nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒11‒07
nineteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Stochastic Business Cycle Volatilities, Capital Accumulation and Economic Growth: Lessons from the Global Credit Market Crisis By Kwamie Dunbar
  2. Population ageing and endogenous economic growth By Klaus Prettner
  3. On Rent Seeking and Economic Growth By Richard L. Carson
  4. Infrastructure and economic growth in the Middle East and North Africa By Um, Paul Noumba; Straub, Stephane; Vellutini, Charles
  5. Technological sources of productivity growth in Japan, the U.S. and Germany By Jesús Rodríguez López; José Luis Torres Chacón
  6. Financial Development and Economic Growth: Role of Institutional Quality By Abdelkarim Yahyaoui; Atef Rahmani
  7. Efficient Estimation of the Non-linear Volatility and Growth Model By Julie Byrne; Denis Conniffe
  8. Information and Communication Technologies in a Multi-sector Endogenous Growth Model By Evangelia Vourvachaki
  9. Education, Rent Seeking and Growth By Berdugo, Binyamin; Meir, Uri
  10. Aid and Growth: Have We Come Full Circle? By Channing Arndt; Sam Jones; Finn Tarp
  11. Natural resources, economic growth and institutions – a panel approach By Nuno Torres; Óscar Afonso; Isabel Soares
  12. R&D investment and endogenous growth: a SVAR approach By Ángel Estrada; José Manuel Montero
  13. Consumption Externalities and Wealth Distribution in a Neoclassical Growth Model By Kazuo Mino; Yasuhiro Nakamoto
  14. Social capital and economic growth in Polish regions By Dzialek, Jaroslaw
  15. Fiscal Stimulus, Agricultural Growth and Poverty in Asia and the Pacific Region: Evidence from Panel Data By Raghav Gaiha; Katsushi S. Imai; Ganesh Thapa; Woojin Kang
  16. Has India's economic growth become more pro-poor in the wake of economic reforms ? By Datt, Gaurav; Ravallion, Martin
  17. A Pertinent Analytic Method to Correctly Measure Contributions to Growth in Gross Domestic Product By Antoine Brunet
  18. Will growth and technology destroy social interaction? The inverted U-shape hypothesis By Antoci, Angelo; Sabatini, Fabio; Sodini, Mauro
  19. Constraints to growth in Malawi By Lea, Nicholas; Hanmer, Lucia

  1. By: Kwamie Dunbar (University of Connecticut and Sacred Heart University)
    Abstract: The recent global economic downturn in a number of economies was preceded by rising credit market risk brought on by a massive financial market failure. This paper develops a small open economy model that analyzes the interaction of business cycle volatilities with capital accumulation and the subsequent impacts on economic growth. We use a stochastic dynamic programming model to test the central hypothesis that rising volatility shocks is an inhibitor to capital accumulation and subsequently economic growth. The model illustrates that traditional capital-based growth models which assume a constant capital stock are not consistent with the business cycle variation in capital accumulation. Furthermore, it appears that an increase in precautionary savings arising from a stochastic shock does not completely translate into productive capital investment need for growth, since risk-averse households will seek out risk-free government or foreign assets. We find this conclusion consistent with the empirical findings of Ramey et al (1995) and Badinger (2009) who both argued that, business cycle volatility is important to the growth discussion because of its robust net negative effect on output growth.
    Keywords: Economic Growth; Capital Accumulation; Business Cycle Volatilities; Stochastic Optimal Control; Economic Contraction; Credit Default Swaps; Credit Crisis; Credit Markets
    JEL: C61 D81 E13 E32 E44
    Date: 2009–10
  2. By: Klaus Prettner
    Abstract: This article investigates the consequences of population ageing for longrun economic growth perspectives. We introduce population ageing into a generalized model of endogenous technological change incorporating the model of Romer (1990) and Jones (1995) as special cases. We find that increases in longevity have positive effects on steady state per capita output growth in endogenous as well as in semiendogenous growth models. In the latter case, the positive dependence can also be shown for the equilibrium growth rate during transition to the steady state.
    Keywords: population ageing, endogenous technological change, long-run economic growth.
    Date: 2009–08
  3. By: Richard L. Carson (Department of Economics, Carleton University)
    Abstract: This paper examines the problem of sustaining economic growth in light of the dangers that rent seeking poses for growth. Three types of growth are identified, and each is linked to an economic system. While any of the three may persist for a time, only one can be permanently sustained. Sector-specific interventionist policies designed to increase growth will be at least partly self-defeating over the long run because they can do little to increase the permanently sustainable type and because they generate rents and rent seeking. Inclusiveness as defined and measured below is the property of a political system that motivates government to deter destructive rent seeking. Thus inclusiveness has an increasing effect on the type of growth that is permanently sustainable.
