Revisiting the Link Between Finance and Macroeconomic Volatility

Dabla‐Norris, Era; Srivisal, Narapong

doi:10.5089/9781475543988.001

Cited by 106 publications

(116 citation statements)

References 33 publications

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“…We find a negative and significant association between financial development, that is, Private Credits and investment growth volatility during the period 1998–2013. This finding is consistent with previous findings (see e.g., Dabla‐Norris and Srivisal, ) as deeper financial systems facilitate greater diversification, reduce dependence of firms’ investment decisions on internal cash flows and dampen fluctuations…”

Section: Empirical Findingssupporting

confidence: 93%

Foreign banks, financial crises and macroeconomic fluctuations

Önder

Ozyildirim

2016

Econ Transit

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Understanding the implications of increased foreign bank presence is especially compelling in periods of financial crisis. In this paper, we explore this issue by examining the relationship between the involvement of foreign banks in the banking systems and the volatility of key macroeconomic variables in normal and crisis periods. Using a sample of 20 Emerging European countries from 1998 to 2013, we find that an increase in the assets of foreign banks in the banking system reduces output and consumption growth volatility in general but does not significantly affect the volatility of investments. However, these banks were found to play a significant role in increasing output, consumption and investment volatility in 2009. Our findings suggest that foreign banks' harmful impact during the global crisis was only temporary and that they seem to help Emerging European countries stabilize macroeconomic volatility in normal times and after the global crisis.JEL classifications: G21, E32, F43.

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Section: Empirical Findingssupporting

confidence: 93%

Foreign banks, financial crises and macroeconomic fluctuations

Önder

Ozyildirim

2016

Econ Transit

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“…The same conclusion is provided by Dabla-Norris and Srivisal (2013), who refers that the beneficial role of financial deepening in dampening the volatility of consumption, investment and output across countries only occurs up to a certain threshold. They state that the growth of the financial sector to high levels (as those observed in many advanced economies) amplifies the volatility of consumption and investment.…”

Section: Excessive Financial Deepeningmentioning

confidence: 49%

Evolution of the financial sector – three different stages: repression, development and financialisation

Barradas¹

2015

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EEv vo ol lu ut ti io on n o of f t th he e f fi in na an nc ci ia al l s se ec ct to or r --t th hr re ee e d di if ff fe er re en nt t s st ta ag ge es s: : R Re ep pr re es ss si io on n, , d de ev ve el lo op pm me en nt t a an nd d f fi in na an nc ci ia al li is sa at ti io on n E Ev vo ol lu ut ti io on n o of f t th he e f fi in na an nc ci ia al l s se ec ct to or r --t th hr re ee e d di if ff fe er re en nt t s st ta ag ge es s: : R Re ep pr re es ss si io on n, , d de ev ve el lo op pm me en nt t a an nd d f fi in na an nc ci ia al li is sa at ti io on n _ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ ABSTRACTThis paper makes a systematic literature review on the evolution of the financial sector in the last decades all over the world, but especially in the more developed countries. This evolution was marked by three different stages, reflecting different impacts of the financial sector on the real economy and on society. The first stage -financial repression -is characterised by the existence of several regulations and restrictions on the financial sector, which proved to be detrimental to support economic growth. This legitimised the financial liberalisation and deregulation of the financial sector in the recent years, representing the second stage -financial development. Consequently, there was a strong growth of the financial sector in subsequent years, originating an excessive financial deepening and casting doubts around the advantages provided by the financial sector. In fact, excessive financial deepening weakened or reversed the relationship between savings and investments. The large growth of the financial sector and its deleterious effects are commonly referred as financialisation, constituting the third stage. The paper concludes that it is necessary to engage in a fourth stage in the coming years -definancialisation -in order to re-establish a more supportive relationship between the financial sector and economic growth and presents several policy recommendations around this matter.

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“…This importance is largely evident on its impact on economic growth (Alexiou, Vogiazas, & Nellis, 2018;Ibrahim & Alagidede, 2016;Ibrahim & Alagidede, 2017a;Swamy & Dharani, 2018), economic volatility (Dabla-Norris & Srivisal, 2013;Ibrahim & Alagidede, 2017b), and sectoral value additions (Kumi, Ibrahim, & Yeboah, 2017). This importance is largely evident on its impact on economic growth (Alexiou, Vogiazas, & Nellis, 2018;Ibrahim & Alagidede, 2016;Ibrahim & Alagidede, 2017a;Swamy & Dharani, 2018), economic volatility (Dabla-Norris & Srivisal, 2013;Ibrahim & Alagidede, 2017b), and sectoral value additions (Kumi, Ibrahim, & Yeboah, 2017).…”

Section: Introductionmentioning

confidence: 99%

Financial development, sectoral effects, and international trade in Africa: An application of pooled mean group (PMG) estimation approach

2018

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Existing studies on financial development–international trade nexus have centred on the implications of finance for trade without investigating the transmission channels of finance on trade. More importantly, how financial sector development mediates the relationship between sectoral value additions and trade remains an unexplored area. This study addresses these gaps in the literature relying on panel data from 46 countries in Africa spanning 1980–2016. Our evidence based on the pooled mean group estimations suggest that, for both the long and short run, although the impact of sectoral value additions is contingent on the proxy of trade, financial sector development does not have a significant effect on international trade. This holds irrespective of the measure of finance and international trade. However, after controlling for the transmission channels, a coexistence of a negative long run substitutionarity between finance and trade is found, and this is invariant of the indicator of finance and trade. On the mediation role, we find that higher sectoral value additions dampen the deleterious effect of finance on trade with huge impact emanating from the service sector. We discuss some key implications for policy.

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Revisiting the Link Between Finance and Macroeconomic Volatility

Cited by 106 publications

References 33 publications

Foreign banks, financial crises and macroeconomic fluctuations

Foreign banks, financial crises and macroeconomic fluctuations

Evolution of the financial sector – three different stages: repression, development and financialisation

Financial development, sectoral effects, and international trade in Africa: An application of pooled mean group (PMG) estimation approach

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