nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒09‒05
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Policy Making, Industrial Structure and Economic Growth in a Dual Economy By Li, Xun
  2. Do small family businesses have a peculiar attitude toward growth? Evidence from French SMEs. By Anaïs Hamelin
  3. Exchange-rate regime and economic growth: a review of the theoretical and empirical literature By Petreski, Marjan
  4. Trade Agreements, Bargaining and Economic Growth By Maoz, Yishay; Peled, Dan; Sarid, Assaf
  5. Bank Productivity in China 1997-2007: An Exercise in Measurement By Matthews, Kent; Zhang, Nina
  6. Factor Decomposition of Sectoral Growth in South Africa, 1970-2007 By Tregenna, F.
  7. Macroeconomic Impact of the Financial Crisis on Armenia By King Banaian
  8. Growth and social capital: an evolutionary model By Correani, L; Di Dio, F; Garofalo, G
  9. Gender, corruption and sustainable growth in transition countries By Michailova, Julija; Melnykovska, Inna
  10. Expectations, Monetary Policy, and Labor Markets: Lessons from the Great Depression By Christopher P. Reicher

  1. By: Li, Xun
    Abstract: This paper discusses a new growth mode, a country with a dual economic structure in which each economic sector will receive different government policies such as financial and fiscal policies. Firstly It obtains the economic growth rate and the growth rate of per capita output in the balanced growth path. Secondly it shows how different policy allocations and current industrial structure influence the economic growth. This model also reveals several other factors such as technology progress and population flow which have effect on economic growth. More importantly, two types of "traps" which are often neglected by policymaker are pointed out and given names. They are “Policy Trap” and “Labor-force Flow Trap” which deserve the attentions of policymaker.
    Keywords: economic growth Policy Trap Labor-force Flow Trap industrial structure
    JEL: O49
    Date: 2009–07–18
  2. By: Anaïs Hamelin (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and LaRGE, Institut d’Etudes Politiques, Université de Strasbourg, France.)
    Abstract: This paper uses a very large sample of French SMEs to study growth of family owned firms. Firms range from total-family to minority control. The estimated relationship accounts for firm characteristics of size and, age, sector, and financial solvency. The results show that firms with greater family control are prone to exhibit lower rates of sales growth than feasible, given financial performance. Because firm growth is limited not by financing constraints but by family-related attitudes, increasing firm growth requires policies that shape incentives in small family businesses.
    Keywords: Small Business, Family control, Growth, Sustainable growth, Capital budgeting.
    JEL: G31 G32 M13 M21
    Date: 2009–08
  3. By: Petreski, Marjan
    Abstract: The aim of this paper is to examine the theoretical and empirical arguments for the relationship between the exchange-rate regime and economic growth. As a nominal variable, the exchange rate (regime) might not affect the long-run economic growth. However, there is no unambiguous theoretical evidence what impacts the exchange-rate target exhibits on growth. The channel through which the regime might influence growth is trade, investment and productivity. Theoretical considerations relate the exchange-rate effect on growth to the level of uncertainty imposed by flexible option of the rate. However, while reduced policy uncertainty under a peg promotes an environment which is conductive to production factor growth, trade and hence to output, such targets do not provide an adjustment mechanism in times of shocks, thus stimulating protectionist behaviour, price distortion signals and therefore misallocation of resources in the economy. Consequently, the relationship remains blurred and requires in-depth empirical investigation. The empirical research offers divergent result though. A big part of the studies focuses on the parameter of the exchange-rate dummy, but does not appropriately control for other country-characteristics nor apply appropriate growth framework. Also, the issue of endogeneity is not treated at all or inappropriate instruments are repeatedly used. Very few studies disgracedly pay small attention to the capital controls, an issue closely related to the exchange-rate regime and only one study puts the issue in the context of monetary regimes. Overall, the empirical evidence is condemned because of growth-framework, endogeneity, sample-selection bias and the so-called peso problem. An empirical investigation which will consider all those aspects might reveal clear and robust suggestion of the relationship between exchange-rate regime and growth.
    Keywords: Exchange rate regime,economic grow
    JEL: E42 F31
    Date: 2009
  4. By: Maoz, Yishay; Peled, Dan; Sarid, Assaf
    Abstract: Rebelo's two-sector endogenous growth model is embedded within a two-country international trade framework. The two countries bargain over a trade agreement that specifies: (i) the size of the foreign aid that the richer country gives to the poorer one; (ii) the terms of the international trade that takes place after the aid is given. The aid is given not because of generosity, but because it improves the capital allocation across the world and thus raises total world production. This world production surplus enables the rich country to raise its equilibrium consumption and welfare beyond their no-aid levels. To ensure it, the rich country uses a trade agreement to condition the aid on favorable terms of trade.
