nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2009‒11‒14
fifteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Re-Orient? MNC Penetration and Contemporary Shifts in the Global Political Economy By Arno TAUSCH; Almas Heshmati
  2. Financial Development and Economic Growth: Evidence from Ten New EU Members By Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Anamaria Sova
  3. Oil Exports and the Iranian Economy By Esfahani, Hadi Salehi; Mohaddes, Kamiar; Pesaran, Hashem
  4. Is there a direct effect of corruption on growth? By Dzhumashev, Ratbek
  5. Pedal to the Metal: Structural Reforms to Boost Long-Term Growth in Mexico and Spur Recovery from the Crisis By David Haugh; Agustin Redonda
  6. Technical Change and Total Factor Productivity Growth for Swedish Manufacturing and Service Industries By Dong-hyun Oh; Almas Heshmati; Hans Loof
  7. The Effect of Migration on Income Growth and Convergence: Meta-Analytic Evidence By Ozgen, Ceren; Nijkamp, Peter; Poot, Jacques
  8. No one saw this coming. Understanding financial crisis through accounting models By Bezemer, Dirk
  9. ‘Financialisation’, distribution, capital accumulation and productivity growth in a Post-Kaleckian model By Hein, Eckhard
  10. Will growth and technology destroy social interaction? The inverted U-shape hypothesis By Antoci Angelo; Sabatini Fabio; Sodini Mauro
  11. The Implications of Heterogeneous Resource Intensities on Technical Change and Growth By Karen Pittel; Lucas Bretschger
  12. Geographic oil concentration and economic growth – a panel data analysis By Nuno Torres; Óscar Afonso; Isabel Soares
  13. Socialization of Risks without Socialization of Investment: The Minsky Paradox and the Structural Contradiction of Big Government Capitalism By Minqi Li
  14. The influence of government size on economic growth and life satisfaction. A case study from Japan By Yamamura, Eiji
  15. Analysis of Pay Inequality and its Impacts on Growth and Performance in the Korean Manufacturing Industry By Yunhee KIM; Jeong-Dong LEE; Almas HESHMATI

  1. By: Arno TAUSCH; Almas Heshmati (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: This article analyses IMF estimates of economic growth in 180 countries (IMF, 2009),and links the results to the ¡°Re-orient¡± approach, put forward by Frank, 1998. With global economic gravitation shifting to the Indian Ocean/Pacific region, the article also analyses the role of MNC (foreign capital) penetration as the key variable of past quantitative dependency studies for contemporary economic growth and social performance. In a Schumpeterian fashion, MNC penetration reflects the power, which transnational oligopolies wield over local economies. Today, social polarization and stagnation increase as a consequence of the development model, based on high MNC penetration.
    Keywords: International Relations and International Political Economy, Economic Development, Technological Change, and Growth
    JEL: F50 O10
    Date: 2009–08
  2. By: Guglielmo Maria Caporale; Christophe Rault; Robert Sova; Anamaria Sova
    Abstract: This paper reviews the main features of the banking and financial sector in ten new EU members, and then examines the relationship between financial development and economic growth in these countries by estimating a dynamic panel model over the period 1994-2007. The evidence suggests that the stock and credit markets are still underdeveloped in these economies, and that their contribution to economic growth is limited owing to a lack of financial depth. By contrast, a more efficient banking sector is found to have accelerated growth. Furthermore, Granger causality test indicate that causality runs from financial development to economic growth, but not in the opposite direction.
    Keywords: Financial Development, Economic Growth, Causality Tests, Transition Economies
    JEL: E44 E58 F36 P26
    Date: 2009
  3. By: Esfahani, Hadi Salehi (University of Illinois at Urbana-Champaign); Mohaddes, Kamiar (University of Cambridge); Pesaran, Hashem (University of Cambridge)
    Abstract: This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran's financial markets.
    Keywords: growth models, long run relations, Iranian economy, oil price, foreign output shocks, error correcting relations
    JEL: C32 C53 E17 F43 F47 Q32
    Date: 2009–10
  4. By: Dzhumashev, Ratbek
    Abstract: Recent empirical studies find that the direct effect of corruption on growth is statistically insignificant. However, there exists a discrepancy between these results and the intuition that corruption reduces over-all productivity, because total factor productivity also depends on the quality of institutions and their efficiency. The current paper addresses this issue and offers a new perspective on growth effects of corruption and shows that direct and indirect growth effects of corruption can be statistically significant. Moreover, the empirical results confirm the existence of both negative and positive growth effect of corruption.
