scholarly journals Manufacturing and Services Growth in Developing Economies: ‘Too Little’ Finance?

2019 ◽  
Vol 19 (1) ◽  
pp. 55-82 ◽  
Author(s):  
Sarah Lynne Salvador Daway-Ducanes ◽  
Maria Socorro Gochoco-Bautista
Keyword(s):  
Critical Level ◽  
Developing Economies ◽  
Generalized Method Of Moments ◽  
Financial Sector ◽  
Market Failures ◽  
Weak Institutions ◽  
Lumpy Investments ◽  
Long Run ◽  
Service Sectors ◽  
The Relationship

This article explores the relationship between financial development and growth in manufacturing and service sectors in 77 developing economies over the period 1984–2013. Specifically, we examine whether the size of the financial sector matters and if it does, whether the size of the financial sector in these countries is of a sufficient scale for credit and liquidity expansion to benefit the economy. Using the two-step system generalized method of moments, we find a u-shaped relationship between either manufacturing or services growth and financial size, indicating that a critical level of financial scale has to be achieved for financial expansion to positively affect the growth. For some 50%–90 per cent of the economies in the sample, there is a robustly long-run adverse effect of financial expansion on both manufacturing and services growth, indicating a case of ‘too little’ finance, likely explained by a combination of weak institutions, market failures and the existence of large and lumpy investments that require sufficient financial scale.

Do Firm Growth Models Work in Service Industries in Developing Economies? An Investigation of the Relationship Between Firms’ Growth, Size and Age

2021 ◽  
pp. 026010792198991
Author(s):  
Boby Chaitanya Villari ◽  
Balaji Subramanian ◽  
Piyush Kumar ◽  
Pradeep Kumar Hota
Keyword(s):  
Firm Growth ◽  
Developing Economies ◽  
Growth Models ◽  
Growth Patterns ◽  
Service Industries ◽  
Gibrat’S Law ◽  
Gibrat's Law ◽  
Manufacturing Sectors ◽  
Service Sectors ◽  
The Relationship

Growth models such as Gibrat’s law and Jovanovic’s theory that examine the relationship between the firms’ growth, age and size have either been tested on data from developed economies or from the manufacturing sectors in developing economies. This study checks the suitability of these models in service sectors in developing economies as service sectors have distinct characteristics and developing economies such as India are heavily dependent on this sector. The current study considers three major service sectors contributing to India’s economy vis-à-vis financial services, information technology and real estate for the period 2002–2005. We observed that during 2002–2005, India’s economy was stable without wide fluctuations in economic performance, such as gross domestic product, unemployment or inflation. These sectors not only had a significant impact on economic growth but also had comprehensive microeconomic data. Our results negate both Gibrat’s law and Jovanovic’s theory. We argue that service sectors which are knowledge-intensive will experience different growth patterns compared to manufacturing sectors. We find a definite and significant relationship between firms’ growth and their size and age. Also, we find concluding evidence that younger firms up to 10 years of age struggle a lot more than older firms in the Indian service sector. JEL: D20, D21, D22, D02

scholarly journals Investigating The Effect Of Bank Competition On Financial Stability In Ten African Countries

2013 ◽  
Vol 12 (7) ◽  
pp. 755 ◽  
Author(s):  
Christopher James Hope ◽  
Tendai Gwatidzo ◽  
Miracle Ntuli
Keyword(s):  
Method Of Moments ◽  
Financial Stability ◽  
Generalized Method Of Moments ◽  
Financial Sector ◽  
Bank Competition ◽  
Z Score ◽  
African Countries ◽  
The Relationship ◽  
Stability Indices ◽  
Competition Indices

This paper explores the relationship between bank competition and financial sector stability using 20052010 data for ten African countries. The study utilises a Generalized Method of Moments approach to regress bank stability indices Z-score, non-performing loans ratio and return on banks assets on bank competition indices Lerner-Index, Herfindahl-Hirschman Index total assets and Herfindahl-Hirschman Index total deposits. The findings show a robust positive relationship between market power and financial stability. This unequivocally suggests that there is a trade-off between bank competition and financial sector stability in these countries, as per the competition-fragility view.

