nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒05‒16
twenty papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Is Government Ownership of Banks Really Harmful to Growth? By Panicos Demetriades; Svetlana Andrianova; Anja Shortland
  2. Does Agriculture Really Matter for Economic Growth in Developing Countries? By Awokuse, Titus O.
  3. A Note on Mountford's manuscript "Can a Brain Drain be good for growth in the source economy?" By P. Giannoccolo
  4. New Economy Growth Decomposition in the U.S. By Adelaja, Soji; Hailu, Yohannes G.; Abdulla, Majd
  5. Infrastructure and growth in Africa By Calderon, Cesar
  6. The Two Waves of Service Sector Growth By Barry Eichengreen; Poonam Gupta
  7. The finance-dominated growth regime, distribution, and the present crisis By Engelbert Stockhammer
  8. Modelling the folk theorem of spatial economics: a heterogeneous regional growth model By Torben Klarl
  9. Managing Success in Viet Nam: Macroeconomic Consequences of Large Capital Inflows with Limited Policy Tools By Menon, Jayant
  10. Agriculture and Economic Growth: Embodied Technical Change and Nonconvex Production By Knapp, Keith C.
  11. Immigration Policy, Remittances, and Growth in the Migrant-Sending Country By Sylvain Dessy; Tiana Rambeloma
  12. A Note on Productivity and Per Capita GDP Growth: the Role of the Forgotten Factors By L. Marattin; S. Salotti
  13. Transmission Channels Linking Real Estate Shocks with Macroeconomic Performance: Evidence from Malaysia By Hon-Chung Hui
  14. Poverty and Economic Growth in Russia’s Regions By Paul Mosley; Altay Mussurov
  15. China's Growth, World Food Prices, and Developing Countries Exports By Villoria, Nelson
  16. Employment Growth and Income Inequality: Accounting for Spatial and Sectoral Differences By Pede, Valerien O.; Florax, Raymond J.G.M.; Partridge, Mark D.
  17. Economic Growth and Carbon Emission Control -A case study of power industry in China By Zhang, Zhenyu; Schoengold, Karina
  18. Are the High-growth Recovery Periods Over? By Hugo Rodríguez Mendizábal; Máximo Camacho; Gabriel Pérez Quirós
  19. The Impact of the Asian Miracle on the Theory of Economic Growth By Robert W. Fogel
  20. Moving up the ladder ? the impact of migration experience on occupational mobility in Albania By Carletto, Calogero; Kilic, Talip

  1. By: Panicos Demetriades; Svetlana Andrianova; Anja Shortland
    Abstract: We show that previous results suggesting that government ownership of banks has a negative effect on economic growth are not robust to adding more “fundamental” determinants of economic growth, such as institutions. We also present regression results from a more recent period (1995-2007) which suggest that, if anything, government ownership of banks has been associated with higher long run growth rates, even after controlling for institutions and other variables suggested by the growth literature. Drawing on the current global financial crisis, we provide a conceptual framework which explains why under certain circumstances government owned banks could have a greater effect on economic growth than privately-owned banks.
    Date: 2009–05
  2. By: Awokuse, Titus O.
    Abstract: In recent decades, the potential contribution of agriculture to economic growth has been a subject of much controversy among development economists. While some contend that agricultural development is a precondition to industrialization, others strongly disagree and argue for a different path. Taking advantage of recent developments in time series econometric methods, this paper re-examines the question of whether agriculture could serve as an engine of growth. Results from the empirical analysis provide strong evidence indicating that agriculture is an engine of economic growth. Furthermore, we find that trade openness has a positive effect on GDP growth.
    Keywords: Agriculture, Economic growth, ARDL, developing countries, Agricultural and Food Policy, Community/Rural/Urban Development, C23, O11, 041,
    Date: 2009
  3. By: P. Giannoccolo
    Date: 2008–11
  4. By: Adelaja, Soji; Hailu, Yohannes G.; Abdulla, Majd
    Abstract: The drivers of economic growth in what is called the New Economy has become an important policy question. As communities across the country face economic challenges and a new economic reality, the question of what works in the New Economy has emerged. This study aims to provide growth decomposition in the New Economy to identify key drivers of growth. It provides a conceptual, theoretical and empirical discussion of growth in the New Economy to solidify the theory and empirics of New Economy growth decomposition. Results suggest that growth in population, income and employment are mostly synergistic; innovation and talent are potent in the New Economy; population dynamics, especially in the young and retiree segment of the population are tied to local economic performance; housing market instability harms growth; green infrastructure assets enhance growth performance; and that economic legacy and entrenchment in the Old Economy can impact new growth potential. The framework, analysis and results in this study can provide the basis for further investigation in the area of New Economy growth accounting.
