nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒12‒07
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The relationship between trade openness, foreign direct investment and growth: Case of Malaysia By Baharom, A.H.; Habibullah, M.S.; Royfaizal, R. C
  2. Democracy, openness and jumps in growth By Gabriele Deana; Andrea Gamba
  3. Understanding West German Economic Growth in the 1950s By Barry Eichengreen; Albrecht Ritschl
  4. Is There A Trade-off Between Regional Growth and National Income? Theory and Evidence from the EU By Young-Bae Kim
  5. Population, Pensions, and Endogenous Economic Growth By Burkhard Heer; Andreas Irmen
  6. Determinants of the Growth Semi-Elasticity of Poverty Reduction By Stephan Klasen; Mark Misselhorn

  1. By: Baharom, A.H.; Habibullah, M.S.; Royfaizal, R. C
    Abstract: This study examines the role of trade openness and foreign direct investment in influencing economic growth in Malaysia during 1975-2005, using the Bounds testing approach suggested by Pesaran et al. (2001). The empirical results demonstrate that trade openness is positively associated and statistically significant determinant of growth, both in short run and the long run. The result also suggested that foreign direct investment is positively associated in the short run and negatively associated in the long run, both significantly. Besides these two variables, the other control variable namely exchange rate is also significant in the short run as well as in the long run.
    Keywords: trade openness; foreign direct investment; economic growth; Malaysia
    JEL: F10 F43
    Date: 2008–10–17
  2. By: Gabriele Deana (Bocconi University and University of Milan - Italy); Andrea Gamba (CESPRI Bocconi University, Milan - Italy)
    Abstract: We identify multiple structural breaks in a growth series using the econometric method developed by Bai and Perron (1998, 2003). We then regress the indicator of detected positive and negative breaks on three kinds of explanatory variables: external shocks, institutions and policies. Our results show that a change towards democratization fosters booms. Economic liberalizations act as an insurance against the probability of incurring into a crisis, while moves towards autarky undermine the chances of experiencing booms. We employ program evaluation to isolate single reforms and to assess the importance of reform sequencing: we find that democratization is a driver for growth and subsequent liberalization ensures stability.
    Keywords: political liberalization, democracy, economic reform, long-run economic growth
    JEL: O11 O43 E65
    Date: 2008–07
  3. By: Barry Eichengreen; Albrecht Ritschl
    Abstract: We evaluate explanations for why Germany grew so quickly in the 1950s. The recent litera- ture has emphasized convergence, structural change and institutional shake-up while minimiz- ing the importance of the postwar shock. We show that this shock and its consequences were more important than neoclassical convergence and structural change in explaining the rapid growth of the West German economy in the 1950s. We find little support for the hypothesis of institutional shakeup. This suggests a different interpretation of post-World War II German economic growth than features in much of the literature.
    Keywords: economic growth, productivity, Germany
    JEL: N14 N44 O52
    Date: 2008–12
  4. By: Young-Bae Kim (University of Surrey)
    Abstract: The paper theoretically and empirically investigates the effect of changes in national labourmarket conditions on regional growth from the point of view of local economies. The mechanism of efficiency wage is introduced to a growth model and it is argued that local regions belonging to richer countries would experience slower economic growth than those in poorer countries, ceteris paribus. The model emphasises the process of interregional wage dependence in which national average wage or income plays an important role in determining regional wages and growth. The empirical findings from EU regional data also suggest that national income is significantly and negatively associated with regional growth. The adverse effect of national income on regional growth is also observed to be stronger among richer regions whose income is above the national average.
    Keywords: Artificial Neural Networks; Forecasting; Inflation
    JEL: C51 C52 C53 E31 E37
    Date: 2008–11
  5. By: Burkhard Heer (Free University of Bolzano-Bozen, School of Economics and Management,); Andreas Irmen (University of Heidelberg, Department of Economics)
    Abstract: We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.
    Keywords: Growth, Demographic Transition, Capital Accumulation, Pension Reform
    JEL: O41 C68 O11 D91 D31
    Date: 2008–11
  6. By: Stephan Klasen (Georg-August-Universität Göttingen / Germany); Mark Misselhorn
    Abstract: In this paper we examine the mathematical relationship between growth and distributional change on absolute (i.e. percentage point) changes in FGT poverty measures assuming a log-normal income distribution, which we argue to be a conceptually superior and more policy-relevant measure than the much used ’regular’ growth elasticity of poverty reduction. We also test the empirical relationship of these semi-elasticities of growth and distributional change on poverty and find them to explain actual changes in poverty very well (in fact, much better than a related study by Bourguignon (2003) that studied the growth elasticity of poverty reduction). This is particularly the case when poverty depth and severity is considered. Using our results helps in interpreting past performance in poverty reduction and will allow a rapid and quite reliable prediction of the impact of growth and distributional change on (absolute) poverty reduction across countries, taking heterogeneity in country circumstances into account.
    Keywords: Poverty reduction, growth elasticity, growth semi-elasticity, income distribution
    JEL: O1 I32 O2
    Date: 2008–10–17

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