nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒03‒22
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Growth effects of foreign direct investment and economic policy reforms in Latin America By Vadlamannati, Krishna Chaitanya
  2. Financial Intermediary Development and Output Fluctuations: A Dynamic Panel Data Analysis on ASEAN-5 Plus 3 By Kin-Boon Tang; Hui-Boon Tan
  3. The Macroeconomic Consequences of Banking Crises in OECD Countries By David Haugh; Patrice Ollivaud; David Turner
  4. Total Factor Productivity, Saving Rate and Learning-by-Doing in Growth Process. By Cuong Le Van; Tu-Anh Nguyen
  5. Intergenerational Complementarities in Education and the Relationship between Growth and Volatility By Theodore Palivos; Dimitrios Varvarigos
  6. Money growth rule and macro-financial stability under inflation-targeting regime. By Meixing DAI; Moïse SIDIROPOULOS
  7. Confronting Crises: Learning From Labour Markets in the Past By Eduardo Zepeda
  8. Infrastructure and Growth: Empirical Evidence By Balázs Égert; Tomasz Kozluk; Douglas Sutherland
  9. Financialisation in a comparative static, stock-flow consistent Post-Kaleckian distribution and growth model By Eckhard Hein
  10. A Model of Growth with Intertemporal Knowledge Externalities, Augmented with Contemporaneous Knowledge Externalities By Mário A. P. M. Silva

  1. By: Vadlamannati, Krishna Chaitanya
    Abstract: Both theoretical and empirical literature has identified several channels through which FDI influence economic growth in Latin America. This study however examines the impact on economic output growth using aggregate production function augmented with FDI inflows, policy reforms and the interaction between the two for 22 Latin American countries over 1980-2006 period. The results demonstrate the importance of FDI inflows and policy reforms on economic output growth. Though the interaction between the two highlights complimentary affect, the results are not significant. On the other hand, both FDI and reforms influence economic growth only post 1990s, the period in which many Latin American countries initiated drastic economic policy reforms. Despite these positive outcomes, the coefficient of FDI on economic growth is found to be smaller. This is because, though absolute FDI inflows have increased in the region over the years, the rate of growth of FDI in comparison to other developing regions like Asia is very low. The share of Latin American FDI to total developing countries declined from 1970 to 2006. This suggests that even though there is a positive impact of FDI and policy reforms on economic growth, this effect is only marginal and Latin America as an investment destination is less attractive than other developing regions like Asia today.
    Keywords: FDI; Economic growth; Policy reforms; Latin America
    JEL: N16 F21 O4
    Date: 2009–03–17
  2. By: Kin-Boon Tang (Nottingham University Business School - Malaysia Campus); Hui-Boon Tan (Nottingham University Business School - Malaysia Campus)
    Abstract: This paper examines the direct and indirect effects of financial intermediary development on output fluctuations based on the theoretical works by Bacchetta and Caminal (2000) and Beck, Lundberg and Majnoni (2006). According to credit market imperfections, well-developed financial intermediaries dampen the effect of real sector shocks and magnify the effect of monetary shocks on output fluctuations. This paper examines whether financial intermediaries serve as shock absorbers or shock magnifiers that mitigate or amplify the effect of real and monetary shocks on output fluctuations. Using data from 8 countries of ASEAN-5 Plus 3, the empirical results indicate that (1) there is strong and robust evidence for the dampening effect of financial intermediary development on output fluctuations via the propagation of real shocks, (2) there is somewhat weak evidence for the magnifying effect of financial intermediary development via the propagation of monetary shocks and (3) financial intermediary development has strong direct impact on output fluctuations if countries are bankdependent in the cointegration regression.
