The effects of fınancıal pressure polıcıes on economıc growth: The case of OECD countries
Abstract
In this study, the effects on economic growth of financial pressure policies applied in OECD countries are examined. For this purpose, the “financial pressure index (FPI)” was calculated by using 10- year data for 2010–2020 from 37 OECD countries and “growth rates” were obtained. The FPI was calculated using (i) loans extended to the pri¬vate sector, (ii) loans extended to the central government, (iii) interest payments and (iv) inflation rate data. In calculating FPI, first of all, the data was standardized. Following the standardization process, the data was weighted using Principal Component Analysis (PCA) to calculate the FPI. After weighting the data, each standardized value was aggregated by multiplying it by its own weighted value, and the final FPI was ultimately calculated. Economic growth rates were calculated as a percentage of GDP. Finally, the analysis was carried out by comparing the calculated FPI with the economic growth rates. According to the results of the analysis, the coefficient of FPI was statistically significant (p < 0.05). In this context, every 1-point increase in FPI reduced GDP by 0.178 points.
First published online 17 September 2024
Keyword : financial pressure, economic growth, low interest rates, inflation, public debt
How to Cite
Nar, M. (2024). The effects of fınancıal pressure polıcıes on economıc growth: The case of OECD countries. Technological and Economic Development of Economy, 1-20. https://doi.org/10.3846/tede.2024.22082
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Oh, E. Y. (2011). Is financial repression really bad? International Journal of Economics and Fınance Studies, 3(1), 75–84. https://dergipark.org.tr/tr/pub/ijefs/issue/26163/275623
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Roubini, N., & Sala-i-Martin, X. (1992). Financial repression and economic growth. Journal of Development Economics, 39(1), 5–30. https://doi.org/10.1016/0304-3878(92)90055-E
Roubini, N., & Sala-i-Martin, X. (1995). A growth model of inflation, tax evasion and financial repression. Journal of Monetary Economics, 35(2), 275–301. https://doi.org/10.1016/0304-3932(95)01192-Q
Rutherford, D. (2012). Routledge dictionary of economics (3th ed.). Routledge.
Shaw, E. S. (1973). Financial deepening in economic development. Oxford University Press.
Simon, J. (2015, October 8). Low interest rate environments and risk. Paul Woolley Centre for the Study of Capital Market Dysfunctionality Conference [Speech audio recording]. Reserve Bank of Australia. Sydney. https://www.rba.gov.au/speeches/2015/sp-so-2015-10-08.html
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Türkiye Cumhuriyet Merkez Bankasi. (2023). 1 hafta repo [1 week repo]. https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Temel+Faaliyetler/Para+Politikasi/Merkez+Bankasi+Faiz+Oranlari/1+Hafta+Repo
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Vaona, A., & Patuelli, R. (2008). New emprical evidence on local financial development and growth. Letters in Spatial and Resource Sciences, 1(2–3),147–157. https://doi.org/10.1007/s12076-008-0014-4
Weng, F., Zhu, J., Yang, C., Gao, W., & Zhang, H. (2022). Analysis of financial pressure impacts on the health care industry with an explainable machine learning method: China versus the USA. Expert Systems with Applications, 210(1), 1–10. https://doi.org/10.1016/j.eswa.2022.118482
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Yao, X., Le, W., Sun, X., & Li, J. (2020). Financial stress dynamics in China: An interconnectedness perspective. International Review of Economics & Finance, 68(1), 217–238. https://doi.org/10.1016/j.iref.2020.04.004
Zhang, H., & Wang, P. (2021). Does bitcoin or gold react to financial stress alike? Evidence from the U.S. and China. International Review of Economics & Finance, 71(1), 629–648. https://doi.org/10.1016/j.iref.2020.10.007
Agénor, P.-R., & Montiel, P. J. (2015). Development macroeconomics. Princeton University Press.
Aizenman, J., & Marion, N. (2009). Using inflation to erode the U.S. public debt (Working Paper No. 15562). National Bureau of Economic Research. https://doi.org/10.3386/w15562
Arestis, P., & Demetriades, P. (1999). Financial liberalization: The experience of developing countries. Eastern Economic Journal, 25(4), 441–457. https://www.jstor.org/stable/40325950?seq=2
Bai, C., Li, D., Qian, Y., & Wang, Y. (1999). Limiting government predation through anonymous banking: A theory with evidence from China (Working paper No. 275). William Davidson Institute.
Banerjee, A., Dolado, J., Galbraith, J. W., & Hendry, D. (1993). Co-integration. In Co-integration, error correction, and the econometric analysis of non-stationary data (pp. 136–161). Oxford University Press. https://doi.org/10.1093/0198288107.003.0005
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2004). Finance, inequality and poverty: Cross country Evidence (Working paper No. 10979). National Bureau of Economic Research. https://www.nber.org/papers/w10979
Beim, D. O., & Calomiris, C. W. (2001). Emerging financial markets (1st ed.). McGraw-Hill.
