What are the main macroeconomic factors that help understand economic growth in Brazil since 1870? Are institutions (and changes in institutions) a deep cause of economic growth in Brazil? Are these effects fundamentally and systematically different? Does the intensity and the direction (the sign) of these effects vary over time, in general and, in particular, do they vary with respect to short- versus long-run considerations? This thesis tries to answer these questions focusing on within country over long periods of time. It uses the power-ARCH (PARCH) econometric framework with annual time series from 1870 to 2003. The results suggest that financial development (domestic and international) exhibit the most robust first-order effects on growth and its volatility. Political instability, trade openness and public deficit play important yet secondary roles since the effects of the first two do not extent to the long-run (that is, they are restricted to the short-run) and those off the latter are sensitive to the measures of the variables used in our analysis.

My dissertation investigates three separate issues pertaining to a country's financial development. The first essay provides an introduction to the three essays. The second essay examines the combined effect of financial development and human capital on economic growth. While both financial development and human capital are individually positively correlated with growth, the literature has not emphasized their combined effect on growth. In this essay, I analyze the extent to which the effect of financial development on growth depends on a country's level of human capital. Using dynamic panel difference and system GMM, as well as the pooled OLS, I find that an increase in human capital decreases the impact of financial development on growth and that countries that lack financial development can achieve greater economic growth through an improvement in human capital. The third essay analyzes how currency unions affect the financial development of a country. This essay tests two forms of asymmetries on the effect of currency unions on financial development; I analyze if currency unions have an equal effect on various forms of financial development, and whether high-income and low-income countries are impacted differently. I find some evidence in favor of both forms of asymmetries with pooled OLS and fixed effect estimation using data on 152 countries and territories over the 1970-2006 time period. The fourth essay tests how financial development affects firms' export market participations and the volume of exports utilizing a firm-level data set which incorporates about 43,500 firms from 80 countries for the time period 2002-2009. Using an instrumental variable approach, I find that a country's financial development negatively affects the extensive margin of trade and positively affects the intensive margin of trade. Furthermore, this study finds that financial development has a disproportionate positive affect on firms with a higher level of external dependence for both margins of trade. Finally, I find that financial development exerts an asymmetric effect on young and mature firms in their export participations but not on the volume of exports.

This thesis examines the relationship between institutional context and firm performance, from both a theoretical and empirical perspective. The aim is to engage with the debate seeking to explain the observed diversity in the forms of economic organisation prevailing in socio-economic systems. The focus of the empirical work is on investigating the effects of the structure and behaviour of banking institutions on firm performance, in the Italian context. The analysis is comparative in the sense that confronts cooperative and capitalist business structures. The analytical framework is institutionalist in emphasising the institutionally embedded nature of economic performance, and the historical and cultural dimensions of economic behaviour. The institutional complementarity approach is used to investigate the hypothesis that the relative performance of different firm structures is context dependent. The main conclusions are that the economic performance of cooperative firms is strongly conditioned in a sense of institutional complementarity by the degree of development and competition characterising the financial domain. Rejected are the pessimistic predictions of conventional accounts that democratic firms are unequivocally unviable. Instead, there are relations of context dependency, of institutional complementarity that influence the viability of firm types. The overall conclusion is that the dynamics governing the evolution of socio-economic systems are much more complex than mainstream economics suggests; productive organisations may assume a multiplicity of forms. The theoretical claims of a universalistic history in which all production systems must follow the same line of development must be abandoned. This brings about major policy implications at the regional, national and international levels.

This thesis is based on three empirical essays in financial development and economic growth. The first essay, investigated in the third chapter, the effect of financial development on economic growth in the context of Saudi Arabia, an oil-rich economy. In doing so, the study distinguishes between the effects of financial development on the oil and non-oil sectors of the economy. The Autoregressive Distributed Lag (ARDL) bounds test methodology is applied to yearly data over the period 1968 to 2010. The finding of this study is that financial development has a positive impact on the growth of the non-oil sector. In contrast, its impact on the oil-sector growth and total GDP growth is either negative or insignificant. This suggests that the relationship between financial development and growth may be fundamentally different in resource-dominated economies. The second essay revisited, in the fourth chapter, the relationship between financial development and economic growth in a panel of 52 middle-income countries over the 1980-2008 period. Using pooled mean group estimations in a dynamic heterogeneous panel setting, we show that there is an inverted U-shaped relationship between finance and growth in the long-run. In the short run, the relationship is insignificant. This suggests that too much finance can exert a negative influence on growth in middle-income countries. The finding of a non-monotonic effect of financial development on growth is confirmed by estimating a dynamic panel threshold model. The third essay empirically explores cross-country evidence of the effects of financial development shocks on economic growth. It employs a Global Vector Autoregressive (GVAR) model, which allows us to capture the dynamics of this relationship in a multi-country setting, and connects countries through bilateral international trade. Given the progressive role that Brazil, Russia, India, China and South Africa (BRICS) play in the world economic arena, this essay focuses on whether financial development in one BRICS member state affects economic growth in the other BRICS. To this end, the study finds empirical evidence that credit to the private sector has a positive spillover effect on growth in some of the BRICS countries. However, the results imply that the current level of financial integration among the BRICS countries is still not mature enough to spur economic growth for all the BRICS members.

