nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒09‒19
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. How can we double per capita incomes in Bangladesh in 15 years? By Rao, B. Bhaskara; Hassan, Gazi
  2. Long Term Growth and the Wealth of a Nation: Growth Miracles and Lost Decades By Jean-Pierre Courbois
  3. Decreasing Fertility, Economic Growth and the Intergenerational Wage Gap By Klaus Prettner; Alexia Prskawetz
  4. Inside Debt and Economic Growth: A Cambridge - Kaleckian Analysis By Thomas I. Palley
  5. Growth Accounting By Charles R. Hulten
  6. Economic Growth, Law and Corruption: Evidence from India By Sambit Bhattacharyya; Raghbendra Jha
  7. Economic Crises, Stabilisation Policy and Output in Emerging Market Economies By Leon du Toit
  8. Reshaping the international monetary architecture : lessons from Keynes'plan By Piffaretti, Nadia F.
  9. 2008 Lawrence R. Klein Lecture –Comparative Economic Development: Insights from Unified Growth Theory By Oded Galor
  10. Measuring Economic Growth from Outer Space By Vernon Henderson; Adam Storeygard; David N. Weil
  11. Contribution of health to economic development: a survey and overview By Husain, Muhammad Jami
  12. Time, Quality and Growth By Alcalá, Francisco

  1. 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 shows that growth rate in Bangladesh, until the 1990s was primarily due to factor accumulation. Since then, however, TFP has made a small positive contribution. An analysis of the determinants of TFP shows that remittances by emigrant workers has no significant long run growth effect. Using our results on the determinants of TFP we examine policy options to double per capita income of Bangladesh in about 15 years.
    Keywords: Solow Growth Model; Total Factor Productivity; Growth Accounting; South Asia; Bangladesh.
    JEL: O11
    Date: 2009–09–15
  2. By: Jean-Pierre Courbois
    Abstract: Key Words:
    Date: 2009
  3. By: Klaus Prettner; Alexia Prskawetz
    Abstract: Persistent low fertility rates lead to lower population growth rates and eventually also to decreasing population sizes in most industrialized countries. There are fears that this demographic development is associated with declines in per capita GDP and possibly also increasing inequality of the wage distribution. We investigate whether this is true in the context of neoclassical growth models, augmented with endogenous fertility decisions and endogenous educational decisions. Furthermore we allow for imperfect substitutability across workers of different age in the production process and learning by doing effects as well as human capital depreciation. In particular, we assess the intergenerational wage redistribution effects which follow after a demographic change to persistent low fertility rates.
    Keywords: Population decline, economic growth, intergenerational wage gap.
    Date: 2009–08
  4. By: Thomas I. Palley (Economics for Democratic & Open Societies, Washington DC)
    Abstract: Inside debt is a fundamental feature of capitalist economies. This paper examines the growth effects of consumer and corporate debt using a Cambridge - Kaleckian growth framework. According to the Cambridge - Kaleckian model inside debt has an ambiguous effect on growth. This is counter to the intuition of static short-run macro models in which higher debt levels lower economic activity and shows intuitions derived from short run macroeconomics do not always carry over to growth theory. Growth is faster in endogenous money economies than in pure credit economies, ceteris paribus. That is because lending in endogenous money economies creates money wealth that increases spending and lowers saving. Interest payments from debtors to creditors are a critical channel whereby debt affects growth. In the consumer debt model this interest transfer mechanism exerts a negative influence on growth. However, in the corporate debt model the transfer can raise growth if the marginal propensity to consume of creditor households exceeds the marginal propensity to invest of firms.
    Keywords: Growth, Debt, Interest transfers, Cambridge distribution theory, Kaleckian growth theory.
    JEL: E12 O40
    Date: 2009
  5. By: Charles R. Hulten
    Abstract: Incomes per capita have grown dramatically over the past two centuries, but the increase has been unevenly spread across time and across the world. Growth accounting is the principal quantitative tool for understanding this phenomenon, and for assessing the prospects for further increases in living standards. This paper sets out the general growth accounting model, with its methods and assumptions, and traces its evolution from a simple index-number technique that decomposes economic growth into capital-deepening and productivity components, to a more complex account of the growth process. In the more complex account, capital and productivity interact, both are endogenous, and quality change in inputs and output matters. New developments in micro-level productivity analysis are also reviewed, and the long-standing question of net versus gross output as the appropriate indicator of economic growth is addressed.
    JEL: E01 O47
    Date: 2009–09
  6. By: Sambit Bhattacharyya; Raghbendra Jha
    Abstract: In Is corruption influenced by economic growth? Are legal institutions such as the ‘Right to Information Act (RTI) 2005’ in India effective in curbing corruption? Using a novel panel dataset covering 20 Indian states and the periods 2005 and 2008 we estimate the causal effects of economic growth and law on corruption. To tackle endogeneity concerns we use forest share to total land area as an instrument for economic growth. We notice that forest share is a positive predictor of growth. This is in line with the view that forestry contributes positively to economic growth. To capture the effect of law on corruption we use the ‘difference-in-difference’ estimation method. Our results indicate that economic growth reduces overall corruption as well as corruption in banking, land administration, education, electricity, and hospitals. Growth however has little impact on corruption perception. In contrast the RTI Act reduces both corruption experience and corruption perception. Our basic result holds after controlling for state fixed effects and various additional covariates. It is also robust to alternative instruments and outlier sensitivity tests.