    Keywords: New Economy, growth decomposition, economic policy, talent, innovation, creative class, green infrastructure, synergistic growth, Public Economics,
    Date: 2009
  5. By: Calderon, Cesar
    Abstract: The goal of the paper is to provide a comprehensive assessment of the impact of infrastructure development on growth in African countries. Based on econometric estimates for a sample of 136 countries from 1960-2005, the authors evaluate the impact on per capita growth of faster accumulation of infrastructure stocks and of enhancement in the quality of infrastructure services for 39 African countries in three key infrastructure sectors: telecommunications, electricity, and roads.<BR>Using an econometric technique suitable for dynamic panel data models and likely endogenous regressors, the authors find that infrastructure stocks and service quality boost economic growth. The growth payoff of reaching the infrastructure development of the African leader (Mauritius) is 1.1 percent of GDP per year in North Africa and 2.3 percent in Sub-Saharan Africa, with most of the contribution coming from more, rather than better, infrastructure. Across Africa, infrastructure contributed 99 basis points to per capita economic growth, versus 68 points for other structural policies. Most of the contribution came from increases in stocks (89 basis points), versus quality improvements (10 basis points). The findings show that growth is positively affected by the volume of infrastructure stocks and the quality of infrastructure services; simulations show that our empirical findings are significant statistically and economically. Identifying areas of opportunity to generate productivity growth, the authors find that African countries are likely to gain more from larger stocks of infrastructure than from enhancements in the quality of existing infrastructure. The payoffs are largest for telephone density, electricity-generating capacity, road-network length, and road quality.
    Keywords: Transport Economics Policy&Planning,Infrastructure Economics,E-Business,Private Participation in Infrastructure,Non Bank Financial Institutions
    Date: 2009–04–01
  6. By: Barry Eichengreen; Poonam Gupta
    Abstract: The positive association between the service sector share of output and per capita income is one of the best-known regularities in all of growth and development economics. Yet there is less than complete agreement on the nature of that association. Here we identify two waves of service sector growth, a first wave in countries with relatively low levels of per capita GDP and a second wave in countries with higher per capita incomes. The first wave appears to be made up primarily of traditional services, the second wave of modern (financial, communication, computer, technical, legal, advertising and business) services that are receptive to the application of information technologies and increasingly tradable across borders. In addition, there is evidence of the second wave occurring at lower income levels after 1990. But this change in the second wave is not equally evident in all economies: it is most apparent in democracies, in countries that are open to trade, and in those that are relatively close to the major global financial centers. This points to both political and economic conditions that can help countries capitalize on the opportunities afforded by an increasingly globalized post-industrial economy.
    JEL: O0 O1 O10
    Date: 2009–05
  7. By: Engelbert Stockhammer (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: The paper discusses the interactions of changes in income distribution and the accumulation dynamics in the post-Fordist accumulation regime in OECD countries, which is characterized by deregulated financial markets. The neoliberal mode of regulation came with a decisive shift in power relations at the expense of labor, which is clearly reflected in the fall of wage shares across OECD economies. The notion of a “finance-dominated” accumulation regime is proposed to highlight that financial developments crucially shape the pattern and the pace of accumulation. Financial globalization has relaxed balance of payment constraints and thereby allowed the build up of big international imbalances. The combination of real wage moderation and financial liberalization has led to different strategies (or at least outcomes) in different countries. While some countries (like the USA) exhibit a credit-fuelled consumption-driven growth model that comes with large current account deficits, others (like Germany and Japan) show an export-driven growth model with modest consumption growth and large current account surpluses. Overall the finance-dominated accumulation regime is characterized by a mediocre growth performance and by a high degree of fragility.
    JEL: B50 E20 E21 E E44 E60 P17
    Date: 2009–04
  8. By: Torben Klarl (University of Augsburg, Department of Economics)
    Abstract: During the last year, the research field of spatial economic has rapidly increased. There is consensus that the economic performance of a region depends not only on its own potential, but also on the development of their neighbouring regions. Knowledge spillovers, which are non constant over space, should influence the evolution of the region specific productivity. The so called "folk theorem of spatial economics" states, that increasing returns to scale are essential for explaining the uneven economic distribution of specific economic activity, which implies that knowledge spillover, agglomeration and distribution of per capita productivity are closely linked. Thus, the aim of this paper is, to introduce a spatial regional growth model, which links first time knowledge spillover, agglomeration, distribution of per capita productivity and the grasp of spillovers. Further, it is shown in a simulation study, how different regimes of returns to scale and grasps of knowledge affect agglomeration and distribution of per capita productivity. One of key findings is, that grasp of knowledge affects dynamic distribution of per capita productivity. Moreover, the simulation study particularly finds support for the "folk theorem of spatial economics".