Determinants of financial development Abstract The paper studies effects of country level determinants on the rate of financial development and, in particular, assesses the empirical question whether democracy and political freedom can enhance financial development, as measured by Bank Private Credit to GDP and Liquid Liabilities to GDP. Using Fixed Effects estimation techniques and a panel data for a list of 39 countries over the period 1990 to 2011, we provide evidence that suggests positive link between political openness and financial development. The empirical evidence also confirms financial openness and real per capita income to be positively correlated to financial deepening and in contrast, we find that size of financial sector does not spur the rate of financial development.

Philosophiae Doctor - PhD / This thesis purposes to examine the impact of financial development on health outcomes, health care expenditure and financial protection in health in 46 selected sub-Saharan African (SSA) countries from 1995 to 2014. It also estimates the impact of health care expenditure on health outcomes. The thesis is premised on the hypothesis that health care expenditure is a critical transmission mechanism through which financial development leads to better health outcomes. The health care expenditure channel is conspicuously absent in the literature on financial development and health outcomes; hence the need for this study to fill the gap in the literature. The thesis explores the effects of both depth and access dimensions of financial development on health outcomes, expenditure and financial protection. Throughout the study, financial access is measured by the number of automated teller machines (ATMs) and commercial bank branches per 100 000 people, while financial depth is measured by the proportion of broad money and bank credit to the private sector, to Gross Domestic Product (GDP). The study uses fixed and random effects and the Two-Stage Least Squares estimation approaches. The Generalised Method of Moments (GMM) is also used to estimate the impact of health care expenditure and health outcomes given the absence of valid instrumental variables. The results of the regression analyses show that financial development leads to increased health care expenditure and health outcomes. The analysis also shows that health care expenditure leads to better health outcomes. Additionally, the study indicates that financial development leads to financial protection in health care by reducing out-of-pocket health care expenditure. Well-developed financial systems provide financial protection from the risk of catastrophic health care expenditure and impoverishment resulting from illness. The study shows that health care systems financed through prepaid mechanisms reduce neonatal, infant and under-five mortality rates and increase life expectancy, while those relying on out-of-pocket expenditure have adverse effects on health outcomes.

[pt] A abertura dos mercados de capitais das últimas duas décadas permitiu um maior desenvolvimento dos mercados financeiros em muitos países. A autoridade monetária está interessada se tais mudanças influenciam sua capacidade de alcançar seus objetivos (manutenção da inflação e atividade em níveis condizentes com um ambiente econômico estável) através de seus instrumentos (em geral, a taxa de juros básica). Esta dissertação investiga, através de um estudo de Vetor Auto-Regressivo e Cross-Country contendo 37 países, a relação entre o desenvolvimento financeiro e a potência da política monetária. Encontra-se evidência que a potência da política monetária está positivamente correlacionada com o desenvolvimento financeiro, medido através do crédito privado/PIB. Para o Brasil, que recentemente assistiu a uma explosão do crédito privado/PIB, as implicações de política são diretas: uma política monetária mais potente pode permitir uma redução mais acentuada da alta taxa de juros reais praticada. / [en] The liberalization of capital markets of the last two decades allowed for the development of financial markets in many countries. The monetary authority is interested if these changes affect its ability to reach its objectives (maintain inflation and output at levels that foster a stable economic environment) through the policy instrument (usually the overnight interest rate). This paper investigates, through a Vector Auto-Regression (VAR) Cross-Country study containing 37 countries, the relationship between financial development and the power of monetary policy. It finds evidence that the power of the monetary policy is positively correlated with financial development, measured as the amount of private credit/GDP. For Brazil, which has recently experienced a surge in its private credit/GDP, the policy implications are straightforward: a more powerful monetary policy may enable a sharper reduction in the high Brazilian real interest rates.

