Financial innovation,economic growth,and the consequences of macroprudential policies

We leverage a ‘catch-all’ measure of financial innovation—research and development spending in the financial sector—to assess the net relationship between financial innovation and economic growth and evaluate the influence of macroprudential policy on this relationship. Using a panel of 23 countries over the period of 1996–2014, our results demonstrate a net-positive relationship between financial innovation and gross capital formation. We find no evidence of a net-negative impact of financial innovation on economic growth, challenging the popular and political stigma surrounding financial innovation. We also find little robust evidence of macroprudential policy influencing the relationship between financial innovation and economic growth. Our results support a functional approach to the regulation of financial innovation, which improves the intermediation process, leading to increased capital formation.     

The finance/innovation nexus in Schumpeterian analysis: theory and application to the case of U.S. trustified capitalism

Joseph Schumpeter built his theory of economic development around the interaction between the entrepreneur and the banker, representations of the underlying finance/innovation nexus. The neo-Schumpeterian revival has marginalized this theoretical element, in favor of an interpretation focused primarily on technological aspects of innovation. Recent attempts by innovation scholars to re-integrate the missing financial elements have been hindered by this theoretical gap. The purpose of this paper is to contribute to the recovery of the finance/innovation nexus in the context of Schumpeter’s theory by proposing an original institutional interpretation of the relationship between finance and the entrepreneurial function. The new approach identifies the economic role of innovation as dependent on the contextual form taken by the related funding process. Application of these concepts to the U.S. trustified capitalism experience allows for an alternative interpretation linking corporate internalization of innovation and financial repression. A Schumpeterian trilemma involving monetary capitalism, financial autonomy of the corporate sector and financial stability is revealed. The proposed framework provides a flexible theoretical background for the development of our understanding of the current capitalist regime, open to further integration with other schools of economic thought.     

Finance-growth nexus in China revisited: New evidence from principal components and ARDL bounds tests

This article re-examines the finance-growth nexus in China using principal components analysis and ARDL bounds testing approach to cointegration. The results suggest that principal components have an effective role in examining the links between growth and financial development and, that financial development fosters economic growth.     

The causal relationship between financial development and economic growth in Africa

ABSTRACT

Previous empirical studies on the causal relationship between financial development and economic growth are not instructive given their failure to unearth the causality trend across the different time periods. Using a more recently developed and robust indicator of financial development, we revisit the causal relationship between financial development and economic growth within the framework of a frequency-domain spectral causality technique which allows the causality to vary across time. Using data from 47 African countries over the period 1980–2016, our findings largely suggest that, even though there is some evidence of demand-following, supply-leading and feedback hypotheses, for most part, we find strong support of neutrality hypothesis. Thus, financial development and economic growth at most frequency levels evolve independently. We infer that caution must be exercised in making general conclusions about the causal nexus between financial development and economic growth.     

Non‐linear finance–growth nexus

This paper revisits the question of whether the finance–growth nexus varies with the stages of economic development. Using a novel threshold regression with the instrumental variables approach proposed by Caner and Hansen (2004) to the dataset used in Levine et al. (2000) we detect overwhelming evidence in support of a positive linkage between financial development and economic growth, and this positive effect is larger in the low‐income countries than in the high‐income ones. The data also reveal that financial development tends to have stronger impacts on capital accumulation and productivity growth in the low‐income countries than in the high‐income ones. The findings are robust to alternative financial development measures and conditioning information sets.     

Revisiting the finance–growth nexus: the Turkish case, 1980–2010

In Turkey, the empirical results on the link between financial development and economic growth are mixed. The existing studies do not take into account the fact that Turkey has experienced endemic political and economic instabilities over extended periods. This study aims to analyse the role of macroeconomic instability and public borrowing on the finance–growth nexus in Turkey by using time series econometric techniques over the 1980–2010 period. In doing so, we attempt to extend the existing literature by taking into account the role of macroeconomic instability as well as public borrowing. Our results reveal that there are additional – albeit indirect – channels between finance and growth via the effects of macro instability and public borrowing on financial development and economic growth. After taking into account the effects of overall instability and public borrowing, we found that growth–financial development relationship is bidirectional and permanent. In other words, in Turkish case, economic growth and financial development are jointly determined. Thus, our results shed some light on the ambiguity of the evidence on the link between financial development and economic growth for Turkey.     

