Finance & Economics Review

Fintech Services and Entrepreneurship in Africa

2024-12-05T19:09:32+00:00

Purpose: This paper examines the effect of fintech on entrepreneurship to ascertain the role of financial technology services on individual entrepreneurial intention in five sub-Saharan African countries.

Methods: The analysis was based on an extended probit model to determine the country-specific effect of mobile money account ownership (Fin) on individuals who used fintech services to start a business (Ent) as a measure of entrepreneurship. The impact of other control variables (X) such as credit access, education, and labor force participation on entrepreneurship (Ent) was also considered.

Results: The findings show that fintech services through mobile money are significantly associated with an increased likelihood of entrepreneurship in The Republic of Congo, Kenya, Mauritius, Nigeria, and South Africa. Credit access, higher levels of education, and labor force participation are other drivers of entrepreneurship in Kenya, Nigeria, and South Africa.

Implications: Country-specific characteristics play a significant role in engendering entrepreneurship; thus, the government should intensify efforts to diffuse and adopt fintech for optimal livelihood and economic transformation.

Originality: Overall, this paper accounts for the role of technology penetration in financial services and contributes to the literature on entrepreneurship development in the African context. The research utilizes the World Bank Global Findex data, which is nationally representative, to provide insight into the subject matter.

Limitations: This paper's analysis relied on the 2017 World Bank Global Findex Database, the most recent data available. Although this may be perceived as insufficient, the findings were valid due to their alignment with similar outcomes in the literature

Exploring the Determinants of Liquidity of Private Commercial Banks in Bangladesh

2025-01-03T23:18:03+00:00

Purpose: The main objective of this study is to explore the critical bank-specific determinants of the liquidity of private commercial banks in Bangladesh.

Methods: This research examined the financial statements of twenty private commercial banks in Bangladesh over thirteen years (2010–2022). Various statistical tests and analyses, including the F-test, Breusch and Pagan LM Test, Modified Wald Test, Pesaran CD Test, Wooldridge Test, and Feasible GLS Model, were employed to evaluate the panel data.

Results: The regression results showed that the net interest margin, capital adequacy, financial leverage, credit quality, operating efficiency, and bank age are statistically significant variables influencing the liquidity of private commercial banks in Bangladesh. The study also indicates that a bank`s age moderates the impact of financial leverage, credit quality, and operating efficiency on liquidity.

Implications: The study's theoretical implications deepen understanding of factors influencing bank liquidity, integrating bank age as a moderating variable. As far as the practice is concerned, it assists policymakers and bank managers in enhancing liquidity management techniques, guaranteeing financial stability, and promoting resilience within the banking industry.

Originality: This study distinguishes itself by examining the moderating effect of bank age on liquidity determinants in private commercial banks in Bangladesh, a facet seldom explored in prior studies.

Post-COVID-19 Inflation Dynamics in Bangladesh

2025-02-10T13:02:36+00:00

Purpose: Bangladesh's economy has recently experienced elevated inflationary pressures, which significantly affect economic stability and growth. This study analyzes the factors driving inflation in Bangladesh and determines whether supply-side factors or demand-side pressures primarily influence it.

Methods: The ARDL approach is used in this study's estimating process to use monthly secondary data from January 2015 to September 2024, available from different sources like Bangladesh Bank (BB) and Bangladesh Bureau of Statistics (BBS). This study utilized three separate models for scenario analysis to determine whether inflation dynamics are the same for the pre-COVID and post-COVID periods or over the entire period and whether supply-side or demand-side phenomena drive inflation. The rate of inflation is the dependent variable in the model; industrial production, import, inward remittance, exchange rate, and central bank policy rates (repo, reverse repo) are our independent variables, and the broad money supply is included as a control variable. A correlation matrix is also used to observe the connection among the variables.

Results: This study's findings reveal a long-run relationship among industrial production, lag value of inflation, import, lag values of exchange rate, and broad money supply, but the central bank policy rates have no statistical significance for Bangladesh. This revealed that the channels through which monetary policy influences inflation may be weak or ineffective, or inflation may be driven more by supply-side factors than demand-side ones, reducing the effectiveness of monetary policy.