Thesis advisor: Fabio Ghironi / Thesis advisor: Christopher Baum / My dissertation focuses on the macroeconomics of emerging and developing nations. This group of economies is characterized by significant differences in terms of institutional quality, financial development, as well as other cultural, social, political parameters. In turn, these structural heterogeneities exert considerable influence on their domestic economic environment, specifically impacting key macroeconomic indicators such as output, investment, consumption, foreign capital flows, exchange rates etc. Understanding these nuanced relationships and analyzing them from various dimensions has served as the motivation and the foundation of my doctoral research. The first essay is an empirical and theoretical investigation of Business Cycles and Macroeconomic Dynamics in post-independence India. India's growth performance was touted as ordinary relative to the rest of the world during the first three decades after it gained independence in 1947. However, path-breaking deregulation and liberalization reforms in the 80s and 90s led to substantial growth acceleration and India's metamorphosis into a market-based economic system with strong international ties. This makes the Indian case study really unique and fascinating. Using annual time series data, we document key business cycle properties of the Indian economy. Output, consumption and investment are more volatile in India compared to its developed country counterparts. As in developed countries, consumption is less volatile and investment is more volatile than output in the Indian data. In contrast, investment is not highly correlated with output in India. Moreover, India's economic landscape has undergone significant changes, both in terms of the absolute level and cyclical fluctuations, across the planning horizon. The presence of structural break is reported for major macroeconomic variables when we decompose the data into pre- and post-reform categories. We also test whether a standard real business cycle (closed economy) model with India-specific parameters can replicate the stylized features of the business cycle. The model includes a tax on capital income which acts as a disincentive for future investment, and the results indicate that a high volatility of the tax shock is required to produce the low investment output correlation. The model performs reasonably well in matching the correlation dynamics observed in the data. In the second essay, I examine Foreign Reserve accumulation in Developing Countries through the lens of Institutional Quality and Financial Development. In recent times, several emerging markets have been providing the rest of the world, and especially the United States, with net resources in the form of current account surpluses. The most noteworthy aspect of the surge in upstream foreign capital flows has been the enormous increase in international reserves held by several emerging economies. Whereas private capital flows are broadly in sync with the standard neoclassical model, capital outflows from relatively high-productivity emerging markets can be explained by the accumulation of official reserve assets. I investigate the foreign reserve dynamics in developing countries; from both an empirical and theoretical dimension. Using a novel panel dataset combining aspects of openness, institutional quality, and financial development and an innovative clustering method; I present a new approach to identify cross-national structural heterogeneity and assess its relationship with foreign reserves. I use partition-based cluster analysis to document underlying reserve dynamics and identify systematic variation across and between different country groups. The resulting cluster outputs reflect the presence of cross-national variations in reserve accumulation. Moreover, a series of the scatter plots encapsulating various dimensions of institutional quality and financial development points towards the resounding presence of structural heterogeneity in foreign reserve dynamics in our developing country sample. Cross section and panel data regressions reinforce the initial hypotheses concerning the role of institutional and financial development in international reserve dynamics of the developing world. I also build a theoretical model embedding the key insights from the empirical analyses in order to propose a coherent framework for explaining the link between institutions, financial development reserve accumulation. The model underscores the importance of financial market efficiency and the institutional environment in explaining reserve dynamics of major developing countries. A series of comparative static exercises shed light on the impact of heterogeneity in institutional parameters and foreign reserve policy on select macroeconomic variables. In a nutshell, by going beyond the regional differences, we provide a unique vantage point to understand how disparities in institutional and financial conditions influence reserve dynamics in different country clusters. Our results indicate that income, openness, institutional quality and financial development play an instrumental role in explaining the underlying patterns of reserves accumulation in the developing world. However, the effects of these structural indicators are markedly different across clusters of relatively similar countries in terms of their magnitude as well as direction. / Thesis (PhD) — Boston College, 2014. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Há um intenso debate sobre o papel do crédito sobre o ciclo recente de expansão da economia brasileira. Esse trabalho pretende se inserir nesse debate ao testar resultados consagrados pela literatura empírica sobre as relações entre desenvolvimento financeiro e desenvolvimento econômico e social. Além disso, discute-se a questão de má alocação de recursos no que diz respeito ao crédito concedido com base em recursos direcionados (em geral, por bancos públicos e subsidiado) em relação ao crédito alocado por recursos livres. Os resultados sugerem maior eficiência alocativa do crédito livre em relação ao crédito direcionado. Por outro lado, também indicam um instrumento de políticas públicas que tem contribuído para a redução da desigualdade e da pobreza. Ainda assim, é importante a ressalva da inexistência de uma estimativa precisa de quanto a sociedade está alocando para essas políticas nem se esses recursos poderiam obter resultados mais eficientes se alocados em outros tipos de políticas. Esses resultados são sensíveis ao tamanho dos municípios medido pelo nível do PIB per capita, o que também sugere que uma dinâmica diferente do mercado de crédito e sua contribuição para o desenvolvimento. / There are a lot of discussions about the role of credit on the recent growth cycle of the Brazilian economy. This paper intends to be part of this debate by testing empirical results in the literature that relates financial development and social and economic development outcomes. In addition, it discusses the issue of misallocation of resources specially comparing the earmarked credit concession (usually lent by public banks and with government subsidies) to free market credit. The results indicate greater allocative efficiency of free credit in relation to earmarked credit. On the other hand, they suggest that the earmarked credit is an instrument of public policy that has contributed to reduce poverty and inequality. Even though, it is important to caveat the lack of an accurate estimate of how much the society is allocating to this policy and what type of results would be achieved allocating this resources to other policies with the same goals. These results are sensitive to the municipalities\' size measured by GDP per capita level. It suggests a different dynamic to the credit market and its contribution to development.

