nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒01‒10
sixteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Belarusian Case of Transition: Whither Financial Repression? By Korosteleva, J; Lawson, Colin
  2. Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis By D. Sornette; R. Woodard
  3. Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth By Richter, Wolfram F.; Braun, Christoph
  4. Trade, Growth, and Environmental Quality By Sibel Sirakaya; Stephen Turnovsky; Nedim Alemdar
  5. Growth, Income Inequality, and Fiscal Policy: What are the Relevant Tradeoffs? By Cecilia Garcia-Penalosa; Stephen Turnovsky
  6. International growth spillovers, geography and infrastructure By Roberts, Mark; Deichmann, Uwe
  7. On the relationship between mobility, population growth, and capital spending in the United States By Marco Bassetto; Leslie McGranahan
  8. The Economic Crisis in Russia: Fragility and Robustness of Globalisation By Satoshi Mizobata
  9. Growth and Inequality: Dependence on the Time Path of Productivity Increases (and other Structural Changes) By Manoj Atolia; Santanu Chatterjee; Stephen Turnovsky
  10. Impact of the Global Financial and Economic Crisis on the Philippines By Yap, Josef T.; Cuenca, Janet S.; Reyes, Celia M
  11. The causality between energy consumption and economic growth: A multi-sectoral analysis using non-stationary cointegrated panel data By Valeria Costantini; Chiara Martini
  12. Estimating Human Capital Externalities:The Case of Spanish Regions By Manuel Hidalgo Pérez; Walter García-Fontes
  13. The Economics of Natural Disasters: A Survey By Eduardo Cavallo; Ilan Noy
  14. Regulating two-sided markets: an empirical investigation By Santiago Carbó Valverde; Sujit Chakravorti; Francisco Rodríguez-Fernández
  15. Uncertain Outcomes and Climate Change Policy By Robert S. Pindyck
  16. Mobility Systems and Economic Growth: a Theoretical Analysis of the Long-Term Effects of Alternative Transportation Policies By Luigi Bonatti; Emanuele Campiglio

  1. By: Korosteleva, J; Lawson, Colin
    Abstract: The present paper examines the financial development of Belarus, with special emphasis on 1996-2002, when the financial sector was restrained by pervasive government controls. Belarus is of particular interest, as, despite no economic restructuring, annual growth has averaged seven per cent since 1997. It has been argued that monetary stimulation of investment activity through interest rate ceilings, directed credit and preferential loans revived growth. This article investigates whether a repressive financial policy, adopted by the authorities in the late 1990s, led to financial deepening and increased the share of savings allocated to investment.
    Keywords: financial repression; financial sector; financial depth
    Date: 2009
  2. By: D. Sornette; R. Woodard
    Abstract: The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led and is continuing to lead to massive losses and damage for billions of people. Heavy central bank interventions and government spending programs have been launched worldwide and especially in the USA and Europe, with the hope to unfreeze credit and boltster consumption. Here, we present evidence and articulate a general framework that allows one to diagnose the fundamental cause of the unfolding financial and economic crisis: the accumulation of several bubbles and their interplay and mutual reinforcement has led to an illusion of a ``perpetual money machine'' allowing financial institutions to extract wealth from an unsustainable artificial process. Taking stock of this diagnostic, we conclude that many of the interventions to address the so-called liquidity crisis and to encourage more consumption are ill-advised and even dangerous, given that precautionary reserves were not accumulated in the ``good times'' but that huge liabilities were. The most ``interesting'' present times constitute unique opportunities but also great challenges, for which we offer a few recommendations.
    Keywords: Financial crisis, bubbles, real estate bubble, derivatives, super-exponential
    JEL: O16
    Date: 2009–05–02
  3. By: Richter, Wolfram F. (University of Dortmund); Braun, Christoph (Ruhr Graduate School in Economics)
    Abstract: This paper studies second-best policies in an OLG model in which endogenous growth results from human capital accumulation. When young, individuals decide on education, saving, and nonqualified labour. When old, individuals supply qualified labour. Growth equilibria are inefficient in laissez-faire because of distortionary taxation. The inefficiency is exacerbated if selfish individuals externalize the positive effect of education on descendents' productivity. It is shown to be second best not to distort education if the human capital investment function is isoelastic. If the function is not isoelastic, a case is made for subsidizing education even relative to the first best.
