nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒02‒05
nine papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. A Contribution to the Empirics of Welfare Growth By Konstantinos Vrachimis; Marios Zachariadis
  2. Determinants of, and the Relationship between FDI and Economic Growth in Bangladesh By Ahamad, Mazbahul Golam; Tanin, Fahian
  3. The Determinants of Economic Growth in European Regions By Jesus Crespo-Cuaresma; Gernot Doppelhofer; Martin Feldkircher
  4. The Turkish Economy After The Crisis By Dani Rodrik
  5. Growth Diagnostics and a Multisector Ramsey Model: The Case of Brazil By Vinyes, Cristina; Roe, Terry
  6. Traditional dynamics of output and factor income shares: lessons from East Germany By Simona E. Cociuba
  7. Aid, Dutch Disease, and Manufacturing Growth By Raghuram G. Rajan; Arvind Subramanian
  8. Resource Wealth, Innovation and Growth in the Global Economy By Pietro F. Peretto; simone Valente
  9. A multi-sectoral approach to the U.S. Great Depression By Pedro S. Amaral; James C. MacGee

  1. By: Konstantinos Vrachimis; Marios Zachariadis
    Abstract: This paper compares the determinants of economic growth and welfare growth. Our main result is that determinants may differ or have different impact on welfare outcomes as compared to economic outcomes. Human capital plays a bigger role in determining the former, so that policies targeting human capital can have a greater effect on the welfare of societies than one would think by looking at their impact on economic growth alone. Institutions also have a greater effect on welfare growth compared to their impact on economic growth, consistent with the importance of government stability for the uninterrupted provision of health-related inputs and information. Finally, initial income has a greater impact on welfare growth than on real income per capita growth, implying even faster convergence than in Becker, Philipson, and Soares (2005) after adding a number of economic, health-related, institutions-related, and geographic variables. We conclude that there exist systematic differences for the impact of a number of factors on economic relative to welfare outcomes.
    Keywords: Economic growth, Welfare, Full income
    Date: 2010–01
  2. By: Ahamad, Mazbahul Golam; Tanin, Fahian
    Abstract: Inward FDI to the middle-income countries has the evidence as a major stimulus to the economic growth; conventionally at export-oriented manufacturing sector. In point of fact, basic macro fundamentals like as growth of gross domestic capital formation, foreign reserve, infrastructure etc. accelerates the FDI inflows. This study reviews the long-run trend on the time scale of FDI to Bangladesh over the period 1975- 2006 and major factors determining foreign companies' decisions to invest, in associated with economic growth. Contents of the paper describe the theoretical development and extensive literature review to find out the appropriate variables to deter the foreign direct investment from time series data. On the basis of intricate link between foreign direct investment and growth, all explained determinants enhance the facilitation, turnover, and return in FDI concentrated sectors that promote long-term sustainable growth with specific shortcomings, directly or indirectly, in our labor-intensive economic activity. Reduced government’s ineffectiveness along with supporting policy framework makes Bangladesh as an attractive destination of FDI, that has a positive spillover and significant impacts affect over time through dynamic effects on economic growth.
    Keywords: FDI; Determinants; Economic Growth; Bangladesh.
    JEL: C32 E6 R11
    Date: 2010–01–03
  3. By: Jesus Crespo-Cuaresma; Gernot Doppelhofer; Martin Feldkircher
    Abstract: We use Bayesian Model Averaging (BMA) to evaluate the robustness of determinants of economic growth in a new dataset of 255 European regions in the period 1995-2005. We use three different specifications based on (i) the cross-section of regions, (ii) the cross-section of regions with country fixed effects, and (iii) the cross-section of regions with a spatial autoregressive (SAR) structure. Our results indicate that the income convergence process between countries is dominated by the catching-up process of regions in Central and Eastern Europe (CEE), whereas convergence within countries is mostly a characteristic of regions in old EU member states. We find robust evidence of asymmetric growth performance within countries, with a growth bonus in regions containing capital cities which is particularly sizeable in CEE countries, as well as a robust positive effect of education. The results are robust if we allow for spatial spillovers a priori. In this setting, we also find robust evidence of positive spillovers leading to growth clusters.
