Let beholders behold: can banks see beyond oil booms and mitigate the Dutch disease?

While the potential role of oil booms in crowding out the tradable sector is well documented in the Dutch disease literature, the potential contribution of bank lending behaviour to the oil resource curse syndrome remains largely unexplored. In this paper, we investigate contrasting variations in bank credit flows to the tradable (manufacturing) and non-tradable (service) sectors, across 14 oil-rich economies during 1994-2017, in order to shed light on whether bank lending behaviour mitigates or accentuates the syndrome. We uncover new evidence of significant contraction in the manufacturing sector share of bank credit during oil booms, while the service sector share of bank lending expands. Overall, our results are robust to alternative tests and unequivocally reject the hypothesis that banks can see beyond oil booms by allocating credit across sectors in a manner that mimics countervailing monetary policy to intermediate oil windfalls and mitigate the Dutch disease. Rather, bank sectoral credit allocation accentuates the Dutch disease by crowding out the tradable sector

Oil price booms, Dutch disease and the crowding out of tradable sectors: new insight from bank lending behavior

The Dutch disease phenomenon is front and centre in explaining the poor economic performance of resource-rich economies. While it is well documented in the literature that resource discoveries or booms have adverse effects on manufacturing, little is known about the role of sectoral credit allocation in accentuating or mitigating this phenomenon. Using monthly sectoral loan data across 13 oil-rich countries over the period 1994-2017, we find the pattern of credit allocation to be consistent with the Dutch disease: oil price booms are associated with contraction (expansion) in manufacturing (services) sector share of credit. These findings are robust to a battery of robustness tests. Consequently, we argue that sectoral credit allocation is a channel through which productive resources are shifted toward the non-tradable sector at the expenses of the tradable sector. To the extent that financial systems in oil-rich economies efficiently intermediate resource windfalls, it could potentially countervail the Dutch disease syndrome

Oil booms, bank productivity and natural resource curse in finance

Using a rich monthly microdata, this study is the first one to investigate the effect of commodity booms on bank productivity in the context of resource-endowed economies. Consistent with the axiom of a natural resource curse in finance, we find significant decline in banks’ total factor productivity (TFP) during episodes of oil booms

Climate Vulnerability and the Cost of Debt

We use indices from the Notre Dame Global Adaptation Initiative to investigate the impact of climate vulnerability on bond yields. Our methodology invokes panel ordinary least squares with robust standard errors and principal component analysis. The latter serves to address the multicollinearity between a set of vulnerability measures. We find that countries with higher exposure to climate vulnerability, such as the member countries of the V20 climate vulnerable forum, exhibit 1.174 percent higher cost of debt on average. This effect is significant after accounting for a set of macroeconomic controls. Specifically, we estimate the incremental debt cost due to higher climate vulnerability, for the V20 countries, to have exceeded USD 62 billion over the last ten years. In other words, for every ten dollars they pay in interest cost, they pay another dollar for being climate vulnerable. We also find that a measure of social readiness, which includes education and infrastructure, has a negative and significant effect on bond yields, implying that social and physical investments can mitigate climate risk related debt costs and help to stabilize the cost of debt for vulnerable countries

Financial market development, global financial crisis and economic growth : evidence from developing nations

Emerging and frontier markets in Africa have witnessed various economic and financial reforms aimed at integrating the domestic markets into the global financial market to attract investment. Whether these reforms promote high economic growth remains inconclusive. The paper applies the pooled mean group estimation technique to empirically re-investigate the link between financial market development, global financial crisis, and economic growth in selected African economies. The results strongly support our hypotheses that stock market and banking sector development promotes economic growth in the selected countries. Moreover, financial crisis reduce the positive effects of both the stock market and banking sector developments on economic growth. The study suggests that both the banking sector and stock market are important to deliver the long-run economic growth that the African region desired. Moreover, effort should be made to enact policy measures that would ensure development of the stock market which has received inadequate attention.info:eu-repo/semantics/publishedVersio

Convergence of of corporate finance patterns in Europe

Copyright Economic Issues Education FundWe investigate the pattern of corporate financing through bank loans, bond markets and stock markets in the European Union (EU). Specifically, we examine whether the European economies are converging towards a market-oriented or a bank-oriented financial system. Panel unit root tests and GMM regressions are applied to flow of funds data for eight EU countries over the period 1972- 2004. We find that the pattern of corporate financing in the EU mimics elements of the pecking order theory of financing choices. Furthermore, the EU financial system seems to be converging on a variant of the Anglo-Saxon model, with heavy reliance on internal financing and financing from the capital market.Peer reviewe

Corporate financing and macroeconomic volatility in the European union

Original article can be found at: www.springerlink.com Copyright SpringerThis paper investigates the impact of corporate financing patterns in the European Union (EU) on macroeconomic volatility. We examine macroeconomic data for eight EU countries. We find that during the period 1990 through 2005 bank financing was positively associated with volatility in GDP, consumption and investment. On the other hand, macroeconomic volatility declined with increased dependence on market-based financing from the equity and bond markets during this period.Peer reviewe