nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒10‒28
four papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Does Openness to International Financial Flows Raise Productivity Growth? By M. Ayhan Kose; Eswar Prasad; Marco Terrones
  2. Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896–2000) By Campos, Nauro F.; Karanasos, Menelaos G.; Tan, Bin
  3. Foreign Direct Investment, Macroeconomic Instability And Economic Growth in MENA Countries By Mustapha Sadni Jallab; Monnet Benoît Patrick Gbakou; René Sandretto
  4. Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries By Dalila NICET- CHENAF (GREThA-GRES); Eric ROUGIER (GREThA-GRES)

  1. By: M. Ayhan Kose; Eswar Prasad; Marco Terrones
    Abstract: This paper provides a comprehensive analysis of the relationship between financial openness and total factor productivity (TFP) growth using an extensive dataset that includes various measures of productivity and financial openness for a large sample of countries. We find that de jure capital account openness has a robust positive effect on TFP growth. The effect of de facto financial integration on TFP growth is less clear, but this masks an important and novel result. We find strong evidence that FDI and portfolio equity liabilities boost TFP growth while external debt is actually negatively correlated with TFP growth. The negative relationship between external debt liabilities and TFP growth is attenuated in economies with higher levels of financial development and better institutions.
    Keywords: Capital flows , Productivity , Production growth , Capital account , Foreign direct investment , Development , Debt , Economic models ,
    Date: 2008–10–07
  2. By: Campos, Nauro F. (Brunel University); Karanasos, Menelaos G. (Brunel University); Tan, Bin (Brunel University)
    Abstract: This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.
    Keywords: economic growth, financial development, volatility, political instability, power-ARCH
    JEL: C14 O40 E23 D72
    Date: 2008–10
  3. By: Mustapha Sadni Jallab (United Nations Economic Commission for Africa and African Trade Policy Center); Monnet Benoît Patrick Gbakou (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France); René Sandretto (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)
    Abstract: This paper aims at analyzing the possible influence of foreign direct investment (FDI) on economic growth in the particular case of Middle East and North African countries (MENA). During the last years, the relation between FDI and growth in LDCs has been discussed extensively in the economic literature. However, the view that FDI stimulates economic growth does not receive an unanimous support. In order to access empirically this relation in MENA countries, we use a dynamic panel procedure with observations per country over the period 1970-2005. To improve efficiency, we use the standard “difference” and “system” GMM and 2SLS estimators. Our findings show that there is no independent impact of FDI on economic growth. The growth-effect of FDI does not also depend on degree of openness to trade and income per capita. But, the positive impact of FDI on economic growth depends on macroeconomic stability: there is a threshold effect of annual percentage change of consumer prices.
    Keywords: Foreign Direct Investment, Macroeconomic stability, Economic Growth, Middle East and North Africa, Two-stage Least Squares, Generalized Moments Methods
    JEL: C32 C33 F21 F23 F43
    Date: 2008
    Abstract: Export diversification has become a priority goal for the development strategies of the MENA countries. In this paper, we aim at measuring the effects of exports’ diversification on growth in MENA countries. But we also try to assess the way new exports and FDI interact each others in the process of growth. Within the framework of an endogenous growth model, we claim that FDI can act as a complementary factor in the discovery process. The model is estimated by the system-GMM and we provide robust evidence that FDI do not necessarily have the same effect on growth according to the diversification level. We also show that while FDI have a positive and significant effect on the MENA countries’ growth, it is most probably rather linked to the direct effect on value added and employment than to the spillover effects of technological transfer.
    Keywords: Export diversification, FDI, Growth, MENA, GMM system
    JEL: F1 O11
    Date: 2008

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