Benhabib, J., & Spiegel, M. (2000). The role of financial development in growth and investment. Journal of Economic Growth, 5(4), 341–360. https://doi.org/10.1023/A:1026599402490
Caprio, G., & Honohan, P. (2001). Finance for growth: Policy choices in a volatile world (World Bank policy research report). World Bank and Oxford University Press.
Cardarelli, R., Elekdağ, S., & Lall, S. (2011). Financial stress and economic contractions. Journal of Financial Stability, 7(2), 78–97. https://doi.org/10.1016/j.jfs.2010.01.005
Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
Eğilmez, M. (2022). Merkez faizi indirince herkes niye indirmiyor? [When the Central Bank lowers the interest rate, why doesn’t everyone reduce it?]. https://www.mahfiegilmez.com/2022/11/merkez-faizi-indirince-herkes-niye.html
Elsayed, A. H., & Yarovaya, L. (2019). Financial stress dynamics in the MENA region: Evidence from the Arab spring. Journal of International Financial Markets, Institutions and Money, 62(1), 20–34. https://doi.org/10.1016/j.intfin.2019.05.004
Enders, W. (2014). Applied econometric time series (4th ed.). Wiley.
Eschenbach, F. (2004). Finance and growth: A survey of the theoretical and empirical literature (Discussion Paper No. TI 2004-039/2). Tinbergen Institute. https://doi.org/10.2139/ssrn.530123
Goldsmith, R. W. (1969). Financial structure and development. Yale University Press.
Gülmez, A. (2015). OECD ülkelerinde ekonomik büyüme ve hava kirliliği ilişkisi: Panel verianalizi [The relationship between economic growth and air pollution in OECD countries: A panel data analysis]. Kastamonu Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 9(3),18–30. https://dergipark.org.tr/tr/pub/iibfdkastamonu/issue/29618/317937
Hanschel, E.,& Monnin, P. (2005). Measuring and forecasting stress in the banking sector: Evidence from Switzerland (Working Paper No. 22). Bank for International Settlements. http://www.bis.org/publ/bppdf/bispap22v.pdf
Hayes, A., Potters, C., & Velasquez, V. (2024). Financial repression definition, features, consequences. https://www.investopedia.com/terms/f/financial-repression.asp
Hileman, G. (2020). Taxation without representation: The financial repression stealth tax. https://medium.com/blockchain/financial-repression-stealth-taxation-without-representation-c61d0a4ea8fb
Holló, D., Kremer, M., & Lo Duca, M. (2012). CISS– a composite ındicator of systemic stress in the financial system. (Working Paper No. 1426). European Central Bank. https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1426.pdf
International Monetary Fund. (2014). Risk taking, liquidity, and shadow banking: Curbing excess while promoting growth (Global financial stability report). https://doi.org/10.5089/9781498390811.082
International Monetary Fund. (2021). International financial statistics 2010–2020. https://data.imf.org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b
International Monetary Fund. (2022). Navigating the high-ınflation environment (Global financial stability report). https://doi.org/10.5089/9798400219672.082
Jafarov, E., Maino, R., & Pani, M. (2019). Financial repression is knocking at the door, again: Should we be concerned? (Working Paper No. 19/211). International Monetary Fund. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3482295
Kaminsky, G. L., & Schmukler, S. L. (2003). Short-run pain, long-run gain: The effects of financial liberalization (Working Paper No. 9787). National Bureau of Economic Research. https://doi.org/10.3386/w9787
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1–44. https://doi.org/10.1016/S0304-4076(98)00023-2
Kendall, J. (2012). Local financial development and growth. Journal of Banking & Finance, 36(5), 1548–1562. https://doi.org/10.1016/j.jbankfin.2012.01.001
Levine, R. (2021). Finance, growth, and inequality. (Working Paper No. 2021/164). International Monetary Fund. https://doi.org/10.5089/9781513583365.001
Ligeti, S. (1989). Savings and interest rates in developing countries. Savings and Development, 13(1), 45–64. https://www.jstor.org/stable/25830174
McKinnon, R. I. (1973). Money and capital in economic development. Brookings Press.
Mishkin, F. S. (2007). The economics of money, banking, and financial markets. Pearson.
