The Economics and Finance Letters

Inequality in low- and middle-income countries: Does fiscal policy matter?

Margaret Rutendo Magwedere — 2025-01-06

The main purpose of this article was to examine the link between tax revenue and income distribution in low- and middle-income countries. Reducing inequality is a central policy objective under the Sustainable Development Goals (SDGs). However, these countries deeply entrench inequality, and progress towards achieving optimal equality levels remains slow. The study, utilizing the system’s generalized method of moments, investigates the correlation between tax revenue and income inequality in a panel of African countries from 2010 to 2021. The findings indicate that for the countries in this study, an increase in tax revenue is associated with a rise in income inequality. Consequently, higher tax revenues tend to widen income disparities in the countries studied. Policymakers often employ various economic instruments to achieve equitable income distribution, with tax revenue being a critical tool for this purpose. However, the study reveals that increases in tax revenue do not necessarily filter to reduce income inequalities. Other factors, such as corruption control and regulatory quality, significantly influence the redistributive effects of tax revenue. These findings provide important insights for policymakers, highlighting the need for comprehensive strategies that address these additional factors to effectively reduce income inequality.

The effects of technology investment on financial stability: Evidence from commercial banks in Vietnam

Nguyen Minh Nhat — 2025-01-10

This study examines the effects of technology investments on financial stability at commercial banks in Vietnam. Financial services provided by banks are vital to the growth and development of the Vietnamese economy. Due to competitive constraints and the need to keep up with fast-moving FinTech startups, Vietnamese banks have made digital transformation a top strategic goal. Therefore, the study aims to investigate the impact of technology investment on the financial stability of commercial banks in Vietnam from 2012 to 2023. The research used financial data from 26 joint-stock commercial banks and panel data analysis with the ordinary least squares (OLS), fixed effect model (FEM), random effects model (REM), and generalized method of moments (GMM) to look into the link between bank stability and technology spending. The findings reveal that while technology investment significantly enhances operational efficiency and market competitiveness, it poses risks, particularly during the initial stages of digital transformation. The results show a significant negative effect of technology investment on financial stability, highlighting the need for strategic planning and robust regulatory frameworks. These insights provide valuable recommendations for bank management and policymakers to balance technological advancements with financial stability, especially in economic disruptions like the COVID-19 pandemic. Finally, the practical implications help commercial banks strive to increase asset size and expand operations to strengthen financial capacity, increase brand recognition, create solid customer trust, improve competitiveness, and bring high profits.

Determinants of economic growth in Honduras: Regression analysis

Roldan Villela — 2025-02-17

This research aims to evaluate the relationship between various determinants of economic growth and real GDP in Honduras from 1990 to 2020. Using regression analysis across four groups (models) of determinants, this study employs time series data extracted from World Bank online databases. The first model, focused on economic sectors comprising GDP according to the value-added method, reveals that industry, services, and agriculture have a positive and significant relationship with real GDP. The second model, covering key determinants, indicates that only infrastructure and labor force show a positive and significant relation with economic growth. The third model, focusing on education, shows a positive and significant correlation between tertiary school enrollment and real GDP, while primary school enrollment exhibits a negative and significant correlation with economic growth. The fourth model encompasses non-economic determinants, with findings revealing that Voice and Accountability, Political Stability, and Rule of Law have a negative and significant relationship with economic development, whereas Government Effectiveness and Control of Corruption are positively and significantly associated with economic growth. Overall, most determinants prove inconsequential or show a negative relationship with economic growth. The findings highlight the complexity of fostering economic growth in Honduras, where traditional growth factors like education and governance show varied effects. Strategic investments in tertiary education, infrastructure, and institutional effectiveness could drive positive outcomes. These insights suggest that growth strategies in Honduras and similar contexts require targeted, multifaceted approaches.

Financial technology: The catalyst for BRICS' economic and financial leap

Dhaya M — 2025-02-17

This research attempts to ascertain how fintech contributes to the financial development and economic expansion of the BRICS nations. Samples were gathered between 2002 and 2021 using panel data analysis with fixed effects as the research approach. OLS regression was used for analysis. Variables are collected from World Development Indicators and data analysis is done using Gretl software. Three hypotheses are put out in the study and are validated based on the data collected. As per the first hypothesis, fintech is having a beneficial impact on the GDP which is used as a gauge for the nation's economic growth. A second hypothesis posits that fintech impacts the overall money supply which serves as a gauge for financial progress. The third hypothesis states that fintech impacts bank deposits relative to GDP; the second metric chosen to measure financial development is not favorable according to the results. The impact of fintech on financial development and economic growth shows positive impacts. Fintech can enhance the overall economic growth of emerging economies. Maximum utilization of upcoming technology can result in financial development. Emerging economies can benefit from the use of financial technologies to further their financial and economic development. The analysis highlights how crucial technology is to the financial industry.

Employing a ROPMIS modeling to assess the effectiveness of railway stations in Indonesia

Yusita Titi Hapsari — 2025-02-17

This study employs ROPMIS modeling to evaluate the effectiveness of railway stations in Indonesia. In Indonesia, railways serve as a primary mode of transportation, and improving customer satisfaction can encourage the community to utilize public transportation as a means of addressing traffic congestion. However, research studies on the determinants of Indonesian railway performance using ROPMIS (resource, outcome, process, management, image, and social responsibility) are limited. Therefore, this present study aims to explore the determinants of customer satisfaction with railway stations in Indonesia using ROPMIS modeling. The data were obtained through questionnaires directed to railway customers and further analyzed using structural equation modeling. The finding of this study confirms that the ROPMIS modeling, including resource, outcome, process, management, image, and social responsibility, has a significant effect on customer satisfaction. The findings can be used to enhance the overall performance of railways in Indonesia. This study offers a novel model of relating how passenger satisfaction can promote railway performance in Indonesia. The findings of this investigation make a robust contribution to raising scholarly discourse on satisfaction and organizational performance. From a practical perspective, the paper can serve as a valuable guide for organizations such as PT. KAI Persero, helping them to enhance customer satisfaction and optimize train station performance in Indonesia.

