FDI and development redux: Is R&D a substitute for FDIs?

Using a sample of 130 countries over the period 2004-2019, we revisit the development impact of foreign direct investment (FDI), but this time examine the role of research and development (R&D) in this framework. We use bilateral investment treaties (BITs) as a novel instrument for FDI. We find that compared to FDI, expenditure on R&D has a more pronounced impact on development outcomes – through increasing growth and human development while reducing poverty and inequality. We also find that countries that spend more on R&D are less dependent on FDI for development. Thus, R&D and FDI are substitutes in the development process with the results showing varying FDI and R&D thresholds at which the substitution takes place. We however find the vanishing effect of FDI on development. It turns out that R&D complements FDI only when FDI reaches its threshold and begins to hurt development – at this stage there is sufficient R&D expenditure which possibly suggest sufficient adaptive capacity

Lightening the Path to Financial Development: The Power of Electricity

This paper examines the impact of access to electricity on financial development. In doing so, we use plausibly exogenous variations in population density as an instrument for electrification rate. Using panel data for 44 countries in Sub-Saharan Africa over the period 2000 to 2018, the results suggest that more people having access to electricity can promote financial development. In addition, mobile phone and commercial bank branches diffusion serve as potential channels through which access to electricity affects financial development. The results have important implications for policies in overcoming barriers to electricity access

Carbon emissions and banking stability: Global evidence

This paper examines the impact of per capita CO2 emissions on banking stability. To identify the causal effect of carbon emissions on the stability of banking system, we use plausibly exogenous source of variations in energy use as an instrumental variable (IV) for CO2 emissions. Using data for a panel of 122 countries over the period 2000-2013, our IV regression results indicate that there is an inverted U-shaped relationship between per capita CO2 emissions and banking stability. Our findings reveal that CO2 emissions have a positive effect on banking stability at a low level of emissions and an adverse effect at a higher emissions level. We also find that industrialization as proxied by the ratio of manufacturing value added to GDP can be a potential channel through which per capita CO2 emissions affect banking stability. Our results are robust to alternative specifications and have important implications for policy on banking stability