The Finance and Growth Nexus Re-Examined: Do All Countries Benefit Equally?

Adolfo Barajas, Ralph Chami, Seyed Reza Yousefi

ABSTRACT
A large theoretical and empirical literature has focused on the impact of financial deepening on  economic growth throughout the world. This paper contributes to the literature by investigating whether this impact differs across regions, income levels, and types of economy. Using a rich data set for 150 countries for the period 1975–2005, dynamic panel estimation results suggest that the beneficial effect of financial deepening on economic growth in fact displays measurable heterogeneity; it is generally smaller in oil exporting countries; in certain regions, such as the Middle East and North Africa  (MENA); and in lower-income countries. Further analysis suggests that these differences might be driven by the degree of competition, and related to differences in the ability to provide widespread access to financial services.

JEL classification: G2, O0, O4, O5, O53
Keywords: Growth, Financial Development, Inclusive Growth, Financial Access.

DOI: 10.7172/2353-6845.jbfe.2016.1.1

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Intermediary networks under the rule of equi-repartition of profits

Fabien Mercier

ABSTRACT
This paper studies the stability, equilibrium and efficiency of directed networks of trade intermediaries under a rule of equi-repartition of profits. This equi-repartition rule, although simple and natural, introduces complex topologic considerations from players. Core-periphery structures can arise endogenously and result in stable networks even assuming complete homogeneity of all agents in the network. The concept of network partition is introduced to provide examples of networks that could be seen as arising from the linking up of a set of disjoint networks in an endogenous manner. From an aggregate welfare perspective as well as sometimes from an individual perspective, leaving the linking up of those individually efficient networks to each individual agent can result in an inefficient aggregate network, even if taken in isolation each pre-existing network is efficient.

JEL classification: D85, G10, L14
Keywords: trading; telecommunications; settlements; post-trading industry; networks; graph-theory.

DOI: 10.7172/2353-6845.jbfe.2016.1.2

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What Drives the Volatility of Firm Level Productivity in China?

Xubei Luo, Nong Zhu

ABSTRACT
The enterprise reforms of the 1990s profoundly changed the structure of the economy in China. Using a firm-level dataset collected annually during the period of 1998–2007, this paper examines the variation of productivity volatility across firms of different characteristics as well as its evolution over time, and investigates the sources of productivity volatility at the firm level. The results suggest that in general, productivity volatility at the firm level declined over time in China. Large firms, old firms, foreign firms, and firms located in the coastal provinces are less volatile. Firm size and location are the two major factors that drive changes in productivity volatility – one in a positive way and one in a negative way. While the gaps of volatility between smaller firms and larger firms declined, the gaps between firms located in the coastal provinces and inland
provinces increased.

JEL classification: C21; D21; E23
Keywords: Enterprise Reform; Productivity; Volatility; China.

DOI: 10.7172/2353-6845.jbfe.2016.1.3

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External Factors in Debt Sustainability Analysis: An Application to Latin America?

Gustavo Adler, Sebastian Sosa

ABSTRACT
This paper develops a framework for debt sustainability analysis that integrates econometric estimates of the effect of global factors on a set of key domestic variables that determines public and external debt dynamics. The methodology is applied to assess debt sustainability in Latin America—a region highly sensitive to external conditions. Results suggest that, while some countries in the region are well placed to withstand moderate or even large foreign shocks, many would benefit from strengthening their fiscal positions to be able to deploy countercyclical policies under adverse scenarios, especially tail events. External sustainability, on the other hand, does not appear to be a source of concern for most countries.

JEL classification: C32, E62, F41, F47, H62, H63
Keywords: public debt, external debt, debt sustainability, Latin America.

DOI: 10.7172/2353-6845.jbfe.2016.1.4

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The relationship between distance-to-default and CDS spreads as measures of default risk
for European banks

Kim Ristolainen

ABSTRACT
CDS spreads are often seen as the ’leading’ market based, default risk measure. There is no popular alternative to CDS spreads except perhaps for the distance-to-default (D2D) measure based on Merton (1974), which comes very close to it. In this paper, we investigate the correlation and short-term dynamics between these two measures for large European banks with a data panel spanning from 1/2006 to 12/2013. The analysis makes use of conventional Granger causality test
statistics for individual banks and for the whole panel data. As regards the results, we found that the lead-lag relationship between these highly related variables varies over time, over different banks, and over economic regimes. The lead of D2D is signifi cantly stronger for banks that are smaller relative to the other banks in the sample, banks in problem countries (PIIGS), after global financial crises, during market turmoil, and for banks with poor credit quality indicated by a high CDS spread. These results and the fact that D2D can be calculated for every bank quoted on the stock exchange suggests that D2D is a promising alternative to the CDS spread in default risk assessment of banks.

JEL classification: G01; G21; G32
Keywords: financial stability, European banks, distance-to-default, credit default swap, lead-lag
relationship.

DOI: 10.7172/2353-6845.jbfe.2016.1.5

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