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The main purpose of this research is to examine the influence of macroeconomic stability on economic growth of SAARC (South Asian Association for Regional Cooperation) countries.
Abstract
Purpose
The main purpose of this research is to examine the influence of macroeconomic stability on economic growth of SAARC (South Asian Association for Regional Cooperation) countries.
Design/methodology/approach
Using panel data of 1991–2020, fixed effect regression analysis, pooled ordinary least squares and generalized method of moments techniques have been conducted to demonstrate whether macroeconomic stability contributes to economic growth. Moreover, cross-sectional dependency test, unit root test, correlation analysis and granger causality tests have been run.
Findings
Robust findings indicate that inflation has negative impacts on economic growth which indicates that lower level of macroeconomic instability promotes countries’ economic growth. This study also observed that foreign direct investment, domestic credit delivered to private sector, currency exchange and institutional difference across countries are affirmatively connected while labor force is negatively associated with economic growth.
Originality/value
Empirical findings of this study signify that macroeconomic stability have significant effects on economic growth. Findings of this study have superior contributions for the policy makers to achieve sustainable economic growth.
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Carlo Gola and Francesco Spadafora
The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the International Monetary Fund's activities. This chapter surveys the various steps…
Abstract
The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the International Monetary Fund's activities. This chapter surveys the various steps and initiatives through which the Fund has increasingly deepened its involvement in FSS. Overall, this process can be characterised by a preliminary stage and two main phases. The preliminary stage dates back to the 1980s and early 1990s, and was mainly related to the Fund's research and technical assistance activities within the process of monetary and financial deregulation embraced by several member countries. The first ‘official’ phase of the Fund's involvement in FSS started in the aftermath of the Mexican crisis, and relates to the international call to include financial sector issues among the core areas of Fund surveillance. The second phase focuses on the objectives of bringing the coverage of financial sector issues ‘up-to-par’ with the coverage of other traditional core areas of surveillance, and of integrating financial analysis into the Fund's analytical macroeconomic framework. By urging the Fund to give greater attention to its member countries' financial systems, the international community's response to the global crisis may mark the beginning of a new phase of FSS. The Fund's financial sector surveillance, particularly on advanced economies, is of paramount importance for emerging market and developing countries, as they are vulnerable to spillover effects from crises originated in advanced economies. Emerging market and developing economies, which constitute the majority of the Fund's 187 members, are currently the recipients of over 50 programmes of financial support from the Fund (including those of a precautionary nature), totalling over $250 billion.
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Rexford Abaidoo and Elvis Kwame Agyapong
The study examines the effect of macroeconomic risk, inflation uncertainty and instability associated with key macroeconomic indicators on the efficiency of financial institutions…
Abstract
Purpose
The study examines the effect of macroeconomic risk, inflation uncertainty and instability associated with key macroeconomic indicators on the efficiency of financial institutions among economies in sub-Saharan Africa (SSA).
Design/methodology/approach
Data for the empirical inquiry were compiled from 35 SSA economies from 1996 to 2019. The empirical estimates were carried out using pooled ordinary least squares (POLS) with Driscoll and Kraay’s (1998) standard errors.
Findings
Reported empirical estimates show that macroeconomic risk and exchange rate volatility constrain the efficiency of financial institutions. Further results suggest that inflation uncertainty has a significant influence on the efficiency of financial institutions among economies in the subregion. Additionally, reviewed empirical estimates show that institutional quality positively moderates the nexus between inflation uncertainty and financial institution efficiency. At the same time, political instability is found to worsen the adverse effect of macroeconomic risk on the efficiency of financial institutions.
Practical implications
For policymakers and governments, improved institutional structures are recommended to ensure the operational efficiency of financial institutions, especially during an inflationary period. For decision-makers among financial institutions, the study recommends policies that have the potential to make their institutions less vulnerable to macroeconomic risk and exchange rate fluctuations.
Originality/value
The approach adopted in this study differs significantly from related studies in that the study examines and reviews interactions and relationships not readily found in the reviewed literature.
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Anis Chowdhury and Iyanatul Islam
The purpose of this paper is to shed some light on the role of macroeconomic policy‐mix in achieving the Millennium Development Goals (MDGs), especially the goal of poverty…
Abstract
Purpose
The purpose of this paper is to shed some light on the role of macroeconomic policy‐mix in achieving the Millennium Development Goals (MDGs), especially the goal of poverty reduction.
Design/methodology/approach
The paper employs descriptive approach and provides an analytical narrative of historical experience.
Findings
It is argued that macroeconomic policy‐mixes pursued by many developing countries as part of conditions to receive support from international financial institutions and the donor community have been largely restrictive. They have failed, in most cases, to generate high enough growth to have significant impacts on poverty reduction. The poverty reducing impact of growth has also been weakened by the rise in inequality due to associated policy reforms promoting market liberalization and deregulation.
Practical implications
The paper argues in favor of using full and productive employment, which is one of the core MDGs, as the goal of macroeconomic policies.
Originality/value
The paper argues that there should be refocusing of macroeconomic policies to align with MDGs.
