positive impact of market competition, as measured by Boone index, on financial institutions and markets development is found, whereas banks concentration has a damaging effect on FD. Commonly used Lerner index is found to be irrelevant. Interestingly, none of the competition indexes in this study affects financial institutions returns, which hold even over 2008 financial crisis, likely at the expense of depth and access in developing countries. Institutions, as proxied by control of corruption, have broader positive impact on FD, particularly on financial markets. These findings have important implications for developing countries keen to foster the development of their financial system. Practical implications Policymakers should take into consideration that FI are unlikely to undertake deep improvements in terms of credit allocation depth and inclusion on a volunteer basis, unless constrained by regulations. When promoting bank competition, it is recommended to diversify methods targeting market competition, notably by promoting financial business diversification and intermediary efficiency, and tackling collusion arrangements or interest groups influence. Second, it is important to support households and small and medium enterprises’ access to finance. Third, it is highly recommended to promote good institutions given their overall beneficial role in promoting the financial system as a whole, notably financial markets. Originality/value To the best of the author’s knowledge, this study is the first to fully use the new IMF Financial Development index. It covers financial institutions and markets access, depth and efficiency, whereas most of previous findings focus on access to credit or cost of credit. Besides, the study uses a larger panel data from 140 countries over 2000–2014 period and a dynamic GMM estimator, along with a sensitivity analysis over (2007–2009) crisis. By exploring the impact of three different competition indicators, namely, Boone, Lerner and banks concentration indexes, the study responds to the concerns regarding the limitations of each of them.

Financial development and economic growth: empirical evidence from India

2015 ◽  
Vol 32 (3) ◽  
pp. 340-356 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Positive Impact ◽  
Annual Data ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
Sustainable Economic Growth

Purpose – The purpose of this paper is to examine the relationship between financial development and economic growth in India using annual data from 1982 to 2012. Design/methodology/approach – The stationarity properties are checked by ADF, DF-GLS, KPSS and Ng–Perron unit root tests. The long- and short-run dynamics are examined by using the autoregressive distributed lag (ARDL) approach to co-integration. Findings – The co-integration test confirms a long-run relationship in financial development and economic growth for India. The analysis of ARDL test results reveals that both bank-based and market-based indicators of financial development have a positive impact on economic growth in India. Hence, the results support the supply-leading hypothesis and highlight the importance of financial development in economic growth. The findings also indicate that the Indian bank-centric financial sector has the potential for economic growth through credit transmission. Research limitations/implications – The present study recommends appropriate reforms in financial markets to attain sustainable economic growth. The findings are useful for policy-makers who want to maintain a parallel expansion of financial development and growth. Originality/value – To date, there are hardly any studies that use both market-based and bank-based indicators as proxies of financial development and analyze their role in economic growth in India. So, the contribution of the paper is to fill this gap in literature.

scholarly journals Impact of Foreign Remittances on Financial Development of Pakistan

2020 ◽  
Vol 6 (1) ◽  
pp. 331-342
Author(s):  
Ghulam Mustafa ◽  
Said Zamin Shah ◽  
Asim Iqbal
Keyword(s):  
Developing Countries ◽  
Money Supply ◽  
Financial Development ◽  
Positive Impact ◽  
External Source ◽  
Annual Data ◽  
Distributed Lag ◽  
Long Run ◽  
Auto Regressive ◽  
Data Source

Purpose: Mostly developing countries are not receiving the remittances with same speed as compared to workers’ outflow. This cumbersome situation allows developing countries to go to external source of funding (debt) for economic and financial development-FD. Thus, the purpose of this paper is to investigate the nexus between FD and remittances in Pakistan for the period 1976-2015.   Design/Methodology/Approach: The study utilizes the time series annual data for the period 1976-2015. Data were taken from different sources like world bank data source and different economic surveys of Pakistan.  To evaluate the long run relationships between FD and remittances, Auto Regressive Distributed Lag (ARDL) strategy is utilized. Findings: The empirical results indicate that remittances have a significant positive impact on FD (M2/GDP) except for CPS/GDP measure of FD which has insignificant positive coefficient. Implications/Originality/Value: Most of previous literature measured FD with the ratio of money supply to GDP (M2/GDP) however, the current study measured with two indicators i.e. the ratio of money supply to GDP (M2/GDP) and the ratio of bank credit to GDP (CPS/GDP). This is the main contribution in the literature. The study recommends that remittances channelize financial segment of the country in augmented manner and government should encourage Pakistani expatriates to send the remittance through formal sources (e.g. banks). Financial institutions and intermediaries working in Pakistan should exaggerate the recruitment of remittances with the purpose to make them significant source for loanable funds. In addition to this, the concern department should simplify the procedure for sending remittances.

