Browsing by Author "Nikolaidou, Eftychia"
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- ItemOpen AccessAn Analysis of the Finance Growth Nexus in Nigeria(2021) Chetty, Roheen; Nikolaidou, EftychiaThis study empirically examines the relationship between financial development and economic growth in Nigeria. It employs statistical techniques such as the Autoregressive Distributed Lag approach as well as a short and long run Granger Causality test on time series data spanning from 1960-2016. Empirical results reveal that the financial development indicators have a long run relationship with economic growth in Nigeria and the existence of unidirectional and bidirectional Granger causality was also discovered. This study recommends that policy should be geared towards promoting financial development in the country as well as encouraging more financial depth and openness – in order to foster economic growth in Nigeria.
- ItemOpen AccessCredit Risk Determinants in European Banking: Evidence from Albania, Italy, Spain and Turkey (1998-2016)(2021) Gourgoura, Esida; Nikolaidou, EftychiaCredit risk has always been a major risk in banking given that financial crises are usually associated by an increase on loan defaults. The 2008 global financial crisis revealed the fragility of banking systems and highlighted the importance of identifying the determinants of credit risk, in order to prevent banking systems from collapse and as such to maintain the stability of the whole financial system. In the aftermath of the 2008 crash, Europe was faced with another crisis, namely, the Eurozone debt crisis that considerably affected several developed countries especially those that are characterized as peripheral European countries. In parallel with the increased risk of default on their debts, these countries also faced tremendous problems in their banking sectors as the quality of loans granted by their banks further deteriorated, enhancing the argument that credit risk is an issue of core interest to financial stability. Moreover, the high dominance of some peripheral countries‘ banks in the banking sectors of less developed European economies (i.e. Albania) suggests that specific events in these countries might have a spillover effect. Based on quarterly data over the period 1998-2016, this thesis provides empirical evidence on the link between credit risk and a range of explanatory variables for four European countries, namely, Albania, Italy, Spain and Turkey. Motivated by the weak economic conditions and the increased bank credit risk in Italy and Spain in the aftermath of the sovereign debt crisis as well as by the significant presence of Italian and Spanish banks in the banking systems of Albania and Turkey respectively, the contribution of the thesis is fourfold: First, a thorough credit risk investigation is provided for each focal country, based on unique features, exclusively related to them (such as the Italian and the Spanish debt crisis spreads that proxy the sovereign debt crisis risks in Italy and Spain respectively). Secondly, a spillover effect of the sovereign debt crisis in Albania and Turkey is investigated since it is believed that shocks may be easily transmitted through bank and trade channels even to economies that are not directly exposed to the crisis. To the author‘s knowledge, this is the first time that such a spillover effect is investigated in the relevant literature. Thirdly, a wider timeframe is investigated, compared to that analyzed in the previous studies, which captures the booming period (1998-2007), the global financial crisis (2008- 2009) and the ensuing European sovereign debt crisis (2010-2012) where Italy and Spain were deeply involved as well as the aftermath of the two crises (2013-2016). Lastly, the empirical research is based on the ARDL approach to cointegration, which is rarely applied in the existing literature on credit risk and holds certain advantages against other econometric techniques. Besides, the methodological approach is complemented by robustness checks through the use of other approaches such as the VECM framework and the impulse response analysis. Findings suggest that macroeconomic, bank-specific, and financial markets‘ variables affect credit risk in the Albanian, Italian, Spanish and Turkish banking systems. The positive effects of the Italian and the Spanish sovereign debts on credit risk uncover the important link that exists between banking and the sovereign debt crisis. Moreover, findings suggest a contagious effect of the Italian debt crisis in Albania, given that the Italian debt crisis spread has a significantly positive effect on the Albanian credit risk. A similar spillover effect (of the Spanish debt crisis spread) in the Turkish credit risk does not appear to be significant, indicating that in contrast to Albania, the Turkish banking system is more domestically oriented. The findings‘ diversity among the focal countries emphasizes the role of country-specific features in determining credit risk and the importance of country case - studies to credit risk modeling; individualized results can be thoroughly interpreted by policy makers in each country, and thus, may be effectively used to regulate accordingly.
- ItemOpen AccessFinancial development, remittances and economic growth : empirical evidence from Egypt(2016) Saniei-Pour, Alireza; Nikolaidou, EftychiaThe relationship between remittances, financial development, and real growth in recent years has increasingly become a topic of interest for scholars and practitioners alike. With the ever presence of globalization, the migratory patterns have fundamentally changed. The migration of people no longer means their total isolation from their home country; but rather a new dynamic environment has emerged with the increased importance of remittances on social, economic and political transformation back in their countries of origins. In addition, the continuing development of the financial systems whether it is in the banking sector or the stock exchange has accelerated in the last few decades. It is important to point out to the accelerating trend in financial development and its impact on real growth. Equally important to highlight the extent to which the financial system influenced the remittance patterns. By looking at Egypt as the country of interest from 1977 to 2014, the thesis investigates the role and impact of financial development and remittances on GDP. Egypt is chosen as the country of interest given its status as the biggest economy in North Africa and the third largest in the continent. Additionally, it is among one of the largest recipient of remittances from its expatriate population.