Re-examining the financial development and economic growth nexus in Kenya

This paper re-examines the causal relationship between financial development and economic growth in Kenya for the period 1966–2005 within a quadvariate vector autoregressive (VAR) framework by including exports and imports as additional variables to the finance–economic growth nexus. We use four conventionally accepted proxies for financial development, namely money supply (M2), liquid liabilities (M3), domestic bank credit to the private sector and total domestic credit provided by the banking sector (all percent of GDP). Applying a modified version of the Granger causality test due to Toda and Yamamoto [Toda, H.Y. and Yamamoto, T., Statistical inference in vector autoregressions with possibly integrated process. Journal of Econometrics 1995; 66; 225–250], our empirical results suggest that in three out of the four measures of financial development we found evidence of a two-way Granger causality: (1) between domestic credit provided by the banking sector and economic growth; (2) between total domestic credit provided by the banking sector and economic growth, and (3) between liquid liabilities and economic growth. This implies that neither the supply-leading nor the demand-following hypotheses are supported in Kenya and that economic growth and financial development are jointly determined, or they complement each other. A major implication of our finding is that financial development promotes economic growth in Kenya and that policies at enhancing the development of the financial sector can help to spur economic growth.     

中国的金融深化和生产率关系的再检测:1987-2001

金融中介和增长的关联问题在发展经济学文献中广受关注。金融中介的深化增加投资的流动性,提高金融资源的回报,从而提高生产率,所以被认为是经济增长的“发动机”。本文利用省份面板数据研究了中国各地区生产率变化如何受到金融深化过程的影响。通过构建对金融深度的适当测度,本文发现金融深化和生产率增长之间呈显著为正的关系。考虑到沿海和内地金融深化模式的差异,既然地区差距越来越被认为是与生产率差异相联的,这一发现同时解释了中国地区差距的扩大趋势。     

Thresholds in finance–growth nexus: Evidence from G‐7 economies

This study explores the finance and economic growth nexus in G‐7 economies as these countries experience significantly higher levels of financial development. Using a balanced panel of 31 years from 1983 to 2013, we provide new evidence on the finance–growth relationship. We show the presence of nonlinearity as there is an inverted U‐shaped relationship between finance and growth in the long run. Estimating the thresholds in the finance–growth nexus, we notice that there exists a threshold effect of finance at 109% of Gross Domestic Product (GDP). We observe that exceeding the threshold would hinder the countries instead of furthering economic growth as too much finance is harmful. Based on the panel Granger causality test results, we claim that financial development should be associated with optimal growth performance. Our findings for the G‐7 economies offer some useful policy inferences to the emerging and developing economies in designing their financial development strategies.     

Empirical exercises in estimating the effects of different types of financial institutions’ functioning on economic growth

While recent studies of the finance-growth nexus have focused on the use of proxies which more accurately capture the theorized functioning of the financial sector, they have tended to focus either on the functioning of the financial sector as a whole, or on the dominant institutions within the sector. Little attention has been paid to a comparison of the relative effects of different types of financial institutions on economic growth. This article attempts to get a deeper understanding of the finance-growth process by disaggregating the total financial sector impact and examining the individual and relative effects of each type of institution in the financial sector. We explore the empirical properties of alternative specifications of models of the impact of financial institutions’ functioning on economic growth, by conducting a number of exercises. These exercises experiment with various model specifications to represent the long- and short-run impacts of the financial institutions’ functioning on economic growth, using cointegration and error correction methodologies.     

The role of banks in CESEE countries: exploring non-standard determinants of economic growth

This paper explores the finance–growth nexus in 14 countries from Central, Eastern and South-eastern Europe (CESEE) over the 1995–2015 period. It investigates whether including two ‘non-standard’ variables, i.e. a credit cycle dummy and foreign bank relevance, deepens our understanding of the role of a typical financial determinant of economic growth, i.e. bank credit. We find evidence of a negative impact of bank credit on economic growth and the significance of cyclical fluctuations of bank credit. In contrast, a higher market share of loans granted by foreign-owned banks in a cyclical upswing and stock market capitalisation are found to have a proactive effect on growth.     

湖南省金融发展与经济增长的ECM模型分析

金融发展与经济增长的关系是经济学的一个重要研究领域。选取1982—2008年为时间段,以湖南省为例对金融发展与经济增长的关系进行了实证研究,结果表明湖南省信贷存量、其他金融机构发展（除银行）与经济增长呈正相关关系,而货币存量与经济增长呈负相关关系。经济增长是其他金融机构发展的短期格兰杰原因,而存贷存量在长期上是经济增长的格兰杰原因。     

Economic growth and financial development in Asian countries: A bootstrap panel Granger causality analysis

This study using Kónya (2006) [Kónya, L. (2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling 23, 978–992.] method of bootstrap panel Granger causality analysis, which considers the issues of cross-sectional dependency and slope heterogeneity among countries investigated simultaneously, analyzes the causality between financial development and economic growth among ten Asian countries surveyed during period 1980 to 2007. We find that the direction of causality between financial development and economic growth is sensitive to the financial development variables used in the ten Asian countries examined in this work. Moreover, our findings support the supply-leading hypothesis, as many financial development variables lead economic growth in some of the ten Asian countries surveyed, especially in China.     