scholarly journals Reexamining the National Savings-Investment Nexus Across Time and Countries

2020 ◽  
Vol 20 (124) ◽  
Author(s):  
Antonio David ◽  
Carlos Eduardo Gonçalves ◽  
Alejandro Werner
Keyword(s):  
Developing Economies ◽  
Positive Association ◽  
Market Failures ◽  
Weak Instruments ◽  
Endogeneity Bias ◽  
Advanced Economies ◽  
Domestic Savings ◽  
Alternative Hypotheses ◽  
Total Investment ◽  
The Relationship

Domestic savings and investment are positively correlated across countries and through time, as Feldstein-Horioka (FH) unveiled 40 years ago. We argue that an interpretation of this correlation based on market failures is more consistent with data patterns than alternative hypotheses. Moreover, resorting to instrumental variables techniques, we conclude that the relationship is causal: an exogenous rise in savings increases investment. This result holds in the full sample of countries and for emerging and developing economies, but there is evidence that the positive association in advanced economies is due to endogeneity bias. The core of our identification strategy relies on the idea that population age structure influences savings, but not total investment directly. Specifically, we use the share of adults in the [35-49] years of age bracket as an instrument for savings. Our estimates pass weak-instruments robust inference.

scholarly journals Institutional Quality and Financial Sector Development: Empirical Evidence from Nigeria

2018 ◽  
Vol 7 (1) ◽  
pp. 1 ◽  
Author(s):  
Fisayo Fagbemi ◽  
John Oluwasegun Ajibike
Keyword(s):  
Empirical Evidence ◽  
Financial Development ◽  
Good Governance ◽  
Developing Economies ◽  
Institutional Quality ◽  
Financial Sector ◽  
African Countries ◽  
Financial Sector Development ◽  
Long Run ◽  
Short Run

In view of the indispensable role of financial sector in both emerging and developing economies, there has been a notable spotlight on the financial sector development over the years in most African countries. Nonetheless, there are only a few studies on this topical issue, particularly for Nigeria. Hence, this study examines the long – run and short – run dynamic relationship between institutional quality and financial development in Nigeria over the period of 1984 – 2015 using Auto-Regressive Distributed Lag (ARDL) bounds test approach to cointegration. Using two different indicators (Private credit and M2) of financial development, the results consistently show that institutional factors do not have significant effect on financial development in the long – run as well as in the short – run. Furthermore, the empirical evidence indicates that regulatory quality and governance system (institutions) do not necessarily contribute to financial development in a feeble institutional environment, specifically in Nigeria. Thus, our findings suggest that whilst weak institutions could increase the risk of limiting the functioning of financial system, good governance and strong institutions are the essential ingredient of financial development in Nigeria. As a consequence, policies aimed at strengthening the quality of institutions and governance should form the major policy thrust of government (policy makers). These could help improving financial sector development in Nigeria.

scholarly journals Monetary Policy and Economic Growth: A Review of International Literature

2018 ◽  
Vol 7 (2) ◽  
pp. 123-137 ◽  
Author(s):  
Enock Nyorekwa Twinoburyo ◽  
Nicholas M. Odhiambo
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Financial Markets ◽  
Developing Economies ◽  
Developed Economies ◽  
Long Run ◽  
Wide Range ◽  
Short Run ◽  
Theoretical Evolution ◽  
The Relationship

Abstract This paper aims to survey the existing literature, both theoretical and empirical, on the relationship between monetary policy and economic growth. While there has been a wide range of studies on the existing relationship between monetary policy and economic growth, the nexus between the two remains inconclusive. This paper takes a comprehensive view of the theoretical evolution of the relationship and the respective recent empirical findings. Overall, this paper shows that the majority of findings support the relevancy of monetary policy in supporting economic growth, mainly in financially developed economies with fairly independent central banks. The relationship tends to be weaker in developing economies with structural weaknesses and underdeveloped financial markets that are weakly integrated into global markets. This paper concludes that monetary policy matters for growth both in the short-run and long-run despite the prevailing ambiguous relationship. The paper recommends intensive financial development measure for developing countries as well as structural reforms to address to supply side deficiencies.