    Keywords: International trade; Aid; Balanced Growth; Trade Agreement
    JEL: O41 P45 F43
    Date: 2009–08–30
  5. By: Matthews, Kent (Cardiff Business School); Zhang, Nina
    Abstract: This study examines the productivity growth of the nationwide banks of China and a sample of city commercial, banks for the eleven years to 2007. Estimates of total factor productivity growth are constructed with appropriate confidence intervals, using a bootstrap method for the Malmquist index. The study adjusts for the quality of the output by accounting for the non-performing loans on the balance sheets of the banks and tests for the robustness of the results by examining alternative sets of outputs. The productivity growth of the state-owned commercial banks (SOCBs) is compared with the joint-stock banks (JSCBs) and city commercial banks (CCBs). The results show that average total factor productivity for the joint-stock banks was better than that of the state-owned banks for some models of measurement but not others. But the average city commercial banks improved its productivity growth both in terms of frontier shift and efficiency gain throughout the whole period. The study also shows that individual state-owned and joint-stock banks did improve their productivity growth and defined an improving production frontier. Most other banks lagged behind so that the gap between the inefficient banks and the most efficient banks widened. While individual banks improved their productivity growth there is no evidence that the average productivity growth of Chinese banks as a whole improved in the run-up to WTO.
    Keywords: Bank Efficiency; Productivity; Malmquist index; Bootstrap
    JEL: D24 G21
    Date: 2009–09
  6. By: Tregenna, F.
    Abstract: Chenery’s factor decomposition method is used to analyse the sources of growth, by sector, in South Africa from 1970 to 2007. Using input-output data, the growth of each sector is decomposed into components associated with export growth; import substitution; growth in domestic demand; and growth in intermediate demand. The results highlight the dependence on domestic demand expansion as a source of growth in the period since 2000, especially for manufacturing. However, subsectors which relied exclusively or primarily on domestic demand expansion generally performed relatively poorly. The technological change component of growth is the only component with a consistently positive and statistically significant correlation with sectoral growth. The only two manufacturing subsectors for which all four components were positive in the period since 2000, were also the two fastest growing subsectors of the whole economy. The analysis also enables a typology of the subsectors of each of manufacturing and services, according to the relative importance of each of the four components.
    Keywords: growth, sectors, factor decomposition, South Africa
    JEL: E20 O11 O14 O40
    Date: 2009–07–30
  7. By: King Banaian (Department of Economics, St. Cloud State University)
    Abstract: As a small, open economy with a small export sector, Armenia has experienced a large amount of stress from the financial crisis. The government exited a peg-like exchange rate regime after a drain of foreign reserves. The loss of reserves was put to loss of revenues from mining exports, but can also be put to the effects of global financial crisis on remittance inflows. Worldwide, the World Bank expects remittances to fall from US$305 billion in 2008 to $290 billion in 2009. In this paper I explore the effect of global crisis on the loss of reserves supporting the monetary system. Bank balance sheets expanded rapidly and, though small relative to GDP, accepted many assets tied to real estate. Banks’ asset-liability mismatches have their root cause in changes to the flow of hard currency brought on by the crisis.
    Keywords: Armenia; financial crisis; monetary policy; exchange rates
    JEL: E58 O53
    Date: 2009–07–01
  8. By: Correani, L; Di Dio, F; Garofalo, G
    Abstract: In this paper, we analyze the role of cooperation between firms through a model of growth and social capital. In a growth model à la Solow we incorporate the set of resources that a relational network has at its disposals, as a distinct production factor, and thus examine its dissemination through evolutionary type processes in firm interactions. Dynamic analysis of the model demonstrates that cooperation is able to increase the productivity of factors, fostering a higher rate of growth in the long term. The most significant result is that scarcity of social capital can produce a general collapse of the economic system in areas in which long term growth is usually sustained by the learning by doing and spillover of knowledge phenomena. This conclusion leads to reconsider the role of local development economic policies that should concentrate on activities that promote repeated interaction between firms proven to be cooperative or that encourage the formation of technological consortia.
    Keywords: Economic growth; Social capital; Networks; Evolutionary games
    JEL: C71 O43
    Date: 2009
  9. By: Michailova, Julija; Melnykovska, Inna
    Abstract: Numerous studies have found negative connection between corruption level and economic development. At the same time few of them demonstrate correlation between women representation in politics and corruption level. This paper analyzes correlation between gender and corruption for a specific sample of countries, sharing common cultural and historical legacy – transition countries. Relationship between higher number of women in parliament and decreasing level of corruption is supported by data. Relations with other forms of women social activity were found to be insignificant. Contribution of this paper to the research literature on this topic is twofold. First analysis on gender and corruption in transition economies has previously not been done. Second, this study could also be used for the practical policies on fighting corruption by application of gender quotas.
    Keywords: Gender; Corruption; Growth; Transition countries.
    JEL: H11 O10 K42 J16
    Date: 2009–05–12
  10. By: Christopher P. Reicher
    Abstract: This paper estimates a series of shocks to hit the US economy during the Great Depression, using a New Keynesian model with unemployment and bargaining frictions. Shocks to long-run inflation expectations appear to account for much of the cyclical behavior of employment, while an increase in labor’s bargaining power also played an important role in deepening and lengthening the Depression. Government spending played very little role during the Hoover Administration and New Deal, until the rise in military spending effectively brought an end to the Depression in 1941. With the economy at or near the zero interest rate bound, interest rates and monetary aggregates provided a misleading indicator as to the true stance of inflation expectations; in fact, conditions were deflationary all throughout the 1930s in spite of high money growth and low interest rates. The experience of the 1930s offers lessons to modern policymakers who find themselves in a similar situation
    Keywords: Great Depression, expectations, deflation, zero bound, liquidity trap
    JEL: E24 E31 E52 E65
    Date: 2009–08

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