Implications: The finding informs policymakers or experts that the recent inflationary trend is a supply-side phenomenon and will be adjusted over time.

Originality: This study offers a story contribution by systematically analyzing the post-COVID-19 inflation dynamics in Bangladesh, distinguishing between supply-side and demand-side drivers. Unlike previous studies, which primarily focus on pre-pandemic inflation trends or general macroeconomic conditions, this paper examines explicitly the structural shifts in inflationary pressures caused by the pandemic’s aftermath.

Limitations: Inflation is a multivariate variable, and while fiscal deficits may directly influence inflation, their data are only available annually. Therefore, we cannot include this variable in our article.

Moderating Effect of Environmental Quality on the Relationship Between Trade Openness and Health Expenditure in Sub-Saharan African Countries

2025-02-13T02:47:53+00:00

Purpose: The main objective of this study is to investigate the moderating effect of environmental quality on the relationship between trade openness and health expenditure in sub-Saharan African countries.

Methods: This research utilizes panel data from 41 member countries of sub-Saharan Africa, covering the period from 1996 to 2020. Data was sourced from the World Development Indicators (WDI). The econometric analysis employs the Generalized Method of Moments (GMM) technique to address endogeneity issues in panel data.

Results: The findings reveal a significant positive relationship between trade openness and health expenditure in sub-Saharan African countries. Specifically, a 1% increase in trade openness corresponds to a 582.4-point increase in health expenditures. However, the study also indicates that trade openness negatively impacts environmental quality, as a unit increase in trade openness leads to a decline in environmental quality. This degradation has adverse health outcomes, contributing to increased health spending due to increased incidences of cardiovascular diseases, eye defects, and respiratory tract infections. The study finds that Gross Domestic Product (GDP) per capita negatively affects health expenditure, with a 1% increase resulting in a 0.1843-point decrease. Conversely, population growth positively influences health expenditure, where a 1% increase leads to a 0.1099-point rise in health spending. Industrialization has also been found to have a positive and statistically significant effect on health expenditure at the 5% level, although it contributes to environmental degradation, further impacting human health.

Implications: This study's theoretical implications enhance our understanding of the interconnections between trade, health expenditures, and environmental quality.

Impact of the COVID-19 Pandemic on the Efficiency of the Banking Sector

2025-04-08T02:36:32+00:00

Purpose: The banking sector plays a significant role in strengthening a nation's economic growth. However, it faced special challenges during the COVID-19 pandemic, which affected banks' efficiency. Thus, this study aims to measure the effects of COVID-19 on banks' efficiency during and after the pandemic in Bangladesh.

Methods: The banking sector's technical efficiency was evaluated using the meta frontier Data Envelopment Analysis approach, based on secondary data from 23 commercial banks listed on the Dhaka Stock Exchange (DSE). Banks were selected based on the percentage of market share in the Banking industry. The data covering 2020-2024 were obtained from publicly available annual reports and financial statements.

Results: Findings indicate that banks in Bangladesh were significantly more efficient after COVID-19 and that their performance has recovered. They have an average technical efficiency score of 0.63, compared to 0.51 during the pandemic.

Implications: These findings have the potential to help policymakers find opportunities for profit increase and help develop early preventive measures during crises.

Originality: This pioneering study in Bangladesh assessed banking efficiency after COVID-19.

How Do External Sector Dynamics Induce Domestic Inflation?

2025-05-10T13:06:11+00:00

Purpose: The Bangladeshi economy has recently experienced elevated inflationary pressures, which have significant implications for economic stability and growth. The purpose of this study is to identify the dynamics of the spillover effects of the external sector on domestic inflation in Bangladesh.

Methods: The Autoregressive Distributed Lag (ARDL) approach is deployed for the estimation process, utilizing monthly secondary data from January 2015 to October 2024, available from various sources such as the Bangladesh Bureau of Statistics (BBS), Bangladesh Bank (BB), Food and Agriculture Organization (FAO), and the World Bank (WB). In this analysis, the Consumer Price Index (CPI) is treated as the dependent variable. In contrast, the key explanatory variables include the world oil price, the world food price, exports, imports, and inward remittances. Additionally, industrial production and broad money (M2) are included as control variables, and ‘crisis’ as a dummy variable.

