nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒06‒17
25 papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Population and economic growth with human and physical capital investments By Alberto BUCCI; Davide LA TORRE
  2. Population in factor accumulation-based growth By Alberto BUCCI
  3. Schooling, Cognitive Skills, and the Latin American Growth Puzzle By Eric A. Hanushek; Ludger Woessmann
  4. Transitional dynamics in the Solow-Swan growth model with AK technology and logistic population change By Alberto BUCCI; Luca GUERRINI
  5. Human and cultural capital complementarities and externalities in economic growth By Alberto BUCCI; Giovanna SEGRE
  6. Scale effects, saving and factor shares in a human capital-based growth model with physical capital accumulation By Alberto BUCCI
  7. Mapping prices into productivity in multisector growth models By Ngai, Liwa Rachel; Samaniego, Roberto
  8. "The Role of the Government in Facilitating TFP Growth during Japan's Rapid Growth Era" By Shuhei Aoki; Julen Esteban-Pretel; Tetsuji Okazaki; Yasuyuki Sawada
  9. Consommation d’énergies et croissance du PIB dans les pays de l’UEMOA : Une analyse en données de panel By Okey, Mawussé Komlagan Nézan
  10. Productivity shocks and aggregate cycles in an estimated endogenous growth model By Jim Malley; Ulrich Woitek
  11. Dual Economy Models: A Primer for…Growth, Income Distribution and Poverty Analysis By Vincenzo Lombardo
  12. Tourism and growth in a cross-section of countries By Paolo Figini; Laura Vici;
  13. The design of electoral rules and their impact on economic growth: the Italian case By M.Rosaria Alfano; A. Laura Baraldi
  14. Income distribution and Growth: A Critical Survey By Vincenzo Lombardo
  15. The Empirics of New Economic Geography By Stephen J. Redding
  16. How does Investors' Legal Protection affect Productivity and Growth? By Berdugo, Binyamin; Hadad, Sharon
  17. Tourism and Exports as a means of Growth By Isabel Cortés-Jiménez; Manuela Pulina; Carme Riera i Prunera; Manuel Artís
  18. Stabilizing fiscal policies with capital market imperfections. By Nicolas L. Dromel
  19. “Un-balanced” Economic Growth By Hing-Man Leung
  20. Interregional redistribution, growth and convergence By Damiaan Persyn; Koen Algoed
  21. Trade Openness, Institutional Change and Economic Growth By Navas-Ruiz, Antonio
  22. Parameter identification, population and economic growth in an extended Lucas and Uzawa-type two sector model By Alberto BUCCI; Herb E. KUNZE; Davide LA TORRE
  23. Infrastructure and growth in the European Union: an empirical analysis at the regional level in a spatial framework By Chiara DEL BO; Massimo FLORIO
  24. The relationship between the Economic Sentiment Indicator and real GDP growth: a time-varying coefficient approach using thin plate regression splines By Zanin, Luca
  25. Human Capital Composition and Economic Growth at a Regional Level. By Fabio Manca

  1. By: Alberto BUCCI; Davide LA TORRE
    Abstract: We present a two-sector endogenous growth model with human and physical capital accumulation in order to analyze the long run relationship between population growth and real per capita income growth. Learning is assumed to affect agents’ decision of how much to invest in formal education. Along the balanced growth path equilibrium population change may have a positive, negative, or neutral effect on economic growth depending on whether physical and human capital are complementary/substitutes for each other in the production of new human capital and on their degree of complementarity.