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Kolawole Ebire, Saif Ullah, Bosede Ngozi Adeleye and Muhammad Ibrahim Shah
This study aims to examine the effect of various forms of capital flows on financial stability in middle-income countries from 2010 to 2017 using the World Bank economy…
Abstract
Purpose
This study aims to examine the effect of various forms of capital flows on financial stability in middle-income countries from 2010 to 2017 using the World Bank economy classifications of 121 economies.
Design/methodology/approach
Panel spatial correlation consistent approach was used in this study.
Findings
The findings provide convincing evidence that in middle-income countries, capital flows are positive and significant predictors of financial stability and that financial systems in advanced economies are more stable than those of emerging and developing countries. However, outward foreign direct investments are shown to have the largest potential for ensuring financial stability.
Originality/value
Globalization has fostered financial integration of nations, which is manifested in capital flows from lower-income countries to middle-income and upper-income countries and vice versa. These flows can lead to financial instability if not properly controlled. The authors show how the various forms of capital flows affect the financial stability in middle-income countries.
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Rexford Abaidoo and Elvis Kwame Agyapong
This study examines the extent to which regulatory policy uncertainty, macroeconomic risk, banking industry innovations, etc. influence variability in financial sector development…
Abstract
Purpose
This study examines the extent to which regulatory policy uncertainty, macroeconomic risk, banking industry innovations, etc. influence variability in financial sector development among emerging economies in sub-Sahara Africa (SSA).
Design/methodology/approach
Data for the empirical inquiry were compiled from a sample of 25 economies from the subregion from 2010 to 2020. Empirical estimates examining the relationships noted above were carried out using the two-step system generalized method of moments estimation technique.
Findings
Results the empirical estimates suggest that regulatory policy uncertainty and macroeconomic risk adversely influence or constrain financial sector development among the economies examined in the study. Banking industry innovations on the other hand is found to positively influence the development of the financial sector in these economies. Furthermore, moderating empirical analysis suggests that effective governance positively moderates the relationship between banking industry innovations and financial development among economies in the subregion.
Originality/value
This study’s approach to the mechanics of financial development among economies in SSA is designed to offer different perspectives to those found in the existing literature on financial development in three fundamental ways. First, although the verification of the role of banking industry innovations in financial development may not be new, it is important to point out that the approach used in this study is based on an index for innovations with different constituents or principal components in its construction; making the variable significantly different from what has been examined in the literature. In addition, the review of regulatory policy uncertainty and macroeconomic risk (both variables are multifaceted constructs using the principal component analysis procedure) further brings into this study’s analysis, a different approach to examining conditions influencing variability in financial development among developing economies.
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This study aims to investigate the inter-relatedness and the dynamics of banking stability measures and offers answers for some of the related issues such as does financial…
Abstract
Purpose
This study aims to investigate the inter-relatedness and the dynamics of banking stability measures and offers answers for some of the related issues such as does financial stability require the soundness of banking institutions, the stability of markets, the absence of turbulence and low volatility? and to what extent the soundness of banking sector in the case of emerging economies can help financial system stability.
Design/methodology/approach
This study investigates banking stability by structuring a recursive micro panel vector auto regressive (VAR) model and corroborates the significance of the interrelatedness of the bank-specific variables such as liquidity, asset quality, capital adequacy and profitability by employing a robust panel data drawn from 56 leading banks for a period of 12 years.
Findings
A significant contribution of this study is in establishing that liquidity in the banking-dominated financial system is reciprocally related with asset quality, capital adequacy, and profitability of the banking system and in effectively forecasting banking stability employing micro panel recursive VAR model.
Research limitations/implications
The study could be further broadened by employing a macro and structural VAR modelling to forecast banking stability.
Practical implications
This paper is one among the evolving body of literature that underscores the significant relationship between banking system resilience and financial stability in the context of emerging economies dominated with banking systems. Further, the forecast model is able to capture the dynamics of banking stability with greater and appreciable accuracy.
Originality/value
The uniqueness of the study is in modelling banking stability measures in the context of banking-dominated emerging economy financial systems by employing micro panel recursive VAR model by deriving data from 58 leading banks for the period of 12 years from 1996 to 2009 and in offering insights in understanding financial stability with comprehensive literature review.
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The article attempts to locate the lack of macroeconomic stability and hence the problem of low economic growth in developing economies in the absence of appropriate institutions…
Abstract
The article attempts to locate the lack of macroeconomic stability and hence the problem of low economic growth in developing economies in the absence of appropriate institutions. Paradoxically, government can fail in both authoritarian and democratic systems and accentuate market failures which government interventions are supposed to rectify in the first place if the state is weak. The challenge is to design institutions that are compatible with democracy. Institutional change should start from legal reform. There must also be an élite bureaucracy based on competitive selection criteria. In the presence of an inefficient political cycle, the central bank should be made independent from the executive branch of the government to be supplemented by fiscal reforms designed to increase transparency and to safeguard against political interference. The importance of financial deregulation and trade liberalisation lies in the fact that a well developed financial sector acts as an internal constraint while the openness of an economy acts as an external constraint on the macroeconomic misbehaviour of politicians.
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