nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒04‒13
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Finance-growth Nexus in China: A Channel Decomposition Analysis By Li, Jia
  2. A Century of Economic Growth in Latin America By Pablo Astorga
  3. The Relevance of Productive Experience in the Process of Economic Growth: an Empirical Study By Diana Vieira
  4. The Structuralist Growth Model By Bill Gibson
  5. Industrialisation as an engine of growth in developing countries By Szirmai, Adam
  6. "Managing the Impact of Volatility in International Capital Markets in an Uncertain World" By Jan Kregel
  7. How to Increase the Long Run Growth Rate of Bangladesh? By Rao, B. Bhaskara; Hassan, Gazi
  8. Regional Economic Growth And Human Capital: The Role Of Overeducation By Raul Ramos; Jordi Suriñach; Manuel Artís
  9. Stochastic environmental effects, demographic variation, and economic growth By Azomahou, Theophile; Mishra, Tapas
  10. Education, Corruption and the Natural Resource Curse By Aldave, Iván; García-Peñalosa, Cecilia
  11. Education and Growth: A Simple Model with Complicated Dynamics By Theodore Palivos; Dimitrios Varvarigos

  1. By: Li, Jia
    Abstract: This study aims to reassess the finance-growth nexus debate in China, and consequently illustrate the channels through which financial development gives impact on China’s economic growth after 1978. Specifically, this study addresses two channels through which the effects operate, i.e., physical capital accumulation and productivity improvement. The study adopts an approach called channel decomposition which combines the conventional accounting framework and regression analysis. The empirical analysis, using a panel dataset of Chinese provinces between 1980 and 2004, argues that: (1) the relationship between financial development and economic growth in China tends to be a long-run one; (2) the direction of causality between financial development and economic growth has presumably run from the former to the latter in China; (3) the impacts induced by various measures of financial system exert on economic growth are different, and the channels through which they give impact on the growth are different as well; (4) the existence of inter-regional heterogeneity in the context of China’s finance-growth nexus tends to be sensitive to the selection of financial variables.
    Keywords: financial development; economic growth; nexus; channel decomposition
    JEL: C02 E44 C01
    Date: 2009–03–23
  2. By: Pablo Astorga (Abbey House, Carfax, Oxford and Universidad Carlos III, C/ Madrid, 126, 28903 Getafe, Madrid Espana)
    Abstract: This paper makes a contribution to the study of economic growth in developing countries by analysing the six largest Latin American economies over 105 years within a two-equation framework. Confirming previous findings, physical and human capital prove to be key determinants of GDP per capita growth. However, a more controver- sial result is an overall negative conditional correlation between trade openness and GDP per head growth – though openness has a positive link via investment. The evi- dence also shows that macroeconomic instability has been a drag on long-term growth in the region.
    Keywords: Economic Growth; Investment; Openness; Latin America
    JEL: F43 N26 O11
    Date: 2009–01–02
  3. By: Diana Vieira (GEE)
    Abstract: The purpose of this study is to analyse the effects of productive experience in the process of economic growth. To do this, we estimate an augmented version of the Solow growth model where we include a measure called centrality among the set of usual explanatory variables. This variable summarizes the overall usefulness of a country’s productive experience and it is computed as in Freitas and Salvado (2009), following Hausmann and Klinger (2007). In general, we failed to find a robust relationship between centrality and subsequent growth. This result casts doubts on the usefulness of the centrality measure in the prediction of economic growth.
    Keywords: Economic Growth, Productive Experience, Structural Transformation.
    JEL: C23 O47 F43 O14
    Date: 2009–03
  4. By: Bill Gibson (University of Vermont, Burlington, VT 05045; University of Massachusetts Amherst)
    Abstract: This paper examines the underlying theory of structuralist growth models in an effort to compare that framework with the standard approach of Solow and others. Both the standard and structuralist models are solved in a common mathematical framework that emphasizes their similarities. It is seen that while the standard model requires the growth rate of the labor force to be taken as exogenously determined, the structuralist growth model must take investment growth to be determined exogenously in the long run. It is further seen that in order for the structuralist model to reliably converge to steady growth, considerable attention must be given to how agents make investment decisions. In many ways the standard model relies less on agency than does the structuralist. While the former requires a small number of plausible assumptions for steady growth to emerge, the structuralist model faces formidable challenges, especially if investment growth is thought to be determined by the rate of capacity utilization.
    Date: 2009–03
  5. By: Szirmai, Adam (UNU-MERIT)
    Abstract: This paper examines the emergence of manufacturing in developing countries in the period 1950-2005. It presents new data on structural change in a sample of 63 developing countries and 16 advanced economies. Industrialisation is seen as a single global process of structural change, in which separate countries follow different paths depending on their initial conditions and moment of their entry into the industrial race. With a few important exceptions such as Mexico, Brazil, India and China, developing countries embarked on industrialisation after 1945. The paper argues that successful catch up in developing countries is associated with industrialisation. It examines the theoretical and empirical for the thesis that industrialisation acts as an engine of growth and attempts to quantify different aspects of this debate. The statistical evidence is not straightforward. Manufacturing has been important for growth in developing countries, but not all expectations of the engine of growth hypothesis are borne out by the data. The more general historical evidence provides more support for the industrialisation thesis.
