Foreign Bank Penetration and the Bank Lending Channel in Emerging and Developing Countries, 2000-2014
Didar Erdinc and Lea Mitic
This paper analyzes the effect of foreign bank penetration on the real credit growth during the crisis and the bank-lending channel of monetary transmission in developing and emerging economies. Based on a panel data of over 50 countries from six different regions during 2000-2014, we specifically explore whether countries with a large number of foreign banks suffered more from the contraction in lending during the 2007-2009 financial crisis and whether foreign bank penetration weakened the monetary policy transmission through the bank lending channel as argued in the literature. Applying the system GMM method, we find consistent evidence that the increased level of foreign bank penetration has mitigated the contraction in bank credit during the crisis, lending support for the existence of internal capital markets for global banks. Additionally, our results indicate that host countries’ banking sectors with a larger number of foreign banks become more responsive to changes in monetary policy, independent of various macroeconomic and bank-specific measures as such as capitalization and credit risk.
Keywords: Real Credit Growth, Foreign Banks, Bank Lending Channel, Emerging and Developing Economies
Exchange Rate and Stock Prices Interactions in Kazakhstan
This study employs a sample from 1st October, 2007 to 31st December, 2017 from Kazakhstan Stock Exchange (KASE) to investigate the nature of the interaction between exchange rate sensitivity and stock market. First, we test the stationarity of time series using the ADF and PP tests. Additionally, the Johansen and Juselius cointegration procedures were employed for the bivariate as well as multivariate cases. Results of research demonstrated stationarity in differences of the time series and absence of long-run relationship between the variables in bivariate model. When the model is extended to incorporate money supply and reserves, results detect the evidence of cointegration. Moreover, Granger causality tests demonstrate strong bidirectional relationship between exchange rate and stock prices in Kazakhstan. Policy wise, the results suggest that monetary authorities in Kazakhstan in achieving their exchange rate policy objective could take into consideration stock market development.
Keywords: Stock Prices, Exchange Rate, Granger Causality, Cointegration
Examining the Application of Mathematics in Economics
In most scientific disciplines, mathematical models work well empirically and experimentally. However, it is widely recognized that in standard (i.e. neoclassical) economics, mathematical models do not work quite as well, not even at the theoretical level. The question is why. This diagnostic study, which is one of the first in its kind, addresses this question and reveals that mathematics is non-rigorously applied in economics by focusing on the case of ordinal utility theory (which rests at the foundation of neoclassical economics), and identifying three mathematical oversights there. For these reasons, this paper calls for a reconstruction of economic theory with a much more solid foundation than that of the currently dominant paradigm, and with a much more rigorous application of logic and mathematics.
Keywords: Hidden Mathematical Contradictions, Ordinal Utility, General Equilibrium
Malaysia’s Tax Structure – Aligning Taxes to Higher Income Country
Chung Tin Fah
After four decades of rapid, inclusive growth averaging 6.4% pa since 1970, due to successful transformation of the economy from an agriculture to a modern and open economy, Malaysia needs to embark on painstaking reforms to launch its trajectory to a higher growth path. Among the urgent reforms is taxes, which need a restructuring from direct and commodity taxes with overdependence on oil and gas, to a more diversified tax base. Its tax dependence on the oil and gas sectors for revenue reached a 41% high of GDP in 2009, before settling to 14% with the introduction of GST/SST. The long-run elasticity of tax burden is -0.25, which implies that GDP growth will be reduced by 0.25% for every 1% increase in tax burden, compared with -0.27 for OECD countries. In general, taxes are negatively correlated with economic growth, even after taking into account the different types of taxes. The structure of taxation showed that GST is most sensitive to economic growth and has the highest impact. Among taxes, GST, PIT and CIT are negatively correlated to growth whereby for every 1% increase in taxes, economic growth will be reduced by 0.17%, 0.06% and 0.06% respectively. PROTAX and OTHTAX are positively related to GDP growth.
Keywords: Dutch Disease, Correlation, Tax Buoyancy, Tax Elasticity, ARDL, Granger Causality, Gini Coefficient
Imperial Synchronicity in Eurasia: 300 BCE To 1500 CE
Chinese history shows cycles of unification and fracture. In western Eurasia, some empires would also temporarily gain hegemony. Were the occurrences of large polities in these two halves of Eurasia related? This paper examines whether the size of the largest empire in western Eurasia is correlated with the size of the contemporary Chinese dynasty. This paper finds a positive association between these two. This suggests that what happened in China could have influenced western Eurasian polities. Further analysis suggests that economic integration could have partly explained this synchronicity.
Keywords: Empires, Synchronicity, Integration
Aksemsettin Mah. Kocasinan Cad.
Erenoglu Is Merkezi
Fatih – Istanbul, TURKEY
Email: [email protected]
This work is licensed under a Creative Commons Attribution 4.0 International License.