    Keywords: corruption; growth
    JEL: O11 D73 O41 O43
    Date: 2009–11–09
  5. By: David Haugh; Agustin Redonda
    Abstract: While Mexico’s growth performance has gradually improved over the past decades, its convergence toward OECD countries has been less rapid than in several other emerging markets. The recent significant reductions in import tariffs should help the economy take fuller advantage of trade and investment integration, which could be a relative strength for Mexico given its geographic location. Reforms introduced in the past two years, including those to promote competition and transparency in the financial sector and, to a lesser extent in telecommunications, will also stimulate the dynamism of the economy. Despite this progress, further reforms are needed to boost overall and within-sector productivity. Relative weaknesses in education, infrastructure, financial development, the rule of law, as well as a lack of competition come out in various studies as explaining why Mexico has not grown as fast as other countries. Focusing attention now on reforms in areas with rapid pay-offs such as improving competitiveness and infrastructure could yield double benefits in supporting the recovery from the current recession and longer-term growth. This can be achieved by increasing competition, especially in network industries, liberalizing further the foreign investment and trade regimes, and improving education coverage and trade-related infrastructure.<P>Pied au plancher : Des réformes structurelles pour dynamiser la croissance à long terme au Mexique et accélérer la sortie de crise<BR>Ces dernières décennies, le Mexique a progressivement amélioré ses performances en matière de croissance, mais sa convergence vers les pays de l’OCDE a été beaucoup moins rapide que celle de plusieurs autres marchés émergents. Les récentes réductions substantielles des droits à l’importation devraient aider l’économie à profiter plus pleinement de l’intégration des échanges et des investissements, ce qui pourrait constituer un atout relatif pour le Mexique compte tenu de sa situation géographique. Les réformes lancées ces deux dernières années, notamment celles qui visent à promouvoir la concurrence et la transparence dans le secteur financier et, à un degré moindre, dans les télécommunications, stimuleront également le dynamisme de l’économie. En dépit de ces progrès, de nouvelles réformes s’imposent pour favoriser la productivité globale et sectorielle. Selon diverses études, si la croissance du Mexique n’a pas été aussi rapide que celle des autres pays, cela tient aux faiblesses relatives concernant l’éducation, le développement du secteur financier et l’État de droit, à quoi s’ajoute le manque de concurrence. Concentrer maintenant l’attention sur des réformes rapidement rentables – en améliorant, par exemple, la compétitivité et les infrastructures – pourrait générer un double effet positif : soutenir la reprise pour sortir de la récession actuelle et créer de la croissance à long terme. On peut y parvenir en développant la concurrence, notamment dans les industries de réseau, en libéralisant davantage le régime des investissements étrangers et des échanges commerciaux, et en améliorant la couverture de l’enseignement et les infrastructures liées au commerce.
    Keywords: financial markets, marchés financiers, economic growth, croissance économique, trade policy, economic development, politique commerciale, développement économique, aggregate productivity and growth, institutions and growth, antitrust issues and policies, cadres institutionnels, aggregate data, cross-country output convergence, convergence économique entre pays, productivité agrégée, politiques et mesures anti–trust
    JEL: F13 F43 L4 O16 O43 O47
    Date: 2009–11–03
  6. By: Dong-hyun Oh; Almas Heshmati; Hans Loof (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: This paper presents alternative specifications of the production functions of a large panel of Swedish firms for the period 1992-2000. The period can be characterized as a transition when long-run productivity growth in the Swedish economy improved from being among the weakest to one of the strongest within the OECD. In order to present a detailed exploration of this dramatic change, the time trend and general index models are applied to estimate total factor productivity (TFP) growth, rate of technical change and returns to scale. The models are extended to allow for firm-specific as well as time-varying technical change. The parametric TFP measures are also compared with the non-parametric Solow residual, and several hypotheses are tested to explain the growth patterns in the Swedish economy. It is found that the improved growth rate, initially starting in large exporting manufacturing firms, after a deep economic crisis at the beginning of the 1990s, spilled over to the rest of the economy, both manufacturing and services.
    Keywords: Technical change, total factor productivity growth, manufacturing, service, enterprise panel data
    JEL: C23 C52 C67 D24 L25 L60 L80 O30
    Date: 2009–08
  7. By: Ozgen, Ceren (VU University Amsterdam); Nijkamp, Peter (VU University Amsterdam); Poot, Jacques (University of Waikato)
    Abstract: We compare a set of econometric studies that measure the effect of net internal migration in neoclassical models of long-run real income convergence and derive 67 comparable effect sizes. The precision-weighted estimate of beta convergence is about 2.7%. An increase in the net migration rate of a region by one percentage point in increases the per capita income growth rate in that region on average by about 0.1 percentage points, thus suggesting an impact of net migration that is more consistent with endogenous self-reinforcing growth than with neoclassical convergence. Introducing a net migration variable in a growth regression increases the estimate of beta convergence slightly. Studies that use panel models or IV estimation methods yield smaller coefficients of net migration in growth regressions, while the opposite holds for regressions controlling for high-skilled migration.
