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Trade Flows, Capital Flows and Bank Credits

Paper Session

Saturday, Jan. 6, 2018 12:30 PM - 2:15 PM

Pennsylvania Convention Center, 203-B
Hosted By: Association of Indian Economic and Financial Studies
  • Chair: Amitrajeet A. Batabyal, Rochester Institute of Technology

Is Financial Inclusion Good for Bank Stability? International Evidence

M. Mostak Ahamed
,
University of Sussex
Sushanta K. Mallick
,
Queen Mary University of London

Abstract

Financial inclusion has become an important public policy priority following the recent global
financial crisis. Yet, we know very little of how it impacts soundness of the providers of financial services. Using an international sample of 2,600 banks in 86 countries over the period 2004-12, we find that higher level of financial inclusion leads to greater bank stability. The positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of producing output; and also with those that operate in countries with stronger institutional quality. The results are robust to instrumental variable analysis, controlling for bank fixed effects, alternative measures of financial inclusion, among several other robustness tests. Our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritized by banks, as such a policy drive is good for their stability.

Economic Growth and Banking Credit in India

Charan Singh
,
Indian Institute of Management-Bangalore
Subhash Pemmaraju
,
Boston University
Rohan Das
,
EXL Service

Abstract

The interdependence between credit expansion and economic growth has been a subject of some debate. While some economists contest that the development of the financial system is a byproduct of economic growth others assert that credit expansion is critical for growth itself. India’s impetus on expanding its banking reach and recent changes in the way transactions are being done begs the question whether such changes directly affect the growth trajectory. This paper aims to examine and understand the relationship between credit and growth in India in the last few decades. Different metrics for credit and output is used to test the relationship at an overall as well as sectoral level. The findings indicate a strong relationship between the two variables.

Was the Global Meltdown of 2007-2009 Caused by Capital Flow Bonanzas Following the Asian Financial Crises?

Saktinil Roy
,
Athabasca University
David M. Kemme
,
University of Memphis

Abstract

We identify the primary determinants of the global financial crisis of 2007-2009 with a vector error correction model with data on ten macroeconomic and financial variables for the US economy from 1953-2006. Using forecast error and sensitivity analyses we find that the significance of specific exogenous shocks that contributed to the run-up to the crisis varies depending on the time period examined: 1980-1988; 1989-1997; and 1998-2006. Deregulation in the 1980s and capital inflows in the early and mid1990s triggered by the collapse of the European exchange rate mechanism contributed to changes in house prices significantly. However, capital inflows after the Asian financial crises in 1997 were driven in large part by rising asset prices. We conclude that, financial deregulation starting in the 1980s, surges in capital inflows in the early 1990s, and asset market bubbles in the late 1990s and early 2000s, all contributed to the crisis of 2007-2009.

Family Ownership Concentration and Firm Performance: Are Shareholders Really Better Off?

Shantaram Hegde
,
University of Connecticut
Rama Seth
,
Indian Institute of Management-Calcutta
Viswanath S. R.
,
Shiv Nadar University

Abstract

We investigate whether high ownership concentration in Indian public family firms is associated with poor stock market performance. Our analysis indicates that abnormal stock returns are not significantly related to family ownership, nor is there any significant difference between family- and non-family firms. These findings are robust to alternative metrics of abnormal performance, controls for founder, descendant, and outside CEOs and potential endogeneity of family concentration. Overall, our results are consistent with the hypothesis that at high levels of ownership concentration, family entrenchment dominates positive alignment effects on firm performance and challenge the evidence that family firms outperform non-family peers.

Does Easing Controls on External Commercial Borrowings Boost Export Intensity of Indian Firms?

Udichibarna Bose
,
University of Essex
Sushanta K. Mallick
,
Queen Mary University of London
Serafeim Tsoukas
,
University of Glasgow

Abstract

This paper focuses on the impact of the export-oriented policy initiative, namely foreign exchange management act (FEMA) in enabling greater globalisation of Indian firms and their access to external commercial borrowing (ECB), on firms’ share of exports, using a rich data set of 11,612 Indian firms over the period 1988-2014. Using a difference-in-differences approach, the results show a positive and significant effect of this policy initiative on firm-level exports. Further, we take into account firms which are recipients of government grants and subsidies and explore how the export share has diverged among these firms after the policy change. Finally, we focus on the sensitivity of exporting activities across financially vulnerable firms and industries. We conclude that firms with access to ECB have higher exporting activity compared to matched companies with only domestic sources of financing. Moreover, our results suggest that this effect is particularly stronger for firms which receive extra incentives in the form of grants and subsidies. Finally, we find that when financially constrained firms and firms operating in vulnerable industries gain access to foreign financing, they are able to increase their export participation.

Launching Export Accelerations in the Integrated World

Valerie Cerra
,
International Monetary Fund
Martha Tesfaye Woldemichael
,
International Monetary Fund

Abstract

The world economy has recently been marked by a global trade slowdown and sluggish output growth (IMF, 2016). Reinvigorating and sustaining strong export growth could be an engine of growth and productivity. But what factors lead to an export take off? This paper investigates the determinants of export accelerations by examining episodes of clear shifts in export growth. The paper finds that export accelerations are relatively frequent across the world, with a large bulk occurring in emerging market and developing economies.
Discussant(s)
Raja Kali
,
University of Arkansas
Sailesh Tanna
,
Coventry University
Mehtabul Azam
,
Oklahoma State University
Anusua Datta
,
Philadelphia University
Dweepobotee Brahma
,
Western Michigan University
Kusum Mundra
,
Rutgers University
JEL Classifications
  • G0 - General
  • G0 - General