    Keywords: model uncertainty, Bayesian Model Averaging (BMA), spatial autoregressive model, determinants of economic growth, urban agglomerations, European regions
    JEL: C11 C15 C21 R11 O52
    Date: 2009–09
  4. By: Dani Rodrik (Harvard University)
    Abstract: The recent crisis has demonstrated that a financially open economy has many sources of vulnerability. Even when a country does its homework, it remains at the mercy of developments in external financial markets. So, one lesson is that policy needs to guard not just against domestic shocks, but also shocks that emanate from financial instability elsewhere. Complete financial openness is not the best policy. A second lesson is that Turkey’s prevailing growth strategy does not generate enough growth and employment. Therefore it would be a mistake for the country to return to the status quo ante and resuscitate a model that fails to make adequate use of domestic resources. Most importantly, Turkey has to learn to live with reduced reliance on external borrowing. The paper discusses the needed realignments in fiscal and exchange-rate policies.
    Date: 2009
  5. By: Vinyes, Cristina; Roe, Terry
    Abstract: Disenchantment with the Washington Consensus has led to an emphasis on growth diagnostics. In the case of Brazil, the literature suggests three main factors impeding growth: low domestic savings, a shortage of skilled workers, and lack of investment in the countryâs transportation infrastructure. The unique contribution of this study is to show the inter-temporal implications of relaxing these constraints. We fit a multi-sector Ramsey model to Brazilian data, validate its fit to times data, and provide empirical insights into the economyâs structural transformation to long-run equilibrium. Then, the sensitivity of these results to relaxing each of these three constraints is investigated in a manner that yields the same long-run level of well- being. Analytical concepts adapted from static trade theory are used to provide a detailed explanation of how the economy responds in transition growth to the relaxation of these impediments. Addressing these factors clearly benefits the economy, but they do not launch the economy on a substantially higher growth path.
    Keywords: International Development, economic growth, Ramsey, growth diagnostics, O11, O41, O54, D58,
    Date: 2010–01
  6. By: Simona E. Cociuba
    Abstract: I evaluate the quantitative implications of technology change and government policies for output and factor income shares during East Germany's transition since 1990. I model an economy that gains access to a high productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital income share varies due to variation in the profit share of these plants. Two policies - transfers and government-mandated wage increases - have opposite effects on output growth, but both contribute to reducing the capital share during the transition. The model's output and capital share line up with counterparts in East German data.
    Keywords: Income distribution ; Economic development ; Technology - Economic aspects ; Productivity ; Capital investments ; Wages
    Date: 2010
  7. By: Raghuram G. Rajan; Arvind Subramanian
    Abstract: We examine the effects of aid on the growth of manufacturing, using a methodology that exploits the variation within countries and across manufacturing sectors, and corrects for possible reverse causality. We find that aid inflows have systematic adverse effects on a country’s competitiveness, as reflected in the lower relative growth rate of exportable industries. We provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows. We conjecture that this may explain, in part, why it is hard to find robust evidence that foreign aid helps countries grow.
    Keywords: manufacturing; economic development; dutch disease; cgd; center for global development
    Date: 2009–12
  8. By: Pietro F. Peretto (Duke University); simone Valente (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We analyze the relative growth performance of open economies in a two-country model where different endowments of labor and a natural resource generate asymmetric trade. A resource-rich economy trades resource-based intermediates for final manufacturing goods produced by a resource-poor economy. Productivity growth in both countries is driven by endogenous innovations. The effects of a sudden increase in the resource endowment depend crucially on the elasticity of substitution between resources and labor in interme- diates' production. Under substitution (complementarity), the resource boom generates higher (lower) resource income, lower (higher) employment in the resource-intensive sector, higher (lower) knowledge creation and faster (slower) growth in the resource-rich economy. The resource-poor economy adjusts to the shock by raising (reducing) the relative wage, and experiences a positive (negative) growth effect that is exclusively due to trade.
    Keywords: Endogenous Growth, Endogenous Technological Change, Natural Resources, International Trade.
    JEL: E10 F43 L16 O31 O40
    Date: 2010–01
  9. By: Pedro S. Amaral; James C. MacGee
    Abstract: We document sectoral differences in changes in output, hours worked, prices, and nominal wages in the United States during the Great Depression. We explore whether contractionary monetary shocks combined with different degrees of nominal wage frictions across sectors are consistent with both sectoral as well as aggregate facts. To do so, we construct a two-sector model where goods from each sector are used as intermediates to produce the sectoral goods that in turn produce final output. One sector is assumed to have flexible nominal wages, while nominal wages in the other sector are set using Taylor contracts. We calibrate the model to the U.S. economy in 1929, and then feed in monetary shocks estimated from the data. We find that while the model can qualitatively replicate the key sectoral facts, it can account for less than a third of the decline in aggregate output. This decline in output is roughly half as large as the one implied by a one-sector model. Alternatively, if wages are set using Calvo-type contracts, the decline in output is even smaller.
    Keywords: Depressions ; Wages ; Prices
    Date: 2009

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