    Keywords: Panel cointegration; Financial development; Output fluctuations
    Date: 2008–07
  3. By: David Haugh; Patrice Ollivaud; David Turner
    Abstract: This paper examines the characteristics of downturns and subsequent recoveries following past banking crises in OECD countries as well as evidence of any effects on potential output growth. It is differentiated from previous analyses because it makes use of OECD measures of the output gap and potential output. Downturns following banking crises are found to be more protracted with larger output losses and disproportionate falls in housing and business investment. The recovery is typically more muted with exports providing a disproportionately large positive contribution. Evidence regarding possible effects on potential growth of a banking crisis is mixed. The banking crisis in Japan was followed by a deterioration in potential growth partly due to a worsening in productivity performance which may be related to the protracted nature of the banking problems and the resulting misallocation of capital. Following the Nordic banking crises, which were resolved more quickly, there was no deterioration in productivity performance, although there was a temporary deterioration in potential growth which is mostly explained by an increase in the structural unemployment rate, which in turn may reflect the interaction of an exceptionally severe downturn with structural labour market rigidities.<P>Conséquences macroéconomiques des crises bancaires dans les pays de l’OCDE<BR>Ce papier analyse, dans le contexte des crises bancaires passées des pays de l’OCDE, les caractéristiques des ralentissements économiques et de la reprise qui suit, ainsi que de mettre en évidence de possibles effets sur la croissance du potentiel de production. Cette étude se différencie des précédentes par l’utilisation de l’écart de production et du potentiel de l’économie. Les ralentissements qui font suite à une crise bancaire semblent durer plus longtemps avec des pertes plus importantes et avec une réaction négative de l’investissement privé disproportionnée. Le rythme de la reprise est plus modéré et se caractérise par des contributions fortement positives des exportations. Les résultats de l’analyse des conséquences des crises bancaires sur le potentiel de l’économie sont mitigés. La crise bancaire au Japon a affecté négativement le potentiel de production via une baisse de la productivité du travail. Cela peut être relié à la durée des problèmes bancaires qui ont touché le Japon et de leurs conséquences néfastes sur l’allocation du capital. Dans le cas des crises bancaires des pays nordiques qui ont duré moins longtemps, il n’y a pas eu d’effets sur la productivité, bien que temporairement le potentiel ait baissé ce qui provient principalement d’une augmentation du taux de chômage structurel. Cette dernière relation peut refléter l’interaction entre d’une part un ralentissement exceptionnellement sévère et d’autre part des rigidités structurelles sur le marché du travail.
    Keywords: cycle économique, croissance potentielle, potential output, output gap, écart de production, financial crisis, crise financière, banking crisis, crise bancaire, downturn, ralentissement économique, business cycle
    JEL: E32 E44
    Date: 2009–03–06
  4. By: Cuong Le Van (Centre d'Economie de la Sorbonne, Universite Paris-1, France); Tu-Anh Nguyen (Centre d'Economie de la Sorbonne, Universite Paris-1, France)
    Abstract: In transitional stage saving rate play an important role in output growth rate as proposed by Krugman. Accumulationists are also right as claiming that learning-by-doing play an important role in TFP growth in NIEs. However, using a CES production technology we can show that the growth model based purely on learning-by-doing is constrained by labor growth rate. If the latter is constant in the long-run, then the growth can not be sustained.
    Keywords: Optimal growth model, learning-by-doing, saving rate, Developing country.
    JEL: D51 E13 E21
    Date: 2009–01
  5. By: Theodore Palivos (Department of Economics, University of Macedonia); Dimitrios Varvarigos (Department of Economics, University of Leicester)
    Abstract: We construct an overlapping generations model in which parents vote on the tax rate that determines publicly provided education and offspring choose their effort in learning activities. The technology governing the accumulation of human capital allows these decisions to be strategic complements. In the presence of coordination failure, indeterminacy and, possibly, growth cycles emerge. In the absence of coordination failure, the economy moves along a uniquely determined balanced growth path. We argue that such structural differences can account for the negative correlation between volatility and growth.
    Keywords: Human Capital, Economic Growth, Volatility.
    JEL: O41
    Date: 2009–03
  6. By: Meixing DAI; Moïse SIDIROPOULOS
    Abstract: Recent financial crises and central banks’ interventions to ensure liquidity on the monetary markets around the world have shown that using interest rate as instrument of monetary policy can be insufficient. Using an aggregate dynamic macro-economic model, we study how to combine inflation targeting with monetary targeting to warrant macro-economic and financial stability. A commitment to a long-run money growth rate corresponding to the inflation target could reinforce the credibility of central bank announcements and the role of inflation target as strong and credible nominal anchor for private inflation expectations. We show that, using Friedman’s k-percent money growth rule to help anchoring inflation expectations under inflation-targeting regime can generate dynamic instability in output, inflation, assets prices as well as real money demand. Alternatively, a well-specified monetary targeting rule that responds negatively to the evolution of expected inflation allows achieving macro-economic and financial stability.
    Keywords: inflation targeting, monetary targeting, stock prices, macro-economic and financial stability, Friedman’s k-percent money growth rule.
    JEL: E41 E44 E52 E58
    Date: 2009
  7. By: Eduardo Zepeda (International Poverty Centre)
    Abstract: The current economic crisis is spreading to the developing world. Even solid emerging economies are affected. IPC Working Paper 51 reviews labour markets in three Latin American countries over the past two decades and suggests how recessions affect the working poor. This One Pager looks at experiences that might guide policy options to confront the crisis. It examines two large, export-dependent countries, Chile and Mexico, and reviews two kinds of economic period: slow growth (Chile, 2000?2003; and Mexico, 2000?2004); and decline (Mexico?s 1995 tequila crisis).