    Keywords: Structural Change, Manufacturing, Engine of Growth, Catching Up, Economic Growth
    JEL: O14 N60
    Date: 2009
  6. By: Jan Kregel
    Abstract: International financial flows are the propagation mechanism for transmitting financial instability across borders; they are also the source of unsustainable external debt. Managing volatility thus requires institutions that promote domestic financial stability, ensure that domestic instability is contained, and guarantee that international institutions and rules of the game are not themselves a cause of volatility. This paper analyzes proposals to increase stability in domestic markets, in international markets, and in the structure of the international financial system from the point of view of Hyman P. Minsky's financial instability hypothesis, and outlines how each of these three channels can produce financial fragility that lays the system open to financial instability and financial crisis.
    Date: 2009–04
  7. By: Rao, B. Bhaskara; Hassan, Gazi
    Abstract: This paper develops a framework to analyse the determinants of the long term growth rate of Bangladesh. It is based on the Solow (1956) growth model and its extension by Mankiw, Romer and Weil (1992) and follows Senhadji’s (2000) growth accounting procedure to estimate total factor productivity (TFP). Our growth accounting exercise showed that growth rate in Bangladesh, until 1990, was due to factor accumulation. Since then, however, TFP made a small positive contribution to growth. An analysis of the determinants of TFP showed that remittances by emigrant workers have negative effects which seem to be due to the loss of skilled labour force. Using these results policy options, to double per capita income of Bangladesh in about 15 years, are discussed.
    Keywords: Solow Growth Model; Endogenous Growth; Total Factor Productivity; Growth Accounting; Remittances; Bangladesh
    JEL: O11 O30 A10
    Date: 2009–04–04
  8. By: Raul Ramos (Faculty of Economics, University of Barcelona); Jordi Suriñach (Faculty of Economics, University of Barcelona); Manuel Artís (Faculty of Economics, University of Barcelona)
    Abstract: The paper analyses the link between human capital and regional economic growth in the European Union. Using different indicators of human capital calculated from census microdata, we conclude that the recent economic performance of European regions is associated to an increase in overeducation. In fact, measures of educational mismatch seem to have a stronger connection to regional economic performance than other traditional measures of human capital stocks.
    Keywords: Regional economic growth, human capital, educational mismatch, overeducation
    Date: 2009–03
  9. By: Azomahou, Theophile (UNU-MERIT); Mishra, Tapas (School of Business and Economics, University of Wales Swansea)
    Abstract: We consider a stochastic environment to study interactions among pollution growth, demographic changes, and economic growth. Drawing on the empirical findings of slow convergence patterns of pollution shocks (viz., with a long-memory), we build an analytical framework where stochastic environmental feedback effects on population changes are reflected upon aggregate economic growth. Long-memory in economic growth, in our model, is shown to arise due to the inherent stochasticity in environmental and demographic system. Empirical results for a set of developed and developing countries generally support our conjecture. Simulation experiment is carried out to lend additional support to this claim.
    Keywords: Environmental Quality, Long-memory, Demographic Dynamics, Economic Growth
    JEL: C13 J11 O47
    Date: 2009
  10. By: Aldave, Iván (Central Bank of Peru and GREQAM); García-Peñalosa, Cecilia (GREQAM and CNRS)
    Abstract: The empirical evidence on the determinants of growth across countries has found that growth is lower when natural resources are abundant, corruption widespread and educational attainment low. An extensive literature has examined the way in which these three variables can impact growth, but has tended to address them separately. In this paper we argue that corruption and education are interrelated and that both crucially depend on a country’s endowment of natural resources. The key element is the fact that resources affect the relative returns to investing in human and in political capital, and, through these investments, output levels and growth. In this context, inequality plays a key role both as a determinant of the possible equilibria of the economy and as an outcome of the growth process.
    Keywords: natural resources, corruption, human capital, growth, inequality
    JEL: O11 O13 O15
    Date: 2009–04
  11. By: Theodore Palivos (Department of Economics, University of Macedonia); Dimitrios Varvarigos (Department of Economics, University of Leicester)
    Abstract: We construct a simple model of education and growth in which young adults (children) spend a fraction of their time and old adults (parents) spend a fraction of their income on education. Both a strategic complementarity and an intergener- ational externality in the creation of human capital are present. The interactions between each pair of consecutive generations lead to rich dynamics. We show that multiple growth equilibria arise, some of them periodic and some aperiodic. We also ?nd a negative correlation between volatility and growth, without a one-way causal relationship between the two being, necessarily, present. Rather this negative correlation is driven by the structural characteristics of the economy.
    Keywords: Education, Human Capital, Economic Growth.
    JEL: E32 O41
    Date: 2009–04

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.