What Interactions between Financial Globalization and Instability?—Growth in Developing Countries

Abstract

This paper tests the effects of the impact of financial globalization on economic growth, examining its interaction with financial instability for a sample of 72 developing countries over the period 1972-2011, using dynamic panel estimator 'two-step Generalized Method of Moments' (two-step system GMM). The main results of the paper are the following: (i) financial instability and indebtedness-globalization decrease growth; (ii) financial globalization and investment-globalization increase growth; (iii) indebtedness-globalization increases the effect of financial instability on growth; (iv) investment-globalization decreases the effect of financial instability on growth; and (vi) financial globalization decreases the effect of financial instability on growth. These results are robust in a set of tests consisting of the insertion of alternative variables of financial instability, the inclusion of new control variables, inter alia an indicator of banking crises, using different time periods, and changing of the composition of the sample.

Identifying the impact of crisis on cooperative capital constraint. A short note on French craftsmen cooperatives

“…The results are reported in table 2 (see appendix) for the various specifications described in the previous section (with or without interactions). The validity of the GMM system estimator is conditioned upon the exogeneity of the instruments (Hansen test of over-identifying restrictions), as well as no autocorrelation of errors of order 2 (Arellano-Bond test AR2) (Gaies et al, 2019b). The tests confirm the validity of our benchmark models 1 and 5.…”

“…This classical estimator (difference GMM) for linear dynamic panel data may suffer from small sample bias and is not robust to heteroskedasticity. To consider this problem, following Gaies et al (2019b), we use instead the GMM system dynamic panel data estimator (Two-step system GMM) developed by Arellano and Bover (1995) and Blundell and Bond (1998), and we compute robust two-step standard errors by following the methodology proposed by Windmeijer (2005). The same model has been estimated by recent papers on capital constraints (within the ECM framework (e.g.…”

Reassessing the impact of health expenditure on income growth in the face of the global sanitary crisis: the case of developing countries

“…Even estimators based on exogenous instrumental variables, such as the two-and three-stage least squares (2SLS; 3SLS) estimators, may not account for endogeneity because of the weakness of exogenous instruments. 5 For these concerns, following recent empirical applications of dynamic growth models using panel data (e.g., [10,30,33,34], we use the panel GMM approach to estimate Eq. (11).…”

“…We generate robust one-and two-step standard errors according to the Windmeijer[38] methodology, which is detailed by Roodman[32] and Windmeijer et al[39] using the Stata code: xtabond2 5. For more detailed explanations, see Roodman[32], Gaies et al[33] and Windmeijer et al[38].…”

Banking crises and economic growth in developing countries: Why privileging foreign direct investment over external debt?

“…Apart from Hermes and Lensink (2008), who focus on emerging economies, only a small number of studies have found a direct global positive impact of external financing on economic growth in developing countries (Abraham & Schmukler, 2018;Gaies et al, 2019a;Kose et al, 2009).Worse still, when empirical models take into account the financial instability that could be induced by external capital flows, the positive spillover effect of external financing on the financial sector disappears. In addition, Batuo, Mlambo, and Asongu (2018), Gaies, Goutte, and Guesmi (2019b), and Loayza and Rancière (2006) show that although external financing can develop certain aspects of the financial sector, particularly financial deepening in developing countries, it contributes strongly to its destabilization, which can harm the financing of long-term growth and implies unsustainable economic development, especially if the financing is based on external debt. Even more so, Lee, Hsieh, and Dai (2012) find that the competition between the foreign bank, providing external funds, and the domestic bank could decrease the profitability of the latter.…”