nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒08‒16
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Financial Sector and Economic Growth By Cooray, Arusha
  2. Revisiting Indonesia’s Sources of Economic Growth and Its Projection Towards 2030 By Armida Alisjahbana
  3. Is Mozambican Growth Sustainable? A Comprehensive Wealth Accounting Prospect By Timothée, Ollivier
  4. Too poor to grow By Lopez, Humberto; Serven, Luis
  5. Transitional Dynamics in a Growth Model with Government Spending, Technological Progress and Population Change By Alberto Bucci; Massimo Florio; Davide La Torre
  6. Competition and Growth in an Endogenous Growth Model with Expanding product Variety without Scale Effects Revisited By Bianco, Dominique

  1. By: Cooray, Arusha (University of Wollongong)
    Abstract: The Mankiw-Romer-Weil (1992) augmented Solow-Swan model is extended to incorporate the financial sector in this study. Distinguishing between financial capital, physical capital and human capital, this study attempts to identify in particular, the effects of financial capital on economic growth. The study is also examines the effects of financial sector efficiency on economic growth. The financial sector augmented model is tested on 35 low and middle income economies. Strong support is found for the financial sector augmented model.
    Keywords: Mankiw-Romer-Weil model, economic growth, financial capital, banking sector, convergence
    JEL: O42 O43 O47
    Date: 2009
  2. By: Armida Alisjahbana (Department of Economics, Padjadjaran University)
    Abstract: This paper revisits Indonesia’s sources of economic growth using the Growth Accounting Framework with education adjusted employment for period 1971-2007. The study estimates contribution of growth in capital stock, human capital and Total Factor Productivity (TFP) during the period before and after the crisis. TFP played positive but minor role in Indonesia’s economic growth before the crisis. Growth in capital stock had been the main driver, attributing between 50-70% of growth. Growth in human capital accounted for another 30%. The pattern of sources of growth has changed substantially post crisis. TFP growth has played a more significant role, whereas capital stock growth has been increasing but at a meager pace. Human capital has consistently contributed about 30% to the overall growth. The roles of capital stock growth, human capital growth and TFP have been on a more equal footing after post-crisis. If this trend persists, it will have profound implication on the driver of Indonesian economy’s growth in the future and its trajectory projection towards 2030.
    Keywords: Economic growth, Total Factor Productivity, Indonesia 2030
    JEL: E37
    Date: 2009–07
  3. By: Timothée, Ollivier
    Abstract: We estimate the wealth of Mozambique in 2000 and 2005 in order to assess the sustainability of its development path. Our methodology builds on Arrow et al. (2007). We show that Mozambican growth is driven mainly by human and physical capital accumulation, while the pressure on natural capital remains low. Moreover, changes in knowledge and institutions significantly enhance the outcome of the different capital assets while population growth has a strong downward effect on wealth per capita. In the end, we conclude that Mozambique, unlike many other sub-Saharan countries, followed a sustainable growth path in recent times.
    Keywords: natural capital; sustainable development; Mozambique; comprehensive wealth accounting
    JEL: Q56 E01 Q01 E21
    Date: 2009–07
  4. By: Lopez, Humberto; Serven, Luis
    Abstract: Recent theoretical literature has suggested a variety of mechanisms through which poverty may deter growth and become self-perpetuating. A few papers have searched for empirical regularities consistent with those mechanisms – such as aggregate non-convexities and convergence clubs. However, a seemingly basic implication of the theoretical models, namely that countries suffering from higher levels of poverty should grow less rapidly, has remained untested. This paper attempts to fill that gap and provide a direct empirical assessment of the impact of poverty on growth. The paper’s strategy involves including poverty indicators among the explanatory variables in an otherwise standard empirical growth equation. Using a large panel dataset, the authors find that poverty has a negative impact on growth that is significant both statistically and economically. This result is robust to a variety of specification changes, including (i) different poverty lines; (ii) different poverty measures; (iii) different sets of control variables; (iv) different estimation methods; (v) adding inequality as a control variable; and (vi) allowing for nonlinear effects of inequality on growth. The paper also finds evidence that the adverse effect of poverty on growth works through investment: high poverty deters investment, which in turn lowers growth. Further, the data suggest that this mechanism only operates at low levels of financial development, consistent with the predictions of theoretical models that underscore financial market imperfections as a key ingredient of poverty traps.
    Keywords: Achieving Shared Growth,Population Policies,Inequality,Debt Markets,Economic Theory&Research
    Date: 2009–08–01
  5. By: Alberto Bucci (University of Milan); Massimo Florio (University of Milan); Davide La Torre (University of Milan)
    Abstract: Abstract This paper extends public spending-based growth theory along three directions: we assume that exogenous and constant technological progress does exist and that both population change and the ratio of government expenditure to income follow a logistic trajectory. By focusing on the choices of a benevolent social planner we find that, if the inverse of the intertemporal elasticity of substitution in consumption is sufficiently high, the ratio of consumption to private physical capital converges towards zero when time goes to infinity. Through two examples we see that, depending on the form of the underlying aggregate production function and on whether, for given production function, technological progress equals zero or a positive constant, our model may or may not yield an asymptotic balanced growth path (ABGP) equilibrium. When there is no exogenous technological progress, an equilibrium where population size, the ratio of government spending to total income and the ratio of consumption to private physical capital are all constant does exist and the equilibrium is a saddle point. In case of positive technological progress numerical simulations show that the model still exhibits an ABGP equilibrium.
    Date: 2009–02–24
  6. By: Bianco, Dominique
    Abstract: This paper shows that the results of Bianco (2006) depend critically on the assumption that there are no difference between the intermediate goods share in final output, the returns of specialization and the degree of market power of monopolistic competitors. In this paper, we disentangle the market power parameter from the intermediate goods share in final output and the returns to specialization. The main result of this paper is the death of the inverted-U shape relationship between competition and growth. Indeed, we find a decreasing relationship between competition and growth which is due to the composition of two negative effects on growth : resource allocation and Schumpeterian effects.
    Keywords: Endogenous growth; Horizontal differentiation; Technological change; Imperfect competition.
    JEL: O41 O31
    Date: 2009–08

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.