    Keywords: Economic Growth; Law; Corruption
    JEL: D7 H0 K4 O1
    Date: 2009
  7. By: Leon du Toit (Bureau for Economic Research, University of Stellenbosch)
    Abstract: The recent macroeconomic history of emerging market economies is coloured with economic crises of all kinds, ranging from debt-crises, through hyperinflationary periods to currency crises to name but a few. Much of the empirical literature notes that alongside fast-paced structural change this has resulted in volatile business cycles and a difficult environment for stabilisation policy. Both short- and long-run output dynamics are shaped by the multidimensional exposure of EMEs to economic shocks. The paper uses an SVAR analysis and finds that in spite of high degrees of output volatility, the conduct of stabilisation policy has sometimes been successful in dampening short-run output fluctuations. However, even when stabilisation has been successful, the effect on overall output volatility has been negligible when compared to supply-side shocks. The results show that economic crises are associated with large negative supply shocks which are only counteracted by stabilisation policy to a very small extent. These crisis-related supply shocks, in turn, have large negative effects on potential GDP growth, which are only reversible when positive supply shocks regain lost ground. Given the institutional origin of the economic crises, the paper suggests that for stabilisation policy to become more effective in lowering output volatility and maintaining long-term growth potential, it must be supported by appropriate supply-side measures which insulate EMEs against large negative supply shocks and help them to recover in the wake of economic crises.
    Keywords: Economic crises, Stabilisation policy, Emerging Market Economies, Business Cycles, Potential output
    JEL: C32 E32 E61 E63
    Date: 2009
  8. By: Piffaretti, Nadia F.
    Abstract: As the global economy undergoes profound changes, it is becoming apparent that the so-called"Revived Bretton Woods System"has increased the overall vulnerability of the global financial architecture. Therefore, it is worth revisiting the origins of the Bretton Woods conference, and pointing out the relevance for today’s framework of Keynes’ original 1942 plan for an International Clearing Union. This note explores the main characteristics of Keynes'original plan, by revisiting his original writings between 1940 and 1944, and outlining its relevance to the current debate on the international financial architecture. The note suggests that reforms of the international financial architecture should include anchoring the international monetary system on sounder institutional ground.
    Keywords: Currencies and Exchange Rates,Debt Markets,Banks&Banking Reform,Emerging Markets,Access to Finance
    Date: 2009–08–01
  9. By: Oded Galor
    Abstract: This paper explores the implications of Uni.ed Growth Theory for the origins of existing di¤erences in income per capita across countries. The theory sheds light on three fundamental layers of comparative development. It the factors that have governed the pace of the transitionfrom stagnation to growth and have thus contributed to contemporary variation in economic development. It uncovers the forces that have sparked the emergence of multiple growth regimes and convergence clubs, and it underlines the persistent e¤ects that variations in pre-historical biogeographical conditions have generated on the composition of human capital and economic development across the globe.
    Keywords: Growth; Comparative Development; Globalization; Technological Progress; Demographic Transition; Diversity; Human Capital; Malthusian Stagnation
    Date: 2009
  10. By: Vernon Henderson; Adam Storeygard; David N. Weil
    Abstract: GDP growth is often measured poorly for countries and rarely measured at all for cities. We propose a readily available proxy: satellite data on lights at night. Our statistical framework uses light growth to supplement existing income growth measures. The framework is applied to countries with the lowest quality income data, resulting in estimates of growth that differ substantially from established estimates. We then consider a longstanding debate: do increases in local agricultural productivity increase city incomes? For African cities, we find that exogenous agricultural productivity shocks (high rainfall years) have substantial effects on local urban economic activity.
    Keywords: economic growth; remote sensing; urbanization; income measurement
    Date: 2009
  11. By: Husain, Muhammad Jami
    Abstract: The policies for better health, poverty reduction, and less inequality, throughout the world, require thorough understanding of both the processes and causal paths that underlie the intricate relationship between health and wealth (income). This is deemed difficult, contingent, and only partially understood. The adage 'health is wealth' is still, primarily, an intuitive proposition. A vast majority of researchers instead present theoretical and empirical arguments of the reverse proposition, i.e. 'wealth is health'. A recent strand of the literature, however, reflects changes in the perceptions: improvements of health and longevity are no longer viewed as a mere end- or by-product of economic development; but argued as one of the key determinants of, and therefore means to achieve, economic development and poverty reduction. Hence, better health does not have to wait for an improved economy; rather, measures to reduce the burden of disease, to give children healthy childhoods, to increase life expectancy etc. will in themselves contribute to creating richer economies. Drawing on the traditional and emerging perspectives on the health-income relationship, this literature review presents a non-exhaustive survey of existing methodological approaches and their results that are applied to track and measure how health influences economic outcomes.
    Keywords: Health,income,economic growth,life expectancy,mortality,causality
    JEL: I10 O40 J11
    Date: 2009
  12. By: Alcalá, Francisco (Departamentos y Servicios::Departamentos de la UMU::Fundamentos del Análisis Económico)
    Abstract: Consumption requires time. Also, higher-quality goods provide more utility per unit of time, though at a higher monetary cost. Since time is limited, higher income is decreasingly spent augmenting the quantity of consumption and increasingly spent upgrading its quality. After analyzing these consumer quantity/quality choices, the paper investigates its implications for growth. As a country develops, quality growth becomes increasingly important as a component of GDP growth. Furthermore, technical progress is increasingly quality-biased. Lower income inequality as well as progressive consumption taxes raise the scale of output while reducing average quality. This is positive for growth at early stages of development but may be negative at later stages. Results are broadly consistent with evidence on the composition of GDP growth, trade patterns of vertical specialization across countries, and the non-linearity of the impact of inequality on growth.
    Keywords: Time allocation, Product quality, Growth, Inequality, Progressive consumption taxes
    JEL: D12 R23
    Date: 2009–07

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