The relationship between financial development and economic growth in Eswatini (formerly Swaziland)

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Siphe-okuhle Fakudze ◽  
Asrat Tsegaye ◽  
Kin Sibanda
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Financial Development ◽  
Granger Causality Test ◽  
Causality Test ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
The Relationship

PurposeThe paper examined the relationship between financial development and economic growth for the period 1996 to 2018 in Eswatini.Design/methodology/approachThe Autoregressive Distributed Lag bounds test (ARDL) was employed to determine the long-run and short-run dynamics of the link between the variables of interest. The Granger causality test was also performed to establish the direction of causality between financial development and economic growth.FindingsThe ARDL results revealed that there is a long-run relationship between financial development and economic growth. The Granger causality test revealed bidirectional causality between money supply and economic growth, and unidirectional causality running from economic growth to financial development. The results highlight that economic growth exerts a positive and significant influence on financial development, validating the demand following hypothesis in Eswatini.Practical implicationsPolicymakers should formulate policies that aims to engineer more economic growth. The policies should strike a balance between deploying funds necessary to stimulate investment and enhancing productivity in order to enliven economic growth in Eswatini.Originality/valueThe study investigates the finance-growth linkage using time series analysis. It determines the long-run and short-run dynamics of this relationship and examines the Granger causality outcomes.

Relationship between Budget Deficit and Economic Growth: Evidence from Ethiopia

2021 ◽  
Vol 2 (2) ◽  
pp. 10-15
Author(s):  
Desalegn Emana
Keyword(s):  
Economic Growth ◽  
Interest Rates ◽  
Budget Deficit ◽  
Time Series Data ◽  
Negative Impact ◽  
Positive Impact ◽  
Negative Relationship ◽  
Nominal Exchange Rate ◽  
Series Data ◽  
Long Run

This study examined the relationship between budget deficit and economic growth in Ethiopia using time series data for the period 1991 to 2019 by applying the ARDL bounds testing approach. The empirical results indicate that budget deficit and economic growth in Ethiopia have a negative relationship in the long run, and have a weak positive association in the short run. In line with this, in the long run, a one percent increase in the budget deficit causes a 1.43 percent decline in the economic growth of the country. This result is consistent with the neoclassical view which says budget deficits are bad for economic growth during stimulating periods. Moreover, in the long run, the variables trade openness and inflation have a positive impact on Ethiopian economic growth, and on the other hand, the economic growth of Ethiopia is negatively affected by the nominal exchange rate in the long run. Apart from this, in the long run, gross capital formation and lending interest rates have no significant impact on the economic growth of the country. Therefore, the study recommends the government should manage its expenditure and mobilize the resources to generate more revenue to address the negative impact of the budget deficit on economic growth.

scholarly journals The Impact of Financial Development on Innovation Activities in Emerging and Developing Countries

2019 ◽  
Vol 10 (1) ◽  
pp. 112 ◽  
Author(s):  
KamiliaKamilia LoukilLoukil
Keyword(s):  
Developing Countries ◽  
Financial Development ◽  
Financial Services ◽  
Positive Impact ◽  
Threshold Model ◽  
Threshold Value ◽  
Innovation Activities ◽  
Linear Effects ◽  
Emerging And Developing Countries ◽  
The Impact

We investigate in this paper the effect of financial development on innovation in emerging and developing countries. The estimation of panel threshold model for a sample 54 countries during the period 1980-2009 shows the presence of non linear effects in the relationship between financial development and innovation. We find a threshold value of economic development below which the financial development level has no significant impact on innovation and above which financial development has a significant positive impact on innovation. In sum, our findings suggest that the presence of a healthy economic environment is crucial for financial institutions to offer high-quality financial services, promoting more innovation.