Savings behavior of college teachers: A comparative study among private and government colleges in Bangladesh

Rafia Islam Lina — 2025-02-18

The main objectives of a person’s savings are to improve their standard of life, income, and overall financial well-being. The purpose of the research is to comprehend how public and private college teachers manage their finances. The specific goal of the study is to pinpoint and examine the college teachers' savings behavior, motivations, and important factors determining their savings. A set of structured questionnaires was used to gather primary data from 160 government and private college teachers from the Cumilla district of Bangladesh. The gathered data is analyzed using both descriptive and inferential statistics. Findings reveal that teachers are mainly safe to ensure a better future life. The regression result shows that family size and how often people save are negatively related. On the other hand, age, education level, length of service, monthly family income, how often people save, and income from other sources are positively related to annual savings. The study has identified a sharp difference in the motives of savings between government and private college teachers. The length of service, monthly income, and educational qualifications of the college teachers have positive and significant influences on their savings behavior. Policymakers, researchers, and other relevant private-public groups may find the study useful in understanding teachers' savings habits and in taking necessary action to support both the country's economic growth and teachers' financial well-being.

The impact of digital transformation strategy on the performance of commercial banks: Evidence from an emerging economy

Trung Huy Bui — 2025-02-18

This study examines the impact of digital transformation strategies on the financial performance of commercial banks in Vietnam, an emerging economy with significant digital growth potential. Using a sample of 18 Vietnamese banks from 2015 to 2022, the study employs the Generalized Method of Moments (GMM) to address endogeneity concerns and provide robust estimates of the relationship between digital transformation and bank performance. The digital transformation strategy variable is measured through a text analysis of bank annual reports. Our findings reveal that banks integrating digital transformation into their strategies exhibit improved financial performance, with a more pronounced effect among banks that comply with Basel II standards. The study’s insights have important implications for both policymakers and bank managers in emerging markets. Policymakers are encouraged to support digital transformation as a pathway to enhanced financial sector growth, while bank managers are advised to treat it as a strategic priority to unlock efficiency and competitive advantages. Moreover, the results emphasize the value of strong regulatory compliance in maximizing the benefits of digital transformation strategies in the banking sector.

Rereading a theory: Does the income level of countries affect the consumer behavior?

William H Greene — 2025-02-19

This study examines how income levels influence consumer behavior, particularly through the lens of Duesenberry’s relative income and ratchet effect hypotheses. Duesenberry's "ratchet effect" refers to the tendency for individuals to maintain their consumption levels at a higher level once they have reached a certain standard of living, even when their income falls, meaning they are less likely to cut back on spending significantly during economic downturns, similar to how a ratchet only allows movement in one direction; once consumption increases, it is difficult to reverse it downwards easily. The ratchet effect suggests that consumers are resistant to reducing their consumption levels despite decreases in income, as past consumption serves as a psychological baseline. We analyze these hypotheses across two distinct groups: middle-income countries (Brazil, Senegal, Kenya, Jordan) and high-income countries (Japan, Germany, Sweden, Belgium). Using time series data from 1970 to 2020, we employ an Autoregressive Distributed Lag (ARDL) model along with panel data regression to analyze 20 middle-income and 20 high-income countries from 1980 to 2018. Our findings confirm the ratchet effect in middle-income countries, where consumption patterns are strongly influenced by prior income levels, suggesting a persistent upward consumption bias even during economic downturns. However, in high-income countries, the ratchet effect exhibits inconsistent applicability, potentially due to higher income stability, stronger safety nets, and differing consumer priorities. These discrepancies highlight the varied behavioral responses to economic fluctuations based on income levels and societal norms.

Empirical analysis of adaptive market hypothesis using Sharpe Ratio for buy and sell opportunities in global indices

Ajay Raju — 2025-02-21

This study aims to investigate market efficiency and compare the profitability of the Sharpe Ratio Minimae and Maximae trading strategies with the buy-and-hold strategy across indices in different global markets. It tests the prevalence of the Adaptive Market Hypothesis (AMH) by analyzing cyclical variations in strategy performance. The research covers stock indices from six countries, analyzing monthly data spanning January 1998 to December 2023. A rolling window approach is adopted to evaluate time-varying performance and explore potential correlations with market inefficiency. Statistical tests are employed to examine the dynamics of the Sharpe Ratio and its role in investment decision-making and risk assessment. The findings reveal that the Sharpe Ratio Minimae and Maximae strategies consistently outperformed the buy-and-hold strategy across all indices. These strategies achieved higher returns per unit of risk, validating the Adaptive Market Hypothesis by highlighting cyclical variations in market profitability. The results confirm the superior performance of Sharpe Ratio-based strategies over the buy-and-hold approach, supporting the presence of evolving market efficiency in line with the Adaptive Market Hypothesis. The study provides actionable insights for investors and portfolio managers, emphasizing the importance of recognizing market inefficiencies and adopting adaptive strategies. Adjusting investment approaches based on changing market conditions can significantly improve risk-adjusted returns.