Este estudo analisa os efeitos do sistema financeiro, caracterizado tanto em termos de desenvolvimento financeiro quanto por sua estrutura financeira, sobre as decisões de investimento e restrições financeiras de firmas brasileiras. Dessa forma, este trabalho investiga como o desenvolvimento financeiro afeta o comportamento das firmas e que tipo de estrutura financeira, isto é, se market-based ou bank-based, prepondera na condução do investimento corporativo e na redução das restrições financeiras das firmas. A relevância deste estudo reside em seu caráter original conduzido a partir da análise de um tema ainda pouco explorado na literatura nacional. A investigação é realizada dentro de um contexto teórico e aplicado e assumindo que o sistema financeiro exerce impacto substancial sobre as decisões de investimento. Com o propósito de contribuir para a escassa literatura internacional e à exígua literatura para o Brasil são consideradas neste estudo informações de 404 firmas brasileiras para o período de 1998 a 2006. A fim de identificar a presença de restrição financeira no comportamento da firma e para controlar e separar seus efeitos de outros fatores nas decisões de investimento, as firmas da amostra são classificadas segundo os índices de restrição financeira KZ e WW. A partir do emprego de dados macroeconômicos em uma análise microeconômica, é estimada uma versão do modelo acelerador do investimento pelo método GMM-system para analisar os efeitos do sistema financeiro sobre os investimentos corporativos. Os resultados sugerem que para firmas financeiramente não restritas o impacto do desenvolvimento financeiro sobre as decisões corporativas ocorre de forma direta, conduzindo a maiores investimentos. Já para firmas financeiramente restritas este efeito ocorre de forma indireta. Nesse caso, um maior desenvolvimento financeiro reduz a dependência dessas firmas por recursos internos para investir e aumenta a resposta de seus investimentos às oportunidades de crescimento. Evidências também são encontradas de que a estrutura financeira exerce influência sobre os investimentos de firmas financeiramente restritas, mesmo após os resultados serem controlados pelo nível de desenvolvimento financeiro. Este resultado aponta para a relevância de um sistema financeiro baseado em mercados para atenuar as restrições financeiras de firmas restritas. Os resultados também sugerem que na presença de oportunidades de crescimento um sistema financeiro baseado em mercados destaca-se ao permitir que a resposta do investimento das firmas a um aumento da demanda seja maior que em um sistema baseado em bancos. / This study analyzes the effects of the financial system, characterized both in terms of financial development as also by its financial structure, on the investment decisions and financial constraints of Brazilian firms. Thereby, this work investigates how the financial development affects a firm\'s behavior and which kind of financial structure, that is, if market-based or bank-based, prevails in driving corporate investment and in reducing a firms\' financial constraints. The relevance of this study lies on its original feature carried from the analysis of a topic not much explored in the national literature. The research is conducted within a theoretical and applied context and by assuming that the financial system exerts substantial impact on investment decisions. In order to contribute to the scarce international literature and to the limited literature for Brazil this study considers information on 404 Brazilian firms over the 1998-2006 period. With the aim to identify the presence of financial constraint on firm behavior and control and separate its effects from other factors on investment decisions, the firms are classified according to the KZ and WW financial constraint indexes. Through the use of macroeconomic data in a microeconomic analysis, a version of the accelerator investment model is estimated by the GMM-system method to analyze the effects of the financial system on corporate investments. The results suggest that for financially unconstrained firms the impact of financial development on corporate decisions is direct, leading to higher investments. On the other hand, for financially constrained firms this effect occurs in an indirect way. In this case, a higher financial development reduces the investment dependence of these firms on internal resources and increases the response of investment to growth opportunities. Evidence is also found that the financial structure affects the investment of financially constrained firms, even after the results are controlled for the level of financial development. This result points to the relevance of a market-based financial system for mitigating the constrained firms\' financial constraints. Results also suggest that in the presence of growth opportunities the response of a firm\'s investment to the increased demand is higher in a market-based financial system than in a bank-based one.