    Keywords: internal migration, economic growth, convergence, meta-analysis, neoclassical model, regional disparities
    JEL: O15 O18 R23 R11
    Date: 2009–10
  8. By: Bezemer, Dirk (Groningen University)
    Date: 2009
  9. By: Hein, Eckhard
    Abstract: Focussing on the long-run effects of ‘financialisation’ and increasing shareholder power in a simple Post-Kaleckian endogenous growth model, we examine the effects of increasing shareholder power on the demand regime, on the productivity regime, and on the overall regime of the model. Under special conditions increasing shareholder power may have positive effects on capital accumulation and productivity growth and hence on potential growth of the economy. However, such a regime does not only require directly positive – or under certain conditions only weakly negative – effects of increasing shareholder power on the productivity regime. It also requires expansive – or under special circumstances only weakly contractive – effects of increasing shareholder power on capital accumulation via the demand regime of the economy. Both conditions have recently been questioned on empirical grounds, so that an overall long-run ‘contractive’ regime seems to be the most likely outcome of ‘financialisation’, rising shareholder power and pronounced shareholder value orientation.
    Keywords: Financialisation; distribution; capital accumulation; productivity growth; Kaleckian model
    JEL: E12 E25 O41 E22 O16 E21
    Date: 2009–11–11
  10. 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.
    Keywords: Relational goods, social capital, economic growth, technical change
    JEL: Z13
    Date: 2009–10
  11. By: Karen Pittel (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland); Lucas Bretschger (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We analyze an economy in which sectors are heterogeneous with respect to the intensity of natural resource use. Long-term dynamics are driven by resource prices, sectoral composition, and directed technical change. We study the balanced growth path and determine stability conditions. Technical change is found to be biased towards the resource-intensive sector. Resource taxes have no impact on dynamics except when the tax rate varies over time. Constant research subsidies raise the growth rate while increasing subsidies have the opposite effect. We also find that supporting sectors by providing them with productivity enhancing public goods can raise the growth rate of the economy and additionally provide an effective tool for structural policy.
    Keywords: sustainable development, sectoral heterogeneity, directed technical change
    JEL: O4 O41 Q01 Q3
    Date: 2009–10
  12. By: Nuno Torres (Faculdade de Economia, Universidade do Porto); Óscar Afonso (CEFUP, OBEGEF and Faculdade de Economia, Universidade do Porto); Isabel Soares (CEFUP, Faculdade de Economia, Universidade do Porto)
    Abstract: Given a panel of oil producing countries, we show that a higher oil concentration is associated with an increase in economic growth through capital efficiency in: (i) countries with medium and low income per head from East Asia & Pacific and Latin America & the Caribbean, classified as followers in terms of technology-convergence clubs; (ii) countries with high income inequality. In our view, the overall results reflect the broader scope for factor efficiency increases in less developed countries arising from the oil industry, which is characterised by a highly globalised know-how.
    Keywords: Energy; Economic growth; Panel data
    JEL: C23 O13 O47 O50 Q40
    Date: 2009–11
  13. By: Minqi Li
    Abstract: A big government sector is indispensable for the normal operations of modern capitalist economy. However, the very success of the big government institutions encourages private investors to engage in excessive risk-taking activities, leading to growing financial fragility and frequent financial crises. The crises necessitate government interventions, forcing the government to run large deficits during recessions. These deficits, however, are not offset by surpluses during expansions. As a result, there is a tendency for the government debt to rise in relation to GDP. The government debt-GDP ratios cannot keep rising indefinitely. Beyond certain point, the debt-GDP ratio could be so high that the government’s ability to intervene with and stabilize the economy would be severely undermined. This may be characterized as the structural contradiction of big government capitalism.
    JEL: E12 E30 E60 H60
    Date: 2009
  14. By: Yamamura, Eiji
    Abstract: This paper uses Japanese prefecture-level data for the years 1979 and 1996 to examine how the relationship between government size and life satisfaction changes. The major findings are: (1) Government size has a detrimental effect on life satisfaction when government size impedes economic growth in the economic developing stage. However, this effect clearly decreases when government size is not associated with economic growth in the developed stage. (2) Particularized trust is positively associated with life satisfaction of females but not with that of males. Such a tendency becomes more remarkable in the developed stage. These results are unchanged when the endogeneity bias caused by local government size and proxies of trust are controlled for.
    Keywords: Life satisfaction; Government size; Trust; Growth
    JEL: H50 H11 I31
    Date: 2009–11–06
  15. By: Yunhee KIM; Jeong-Dong LEE; Almas HESHMATI (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: This paper examines the relationship between pay inequality, economic growth,and performance in Korea. Pay inequality is estimated by using Theil¡¯s index to identify the factors determining the level of pay inequality, and establish its relationship with economic growth and performance. For the empirical results we use panel data on the Korean manufacturing sector for the period 1993 to 2003. It appears that a large portion of rising pay inequality can be attributed to rising relative pay among the small-sized firms, outside the capital city area and in the ICT sectors which were affected by the economic structural reform since 1997. The findings support the hypothesis of an ¡°augmented¡± Kuznets Curve, according to which certain developed countries are found on an upward-sloping addendum to the original formulation of Kuznets.
    Keywords: Pay Inequality, Financial Crisis, Kuznets Curve, Economic Growth,Performance
    JEL: C43 J31 J38 O4
    Date: 2009–01

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