Spillover effects of financial development on the informal economic activity

2020 ◽  
Vol 13 (3) ◽  
pp. 471-482
Author(s):  
Salih Katircioglu ◽  
Hatice Imamoglu
Keyword(s):  
Interest Rates ◽  
Financial Development ◽  
Informal Economy ◽  
Economic Activity ◽  
Missing Values ◽  
Spillover Effects ◽  
Ordinary Least Squares ◽  
Annual Data ◽  
Content Type ◽  
Cointegration Tests

Purpose This study aims to investigate the role and spillover effects of the financial sector on the size of the informal economic activity in Turkey. Design/methodology/approach Time series analysis has been adopted for annual data of the 1970-2017 period. New approaches in unit root and cointegration tests have been used in this study. Estimations have been done via dynamic ordinary least squares and fully modified ordinary least square approaches. Findings Results confirm the existence of a long-run equilibrium relationship between the financial system and informal economic activities in Turkey. At the earlier stages of financial development (FD), informality tends to rise while in further stages, informality tends to decline over time. This study confirms the U-shaped relationship between FD and the informal economy in Turkey. Research limitations/implications This study has used logarithmic values of series in the econometric analysis except for real interest rates because of negative values in some periods. Thus, by using level forms of real interest, missing values would be avoided. Practical implications Increasing efficiency, control and institutional quality, as well as the quality of governance environment, would be useful tools in reducing the size of informality, as this study finds that spillover effects of financial services on the informal economic activity are adverse. Originality/value This study is the first of its kind to the best of the knowledge in the case of Turkey, which estimates the spillover effects of FD on informal economic activity.

scholarly journals THE EFFECT OF SAVING AND CAPITAL EXPANSION ON FINANCIAL AND TECHNOLOGICAL DEVELOPMENT IN GCC COUNTRIES

2021 ◽  
Vol 0 (0) ◽  
pp. 1-25
Author(s):  
Faris Alshubiri
Keyword(s):  
Least Squares ◽  
Financial Development ◽  
Technological Development ◽  
National Income ◽  
Ordinary Least Squares ◽  
Growth Strategy ◽  
Causality Test ◽  
Gcc Countries ◽  
Causal Direction ◽  
Long Run

This study examined the effect of the relationship between saving and capital expansion on financial and technological development in three GCC countries using panel data from 1990 to 2019. The study used panel least squares, feasible general least squares, dynamic ordinary least squares and fully modified ordinary least squares used in the study. The findings showed that there was a significant positive long-run relationship between capital expansion and financial development and was a positive and insignificant long-run relationship between saving and financial development. Conversely, the study showed that there was a significant positive long-run relationship between saving and technological development. Meanwhile, there was a negative long-run relationship between capital expansion and technological development. Pairwise Granger causality test results showed that there was bidirectional causality between saving and financial development, a single causal direction from Adjusted net national income and financial development and a single causal direction from technological development and saving and Inflation, consumer prices. The main conclusions of the study were saving tends to support technological development, while investment tends to improve financial development. Therefore, GCC countries should formulate a long-term growth strategy in all sectors to determine their development requirements in light of the available resources.

Macroeconomic shocks, fragility and home financing in Malaysia: can rental index be the answer?

2018 ◽  
Vol 9 (1) ◽  
pp. 17-44 ◽  
Author(s):  
Rosylin Mohd Yusof ◽  
Farrell Hazsan Usman ◽  
Akhmad Affandi Mahfudz ◽  
Ahmad Suki Arif
Keyword(s):  
Interest Rates ◽  
Islamic Banks ◽  
Macroeconomic Shocks ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Rental Rate ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence. Design/methodology/approach The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing. Findings This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates. Research limitations/implications This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry. Practical implications The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest. Social implications Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study. Originality/value This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Central bank transparency, inflation targeting and monetary policy: a panel data approach

2018 ◽  
Vol 45 (6) ◽  
pp. 1159-1174 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Cristiane Gea
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Panel Data ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Content Type ◽  
Central Bank Transparency ◽  
Policy Interest

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy. Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries. Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries. Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy. Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

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