nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒01‒17
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Is the financial crisis causing a recession? By Tatom, John
  2. The Aftermath of Financial Crises By Carmen M. Reinhart; Kenneth S. Rogoff
  3. The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong By John B. Taylor
  4. Productivity growth and technological change in Europe and us By Diego Martínez, y José L. Torres; Jesús Rodríguez-López; José L. Torres
  5. On the Role of Policy Interventions in Structural Change and Economic Development: The Case of Postwar Japan By Julen ESTEBAN-PRETEL; SAWADA Yasuyuki
  6. Technological sources of productivity growth in Japan, the Us and Germany: What makes the difference? By Jesús Rodríguez; José L.Torres
  7. Revisiting Solow’s Decomposition of Economic and Productivity Growth By Tung Liu; Kui-Wai Li
  8. Optimal Operational Monetary Policy Rules in an Endogenous Growth Model: a calibrated analysis By Hiroki Arato
  9. Is Income Inequality Endogenous in Regional Growth? By Hailu, Yohannes; Kahsai, Mulugeta; Gebremedhin, Tesfa G.; Jackson, Randall W.
  10. Energy Consumption and Economic Growth: Evidence from COMESA Countries By Chali, Nondo; Mulugeta, Kahsai
  11. The Relevance of Judicial Procedure for Economic Growth By Bernd Hayo; Stefan Voigt

  1. By: Tatom, John
    Abstract: The U.S. entered a recession in December 2007. Coming in train with a foreclosure crisis that began in late 2006 and its associated financial crisis that began in August 2007, there is a tendency for analysts to attribute the recession to the financial crisis. The worst aspects of the financial crisis that attract attention today did not begin until September 2008 well after the recession began. Other factors account for the recession and could portend the imminent end to the current recession. A leading candidate for the cause of the current recession is the Federal Reserve (Fed). The Fed has caused every post-world war II recession, according to most experts, especially Milton Friedman. In late 2006 there already were signs of a sharp slowing in money growth in place portending recession; see Tatom (2006). This slowing lasted until September 2008. The recent recession has also been influenced by sharp increase in oil prices in 2007-08 that raised the relative price of energy. Subsequently, oil prices fell sharply. Thus, like the monetary policy influence, the energy price shock influence on the recession is in the process of rapidly disappearing and reversing. This is similar to the oil price shock related to the first Kuwait-Iraq war in 1990-91 when a larger and faster run-up in oil prices created a recession followed by a quick reversal of oil prices and economic recovery. Oil prices are falling faster in the current recession from their peak in July 2008. If the Fed caused the current recession and energy prices made it worse and longer, and if there were no other factors influencing it, then a quick end could be in sight, in the first or second quarter of 2009.
    Keywords: Financial crisis; recession; monetary policy; oil price shocks
    JEL: E30 E52 E44
    Date: 2008–12–19
  2. By: Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: This paper examines the depth and duration of the slump that invariably follows severe financial crises, which tend to be protracted affairs. We find that asset market collapses are deep and prolonged. On a peak-to-trough basis, real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Not surprisingly, banking crises are associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls an average of over 9 percent, although the duration of the downturn is considerably shorter than for unemployment. The real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. The main cause of debt explosions is usually not the widely cited costs of bailing out and recapitalizing the banking system. The collapse in tax revenues in the wake of deep and prolonged economic contractions is a critical factor in explaining the large budget deficits and increases in debt that follow the crisis. Our estimates of the rise in government debt are likely to be conservative, as these do not include increases in government guarantees, which also expand briskly during these episodes.
    JEL: E32 E44 F3 N20
    Date: 2009–01
  3. By: John B. Taylor
    Abstract: This paper is an empirical investigation of the role of government actions and interventions in the financial crisis that flared up in August 2007. It integrates and summarizes several ongoing empirical research projects with the aim of learning from past policy. The evidence is presented in a series of charts which are backed up by statistical analysis in these research projects.
    JEL: E0
    Date: 2009–01
  4. By: Diego Martínez, y José L. Torres (Universidad Pablo de Olavide); Jesús Rodríguez-López (Universidad Pablo de Olavide); José L. Torres (Universidad de Málaga)
    Abstract: This paper presents an evaluation on the technological sources of productivity growth across European countries and the U.S. for the period 1980-2004. Technological progress is divided into neutral change and investment specific change. Contribution to productivity growth from each type of technological progress is computed using a growth accounting approach and a general equilibrium approach. Concerning the growth accounting view, the neutral change dominates the effect from the implicit change, and the ICT assets provide most of the implicit technological change. Regarding the general equilibrium approach, ICT assets (specially the hardware equipment) also respond for most of the implicit change affecting productivity growth.
    Keywords: Productivity growth, Investment-specific technological change, Neutral technological change.
    JEL: O41 O47
    Date: 2008
  5. By: Julen ESTEBAN-PRETEL; SAWADA Yasuyuki
    Abstract: In this paper, we study the structural change occurring in Japan's post-World War II era of rapid economic growth. We use a two-sector neoclassical growth model with government policies to analyze the evolution of the Japanese economy in this period and to assess the role of such policies. Our model is able to replicate the empirical behavior of the main macroeconomic variables. Three findings emerge from our policy analysis. First, neither price and investment subsidies to the agricultural sector, nor industrial policy play a crucial role in the rapid postwar growth. Second, while a government subsidy for families in urban areas could have facilitated migration from the agricultural to the non-agricultural sector, such a policy would not have improved the overall performance of the Japanese economy. Finally, had there existed a labor migration barrier, the negative long-run level effect on output would have been substantial.