    Date: 2009–11–02
  4. By: Um, Paul Noumba; Straub, Stephane; Vellutini, Charles
    Abstract: This paper analyzes the impact of infrastructure on growth of total factor productivity and per capita income, using both growth accounting techniques and cross-country growth regressions. The two econometric techniques yield some consistent and some different results. Regressions based in the growth accounting framework suggest that electricity production helps explain cross-country differences in total factor productivity growth in the Middle East and North Africa region. Growth regressions support that conclusion, while also stressing an effect of telecommunications infrastructure. Finally, growth regressions also indicate quite consistently that the returns to infrastructure have been lower in the Middle East and North Africa region than in developing countries as a whole.
    Keywords: Transport Economics Policy&Planning,Achieving Shared Growth,Economic Growth,E-Business,Energy Production and Transportation
    Date: 2009–10–01
  5. By: Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide); José Luis Torres Chacón (Departamento de Teoría e Historia Económica de la Universidad de Málaga)
    Abstract: We use a dynamic general equilibrium growth model to quantify the contribution to productivity growth from different technological sources in the three leading economies of the world: Japan, Germany and the U.S. The sources of technology are classified into neutral progress and investment-specific progress. The latter can be split into two different types of equipment: Information and Communication Technologies (ICT) and non-ICT equipment. This decomposition analysis is done for both long term and short term growth. In the long run, neutral technological change is the main source of productivity growth in Japan and Germany. For the U.S., the main source of productivity growth arises from investment-specific technological change, mainly associated with ICT. Finally, impulse-response analysis reveals that deviations from the balanced growth path in the short run are mainly due to neutral shocks in the three countries.
    Keywords: Productivity growth; Investment-specific progress; Neutral progress; Information and communication technology.
    JEL: O3 O4
    Date: 2009–10
  6. By: Abdelkarim Yahyaoui (Faculté des Sciences Economiques et de Gestion de Sfax, Université de Sfax-Tunisie, Unité de Recherche en Economie de Développement (URED)); Atef Rahmani (Faculté des Sciences Economiques et de Gestion de Sfax (Tunisie), Unité de Recherche en Economie de Développement (URED) et Centre d’Etudes en Macroéconomie et Finance Internationale (CEMAFI / Université de Nice Sophia-Antipolis))
    Abstract: The objective of our work is to show the importance of a healthy institutional framework in the finance-growth relation. In this context, we start by presenting, a theoretical lighting on this subject while trying to define the concept of the governorship and to determine its various measurements. Then, we empirically test a model of growth of Solow increased by the human capital, treating relation between financial development, institutions and economic growth. The various estimates were made by Panel data Methods over the period of 1990 to 2006 for 22 developing countries. Following these estimates, it seems that the quality of the institutions is regarded as an important factor which must not be neglected in the study of the relation between the financial sphere and the real sphere.
    Keywords: Financial development, Quality of the institutions, Economic growth, Panel data
    JEL: O16 O43 O47 C23
    Date: 2009–04
  7. By: Julie Byrne (Economics,Finance and Accounting, National University of Ireland, Maynooth); Denis Conniffe (Economics,Finance and Accounting, National University of Ireland, Maynooth)
    Keywords: Econometrics, Macroeconomics, Growth, Volatility
    JEL: C51 E32 O40
    Date: 2009
  8. By: Evangelia Vourvachaki
    Abstract: This paper investigates the growth impact of Information and Communication Technologies (ICT) in an economy consisting of three sectors, ICT-producing, ICT-using and non-ICTusing. The ICT progress causes falling prices of the consumption and intermediates produced by the ICT-using sector, providing incentives for investment in the sectors using them. Therefore, the non-ICT-using sector benefits indirectly from ICT, while households' utility increases. The magnitude of the growth transmission mechanism relies on the ICT-using sector production shares. Aggregate economy is on a constant growth path, where growth rates differ across sectors. The model predictions are broadly consistent with the U.S. growth experience.
    Keywords: Multi-sector Economy, Endogenous Growth, Constant Growth Path, Information and Communication Technologies.