- ItemOpen AccessFinancial innovation and money demand in sub-Saharan Africa(2016) Kasekende, Elizabeth; Dunne, J Paul; Nikolaidou, EftychiaFinancial innovations are considered important factors in the development of the financial sector and economic growth. Following the 2007/2008 financial crisis, their effects, both positive and negative, have become an issue of considerable debate, especially in industrialised countries. While a number of empirical studies on the effects of financial innovation have been undertaken for industrialised countries, few developing country studies exist. This is surprising, given the remarkable growth of financial innovation in some developing economies. In particular, mobile money (M-PESA), a technology first developed in Kenya that enables individuals to transfer, deposit and save money using cell phone technology without necessarily having a bank account, has quickly spread to several developing countries and is expected to continue to expand. This thesis contributes to the limited literature by undertaking a panel study of the effect of financial innovation on money demand in Sub-Saharan Africa as well as a case study of the home of mobile money, Kenya. A third study considers how mobile money has influenced household consumption behaviour using data from Uganda. In chapter two, the effect of financial innovation on money demand in Sub-Saharan Africa is investigated in 34 countries for the period 1980 to 2013 using dynamic panel data estimation techniques. Money demand is found to be relatively stable in the region with financial innovation significant with a negative sign. While the coefficients on the other relevant variables are significant with expected signs, the size of the coefficients change with the inclusion of financial innovation. This suggests that exclusion of financial innovation may have led to biased or misleading estimates of the money demand equation in previous studies, and that financial innovation plays a significant role in explaining money demand in Sub-Saharan Africa. Given the potential importance of this form of financial innovation, a case study of the impact of mobile money on money demand in Kenya is undertaken in chapter three. Using time series analysis on a quarterly basis for the period 2000–2014, the results suggest a positive relationship between mobile money and money demand. The Kenyan demand for money is found to be stable when mobile money is taken into consideration. These results are robust even with the use of alternative measures of mobile money and imply that this particular financial innovation has important implications for the effectiveness of monetary policy in Kenya and possibly in other similar countries. While mobile money has been found to have important macroeconomic effects, there is little research on how it affects the real economy. Chapter four investigates the way this type of financial innovation can alter household behaviour, particularly household consumption patterns. Since data was not available for Kenya, Uganda was used as a case study. It is one of the countries that has been successful in mobile money usage since its introduction in 2009. The Financial Inclusion Tracker Surveys (FITS) household level survey conducted in 2012 also provides valuable data. Using ordinary least squares and seemingly unrelated regression estimation techniques, the results suggest that mobile money users spend less on food, a necessity, and more on luxury goods, than non-users. In addition, mobile money users are more likely to receive more remittances, and as a result, they are able to spend more efficiently on particular commodities than non-users. This suggests that mobile money could potentially improve individuals' livelihoods. Finally, chapter five concludes with a discussion of the summary of the findings from the thesis, the policy implications, and the suggestions for future research.