    Keywords: Spatial Economics, Agglomeration, Spatial knowledge spillovers, New economic geography, Regional growth
    JEL: R11 R12 F43
    Date: 2009–05
  9. By: Menon, Jayant (Asian Development Bank)
    Abstract: Viet Nam has experienced spectacular economic growth over the past decade, in part the result of massive foreign direct investment (FDI) inflows. Although much has been written on the impacts of FDI in developing countries, previous studies have generally ignored macroeconomic consequences in cost-benefit assessments. These macroeconomic aspects can be particularly important in transitional economies like Viet Nam, where some of the tools for macroeconomic stabilization may be blunt or unavailable. First, capital inflow growth needs to be accommodated by real exchange rate appreciation. In dollarized economies like Viet Nam, the nominal exchange rate cannot be relied upon to deliver it, so inflation usually results. In these economies, it is also difficult for the central bank to conduct open market operations to sterilize large capital inflows or mop up excess liquidity. Again, this could feed inflation. The combination of a young and inexperienced banking system and an investment-hungry state-owned enterprises (SOE) sector only exacerbates the situation, and increases the risk of imbalances that could result in crisis.
    Keywords: capital inflow; macroeconomic adjustment; FDI; real exchange rate; Viet Nam
    JEL: F21 F32 F49
    Date: 2009–04–01
  10. By: Knapp, Keith C.
    Abstract: The role of agricultural production in economic growth has long been of interest to agricultural economists, including questions related to poverty traps and the measurement of technical change. This work investigates these issues, with particular emphasis on embodied vs. disembodied technical change, technical issues related to the standard C-D model and its realism, and the possible role of non-convex production technologies. The first set of simulations is for a C-D economy. The results suggest general convergence to a positive steady-state regardless of agricultural productivity (with one possible - although unlikely - exception), and that convergence happens very fast. A variety of reasons are given why this is not likely to be a complete model of growth and development. An activity analysis model of growth is proposed, with the key result so far being that one can generate qualitatively similar time paths to observed data over some time horizons without appeal to disembodied technical change and while remaining in the neoclassical framework. There is also reasoning from the literature to support non-classical production. The key result there is the possibility of convergence to a zero steady-state depending on initial conditions. Work in progress investigates the possibility of agriculturally-induced poverty traps and implications for productivity measurement utilizing these frameworks.
    Keywords: Economic growth, agricultural productivity, dynamic programming., International Development, Production Economics, Resource /Energy Economics and Policy,
    Date: 2009
  11. By: Sylvain Dessy; Tiana Rambeloma
    Abstract: As evidence accumulates to expose the ineffectiveness of foreign aid, there are increasing calls for rich countries to open up their immigration policies so as to enable migrants' remittances to substitute for foreign aid as a growth-stimulant in poor, migrant-sending countries. In this paper, we use an endogenous growth model to argue that the growth effects of transnational migration and remittances are entirely mediated by the human capital profile of emigrants, as determined by immigration policy at the destination country. Quantitatively, we find that when immigration policy at the destination country provokes a "brain drain", growth is negatively impacted in the sending country despite remittances. The reverse is true when immigration policy targets workers with low levels of human capital.
    Keywords: Remittances, migration, growth, education, general equilibrium, child labor
    JEL: J13 J61 O11 O15 O40
    Date: 2009
  12. By: L. Marattin; S. Salotti
    Date: 2009–04
  13. By: Hon-Chung Hui (Nottingham University Business School - Malaysia Campus)
    Abstract: This paper examines the transmission channels through which property markets propagate shocks to the real economy. Using a four-equation model which portrays the theoretical inter-linkages between real estate value and other components of the economy, our findings suggest that in the short run, negative real estate shocks affect GDP by dampening construction, bank lending activities and to a certain extent, consumption. The impact of shocks on investment is harder to decipher given the complicated dynamics arising from an almost instantaneous adjustment process towards equilibrium each time the system is perturbed. In the long run, there is no evidence of positive wealth effects on consumption while sustained depressions in property markets could be harmful to future economic growth.