    JEL: O40 O41
    Date: 2009–08
  9. By: Berdugo, Binyamin; Meir, Uri
    Abstract: This paper studies the role of education as a way of reducing private rent seeking activities and increasing output. In many underdeveloped economies, for most individuals, there is no private return to education. Nonetheless, according to this paper, governments are better off by investing in public education. We view education as a means to build personal character, thereby affecting macroeconomic long run equilibrium by reducing the number of individuals who are engaged in private rentseeking activities. We show that education is more efficient than ordinary law enforcement because it has a long-run effect. The policy implication of this result is that even when education does not increase human capital, compulsory schooling will be beneficial in pulling underdeveloped economies out of poverty.
    Keywords: Rent Seeking; Decency; Education; Growth
    JEL: O10 A20 O43 I21
    Date: 2009–10–31
  10. By: Channing Arndt; Sam Jones; Finn Tarp
    Abstract: The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature has turned decidedly pessimistic with respect to the ability of foreign aid to foster economic growth. Policy implications, such as the complete cessation of aid to Africa, are being drawn on the basis of fragile evidence. This paper first assesses the aid-growth literature with a focus on recent contributions. The aid-growth literature is then framed, for the first time, in terms of the Rubin Causal Model, applied at the macroeconomic level. Our results show that aid has a positive and statistically significant causal effect on growth over the long run with point estimates at levels suggested by growth theory. We conclude that aid remains an important tool for enhancing the development prospects of poor nations.
    Keywords: foreign aid, growth, aid effectiveness, causal effects
    Date: 2009
  11. By: Nuno Torres (Faculdade de Economia, Universidade do Porto); Óscar Afonso (CEF.UP and Faculdade de Economia, Universidade do Porto); Isabel Soares (CEF.UP and Faculdade de Economia, Universidade do Porto)
    Abstract: This study re-evaluates the impact of natural resources on growth using panel data and a factor-efficiency accounting framework. The resource-curse thesis is dismissed as capital efficiency is improved by geographically-concentrated natural resources, which hinder institutional quality in recent cross-section studies. This consensus does not hold in our case even when we use unadjusted resource proxies and the standard institutional approach, as both concentrated and diffuse resources show negative effects in low institutional-quality countries. Adequate fiscal policy seems to prevent the curse in that case, but reduces the positive effect of concentrated resources found with our adjusted proxy.
    Keywords: Natural resources, Economic growth, Institutions, Country Studies, Panel data
    JEL: C23 N50 O13 O40 O50
    Date: 2009–10
  12. By: Ángel Estrada (Banco de España); José Manuel Montero (Banco de España)
    Abstract: We develop the barebones of a highly stylized theoretical endogenous growth model for analyzing the impact of R&D investment on long run growth. We use this framework to identify a structural vector autoregressive (SVAR) model on GDP growth, inflation and R&D investment, along with the (exogenous) flows of global knowledge, for the period 1970-2006 for the six more developed economies plus Spain. Besides, we also study the impact of private and public R&D on economic activity and prices or whether public R&D investment crowds out private one. Overall, we find that R&D shocks have a positive impact on economic activity, but a heterogeneous effect on prices. Moreover, public R&D disturbances tend to crowd out private R&D investment, except in the less innovative economies. And finally, demand shocks tend to have a negative impact on private R&D spending in the short- to medium-run.
    Keywords: R&D, Innovation, Endogenous growth, Crowding out, SVAR
    JEL: O30 O40 H50
    Date: 2009–10
  13. By: Kazuo Mino (Institute of Economic Research, Kyoto University); Yasuhiro Nakamoto (DFaculty of Economics, Kyushu Sangyo University)
    Abstract: This paper explores the distributional effect of consumption externalities in a neoclassical growth model with heterogeneous agents. The economy consists of two types of agents each of which perceives different degrees of intergroup as well as intragroup consumption external effects. It is shown that the stationary distribution and transitional dynamics are highly sensitive to the specification of preference structures of each type of agents.
    JEL: D31 E13 E21 O40
    Date: 2009–10
  14. By: Dzialek, Jaroslaw
    Abstract: There is an ongoing debate on social capital resources in Poland, where the density of associational activities and the level of social trust is low when compared to West European countries. Moreover, some researchers claim that Polish economy is developing despite low resources of social capital. This paper examines spatial patterns of various forms of social capital (networks and trust; bonding and bridging social capital; family, friendship, neighbourhood and associational ties) in Poland and determinants of their distribution. It analyses relations between resources of social capital and regional growth.