    Keywords: Confronting Crises: Learning From Labour Markets in the Past
    Date: 2009–03
  8. By: Balázs Égert; Tomasz Kozluk; Douglas Sutherland
    Abstract: Investment in network infrastructure can boost long-term economic growth in OECD countries. Moreover, infrastructure investment can have a positive effect on growth that goes beyond the effect of the capital stock because of economies of scale, the existence of network externalities and competition enhancing effects. This paper, which is part of a project examining the links between infrastructure and growth and the role of public policies, reports the results on the links with growth from a variety of econometric approaches. Time-series results reveal a positive impact of infrastructure investment on growth. They also show that this effect varies across countries and sectors and over time. In some cases, these results reveal evidence of possible over-investment, which may be related to inefficient use of infrastructure. Bayesian model averaging of cross-section growth regressions confirm that infrastructure investment in telecommunications and the electricity sectors has a robust positive effect on long-term growth (but not in railways and road networks). Furthermore, this effect is highly nonlinear as the impact is stronger if the physical stock is lower.<P>Infrastructure et croissance : Évidence empirique<BR>L’investissement dans les réseaux d’infrastructure est susceptible d’encourager la croissance économique de long terme dans les pays de l’OCDE. De surcroît, il peut avoir un effet positif sur la croissance qui va au-delà de l’effet du stock du capital en raison des économies d’échelles, de l’existence d’externalités de réseaux et des effets bénéfiques sur la concurrence. Ce document, qui fait partie d'un projet sur les liens entre l'infrastructure et la croissance et le rôle des politiques publiques, présente les résultats sur les liens avec la croissance d'une variété de méthodes économétriques. Des résultats fondés sur des séries temporelles indiquent que l’investissement dans les infrastructures a un effet positif sur la croissance économique. Les résultats suggèrent que cet effet varie entre pays et secteurs ainsi que dans le temps. Dans certains cas, ces résultats indiquent un possible sur-investissement qui pourrait provenir d’une utilisation peu efficace des infrastructures. Par le biais d’un moyennage Bayésien de régressions de croissance effectuées en coupe instantanée, nous démontrons que l’investissement d’infrastructure dans les secteurs des télécommunications et de l’électricité (mais pas dans les réseaux ferroviaire et routier) a une influence positive et robuste sur la croissance. De plus, cet effet est non-linéaire car il est plus important si le stock du capital est moins élevé.
    Keywords: economic growth, croissance économique, investment, investissement, industrie de réseau, infrastructure, infrastructure, network industry, co-integration, cointégration, choix de modèles par estimateur Bayésien, Bayesian model averaging
    JEL: E22 O11 O40
    Date: 2009–03–13
  9. By: Eckhard Hein (Macroeconomic Policy Institute (IMK) at Hans Boeckler Foundation, Duesseldorf)
    Abstract: Into an analytical stock-flow consistent Post-Kaleckian distribution and growth model the following transmission channels of 'financialisaton' are integrated. 1. 'Financialisation' is assumed to affect distribution between firms and rentiers in the short run, and distribution between capital and labour through a dividend-elastic mark-up in firms' price setting in the medium run. 2. Firms' investment is affected through a 'management's preference channel' and an 'internal means of finance channel'. 3. Consumption is influenced via distribution of dividends in the short run and via a reduction in the labour income share in the medium run. In the model the total effect of 'financialisation' is derived, the development of firms' outside finance-capital ratio is endogenised, and the medium-run stability and viability of the financial structure and of capital accumulation is checked.
    Date: 2009
  10. By: Mário A. P. M. Silva (Faculdade de Economia, Universidade do Porto)
    Abstract: The present model is essentially Romer’s (1990) model of endogenous growth with intertemporal knowledge externalities, augmented with contemporaneous knowledge externalities to give a richer explanation of the growth process. Both types of knowledge spillovers seem essential to capturing the features of knowledge in a model of growth. Introducing synchronic complementarities and knowledge externalities across inventive firms immediately creates the possibility of multiple equilibria and threshold effects in the present model. Another advantage of this theoretical formulation is that it allows for an analysis of the effects on steady-state growth of a variety of technology policies relying on changing knowledge complementarities parameters.
    Keywords: Endogenous growth, innovation, knowledge complementarities, knowledge externalities, general equilibrium
    Date: 2009–03

This nep-fdg issue is ©2009 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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