    Keywords: OLG model, endogenous growth, endogenous labour, education and saving, intergenerational externalities, optimal taxation
    JEL: H21 I28 J24
    Date: 2009–12
  4. By: Sibel Sirakaya; Stephen Turnovsky; Nedim Alemdar
  5. By: Cecilia Garcia-Penalosa; Stephen Turnovsky
  6. By: Roberts, Mark; Deichmann, Uwe
    Abstract: There is significant academic evidence that growth in one country tends to have a positive impact on growth in neighboring countries. This paper contributes to this literature by assessing whether growth spillovers tend to vary significantly across world regions and by investigating the contribution of transport and communication infrastructure in promoting neighborhood effects. The study is global, but the main interest is on Sub-Saharan Africa. The authors define neighborhoods both in geographic terms and by membership in the same regional trade association. The analysis finds significant evidence for heterogeneity in growth spillovers, which are strong between OECD countries and essentially absent in Sub-Saharan Africa. The analysis further finds strong interaction between infrastructure and being a landlocked country. This suggests that growth spillovers from regional"success stories"in Sub-Saharan Africa and other lagging world regions will depend on first strengthening the channels through which such spillovers can spread -- most importantly infrastructure endowments.
    Keywords: Achieving Shared Growth,Transport Economics Policy&Planning,Economic Growth,Economic Theory&Research,Country Strategy&Performance
    Date: 2009–12–01
  7. By: Marco Bassetto; Leslie McGranahan
    Abstract: In this paper, we assess the empirical relationship between population growth, mobility, and state-level capital spending in the United States. To evaluate the magnitude of the coefficients, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence. Our estimates find strong responses in the level of capital provision per capita to these demographic movements; in fact, the resulting coefficients are stronger than the model delivers. Regression coefficients on population growth and mobility also yield opposite implications for the direction to which spending is distorted by the political-economy friction, posing a further challenge.
    Date: 2009
  8. By: Satoshi Mizobata (Institute of Economic Research, Kyoto University)
    Abstract: It is now clear that the global economic crisis has hit the Russian economy. The resulting shock clearly shows not only the global economic imbalance but also the distinct characteristics of emerging Russian markets. The Russian economy already changed its structure under the high economic growth of the early to mid-2000s, and has since then become too sensitive to the global market and the oil price. However, the Russian markets involve the strong hand of the government, and the anti-crisis policy gives this hand constancy. The crisis process and the anti-crisis measures characterize the Russian market institutions. The current paper investigates the characteristics of the Russian markets under both the economic growth period and the crisis period, and offers perspective on the market transition.
    Keywords: economic crisis, oil dollar, foreign capital, government, marketisation, transition, debts
    JEL: P50 P16 F02 F34 O52
    Date: 2009–12
  9. By: Manoj Atolia (Florida State University); Santanu Chatterjee (University of Georgia); Stephen Turnovsky
    Date: 2009–07
  10. By: Yap, Josef T.; Cuenca, Janet S.; Reyes, Celia M
    Abstract: <p>The 2008 global economic and financial crisis spawned a synchronized recession among industrialized countries leading to a contraction in world trade. Exports from developing countries fell sharply dragging many of them into the global economic downturn. The Philippines was not spared the fallout from the crisis as GDP growth decelerated considerably in the fourth quarter of 2008 and first half of 2009. Asset prices experienced volatility but unlike the 1997 East Asian crisis, the financial sector remained fairly stable. Unemployment increased moderately, but was more pronounced in the manufacturing sector which felt the brunt of the slowdown mainly through the export channel. Remittances from overseas Filipino workers continued to grow, however, albeit at a lower rate. Foreign exchange reserves therefore maintained an upward trend despite the fall in exports and larger capital outflows.</p> <p>A cause of concern is the widening fiscal deficit, which is largely due to the need to increase government expenditures to offset lower consumption, investment, and exports. The Economic Resiliency Plan is a key component of the government's response to the crisis and 2009 first half data indicate modest success. However, another factor behind the wider fiscal deficit is the weak tax effort and if this persists, the resources to finance achievement of the Millennium Development Goals will likely be reduced. Thus, even if preliminary survey data derived from the Community-based Monitoring System indicate a moderate adverse effect on the income and employment of lower income households, lower economic growth and fiscal troubles imply that the government will not have enough resources to improve their situation in the medium term. This is definitely a problematic scenario given that the poverty situation in the Philippines deteriorated even when economic growth was relatively robust. To its credit, the government embarked on a campaign to increase and expand social protection in response to the deteriorating poverty situation. In the wake of the crisis, resources were increased and programs were improved. However, many social protection programs continue to be hindered by low coverage and inadequate benefits, poor targeting, and operational constraints due to lack of coordination among program implementers. This is a microcosm of the institutional problems that have constrained economic development in the Philippines over many decades.</p>