    Keywords: Economic Growth, Population Chang, Learning by using, Human Capital Investment, Physical Capital Accumulation
    JEL: O41 J24 J10
    Date: 2007–12–03
  2. By: Alberto BUCCI
    Abstract: This paper analyzes the conditions under which, within a two-sector endogenous growth model with human and physical capital accumulation but without R&D-driven disembodied technological progress, it is possible to observe an ambiguous effect of population growth on economic growth, as empirical evidence suggests. We present three models. In each of them the engine of long-run growth is human capital accumulation. Population growth exerts ambiguous effects on economic growth only when human and physical capital are complementary for each other in the production of new human capital. This result is explained in terms of the interplay between the “dilution” and “accumulation” effects. In accordance with the growth literature exhibiting endogenous human capital accumulation and R&D activity, we also find that income growth can be positive even with stable population, that both the growth rate and the level of per-capita income are independent of population size, and finally that the level of per-capita income is proportional to per-capita human capital. We conclude that it is possible to reach the same results even without explicitly assuming endogenous and purposeful investment in research by firms
    Keywords: Population Size and Growth, Scale Effects, Per-Capita Income; Economic Growth, Human Capital Investment, Physical Capital Accumulation
    JEL: O41 J24 J10
    Date: 2008–06–09
  3. By: Eric A. Hanushek; Ludger Woessmann
    Abstract: Economic development in Latin America has trailed most other world regions over the past four decades despite its relatively high initial development and school attainment levels. This puzzle can be resolved by considering the actual learning as expressed in tests of cognitive skills, on which Latin American countries consistently perform at the bottom. In growth models estimated across world regions, these low levels of cognitive skills can account for the poor growth performance of Latin America. Given the limitations of worldwide tests in discriminating performance at low levels, we also introduce measures from two regional tests designed to measure performance for all Latin American countries with internationally comparable income data. Our growth analysis using these data confirms the significant effects of cognitive skills on intra-regional variations. Splicing the new regional tests into the worldwide tests, we also confirm this effect in extended worldwide regressions, although it appears somewhat smaller in the regional Latin American data than in the worldwide data.
    JEL: H4 I2 O4 N16
    Date: 2009–06
  4. By: Alberto BUCCI; Luca GUERRINI
    Abstract: This paper offers an alternative way, based on the logistic population growth hypothesis, to yield transitional dynamics in the standard AK model with exogenous savings rate. Within this framework, we show that the dynamics of the capital stock per person and its growth rate can be non-monotonic over time. Moreover, even in the presence of negative growth, the capital stock per-capita can converge to a strictly positive level (different from the initial level) when time goes to infinity. In general, the analysis allows us to conclude that the dynamics of the Solow-Swan model with linear technology and logistic population growth is richer than the one with exponential population growth.
    Keywords: Transitional dynamics, AK model, Economic growth, Population dynamics, Physical capital investment
    JEL: O16 O41 J10 C61
    Date: 2008–12–19
  5. By: Alberto BUCCI; Giovanna SEGRE
    Abstract: The aim of this paper is to investigate the role of culture, viewed according to Throsby’s definition of cultural capital (that is, an asset of tangible and intangible cultural expressions), in fostering economic growth. Recent literature in the field of cultural economics highlights a possible inversion of the usual causality relation, and culture can be seen as one of the engine of economic wealth. In this article we analyze one possible channel through which it may occur: human capital investment. Using a two-sectors endogenous growth model, the relation between cultural and human capital is deeply investigated.
    Keywords: Economic growth, culture, human capital, complementarities, externalities
    JEL: O40 O41 Z10 J24
    Date: 2009–02–07
  6. By: Alberto BUCCI
    Abstract: Using a balanced-growth model with physical and human capital accumulation, this article analyzes quantitatively the long run effects of changes in the saving rate and in income distribution (i.e., the shares of physical and human capital in income) on investment in human capital, growth of income, and the ratio of human to physical capital. In the long run the ratio of physical to human capital is constant, so that these two production factors can grow at the same rate. This rate is a function of the economy’s exogenous technological and preference parameters and depends positively on the share of skills invested in human capital formation. We also find that population growth is neither necessary nor conducive to economic growth and that the level of real income depends linearly on the level of human capital and is independent of population size.
    Keywords: Economic Growth, Human and Physical Capital Investment, Scale Effects
    JEL: O41 J22 J24
    Date: 2008–07–26
  7. By: Ngai, Liwa Rachel; Samaniego, Roberto
    Abstract: Two issues related to mapping a multi-sector model into a reduced-form value-added model are often neglected: the composition of intermediate goods, and the distinction between the productivity indices for value added and for gross output. We illustrate their significance for growth accounting using the well known model of Greenwood, Hercowitz and Krusell (1997), who find that about 60% of economic growth can be attributed to investment-specific technical change (ISTC). When we recalibrate their model to account for the composition of intermediates, we find that ISTC accounts for an even greater share of post-war US growth.