    Keywords: social capital; regional growth; Poland
    JEL: O18 O43 Z13
    Date: 2009
  15. By: Raghav Gaiha; Katsushi S. Imai; Ganesh Thapa; Woojin Kang
    Date: 2009
  16. By: Datt, Gaurav; Ravallion, Martin
    Abstract: The extent to which India's poor have benefited from the country’s economic growth has long been debated. This paper revisits the issues using a new series of consumption-based poverty measures spanning 50 years, and including a 15-year period after economic reforms began in earnest in the early 1990s. Growth has tended to reduce poverty, including in the post-reform period. There is no robust evidence that the responsiveness of poverty to growth has increased, or decreased, since the reforms began, although there are signs of rising inequality. The impact of growth is higher for poverty measures that reflect distribution below the poverty line, and it is higher using growth rates calculated from household surveys than national accounts. The urban-rural pattern of growth matters to the pace of poverty reduction. However, in marked contrast to the pre-reform period, the post-reform process of urban economic growth has brought significant gains to the rural poor as well as the urban poor.
    Keywords: Rural Poverty Reduction,Achieving Shared Growth,Services&Transfers to Poor,Inequality
    Date: 2009–10–01
  17. By: Antoine Brunet (University of Nice – Sophia Antipolis, CEMAFI, France)
    Abstract: In this paper, Antoine Brunet questions the OECD method in calculating contributions to GDP growth. He tries to show this method induces the users to seriously misjudge the contribution of external trade balance to GDP growth. He shows there is an alternative method, i.e. the AB method which is mathematically as correct as the OECD one. And this method is much more pertinent and allows the users to distinguish between two kinds of countries: on the one hand, the mercantilist countries and on the other hand, the non-mercantilist countries.
    Keywords: Growth contribution, External trade balance, Borrowing, Growth strategy, Mercantilism.
    JEL: E01 E29 F43 F53
    Date: 2009–07
  18. By: Antoci, Angelo; Sabatini, Fabio; Sodini, Mauro
    Abstract: This paper addresses two hot topics of the contemporary debate, social capital and economic growth. Our theoretical analysis sheds light on decisive but so far neglected issues: how does social capital accumulate over time? Which is the relationship between social capital, technical progress and economic growth in the long run? The analysis shows that the economy may be attracted by alternative steady states, depending on the initial social capital endowments and cultural exogenous parameters representing the relevance of social interaction and trust in well-being and production. When material consumption and relational goods are substitutable, the choice to devote more and more time to private activities may lead the economy to a “social poverty trap”, where the cooling of human relations causes a progressive destruction of the entire stock of social capital. In this case, the relationship of social capital with technical progress is described by an inverted U-shaped curve. However, the possibility exists for the economy to follow a virtuous trajectory where the stock of social capital endogenously and unboundedly grows. Such result may follow from a range of particular conditions, under which the economy behaves as if there was no substitutability between relational activities and material consumption.
    Keywords: Social capital; relational goods; happyness; economic growth.
    JEL: Z13 O4
    Date: 2009
  19. By: Lea, Nicholas; Hanmer, Lucia
    Abstract: This paper applies a growth diagnostics approach to identify the most binding constraints to private-sector growth in Malawi - a small, landlocked country in Southern Africa with one of the lowest per capita incomes in the world. The approach aims to identify the constraints (in terms of public policy, implementation, and investments) most binding on marginal investment, and therefore whose relaxation would have the largest impact on growth through the investment channel. The authors find that growth in Malawi has been primarily driven by the domestic multiplier effect from export revenues. The multiplier effect is particularly pronounced due to the high number of smallholder farmers, which produce Malawi’s main export crop, tobacco, and consequently results in the widespread and rapid transmission of agricultural export income. Furthermore, despite changes in the structure of agricultural production from estate to smallholder farming and liberalization of prices and finance, a longstanding relationship persists between exports in real domestic currency and overall gross domestic product. This central role of exports in creating domestic demand highlights the importance of the real exchange rate in Malawi’s growth story, which directly increases the strength of the export multiplier. The most pressing constraint to growth in Malawi continues to be the regime of exchange rate management. Despite good progress, there is compelling evidence that the rate is still substantially overvalued. Furthermore, it is also likely that the inflow of foreign aid - in excess of 50 percent of exports -contributes to the overvaluation through its large component of recurrent expenditures.
    Keywords: Economic Theory&Research,Debt Markets,Emerging Markets,Currencies and Exchange Rates,Access to Finance
    Date: 2009–10–01

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