    Keywords: Real estate shocks; Transmission channels; Macroeconomic performance
    JEL: C32 E20
    Date: 2008–06
  14. By: Paul Mosley (Department of Economics, The University of Sheffield); Altay Mussurov
    Abstract: The extent of poverty reduction has varied enormously during the recovery period across the eighty-three regions of Russia, with some regions continuing to experience increases in poverty even though they have returned to growth. We attempt to understand and analyse the reasons for this regional variation. We focus on two principal causative factors: the changes in economic structure resulting from the liberalisation of the economy, and policy instruments aimed at poverty reduction. We find that many regions which experienced structural change under perestroika (notably those benefiting from the current oil and gas boom) experienced massive growth in GDP but little poverty reduction, because their prevailing production function is capital-intensive and thus they were unable to transmit much or any reduction in poverty through the labour market. Regions where the growth of the early 2000s was diversified, was based more on the service sector, and where the educational system made possible flexibility within the labour market, tended to be more effective at generating poverty reduction.
    Keywords: Russia, poverty, regional analysis
    JEL: I32 P26
    Date: 2009–04
  15. By: Villoria, Nelson
    Abstract: This paper explores the impacts of China's growth in the international markets of agricultural products. These impacts are important because they are related to two different ongoing discussions about the role of China in the world economy. One of these discussions have to do with China as a source of price inflation while the other has to do with China as an engine of growth for developing countries, in this case, through increased export opportunities. Our results suggest that China has been a source of aggregated mild price inflation in the largest developed economies that occupy the first ranks as food importers. This is probably related to a more intense pressure on world food supplies. When we look at the counterfactual exports of selected exporters, we find that few countries in Latin America (Brazil, Peru), and in Asia (Malaysia, Indonesia), have benefited from China's increased food demand.
    Keywords: gravity, China, food prices, International Development, International Relations/Trade,
    Date: 2009
  16. By: Pede, Valerien O.; Florax, Raymond J.G.M.; Partridge, Mark D.
    Abstract: This paper revisits the inequality-growth relationship accounting for sectoral differences and focusing on US counties. For 8 two-digit industries of the NAICS classification, we estimated a conditional growth model where employment growth depends on regional income inequality and a number of control variables. Spatial econometrics techniques are used to account for spatial dependence. Results indicate that there is no association between employment growth and family income inequality for the Agriculture, Forestry, Fishing and Hunting sector and the Real Estate, Rental and Leasing sector. However, income inequality consistently shows a negative impact on employment growth in the construction sector, and results are mixed for other sectors such as: Manufacturing; Retail Trade; Professional Scientific and Technical Services; Accommodation and Food Services; Educational Services. In several sectors, mixed results were obtained when differentiation is made between urban and rural samples.
    Keywords: employment growth, inequality, spatial dependence, Community/Rural/Urban Development, R0, R11, O15, D30,
    Date: 2009–05–01
  17. By: Zhang, Zhenyu; Schoengold, Karina
    Abstract: Many countries have achieved moderate to dramatic growth during the last few decades, and the world-widely continued economic growth results in increased wealth and deteriorated environment. The relationship between economic growth and environmental quality has received great attention in empirical and theoretical studies. But results are mixed: some find that economic development inevitably leads to environmental deterioration due to resource depletion and pollution, while others find that continued economic development helps to improve environmental quality. Further works are required in a specific context to answer the question whether environmental improvement is compatible with continued economic growth. We intend to provide insight on the potential for carbon emissions control within one nation in the absence of international agreement. The electricity generation sector in China was chosen to demonstrate the economic impact of possible emissions control on the production of power industry in this study. The important economic questions include: What are the optimal policies to provide firms with the incentive to abate carbon emission? Does taxation or subsidy work? What are the impacts of emission control on economic growth? An endogenous growth model is set to represent a regulated power industry , and a Coub-Douglas production function is used to describe the joint production of electricity and carbon emissions. The modified Hamilton approach is employed to solve the model under three possible polices: emission fee, coal tax and abatement subsidy. The theoretical analysis suggests that firms have no incentive to abate in the absence of regulation, and finds that the ratio of emissions to desired output is not a constant, but a function of productive capital and other parameters. The non-constant ratio provides the theoretical grounds to choose the appropriate policies for emissions control. And the sustainable growth could be achieved when appropriate environmental instruments are chosen. Moreover, the optimal conditions derived from the model, rather than ad hoc specification, are used to examine the relationship between desired output and emissions for empirical analysis. Data comes from the China Statistical Yearbook and China Electric Power Yearbook, providing the provincial information for the period 1993-2003. Joint estimation of emissions and output is done using full information maximum likelihood (FIML) method. The optimal emission tax rates are estimated as 59.78%, 13.78% and 6.88% corresponding to abatement efficiencies of 1%, 5% and 10%, respectively. The optimal input tax rates ( ) are 54.05%, 56.13%, 57.55% 65.11% corresponding to discount rate ( ) of 0.05, 0.08, 0.10, 0.20 respectively. The results suggest that the sustainable growth could be achieved when appropriate environmental instruments are chosen, and emission tax is preferred to input tax in the sense of social cost, whenever detection of emissions is not costly and abatement technology allows removing at least 5% of total emissions at pipe end.