    Keywords: growth accounting; Intermediate goods; investment-specific technical change; multisector growth models; value added
    JEL: E13 O30 O41 O47
    Date: 2009–06
  8. By: Shuhei Aoki (Graduate School of Economics, University of Tokyo); Julen Esteban-Pretel (Faculty of Economics, University of Tokyo); Tetsuji Okazaki (Faculty of Economics, University of Tokyo); Yasuyuki Sawada (Faculty of Economics, University of Tokyo)
    Abstract: Japan experienced high growth of TFP following World War II. This paper studies the sources of this technological growth and documents the role played by different government policies in achieving such growth. We find that in nonagricultural sectors, TFP growth occurred at first through the import of foreign technologies via licensing, and subsequently through the innovation of its own technologies. In agriculture, TFP grew mostly through the development of its own technologies. The Japanese government played a part in the growth of TFP by directing the adoption of foreign technologies, promoting coordination of R&D activities, and setting up channels for the domestic diffusion of available technologies.
    Date: 2009–06
  9. By: Okey, Mawussé Komlagan Nézan
    Abstract: This paper analyze the causal relationship between energy consumption and economic growth,as well as the relationship between energy sources for a panel of four WAEMU countries; Benin, Côte d’Ivoire, Senegal and Togo, for the period 1970-2005. Econometric analysis results indicate that there are: a bi-directional causality between oil consumption and economic growth, for the panel as a whole, but no causality between electricity and economic growth, and no substitution between energy sources at the short run. At the long run, there is a bi-directional causality between economic growth and both the energy sources which become substitutable. These results not only underline the energy dependence of the economic growth, and the rigidity of energy consumption behaviors of these four countries at the short run, but also support regional energy policies which must take account some countries specificities.
    Keywords: energy consumption; economic growth; panel; WAEMU
    JEL: O13 Q40 C33
    Date: 2009–06–02
  10. By: Jim Malley; Ulrich Woitek
    Abstract: Using a two-sector endogenous growth model, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate cycles in output, consumption, investment and hours. To contextualize our findings, we also assess whether the human capital model or the standard real business cycle (RBC) model better explains the observed variation in these aggregates. We find that while neither of the workhorse growth models uniformly dominates the other across all variables and forecast horizons, the two-sector model provides a far better fit to the data. Some other key results are first, that Hicks-neutral shocks explain a greater share of output and consumption variation at shorter-forecast horizons whereas human capital productivity innovations dominate at longer ones. Second, the combined explanatory power of the two technology shocks in the human capital model is greater than the Hicks-neutral shock in the RBC model in the medium- and long-term for output and consumption. Finally, the RBC model outperforms the two-sector model with respect to explaining the observed variation in investment and hours.
    Keywords: Endogenous growth, human capital, real business cycles, Bayesian estimation, VAR errors
    JEL: C11 C52 E32
    Date: 2009–06
  11. By: Vincenzo Lombardo (Department of Economic Studies, Parthenope University of Naples)
    Keywords: Dual economy, poverty, inequality, human capital, informal sector
    Date: 2008–12
  12. By: Paolo Figini (University of Bologna, Itlay and The Rimini Centre for Economic Analysis, Rimini, Italy); Laura Vici (University of Bologna, Itlay and The Rimini Centre for Economic Analysis, Rimini, Italy);
    Abstract: We provided an empirical assessment of the relationship between tourism specialisation and economic growth, by updating findings of previous papers written on this issue. We used data for more than 150 countries covering different time spans between 1980 and 2005. Contrary to previous findings (e.g., Brau et al., 2004 and 2007), tourism-based countries did not grow at a higher rate than non-tourism based countries, except for the 1980-1990 period for which, however, data on international tourism are not fully reliable.
    Keywords: tourism specialisation, economic growth, developing countries
    Date: 2009–01
  13. By: M.Rosaria Alfano; A. Laura Baraldi (Dipartimento di Diritto ed Economia, Seconda Università di Napoli)
    Keywords: Economic Growth, Electoral System, Corruption, Public expenditure, Education
    Date: 2008–03
  14. By: Vincenzo Lombardo (Department of Economic Studies, Parthenope University of Naples)
    Keywords: -
    Date: 2008–11
  15. By: Stephen J. Redding
    Abstract: Although a rich and extensive body of theoretical research on new economic geography hasemerged, empirical research remains comparatively less well developed. This paper reviewsthe existing empirical literature on the predictions of new economic geography models for thedistribution of income and production across space. The discussion highlights connectionswith other research in regional and urban economics, identification issues, potentialalternative explanations and possible areas for further research.