Results: The empirical findings confirm that external factors, particularly global oil prices, food prices, and trade dynamics, have a significant influence on Bangladesh's inflation. A 1 percent rise in past CPI leads to a 0.7 percent rise in the current CPI, revealing strong inflationary inertia. Additionally, global oil price fluctuations have a statistically significant effect on inflation, while the impact of world food prices is delayed, suggesting a lagged transmission into domestic inflation. Trade variables also play a crucial role—exports contribute to inflationary pressures over time mainly due to inequitable growth, whereas imports exert a deflationary effect by reducing supply-side constraints. Additionally, higher domestic industrial production helps mitigate inflation, supporting the supply-side argument, whereas the broad money supply (M2) influences inflation with a lag, reflecting the delayed transmission of monetary policy. Interestingly, remittances have an insignificant direct effect on CPI, implying that while they boost household purchasing power, their inflationary impact is minimal. Furthermore, economic crises, including the COVID-19 pandemic, do not exert a statistically significant independent effect on inflation, reinforcing the dominance of structural economic conditions over short-term shocks.

Implications: Basically, the excessive dynamic forces of inflation need to be discounted to zero (thrust level), considering the static force. According to this empirical analysis, external economic factors have a significant impact on creating inflationary pressures in Bangladesh.

Originality: This paper provides a unique investigation into the impact of external sector dynamics, including world oil and food prices, exports, imports, and remittances, on domestic inflation in Bangladesh, utilizing the ARDL approach with monthly data from 2015 to 2024. Unlike prior studies, it incorporates both immediate and lagged effects of external variables and accounts for inflationary inertia in a comprehensive empirical framework.

Limitations: Although the study provides valuable insights into the external drivers of inflation, it is limited by the exclusion of key fiscal variables, such as the fiscal deficit, due to the unavailability of monthly data. Additionally, the model does not account for nonlinear or asymmetric effects, and structural breaks, such as significant policy shifts, are not explicitly considered in the analysis.

Determinants and Sustainability of Remittances in Bangladesh

2025-06-02T14:36:04+00:00

Purpose: Remittances from overseas workers constitute a significant contribution to Bangladesh's foreign exchange earnings. This study aims to investigate the primary determinants of remittance, with a focus on the skill composition of labor migrants and the sustainability of remittance inflows in Bangladesh.

Methods: This paper employed the ARDL Bound testing approach for estimation because of several advantages. To verify the consistency of the ARDL method's results, this study also employed the Dynamic OLS and Fully Modified OLS methods. This study used annual time series data from 1976 to 2021. Data are collected from the Bureau of Manpower Employment and Training, World Development Indicators, and International Financial Statistics.

Results: This paper found that unskilled labor migrants are a significant determinant of remittance inflows in Bangladesh. This is a new finding, differing from previous empirical findings for Bangladesh. Moreover, a domestic country’s GDP, petroleum price, and exchange rate also significantly influence the inflows of remittances in Bangladesh. Besides, it was found that inflows of remittances followed an upward trajectory, with a sharp increase since 2001 and sustained over the period. By employing the ARIMA (12,1,11) forecasting model using monthly data, it is also found that, given the current policies and existing migration trends, remittance flows are expected to increase in the years to come.

Implications: The findings of this study suggest that the inflow of remittances can be influenced by implementing proper policies in Bangladesh. As unskilled labor migrants are one of the significant determinants of remittances inflow in Bangladesh, it is necessary to explore new countries, except the GCC, based on those countries' needs and willingness to hire migrant workers from Bangladesh. Moreover, allowing the depreciation of exchange rates consistent with economic fundamentals will increase the inflow of remittances in Bangladesh.

Originality: This paper focuses on skill composition of labor migrants as a determinant of remittance inflows and analyzes the sustainability and near-term outlook of remittance inflows in Bangladesh.

Limitations: This paper utilizes annual data from 1976 to 2021 and can’t expand the sample period beyond 2021 due to the unavailability of GDP data for certain GCC countries.