    Keywords: millennium development goal (MDG), social protection, financial and economic crisis, macroeconomic impact, impact on households, economic resiliency plan
    Date: 2009
  11. By: Valeria Costantini; Chiara Martini
    Abstract: The increasing attention given to global energy issues and the international policies needed to reduce greenhouse gas emissions have given a renewed stimulus to research interest in the linkages between the energy sector and economic performance at country level. In this paper, we analyse the causal relationship between economy and energy by adopting a Vector Error Correction Model for non-stationary and cointegrated panel data with a large sample of developed and developing countries and four distinct energy sectors. The results show that alternative country samples hardly affect the causality relations, particularly in a multivariate multi-sector framework
    Keywords: Energy Sector, Panel Unit Roots, Panel Cointegration, Vector Error Correction Models, Granger Causality
    JEL: C01 C32 C33 O13 Q43
    Date: 2009
  12. By: Manuel Hidalgo Pérez (Department of Economics, Universidad Pablo de Olavide); Walter García-Fontes (Universidad Pompeu Fabra y CREA)
    Abstract: We estimate the strength of schooling externalities for Spanish regions over the 1981-2001 period. Our empirical work employs both main approaches available in the literature. Both methodologies yield significant externalities. Using a growth accounting exercise, we find that human capital externalities account for one half of the increase in real wages for the period between 1981 and 2001.
    Keywords: externalities, human capital, constant composition.
    JEL: I21 J31 O47
    Date: 2009–12
  13. By: Eduardo Cavallo; Ilan Noy
    Abstract: Catastrophes caused by natural disasters are by no means new, yet the evolving understanding of their relevance to economic development and growth is still in its infancy. In order to facilitate further necessary research on this topic, this paper summarizes the state of the economic literature examining the aggregate impact of disasters. The paper reviews the main disaster data sources available, discusses the determinants of the direct effects of disasters, and distinguishes between short- and long-run indirect effects. The paper then examines some of the relevant policy questions and follows up with projections about the likelihood of future disasters, while paying particular attention to climate change. The paper ends by identifying several significant gaps in the literature.
    Keywords: Natural disasters, Climate change, Growth
    JEL: O11 O40 Q54
    Date: 2009–12
  14. By: Santiago Carbó Valverde; Sujit Chakravorti; Francisco Rodríguez-Fernández
    Abstract: We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank- level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it.
    Date: 2009
  15. By: Robert S. Pindyck
    Abstract: Focusing on tail effects, I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. I estimate the fraction of consumption w_(_ ) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to _ . Using information on the distributions for temperature change and economic impact from studies assembled by the IPCC and from “integrated assessment models” (IAMs), I fit displaced gamma distributions for these variables. Unlike existing IAMs, I model economic impact as a relationship between temperature change and the growth rate of GDP as opposed to its level, so that warming has a permanent impact on future GDP. The fitted distributions for temperature change and economic impact generally yield values of w_(_ ) below 2%, even for small values of _ , unless one assumes extreme parameter values and/or substantial shifts in the temperature distribution. These results are consistent with moderate abatement policies.
    Date: 2009–08
  16. By: Luigi Bonatti; Emanuele Campiglio
    Abstract: We present an example of how public policies affect the evolution of the economy by influencing consumption habits, life styles and work attitudes. In particular, we show that governments can boost long-run growth by moving public investment away from collective transportation systems and towards infrastructures necessary for using private vehicles. Indeed, by augmenting the relative convenience of using private mobility systems, which are those more costly for the households, the government induces them to increase their labor supply so as to afford larger expenditures in transportation. This has long-term welfare implications depending also on the negative externalities associated with transport.
    Date: 2009

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