    Keywords: Economic growth, carbon emission control, power generation, China, Environmental Economics and Policy,
    Date: 2009
  18. By: Hugo Rodríguez Mendizábal; Máximo Camacho; Gabriel Pérez Quirós
    Abstract: We present evidence about the loss of the so-called ?plucking effect?, that is, a high-growth phase of the cycle typically observed at the end of recessions. This result matches the popular belief, presented informally by different authors, that the current recession will have permanent effects, or that the current recession will have an L shape versus the old-time recessions that have always had a V shape. Furthermore, we show that the loss of the ?plucking effect? can explain part of the Great Moderation. We postulate that these two phenomena may be due to changes in inventory management brought about by improvements in information and communications technologies.
    Keywords: Business cycle characteristics, Great Moderation, High-growth recovery
    JEL: E32 F02 C22
    Date: 2009–04–20
  19. By: Robert W. Fogel
    Abstract: This paper, divided into seven sections, considers the development of economic growth theory in light of the spectacular advances of the economies of China, India, and Southeast Asia. Section 1 reviews the debate over the sources of technological change and the measurement of total factor productivity that emerged during the second half of the 1950s. Section 2, “Convergence and Divergence,†deals with the closing of the economic gap between the U.S. and other OECD nations that existed after World War II and the increasing economic gap between OECD and Third World nations. Section 3, “The Asian Miracle,†describes the new recognition among Western economists that the sustained, very rapid growth in China and Southeast Asia was changing the global economic balance. Section 4, “Endogenous Economic Growth,†deals with the work of a group of mainly verbal theorists, including Simon Kuznets and T.W. Schultz, who sought to define social, political, demographic, religious, and ideological conditions that preceded the epoch of modern economic growth, which began in the late eighteenth or early nineteenth centuries. That line of thought was extended by more mathematical economists who studied the invention and modeled the diffusion of new technologies in agriculture (Zvi Griliches) and industry (Edwin Mansfield). Section 5, “Bridges between Two Cohorts of Theorists on Technological Change,†compares the work of Griliches, Richard Nelson, and Dale W. Jorgenson, whose quantitative analysis of endogenous technological change spanned the period from the mid-1950s to the new cohort of growth theorists that emerged during the mid- to late-1980s. Section 6, “The Economic Historians,†focuses on their investigations of the interrelationships of the evolution of social, economic, and political institutions and on findings about the impact of institutional changes on invention, innovation, the process of technological change, and economic growth. Section 7, “The Impact of the Asian Economic Miracle on Growth Theory,†focuses on the theorizing about the likely impact of the rapidly expanding Asian economies on the shaping of the global economy over the next several decades.
    JEL: B2 O4 O53
    Date: 2009–05
  20. By: Carletto, Calogero; Kilic, Talip
    Abstract: The contribution of return migrants to economic development in source countries can be significant. Overseas savings of returnees may lead to improvements in household welfare and provide liquidity for investments in the face of credit market failures. Labor market experience and skills acquired abroad may also lead migrants to find occupations higher in the skill and remuneration spectrum upon return. This study uses the 2005 Albanian Living Standards Measurement Study Survey and estimates the impact of international migration experience on the occupational mobility of return migrants vis a vis working-age Albanian residents that never migrated. Controlling for the non-random nature of international migration and return, the results show that past migration experience increases the likelihood of upward occupational mobility. Exploring the heterogeneity of impact by host country indicates that the positive effect of past migration experience on upward occupational mobility is driven by past migration experience in Italy and countries further a field, while past migration experience in Greece does not exert any significant impact on mobility outcomes. The results, which are consistent across different sample specifications and outcome variables measuring occupational mobility, hint at the link between migration and human/financial capital formation among migrants and foster optimism concerning the positive effect of return migration on economic development. This insight is particularly important since remittances from permanent migrants, which have fueled the impressive growth performance of the country in the recent era, may taper off in the medium to long term with the decline in out-migration and growing global economic woes.
    Keywords: Population Policies,Labor Markets,Voluntary and Involuntary Resettlement,Human Migrations&Resettlements,Debt Markets
    Date: 2009–04–01

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