    Keywords: New economic geography, market access, industrial location, multiple equilibria
    JEL: F12 F14 O10
    Date: 2009–04
  16. By: Berdugo, Binyamin; Hadad, Sharon
    Abstract: This paper analyzes the implications of investors' legal protection on aggregate productivity and growth. We have two main results. First, that better investors' legal protection can mitigate agency problems between investors and innovators and therefore expand the range of high-tech projects that can be financed by non-bank investors. Second, investors' legal protection shifts investment resources from less productive (medium-tech) to highly productive (high-tech) projects and therefore enhances economic growth. These results stem from two forces. On one hand, private investors' moral hazard problems (in which entrepreneurs shift investors' resources to their own benefit), and on the other hand innovators' risk of project termination by banks due to wrong signals about projects' probability of success. Our results are consistent with recent empirical studies that show a high correlation between legal investors' protection and the structure of the financial system as well as the economic performance at industry and macroeconomic levels.
    Keywords: Banks; private investors protection; growth
    JEL: G38 D10 G10 G33
    Date: 2009–05–31
  17. By: Isabel Cortés-Jiménez (Christel DeHaan Tourism and Travel Research Institute, Nottingham University Business School); Manuela Pulina (CRENoS Research Centre and D.E.I.R., Università di Sassari); Carme Riera i Prunera (Faculty of Economics, University of Barcelona); Manuel Artís (Faculty of Economics, University of Barcelona)
    Abstract: This study expands existing research by considering both exports and tourism as potential influencing factors for economic growth. While trade of goods has been proven as a means of growth for countries, inbound tourism as non-traditional exports, has been scarcely examined in the literature. Using data for Italy and Spain over the period 1954-2000 and 1964-2000 respectively, both exports of goods and tourism exports are included in the same model. Standard cointegration and Granger causality techniques are applied. The main results reveal the significance of both exports and tourism towards long-term growth with some peculiarities for each country.
    Keywords: Tourism, ELG Hypothesis, TLG Hypothesis, Trade, Growth
    Date: 2009–05
  18. By: Nicolas L. Dromel (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We analyze how investment subsidies can affect aggregate volatility and growth in economies subject to capital market imperfections. Within a model featuring both frictions on the credit market and unequal access to investment opportunities among individuals, we provide specific fiscal parameters able to reduce the probability of recessions, fuel the economy long-run growth rate and place it on a permanent-boom dynamic path. We analyze how conditions on the stabilizing fiscal parameters are modified when frictions in the economy evolve. Eventually, we show how this tax and transfer system can moderate persistence in the economy's response to temporary and permanent productivity shocks.
    Keywords: Endogenous business cycles, capital market imperfections, access to productive investment, fiscal policy, macroeconomic stabilization.
    JEL: E22 E32 E44 E62 H20 H30
    Date: 2009–05
  19. By: Hing-Man Leung (School of Economics, Singapore Management University)
    Abstract: Since the elasticity of substitution between capital and labor is not always one, and since technical progress is not always Harrod-neutral, it is desirable to have an endogenous growth model that admits all sizes of the elasticity and all known technology modes. We derive an equation to do just that, fully describing the per capita income growth rate at all times. It shows a typical economy needing hundreds if not thousands of years to reach its long term growth rate, leading to the conclusion that even the short run may be very long indeed.
    Keywords: The elasticity of substitution, Non-Harrod-neutral technology, short-run growth
    JEL: O10 O11 O12
    Date: 2007–09
  20. By: Damiaan Persyn; Koen Algoed
    Abstract: Countries redistribute substantial amounts of wealth between regions through taxation and social security, even in the absence of an explicit regional policy. Economic theory suggests such redistribution might be distorting. This paper indeed finds that more redistribution leads to subsequent lower growth, but also slower interregional convergence. This may explain the observed lack of within-country convergence in the EU, in contrast to faster convergence between countries where such redistributive schemes do not exist. In contrast, investment in infrastructure or human and physical capital is found to foster both growth and convergence.