    Date: 2009–01
  6. By: Jesús Rodríguez (Universidad Pablo de Olavide); José L.Torres (Universidad de Málaga)
    Abstract: This paper studies the contribution of Information and Communication Technologies (ICT) on economic growth and labor productivity across the three leading economies in the world: Japan, Germany and the US. We use a dynamic general equilibrium growth model with investment-specific technological change to quantify the contribution to productivity growth in the three countries from different technological progress. We find that contribution to productivity growth due to ICT capital assets is about 0.40 percentage points for Japan and Germany, whereas it is about 0.65 percentage points in the case of the US. Neutral technological change is the main source of productivity growth in Japan and Germany. For the US, the main source of productivity growth derives from investment-specific technological change, mainly associated to ICT.
    Keywords: Productivity growth; Investment-specific technological change; Neutral technological change; Information and communication technology.
    JEL: O3 O4
    Date: 2008
  7. By: Tung Liu (Department of Economics, Ball State University); Kui-Wai Li (City University of Hong Kong, Hong Kong SAR)
    Abstract: By relaxing the two assumptions of constant returns to scale and perfect competition in the product market used by Solow (1957), this paper identifies a new decomposition of economic and productivity growth. The sources of economic growth are; adjusted economies of scales effect, weighted sum of input growth, and technical progress. The sources of productivity growth are; adjusted economies of scale effect and technical progress. The weight used for the input growth is the cost share of each input.
    Keywords: Solow; Growth decomposition; Total factor productivity; Returns to scale
    JEL: D24 O47
    Date: 2008–12
  8. By: Hiroki Arato (Japan Society for the Promotion of Science and Graduate School of Economics, Kyoto University)
    Abstract: This paper constructs an endogenous growth New Keynesian model and considers growth and welfare effect of Taylor-type (operational) monetary policy rules. The Ramsey equilibrium and optimal operational monetary policy rule is also computed. In the calibrated model, the Ramseyoptimal volatility of inflation rate is smaller than that in standard exogenous growth New Keynesian model with physical capital accumulation. Optimal operational monetary policy rule makes nominal interest rate respond strongly to inflation and mutely to real activity, as in standard New Keynesian model. Growth-maximizing operational monetary policy is not identical to optimal operational monetary policy. Welfare cost of responding to real activity is two or three times larger than that of exogenous growth New Keynesian model.
    Keywords: Monetary policy, Sticky price, Endogenous growth
    JEL: E31 E52 O41
    Date: 2009–01
  9. By: Hailu, Yohannes; Kahsai, Mulugeta; Gebremedhin, Tesfa G.; Jackson, Randall W.
    Abstract: This study focuses on testing the relationship between income inequality and growth within U.S. counties, and the channels through which such effects are observed. The study tests three hypotheses: (1) income inequality has an inverse relationship with growth; (2) regional growth adjustments are the channels through which the inequality and growth are equilibrated; and (3) income inequality is endogenous to regional growth and its adjustment. Results, based on a system of equations estimation, confirm the hypotheses that income inequality has a growth dampening effect; income inequality is endogenous to regional growth and growth adjustment; and the channels through which income inequality determines growth are regional growth adjustments, such as migration and regional adjustment in job and income growth. Results have numerous policy implications: (1) to the extent that income inequality is endogenous, its equilibrium level can be internally determined within a regional growth process; (2) to the extent that traditional income inequality mitigating policies have indirect effect on overall regional growth, they may have unintended indirect effects on income inequality; and (3) to the extent that regional growth adjustment also equilibrates income inequality, such forces can be utilized as policy instruments to mitigate income inequality, and its growth dampening effects hence forth.
    Keywords: Income inequality, economic growth, Gini coefficient, growth modeling, population change, per capita income., Community/Rural/Urban Development, Public Economics, I32, J15, O18, P25, R11, R23, R25, R51, R53, R58,
    Date: 2009
  10. By: Chali, Nondo; Mulugeta, Kahsai
    Abstract: This study applies panel data techniques to investigate the long-run relationship between energy consumption and GDP for a panel of 19 African countries (COMESA) based on annual data for the period 1980-2005. In the first step, we examine the degree of integration between GDP and energy consumption by employing three panel unit root tests and find that the variables are integrated of order one. In the second step, we investigate the long-run relationship between energy consumption and GDP. Results overwhelming show that GDP and energy consumption move together in the long-run. In the third step, we estimate the long-run relationship and test for causality using panel-based error correction models. The results indicate that long-run and short-run causality is unidirectional, running from energy consumption to GDP.
    Keywords: Energy consumption, GDP, Panel Causality tests, International Development, Resource /Energy Economics and Policy, O13, O55,
    Date: 2009–01–31
  11. By: Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Stefan Voigt (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: It has been argued that procedural formalism undermines economic efficiency by fostering rent-seeking and corruption. We challenge this view by arguing that a number of judicial procedures foster economic growth by increasing the predict-ability of court decisions, which leads to more transactions and higher investment levels. We investigate the effects on economic growth of 15 judicial procedures. Employing a standard growth model, we find in a cross-section of 67 countries that timeliness, written—as opposed to oral—procedures, and the right to counsel have a positive effect on growth, whereas the number of independent procedural actions as well as the presumption of innocence have negative effects. Our results partially contradict the results of former studies based on the Lex Mundi dataset.
    Keywords: Judicial procedure, legal formalism, judicial Independence, rule of law, investment, growth.
    JEL: H11 K40 P51
    Date: 2008

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