nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒12‒14
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Does Openness to International Financial Flows Raise Productivity Growth? By M. Ayhan Kose; Eswar S. Prasad; Marco E. Terrones
  2. Stunted Growth: Natural Resource Concentration, Economic Growth, and Dutch Disease in the Southeastern United States By Elliot, Vaughn; Hartarska, Valentina; Bailey, Conner
  3. Financial Development, Technological Change in Emerging Countries and Global Imbalances By Kenza Benhima

  1. By: M. Ayhan Kose; Eswar S. Prasad; Marco E. Terrones
    Abstract: Economic theory has identified a number of channels through which openness to international financial flows could raise productivity growth. However, while there is a vast empirical literature analyzing the impact of financial openness on output growth, far less attention has been paid to its effects on productivity growth. We provide 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.
    JEL: F36 F41 F43
    Date: 2008–12
  2. By: Elliot, Vaughn; Hartarska, Valentina; Bailey, Conner
    Abstract: We study the link between economic growth and resource endowment in the southeastern United States and find signs of Dutch Disease. Using data for 815 counties in this region, we focus attention on the connection between economic growth and forest resources. Our data support the Dutch Disease theory that economic reliance on natural resources contributes to low economic growth.
    Keywords: Community/Rural/Urban Development, Resource /Energy Economics and Policy,
    Date: 2008
  3. By: Kenza Benhima
    Abstract: The paper shows that in a general equilibrium model with two countries, characterized by different levels of financial development, and two technologies, one more productive and more financially demanding than the other, the following stylized facts can be replicated: 1) the persistent US current account deficits since the beginning of the 90’s; 2) growth of output per worker in developing countries in relative terms with the US during the same period; 3) relative capital accumulation and 4) TFP growth in these countries, also relative to the US. The more productive technology takes more time to implement and is subject to liquidity shocks, while the less productive one, along with external bond assets, can be used as a hoard to finance those liquidity shocks. As a result, after financial globalization, if the emerging economy is capital scarce and if its financial market is sufficiently incomplete, it experiences an increase in net foreign assets that coincides with a fall in the less productive investment and a rise in the more productive one. Convergence towards the steady state implies then both a better allocation of capital that generates endogenous aggregate TFP gains and a rise in aggregate investment that translates into higher growth.
    Keywords: Growth, Capital flows, Credit constraints, financial globalization, technological change
    JEL: F36 F43 O16 O33
    Date: 2008

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