Nar, M. Ş. (2020). COVID-19 salgini ve dönüşümün etkisi: Şimdi ve sonrasi [COVI-19 pandemic and impact of transformation: Now and after]. İmgelem, 4(7), 363–382. https://dergipark.org.tr/tr/pub/imgelem/issue/58047/815350
Nar, M. (2022). From regulatory policies to ınternational arbitration: Political economy. Peter Lang. https://www.peterlang.com/document/1281469
Organization for Economic Cooperation and Development. (n.d.). Inflation (consumer price index) 2010–2020. https://data.oecd.org/price/inflation-cpi.htm
Organization for Economic Cooperation and Development. (2019). OECD economic outlook, 2019(2), OECD Publishing. https://doi.org/10.1787/9b89401b-en
Organization for Economic Cooperation and Development. (2021). Economic policy reforms 2021: Going for growth: Shaping a vibrant recovery. https://www.oecd-ilibrary.org/economics/economic-policy-reforms-2021_3c796721-en
Organization for Economic Cooperation and Development. (2023). Long-term interest rates. https://www.oecd.org/en/data/indicators/long-term-interest-rates.html
Oh, E. Y. (2011). Is financial repression really bad? International Journal of Economics and Fınance Studies, 3(1), 75–84. https://dergipark.org.tr/tr/pub/ijefs/issue/26163/275623
Oluleye, F. A. (2017). Implications of financial repression on economic growth: Evidence from Nigeria. Journal of Economics and Finance, 8(1), 9–14. https://doi.org/10.9790/5933-0801010914
Pagano, M. (1993). Financial markets and growth: An overview. European Economic Review, 37(2–3), 613–622. https://doi.org/10.1016/0014-2921(93)90051-B
Pedroni, P. (1999).Critical values for cointegration tests in heterogeneous panelswith multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653–670. https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-0084.0610s1653https://doi.org/10.1111/1468-0084.61.s1.14
Ramskogler, P. (2014). Origins of the crisis: Drawing the big picture. In Proceedings of the Conference on New Approaches to Economic Challenges. Paris, France. OECD. https://www.researchgate.net/publication/273059382_Origins_of_the_Crisis_drawing_the_big_picture
Reinhart, C., & Rogoff, K. (2009). This time is different: Eight centuries of financial folly. Princeton University Press. https://doi.org/10.1515/9781400831722
Reinhart, C., & Sbrancia, M. B. (2011). The liquidation of government debt (Working Paper No. 363). Bank for International Settlements. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1971161
Roubini, N., & Sala-i-Martin, X. (1992). Financial repression and economic growth. Journal of Development Economics, 39(1), 5–30. https://doi.org/10.1016/0304-3878(92)90055-E
Roubini, N., & Sala-i-Martin, X. (1995). A growth model of inflation, tax evasion and financial repression. Journal of Monetary Economics, 35(2), 275–301. https://doi.org/10.1016/0304-3932(95)01192-Q
Rutherford, D. (2012). Routledge dictionary of economics (3th ed.). Routledge.
Shaw, E. S. (1973). Financial deepening in economic development. Oxford University Press.
Simon, J. (2015, October 8). Low interest rate environments and risk. Paul Woolley Centre for the Study of Capital Market Dysfunctionality Conference [Speech audio recording]. Reserve Bank of Australia. Sydney. https://www.rba.gov.au/speeches/2015/sp-so-2015-10-08.html
Sönmez, E., & Kandemir-Kocaaslan, Ö. (2022). Predicting Financial Stress in Turkey. Maliye Dergisi, 182(1), 30–50.
Türkiye Cumhuriyet Merkez Bankasi. (2023). 1 hafta repo [1 week repo]. https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Temel+Faaliyetler/Para+Politikasi/Merkez+Bankasi+Faiz+Oranlari/1+Hafta+Repo
Trading Economics. (n.d.). United States – Interest payments (% of revenue). https://tradingeconomics.com/united-states/interest-payments-percent-of-revenue-wb-data.html
Van Riet, A. (2018). Modern financial repression in the Euro area crisis: Making high public debt sustainable? (SUERF Policy Note, No. 34). The European Money and Finance Forum.
Vaona, A., & Patuelli, R. (2008). New emprical evidence on local financial development and growth. Letters in Spatial and Resource Sciences, 1(2–3),147–157. https://doi.org/10.1007/s12076-008-0014-4
Weng, F., Zhu, J., Yang, C., Gao, W., & Zhang, H. (2022). Analysis of financial pressure impacts on the health care industry with an explainable machine learning method: China versus the USA. Expert Systems with Applications, 210(1), 1–10. https://doi.org/10.1016/j.eswa.2022.118482
World Bank. (n.d.). GDP growth (annual %). https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Xu, G., & Gui, B. (2013). The connection between financial repression and economic growth: The case of China. Journal of Comparative Asian Development, 12(3), 385–410. https://doi.org/10.1080/15339114.2013.863567
Yao, X., Le, W., Sun, X., & Li, J. (2020). Financial stress dynamics in China: An interconnectedness perspective. International Review of Economics & Finance, 68(1), 217–238. https://doi.org/10.1016/j.iref.2020.04.004
Zhang, H., & Wang, P. (2021). Does bitcoin or gold react to financial stress alike? Evidence from the U.S. and China. International Review of Economics & Finance, 71(1), 629–648. https://doi.org/10.1016/j.iref.2020.10.007