nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2006‒11‒18
four papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial Development, Labor and Market Regulations and Growth By Raquel Fonseca; Natalia Utrero-González
  2. Real Money Balances and TFP Growth: Evidence from Developed and Developing Countries By Giannis Karagiannis; Vangelis Tzouvelekas
  3. Finance, Monetary Policy and Investment By George Argitis
  4. Monetary Unions, External Shocks and Economic Performance: A Latin American Perspective By Sebastian Edwards

  1. By: Raquel Fonseca; Natalia Utrero-González (Department of Business Economics, Universitat Autonoma de Barcelona)
    Abstract: This paper investigates the importance that market regulation and financial imperfections have on firm growth. We analyse institutions affecting labor market as Employment Protection Laws (EP) and Product Market Regulation (PM). We show that together with the beneficial effects of financial development, a firm will get less financing, and thus investless, in a weak financial market (finance effect), the strictness of product and labor market regulations also affect firm growth (labor effect). In particular, we show that the stricter the rules the more detrimental the influence on growth in sectoral value added for a large number of coun-tries. We also show that the labor effect overcomes the positive finance effect.
    Keywords: Financial development, labor and product market institutions, growth
    JEL: G2 G32 J32 L10
    Date: 2005–05
  2. By: Giannis Karagiannis (Department of Economics, University of Macedonia, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
  3. By: George Argitis (Department of Economics, University of Crete, Greece)
    Abstract: In this paper we attempt to develop some basic lines of a political economy perspective of the impact of finance and monetary policy on investment. We argue that the structure of capital, particularly the type of the relation between the industrial and the financial sector determines, to an extent, the way that finance affects investment. The domain in which this effect takes place is the distribution of income. Hence, this perspective integrates financial and real variables and argues that their interaction, which is institutionally and historically defined, acts as a main source of influence on investment and industrial accumulation in capitalism. Yet, we econometrically estimate some of our fundamental hypotheses, using data from the USA.
    Keywords: Finance, Monetary Policy, Credit, Income Distribution, Investment
    JEL: B22 E11 E12
  4. By: Sebastian Edwards (University of California, Los Angeles and National Bureau of Economic Research)
    Abstract: During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union does not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks are amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries.
    Keywords: Regional and International Currency Arrangements
    JEL: F41 F15 F33
    Date: 2006–06

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