nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒11‒11
four papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial Integration and Risk-Adjusted Growth Opportunities By Gianni De Nicoló; Iryna V. Ivaschenko
  2. Financial Development and Volatility of Growth Rates: New Evidence By Kunieda, Takuma
  3. Finance and Growth Cycles By Kunieda, Takuma
  4. ECONOMIC GROWTH AND GROWTH LINKAGES IN CHINA 1994-2003 By Ari, Kokko; Ljungwall, Christer; Gustavsson Tingvall, Patrik

  1. By: Gianni De Nicoló; Iryna V. Ivaschenko
    Abstract: This paper documents the evolution of measures of financial integration for major advanced and emerging markets economies, assesses whether advances in integration have had a significant positive impact on countries' risk-adjusted growth opportunities, and identifies some of the channels through which financial integration may foster growth. Three main results obtain. First, financial integration has progressed significantly worldwide, particularly in emerging markets, and regional integration has advanced at the fastest pace in Europe. Second, a country's speed of integration predicts future country's risk-adjusted growth opportunities, while improved risk-adjusted growth opportunities predict future advances in integration, indicating that the countries whose integration has been faster may have benefited most from a virtuous dynamics in which financial integration and improved real prospects are mutually reinforcing. Third, financial integration predicts globalization but the reverse does not necessarily hold, while advances in financial integration predict advances in financial development and improvements in the liquidity of equity markets.
    Keywords: Working Paper , Economic integration , Developed countries , Developing countries , Globalization , Liquidity , Financial risk ,
    Date: 2008–05–15
  2. By: Kunieda, Takuma
    Abstract: This paper examines the effect of financial development on growth volatility with the dynamic panel data analysis. It demonstrates empirically that financial development has a hump-shaped effect on growth volatility. In early stages of financial development, growth rates are less volatile. As the financial sector develops, an economy is highly volatile. However, as the financial sector matures and the financial market approaches a perfect one, the economy becomes less volatile once again.
    Keywords: Growth Volatility; Financial Development; Dynamic Panel Models.
    JEL: E51 O16 E44
    Date: 2008–08–31
  3. By: Kunieda, Takuma
    Abstract: This research examines the effect of financial development on volatility in economic growth. It demonstrates theoretically that financial development has a hump-shaped effect on volatility in economic growth. In early stages of the development of a financial sector, growth rates evolve monotonically. At the intermediate level of financial development, as the degree of credit market imperfections diminishes and as asymmetric information between borrowers and lenders is less pronounced, an economy exhibits endogenous growth cycles. However, as the financial sector matures, the volatility in the growth process dissipates and the growth rates evolve once again monotonically.
    Keywords: Endogenous Growth Cycles; Financial Deepening; Credit market imperfections; Heterogeneous agents.
    JEL: O41 E22 E23
    Date: 2008–07–12
  4. By: Ari, Kokko (European Institute of Japanese Studies); Ljungwall, Christer (China Economic Research Center); Gustavsson Tingvall, Patrik (China Economic Research Center)
    Abstract: This paper investigates to what degree neighboring Chinese provinces were linked to each other in terms of economic growth, income levels, and foreign direct investment during the period 1994-2003. When looking at mainland China, we find that both the level of income and the rate of income growth in a province depend on developments in neighboring provinces. However, we find no evidence of any positive interdependence between growth in rich coastal provinces and their immediate inland neighbors. This suggests that there has been little harmonization in economic growth rates between these regions, and that the immediate hinterland of the coastal growth centers might be bypassed as China’s manufacturing sector is moving west.
    Keywords: Domestic integration; growth interdependence; China’s Economy
    JEL: F14 F15 O53
    Date: 2008–10–01

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