scholarly journals Fiscal Decentralization and Gender Equality in Developing Economies: Dynamics of Income Groups in Economies and Corruption

2021 ◽  
Vol 11 (9) ◽  
pp. 745-761
Author(s):  
Sidra Naeem ◽  
Rana Ejaz Ali Khan
Keyword(s):  
Gender Equality ◽  
Fiscal Decentralization ◽  
Developing Economies ◽  
Generalized Method Of Moments ◽  
Socioeconomic Indicators ◽  
Middle Income ◽  
Middle Income Countries ◽  
Income Groups ◽  
And Gender ◽  
The Relationship

A large number of studies on fiscal decentralization have supported the claim that decentralized governments have a greater capacity to approach local preferences and have greater potential for public service delivery, which demonstrates a favorable status of socioeconomic indicators. However, there is no empirical evidence on fiscal decentralization and gender equality. This study empirically examines the effect of fiscal decentralization on gender equality in 29 developing economies from 2006 to 2020 by employing the dynamic panel system generalized method of moments (GMM). The study uses three measures of fiscal decentralization—expenditure, revenue, and composite decentralization—to learn the dynamics of income groups in developing economies, and corruption from the perspective of fiscal decentralization and gender equality. The results demonstrate that fiscal decentralization improves gender equality in the sample of developing economies as well as in the sub-sample of developing economies, i.e., lower-middle income countries and upper-middle income countries subject to the control of corruption, otherwise fiscal decentralization may devastate gender equality in developing economies and upper-middle income economies. Corruption plays a dynamic role in the relationship between fiscal decentralization and gender equality. The desired results of fiscal decentralization may be attained through policy reforms to control corruption. The dynamics of income groups in the sampled economies also have implications for the relationship between fiscal decentralization and gender equality.

scholarly journals Tariffs, Trade and Economic Growth in a Model with Institutional Quality

2011 ◽  
Vol 16 (2) ◽  
pp. 31-54
Author(s):  
Azam Chaudhry
Keyword(s):  
Economic Growth ◽  
Institutional Quality ◽  
Stages Of Development ◽  
Export Sector ◽  
Weak Institutions ◽  
Long Run ◽  
Innovation Sector ◽  
The Government ◽  
The Relationship

This article shows how institutional quality can affect the relationship between trade and growth. Our model looks at an economy in which the export sector is a high-innovation sector. In this economy, a government that is politically threatened by innovation can use its tariff policy to block innovation and increase domestic revenues. In this case, higher tariffs reduce economic growth and the government faces a tradeoff: It can either (i) raise tariffs, collect greater rents, and increase stability; or (ii) it can reduce tariffs and increase long-run growth and instability. When the quality of a country’s institutions are reflected in the costs of increasing tariffs, it can be shown that countries with strong institutions gain more (in terms of growth) from trade than countries with weak institutions, due to the effect of institutions on trade policy. It is also possible to show that the quality of institutions in one country can spill over into another by affecting its trading partner’s growth rate of income. However, these results are reversed in the case where a country has a highly innovative domestic sector—this explains the tariff-growth paradox in which countries experience higher growth with higher tariffs in earlier stages of development, but higher growth with lower tariffs in later stages of development.

scholarly journals The Causality Relationship Between Financial Sector Profitability and the Botswana Economy

2021 ◽  
Vol 12 (3) ◽  
pp. 381
Author(s):  
Tebogo Tshepo Kubanji ◽  
Simangaliso Biza-Khupe ◽  
Mogotsinyana Mapharing
Keyword(s):  
Global Economy ◽  
Recovery Period ◽  
Financial Sector ◽  
Policy Implications ◽  
Critical Periods ◽  
Reverse Causality ◽  
Precise Nature ◽  
Long Run ◽  
Sector Performance ◽  
The Relationship