危机损失、经济复苏与金融结构比较——什么样的金融体系更能摆脱危机

本文从比较分析视角出发,研究在应对金融危机的过程中,不同的金融结构对经济增长的作用。我们利用57个国家从1960到2009年的面板数据检验了金融结构、金融发展水平与经济增长之间的相互联系。研究结果表明,只有当金融发展水平较高的经济体选择市场导向的金融结构时,才能降低金融危机的损失,提高经济复苏速度,而金融发展水平较低的经济体的最佳选择则是银行导向的金融结构。最后,本文结合中国的现实情况提出了相关的政策建议。     

A quantitative reassessment of the finance–growth nexus: evidence from a multivariate VAR

The long-run relationship between financial development and economic growth is examined in a multivariate vector autoregression (VAR) framework using 10 sample countries. Difficulties surrounding the cross-country regressions and bivariate time series studies are outlined. The long-run financial development and output relationships are identified in a cointegrating framework through tests of over-identifying restrictions. We find bi-directional causality between financial development and economic growth in all the sample countries, conclusions that stand distinct from those in the existing empirical literature. We attribute our findings to: (i) analysis of a higher dimensional system, (ii) a new method of identifying the long-run economic relationships, and (iii) a new approach to long-run causality testing.     

Financial structure and economic growth

Recent empirical work on financial structure and economic growth analyzes multi-country dataset in panel and/or cross-section frameworks and concludes that financial structure is irrelevant. We highlight their shortcomings and re-examine this issue utilizing a time series and a Dynamic Heterogeneous Panel methods. Our sample consists of fourteen countries. Tests reveal that cross-country data cannot be pooled. Financial structure significantly explains output levels in most countries. The results are rigorously scrutinized through bootstrap exercises and they are robust to extensive sensitivity tests. We also test for several hypotheses about the prospective role of financial structure and financial development on economic growth.     

ON THE IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH: DOES COUNTRY RISK MATTER?

This study examines the nonlinear impacts of four country risk indices on the debt‐growth nexus for 61 countries in a panel data framework. Our results show evidence of the different debt‐growth nexus under the different degrees of country risk. Under a high‐risk environment, a country's economic growth is harmed by raising its public debt. The negative effects public debt has on economic growth become weak under low political and financial‐risk environments, while an increase in public debt could help to stimulate economic growth under low composite and economic risk environments. In addition, the differences of countries' income and debt levels also lead country risks to have different effects on the debt‐growth nexus, suggesting that a country should borrow appropriately based on its current risk environments while improving economic performance. (JEL C33, E02, H63, O43)     

农村金融发展与农村经济增长——一个动态演化分析视角

农村金融发展对于农村经济增长具有重要的推动作用.运用1978-2010年的相关数据和时变参数模型估计方法,就我国农村金融发展与农村经济增长之间的动态关系进行探寻.首先,协整检验与误差修正模型的估计结果显示:无论是长期还是短期,农村金融发展规模对于农村经济增长具有正向促进作用,而农村金融中介效率却对农村经济增长起到了负向抑制作用.时变参数模型的估计结果则进一步发现:农村金融发展规模对农村经济增长的促进作用在整体上呈现弱化趋势,当前的正向作用机制比较微弱;而农村金融中介效率对农村经济增长的抑制作用经历了一个先减弱后增强的“倒V”型变化过程.     

Innovation and finance: a stock flow consistent analysis of great surges of development

The present work aims at contributing to the recent stream of literature which attempts to link the Neo-Schumpeterian/Evolutionary and the Post-Keynesian theory. The paper adopts the Post-Keynesian Stock Flow Consistent modeling approach to analyze the process of development triggered by the emergence of a new-innovative productive sector into the economic system. The model depicts a multi-sectorial economy composed of consumption and capital goods industries, a banking sector and two households sectors: capitalists and wage earners. Furthermore, it provides an explicit representation of the stock market. In line with the Schumpeterian tradition, our work highlights the cyclical nature of the development process and stresses the relevance of the finance-innovation nexus, analyzing the feed-back effects between the real and financial sides of the economic system. In this way we aim at setting the basis of a comprehensive and coherent framework to study the relationship between technological change, demand and finance along the structural change process triggered by technological innovation.     

BANK PERFORMANCE,FINANCIAL STABILITY AND MARKET CONCENTRATION: EVIDENCE FROM COOPERATIVE AND NON‐COOPERATIVE BANKS

Relying upon highly territorially disaggregated data taken at labour market areas, the paper explores the relationship between bank performances and financial stability of the banking system taking into account the role of market concentration. The z‐score is used as financial stability indicator, while the performance of financial intermediaries is measured using a parametric method recently developed (Kumbhakar et al. 2014). The empirical evidence shows a positive relationship between bank performance and financial stability and supports the ‘concentration–stability’ view for non‐cooperative banks only when concentration is measured on the whole sample of banks. Differences in the performance–stability nexus seem to depend more on the type of banks rather than different levels of market concentration. Higher market concentration of cooperative banks affects systemic stability by reducing the z‐scores of non‐cooperative banks, supporting the hypothesis that the presence of non‐profit‐maximizing entities can pull down stability of other financial institutions.