Essays in development, banking and organisations

• Main Author: Limodio, Nicola
• Published: London School of Economics and Political Science (University of London) 2017
• Subjects: HB Economic Theory
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.727606

This thesis contains four chapters that participate to the literature between development economics, banking and organisational economics. The first chapter shows that deposit volatility and costly bank liquidity increase the long ­term lending rates offered by banks, which reduce loan maturities,long-term investment and output. Together with my co-author(Ali Chaudhary from the State Bank of Pakistan), we formalise this mechanism in a banking model and analyse exogenous variation in deposit volatility induced by a Sharia levy in Pakistan. Data from the credit registry and a firm-level survey show that deposit volatility and liquidity cost: 1) reduce loan maturities and lending rates; 2) leave loan amounts and total investment unchanged;3) redirect investment from fixed assets towards working capital. A targeted liquidity program is quantified to generate yearly output gains between 0.042% and 0.205%. The second chapter,with my co-author(Francesco Strobbe from the World Bank), focuses on the importance of liquidity regulation in absence of deposit insurance and credible safe-asset commitment by banks. We show that bank liquidity regulation creates a commitment device on repaying depositors in bad states,which can: 1) stimulate a deposit inflow, moderating the limited liability inefficiency; 2) promote bank profits and branching, if deposit growth exceeds the inter mediation margin decline. Our empirical test exploits an unexpected policy change, which fostered the liquid assets of Ethiopian banks by 25% in 2011. Exploiting the cross sectional heterogeneity in bank size and bank-level databases,we find an increase in deposits, loans and branches, with no decline in profits. The third chapter focuses on the role of financial regulation, starting from the observation that it can create a demand for government bonds, generating government revenue gains. Together with my co-author (Francesco Strobbe from the World Bank),we study an Ethiopian banking regulation introduced in 2011, forcing banks to purchase a negative-yield government bond. High-frequency bank data and public finances documentation allow tracking the subsequent government revenue gain. This policy is compared to three alternatives: raising funds competitively on international markets;distorting the state-owned bank lending; and raising deposits through state-owned bank branches. Our results suggest that the revenue gain is moderate(1.5--2.6% of tax revenue); banks amass more bonds; their profitability slows without turning negative (from 10% to 2%). In the fourth chapter I study the impact of World Bank managers on project success through the value-added method. Manager effects are interpretable as performance indices and are more volatile than country effects. Both correlate positively with determinants of productivity (i.e., schooling and institutions respectively) and provide evidence of a negative assortative matching,with high-performing managers assigned to low-performing countries. Exploiting a novel variation for World Bank board access, I find a significant manager premium for countries in the board. All of these results are consistent with the World Bank behaving as a planner which assigns its managers as project inputs to client countries.