Previous research has lamented on both the importance and the symbiotic relationship between financial sector performance and the state of a country’s economy. Findings of these studies are generally in concert in that the performance of the financial sector is intertwined with macroeconomic indicators. There is, however, a difference in opinion on the precise nature of the relationship between these sets of variables. This difference of opinion has led to the development of three parallel strands of theory: demand-driven relationship; supply-driven relationship; and economic developmental stage. To the extent that an understanding of the precise nature of the relationship between these critical variables would promote economic growth, it was found imperative to investigate the phenomenon in the context of a developing economy. This paper examines the causal relationship between the financial sector index and GDP in Botswana. The study uses data over a period of 10 years (2003-2013). This study timeframe is significant because previous research does not incorporate the critical periods in financial markets history over which the global economy experienced the economic cycle of the boom years (2003-2006), followed by a recession (2007-2010) and finally the recovery period (2010 and beyond). This financial cycle provides a unique opportunity for new insights into how financial sector performance relates to the economy. The findings are suggestive of an existence of a stable long-run relationship between the financial sector and the economy. In addition, the results show that the economy granger-cause the financial sector index with no reverse causality observed. Policy implications of these findings are discussed in the paper.

The relationship between international trade openness and economic growth in the developing economies

2015 ◽  
Vol 8 (2) ◽  
pp. 123-139 ◽  
Author(s):  
Muhammad Tahir ◽  
Toseef Azid
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Developing Economies ◽  
Labour Force ◽  
Trade Openness ◽  
Content Type ◽  
Long Run ◽  
Speed Up ◽  
Determinants Of Economic Growth ◽  
The Relationship

Purpose – This paper aims to establish a relationship between trade openness and economic growth in the context of the developing countries. This study has proposed a new measure of trade openness to the literature, as the available measures are flawed. Design/methodology/approach – Empirical analyses are carried out with the help of panel econometric techniques. Findings – The main finding of the paper is that the relationship between trade openness and economic growth is positive and statistically significant for developing countries. Besides trade openness, other determinants of economic growth such as investment and labour force are also significantly related with economic growth and carry expected coefficients. Further, it is found that frequent fluctuations in prices are detrimental to long-run economic growth. Practical implications – Therefore, the developing countries are suggested to speed up the process of trade liberalization and also pay favourable attention to other determinants of economic growth to achieve high economic growth. Originality/value – The authors have used a new measure of trade openness apart from the conventional trade volume measure of trade openness.

scholarly journals Examining the Impact of Financial Development on Energy Production in Emerging Economies

2021 ◽  
Vol 14 (2) ◽  
pp. 88
Author(s):  
Neil A. Wilmot ◽  
Ariuna Taivan
Keyword(s):  
Financial Development ◽  
Energy Production ◽  
Developing Economies ◽  
Ordinary Least Squares ◽  
Foreign Firms ◽  
Long Run ◽  
Panel Granger Causality ◽  
Domestic Credit ◽  
The Impact ◽  
The Relationship

Global energy production has been on the rise for many years, and reliance on traditional sources of energy remains strong. The extraction and production of energy can serve as an important avenue of growth, particularly for developing economies. To undertake such capital intensive project requires significant investment, and, intuitively, a well-functioning domestic financial system would be expected to aid in the growth of such industries. We investigate the relationship between financial development and energy production for 15 emerging countries, over the period of 1995–2017. After establishing the presence of a unit root, based upon panel data methods, a cointegrating relationship between financial development and energy production is confirmed. The results of the fully modified ordinary least squares (FMOLS) estimation establish a long run relationship in 11 of 15 countries in the sample. Panel Granger causality results provide a link between energy production and foreign direct investment (FDI), while such a link is absent for domestic credit. Policymakers should understand that development of the energy sector can provide an incentive for foreign firms to invest in emerging economics.

Sign in / Sign up

Export Citation Format

Share Document