    Keywords: income redistribution, inequality, regional convergence
    JEL: O47 H3
    Date: 2009
  21. By: Navas-Ruiz, Antonio (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: This paper explores the relationship between trade openness and economic growth through a change in institutions. To do so, the paper creates a theory of endogenous institutional change where there are three social groups, each one owns a specific production factor. An ellite (landowners) controlling the political power fix higher taxes to extract rents from the other groups of the society (capitalists). This reduces investment in capital, the source for endogenous growth. Endogenous institutional change is done by allowing the rival group (capitalists) to invest in a military action which expels out the group in power. The model studies optimal taxation, growth and institutional change under two scenarios, autarky and free trade. The model is calibrated according to the Western European experience in the Modern Age. Generally, economies opened to trade will experiment higher growth and earlier institutional change although economies specializing in manufacturing products tend to grow more and rise the institutional change earlier. These results are qualitatively very robust to change in parameter values.
    Keywords: Growth, Institutions, Trade Openness
    JEL: F43 O41 O43
    Date: 2009–06
  22. By: Alberto BUCCI; Herb E. KUNZE; Davide LA TORRE
    Abstract: The aim of this paper is twofold. First of all we re-examine the long-run relationship between population and economic growth. To do this we extend the Lucas-Uzawa model along two different directions: we introduce the growth of the physical capital stock into the human capital supply equation and include in the intertemporal maximization problem of the representative household a preference parameter controlling for the degree of agents’ altruism towards future generations. These two extensions allow us to capture eventual complementarity/substitutability links between physical and human capital in the production of new human capital and to study how such links, along with agents’ altruism, may impact on the interplay between economic and demographic growth along the balanced growth path equilibrium. In the second part of this paper we develop the inverse problem for this extended Lucas-Uzawa model. The method we are going to use is based on fractals and has been developed by two of the authors in recent papers. Through the solution of the inverse problem one can get the estimation of some key-parameters such as the total factor productivity, the productivity of human capital in the production of new skills, the physical capital share in total income, the inverse of the intertemporal elasticity of substitution in consumption, the depreciation rate of (physical and human) capital and the parameter controlling for the degree of altruism towards future generations.
    Keywords: Population Growth, Two-Sector Endogenous Growth Models, Human Capital Investment, Physical Capital Accumulation, Fractal-based Methods, Inverse Problems, Collage Theorem
    JEL: O41 J24 J10
    Date: 2008–10–22
  23. By: Chiara DEL BO; Massimo FLORIO
    Abstract: In this paper we examine the return of public investment in the EU regions. We consider different forms of infrastructure capital by examining the relationship between a set of infrastructure indicators and economic performance at the NUTS2 level with an empirical model derived from the production-function approach. From a social planner’s perspective, we want to see which form of infrastructure investment has higher returns, considering structural differences in regions. The main contribution of this paper is to consider the impact of different types of infrastructure on growth, disaggregated at the regional level in the European Union, with an explicit focus on the New Member States, and correcting for spatial dependence and heterogeneity issues. We find that the highest rates of return are associated mainly with TLC, quality and accessibility of the region’s transportation network, while endowment of traditional road and railway infrastructure has a positive but slightly lower impact. We also contribute to the debate on convergence, finding that the β-convergence hypothesis holds also when the model encompasses several controls.
    Keywords: Infrastructure capital, regional growth, convergence, spatial econometrics.
    JEL: H54 O11 E62 R11
    Date: 2008–11–21
  24. By: Zanin, Luca
    Abstract: The aim of this paper is to capture the time-varying effects of the relationship between changes in the Economic Sentiment Indicator and economic growth. We have used thin plate splines as a smooth function to estimate the different points in time via a generalized additive model (GAM) approach. Evidence from six European countries provides support for the idea that the elasticity of the Economic Sentiment Indicator is time-varying.
    Keywords: Economic Sentiment Indicator; Real GDP growth; Thin plate splines; Time-varying coefficient models.
    JEL: C51 C14 C2 E20
    Date: 2009–05–27
  25. By: Fabio Manca (Faculty of Economics, University of Barcelona)
    Abstract: With this paper we build a two-region model where both innovation and imitation are performed. In particular imitation takes the form of technological spillovers that lagging regions may exploit given certain human capital conditions. We show how the high skill content of each region’s workforce (rather than the average human capital stock) is crucial to determine convergence towards the income level of the leader region and to exploit the technological spillovers coming from the frontier. The same applies to bureaucratic/institutional quality which are conductive to higher growth in the long run. We test successfully our theoretical result over Spanish regions for the period between 1960 and 1997. We exploit system GMM estimators which allow us to correctly deal with endogeneity problems and small sample bias.
    Keywords: Human Capital, Growth, Catch-Up.
    Date: 2009–06

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