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FM302 Week 6, Tutorial 5 Questions

The document discusses a research paper that examines the role of remittances and economic growth on banking sector development in Fiji from 1979-2010. It provides details on the motivation, data, methodology, main findings, and conclusions of the paper. The data used includes remittances, private sector credit as a percentage of GDP, and real GDP per capita. The methodology employs econometric analysis and finds a long run relationship between banking sector development, remittances, and economic growth. However, one criticism is that while the paper finds cointegration, it does not examine the long run or short run effects. The document also discusses two other papers on stock market development and the impact of legal institutions on Fiji's stock market

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67 views

FM302 Week 6, Tutorial 5 Questions

The document discusses a research paper that examines the role of remittances and economic growth on banking sector development in Fiji from 1979-2010. It provides details on the motivation, data, methodology, main findings, and conclusions of the paper. The data used includes remittances, private sector credit as a percentage of GDP, and real GDP per capita. The methodology employs econometric analysis and finds a long run relationship between banking sector development, remittances, and economic growth. However, one criticism is that while the paper finds cointegration, it does not examine the long run or short run effects. The document also discusses two other papers on stock market development and the impact of legal institutions on Fiji's stock market

Uploaded by

Avisha Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FM302 Week 6, Tutorial 5 Questions

1. Analyse the following questions with reference to the paper below:

Sami, J. (2013). “Remittances, Banking Sector Development and Economic Growth in Fiji”,
International Journal of Economics and Financial Issues, Vol. 3, No. 2, pp 503-511

• Motivation

To examine the role of remittances and economic growth in the banking sector development
in Fiji. The researcher’s motivation arises from the gap between the literature review and the
implications of the study. [Refer to introduction – objectives, aims, background, motivations,
objectives and outline of the paper]. Whether remittances contribute to financial
development, remittances have been steadily growing in the Pacific Island Countries. They
also want to explore and provide first hand experiences of remittances importance’s.
Remittances are payments made to out to family members – main cause – many of them are
migrating overseas.

• Data

Variables used in the model

- Business Sector Development – measure as the ratio of private sector credit to GDP
- Remittances – Compensation
- Economic Growth – Real GDP per capita.

Frequency of Data – Annual [Highly dependent on the availability of data]

Sample Data – It is difficult to analyse the whole population. The sample size is 32 years [1979-
2010].

Source of Data – World Development Indicators (2011) [Section 3.1]

• Methodology

The econometric methodology has been used.

• Main Findings

1. There is an existence of long run relationship between the banking sector development
remittances and economic growth in Fiji in the period 1979 – 2010.

2. There is preliminary evidence of remittances playing an important role in the banking sector
development in Fiji.

[Refer to table 2]
• Conclusion

1.Policymakers need to review fees and charges on inward remittances [High transaction
costs demotivates people to send money to their families].

2.The flow of remittances through formal channels encourages and promotes financial
intermediaries.

3.Moreover, studies could examine the nature of long run and causal relationship between
remittances inflows and non-banking sector development.

• Your critical point of view on any of the above aspects.

One major drawback of this study, there is causality using two methods, but there is no
presence of long run or short run effects. The difference between causality and magnitude.

2. Discuss the importance of stock market development.

An efficient stock market contributes to attract more investment by financing productive


projects that lead to economic growth, mobilize domestic savings, allocate capital proficiency,
reduce risk by diversifying, and facilitate exchange of goods and services (Mishkin 2001; and
Caporale et al, 2004). Investors will buy it cheap and hold it and sell it for a higher price. It
subjects company to the listing requirements which acts as a form of oversight.

3. What is the purpose and the main findings of the following paper?

Sharma, P and Nguyen, D (2012). “Does Law Really Matter for Stock Market Development?
The Case of Fiji, 1997–2007”, Fijian Studies, Vol. 9 No. 2, pp 95-122

Purpose: investigate if the legal institutions have historically facilitated or impeded the
development of Fiji’s stock market and how can further development happen?

Main findings:

1. Shareholders in Fiji are well protected legally.

2. Quality of Law enforcement is average. Fiji is following international accounting standards


and the legal enforcement is much higher than all other comparable countries. [Economy
wide problems]. Implication – Corruption will be high. [Table 6, regression analysis]

3. Stock Market Development is very low probably to due to the low level of trading activities.

4. The awareness of legal rules towards investors does not matter or is very low.

5. The results do not support the hypotheses.


Discussion - Class

 Economic data is not stationary.


 Mean reversion, constant variance = Stationary or not.
 Unit root – co-integration – if the variables are not stationary. We call it an
integrated variable.
 When you’re running co-integration, you need to focus on long run and short run
results that is absent in the paper. [Remittances]
 If you say your variables are co-integrated, there must be presence of causality
between the variables. Either from x to y, or y to x.
 Causality – changes happening in y first, then changes happens in x.
 Causality testing – is done using the VECM approach which is used in the research
paper. Also called the VAR approach.

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