- ItemOpen AccessFinancial structure, economic growth and firm productivity in Sub Saharan Africa(2018) Mathenge, Naomi Muthoni; Nikolaidou, EftychiaOver the years, an extensive body of literature has emerged on the role that financial structure, the blend of bank-based and market-based intermediation, plays in economic growth. However, there has been no general agreement on this role. Some studies find that financial intermediaries and markets are both important for growth while some other studies claim the superiority of one type of financial system (bank-based or market based) over the other. There are also studies that argue that financial structure does not matter while some more recent studies show that too much finance may harm growth. The debate is important, as having some idea of the form of financial structure that is growth promoting can help policy makers take informed decisions. It is also a particularly important issue for developing countries, as choosing the wrong financial structure can hold back growth and development. The existing literature tends to focus on developed countries, however, with only a few studies considering developing countries or regions. Even fewer consider Sub Saharan Africa (SSA). In the past, this was mainly because of inadequate stock market data, as most SSA countries did not have stock markets. Since the 1980s, however, this has changed, with stock markets being established in many SSA countries. This thesis contributes to the financial structure and economic growth literature by providing empirical evidence from SSA. The thesis is structured around three related studies. The first study uses dynamic panel estimation techniques to investigate both the short and long-run effects of financial structure on growth, focusing on 14 SSA countries over the period 1980-2014. The results indicate that financial structure is not significant in explaining growth in the region. This could be attributed to the idiosyncratic nature of SSA banks, which are reluctant to lend to the private sector and prefer to invest in safe, risk-free government securities. It could also be a result of stringent stock market listing requirements that prevent most small and medium enterprises from raising funds. Cross country panel studies are valuable to investigate this further. However, it is important to consider the heterogeneous nature of countries in a panel, and the limits that cross country studies put on the variables that can be considered. For this reason, the second study focuses on a single country from SSA, Kenya, and offers a more detailed analysis using quarterly data for the period 2002-2014. Kenya has not been analysed in the relevant literature. The country is an interesting case study, as it has experienced a number of financial innovations and has a relatively well-developed financial system, but still faces low levels of development. Our study employs the Autoregressive Distributed Lag approach to cointegration, and considers the independent role of banks and of markets, along with the role of financial structure. Our findings are consistent to those of the panel study concerning the role of financial structure. Stock market development is, however, found to have a significantly positive effect on the country's economic growth. This is possibly because Kenya was one of the first SSA countries to develop an alternative investment market aimed at small and young firms. The role of banking sector development has a negative effect. This finding can be partly explained by the large proportion of non-performing loans accumulated by Kenyan banks in the 1980's and the 1990's, along with a weak legal and regulatory framework. The development of stock markets could have impacted upon growth in SSA economies through the provision of more financing choices for firms. This could influence their productivity and growth. To consider this channel in detail, the third study uses firm level data from the World Bank Enterprise Survey (WBES) to investigate the effect of different financing choices on the productivity of SSA firms. Using data for the period 2005 - 2013 from 26 countries, the study employs a linear Cobb-Douglas production function to estimate total factor productivity (TFP.) It then uses both parametric and non-parametric methods to analyse the effect of financing choices on TFP. The results indicate that firms that rely on bank debt rather than other forms of financing (e.g. internal finance, informal finance, private and public equity) are, on average, more productive. This can be partly attributed to the monitoring activities of banks and the threat of bankruptcy faced by firms.
- ItemOpen AccessLoan growth and risk: evidence from microfinance institutions in Africa(2019) Moyi, Eliud Dismas; Nikolaidou, EftychiaMicrofinance markets in Sub-Saharan Africa (SSA) have experienced remarkable growth, particularly after the early 2000s. Since microfinance institutions (MFIs) provide financial services such as loans, savings and insurance to poor clients who face exclusion from formal financial institutions, they are considered as one of the most prolific tools to alleviate poverty and achieve financial inclusion in developing countries. These institutions are of particular importance in SSA, given that the region has the highest poverty levels in the world and the highest levels of financial exclusion. However, in recent years the fast loan growth of MFIs has been accompanied increasingly by loan delinquencies which threaten the financial health of these institutions. This is a major concern for policymakers, regulators and practitioners given the developmental importance of microfinance in the region. Despite the pivotal role of microfinance, there is only a very limited number of studies that either investigate the underlying reasons for the fast growth of MFIs or that identify the determinants of credit risk in MFIs in this particular region of Africa. Motivated by both the remarkable loan growth and the rising credit risk that MFIs experienced and the fact that SSA has been neglected in the relevant literature, this thesis provides evidence from the region on the factors that contribute to MFIs’ growth, the determinants of MFIs’ credit risk as well as the factors that influence access to MFIs credit. The latter pays particular attention to the effect of mobile financial services (MFS) on borrowing from MFIs, an aspect that has been ignored in previous scholarly work. Furthermore, the thesis overcomes the limitations of previous studies that employed static regressions, which are limited in dealing with panel endogeneity bias, by focusing on the dynamic aspects of loan growth and credit risk. The thesis is structured around three related studies that are presented in three chapters, namely Chapter 2, Chapter 3 and Chapter 4. The purpose of the second chapter is to identify the factors that explain variations in loan growth in the region’s MFIs. This is an important issue as high loan growth may pose significant stability risks in the microfinance sector via a