Essays on Financial Globalization, Inequality and Economic Growth

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Title: Essays on Financial Globalization, Inequality and Economic Growth
Authors: te Kaat, Daniel Marcel
Thesis advisor: Prof. Dr. Valeriya Dinger
Thesis referee: Prof. Frank Westermann, Ph.D.
Abstract: This dissertation explores several aspects of financial globalization, inequality and economic growth. In the first two essays, we show that cross-border capital inflows raise the domestic credit volumes and lead to higher bank risk-taking. In particular, capital inflows are related to an increased credit supply towards ex-ante risky and low performing firms. These results are amplified when the financial system is more prone to agency problems—problems that rise in the financial system’s size/concentration and undercapitalization. Therefore, from a policy perspective, we gauge that the regulation of the financial sector shapes the allocation of global liquidity to the real economy. Turning our attention towards firms’ real activities, we show that capital inflows are negatively linked with the ex-post performance of firms. Consequently, foreign capital is not only allocated overproportionally to firms with a low ex-ante profitability; additionally, low performing firms display further decreases in their future profitability, constituting long-run hazards for the aggregate economic performance. This result helps to explain the difficulties of the empirical literature to identify a distinct positive relationship between cross-border capital flows and aggregate economic growth. In the third essay, we identify the growth effects of another macroeconomic variable that has been shown to increase with financial globalization—income inequality. We find that higher income inequality increases the growth rates of industries that are dependent on physical capital. In contrast, human capital intense industries grow less in countries with a more unequal distribution of income. We further gauge that higher aggregate investments (in financially more closed economies) and devaluations of the real exchange rate (in financially more open economies) drive the positive growth effects of inequality. The negative growth effects are an implication of lower human capital investments. Consequently, policy makers should keep in mind the potential negative implications of inequality for aggregate economic growth in case their country’s industrial structure relies to a great extent on human capital.
URL: https://repositorium.ub.uni-osnabrueck.de/handle/urn:nbn:de:gbv:700-20181116793
Subject Keywords: Cross-Border Capital Flows; Financial Stability; Economic Growth; Inequality; Bank Credit
Issue Date: 16-Nov-2018
Type of publication: Dissertation oder Habilitation [doctoralThesis]
Appears in Collections:FB09 - E-Dissertationen

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