deterioration in portfolio quality. The chapter applies two-step system generalised method of moments estimators on data for 34 countries in SSA over the period 2004 - 2014. The results show that loan growth is higher in MFIs that have lower risk exposure, higher capital asset ratios and already recording high growth. Similarly, loan growth is higher in countries with better economic prospects, and in those with sound private sector policies and regulations. Against expectations, loan growth is faster in countries with poor legal rights of borrowers and lenders. Credit risk in microfinance institutions in SSA has been rising, and the financial health of these institutions remains an issue of concern. Hence, Chapter 3 examines the factors that explain variations in credit risk in MFIs in the region. Similarly, the chapter employs a system GMM approach on data for 34 countries in SSA over the period 2004 – 2014. Results suggest that the main predictors of credit risk in SSA are lagged credit risk, loan growth, provisions for loan impairment, GDP per capita growth and ease of getting credit. In addition, the study identifies threshold effects in the relationship between credit risk and loan growth. Credit risk falls with loan growth until a trough at 36.8% when this relationship is reversed. On the regional scale, comparisons suggest that credit risk is most persistent in East Asia and the Pacific but least persistent in SSA. Relatively few scholarly works have analysed the influence of mobile financial services (MFS) on access to credit. Chapter 4 aims to identify the factors that explain the differences in the propensity to use loans from MFIs in Kenya, paying particular attention to the effects of mobile money (M-money), mobile banking (M-banking) and mobile credit (M-credit). Kenya is an interesting case study because the country outperforms other SSA countries in terms of financial and digital inclusion. The study applies a probit model using FinAccess cross sectional data that was collected in 2013 (N=6112) and 2015 (N=8665). After addressing endogeneity concerns in the data, the 2013 results suggest that the factors that make a significant difference in the likelihood of using MFI credit include income, gender and type of cluster. An important observation is that non-poor users of M-money are more likely to use microcredit. The 2015 results show that the likelihood of using MFI credit is lower among those using M-banking and M-credit as well as among males and married persons. However, higher income, being educated, higher household size and being located in a rural cluster are associated with a higher propensity to use MFI credit. In addition, the results suggest a Ushaped relationship between age and the probability to use MFI credit. Similarly, the negative relationship between the likelihood of using MFI credit and using M-banking and M-credit suggests that the introduction of MFS in the financial sector has resulted in the migration of clients from microfinance products towards mobile-based financial services. In terms of policy, two recommendations stand out. Firstly, since dynamics matter for both loan growth and credit risk, credit management strategies that incorporate past risk and loan performance are likely to be more effective. Secondly, the evident trade-offs between loan growth and credit risk confirm the fact that modest loan growth is not the source of instability within the region’s microfinance sector. However, the presence of threshold effects suggests that MFIs should determine the turning points for lending growth because excessive growth in loans can be perilous to the existence of the institution itself, and the sector by extension.
- ItemOpen AccessThe effect of financial development on economic growth: the case of South Africa(2022) Kawamya, Ackim; Nikolaidou, EftychiaThis study examines the effect of financial development on economic growth in South Africa. South Africa is an interesting case study, as it provides a relatively rich environment in terms of data. While the finance and business sector has grown significantly in the last ten years becoming a major contributor to gross domestic product, the South African economy has been struggling to register positive output in the preceding years. The study utilizes an Autoregressive Distributed Lag approach to cointegration and a Solow model to consider the role of banks, financial institutions, and financial markets independently. The results reveal that financial institutions have a considerable role in fostering economic development in the long run in South Africa. Conversely, financial market indicators do not have long run effects on growth in South Africa and in the short run, financial markets negatively influence growth. High foreign participation in the financial markets including ease of capital flows and currency volatility could be reasons for this result.
- ItemOpen AccessThe Finance-Growth Nexus in South Africa(2022) McHardy, Gareth; Nikolaidou, EftychiaThe finance-growth nexus remains a divisive topic within macroeconomic discourse. Despite the plethora of studies devoted to understanding the causal relationships, there is still vast disagreement. This study comprehensively examines the relationship between economic growth, financial development and financial structure within the South African context from 1980-2020. The parsimonious and theoretically-grounded Solow growth model specifications are estimated using the auto-regressive distributed lag (ARDL) approach to co-integration. Five alternative specifications that employ one measure of financial development or financial structure at a time are tested. The results are ambiguous. When proxied by the liquid liabilities ratio, financial development is found to have positively contributed to long-run and short-run economic growth in the country. Conversely, when the private credit ratio is used, financial development becomes insignificant. South Africa's financial development certainly has no negative effects on the country's growth prospects – a conclusion that carries important policy implications. In terms of financial structure, both the stock market value traded ratio and the stock market capitalisation ratio, yield insignificant results, lending itself to the conclusion that financial structure does not matter. Lastly, a composite financial development indicator was used to see whether financial inclusion has bearing on the relationship. The result is insignificant but given the nature of the indicator, financial inclusion is not rendered irrelevant. If pro-poor growth remains the objective of the South African government, the financial sector has an important role to play in promoting growth and reducing inequality. Furthermore, it remains imperative to strengthen financial institutions in ways that ameliorate current imbalances. As a final remark, there is no economic value in promoting one financial structure over the other and financial development can be growth-enhancing provided the sector is adequately regulated with consistent policy