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on Financial Development and Growth |
| By: | Stelios Michalopoulos; Luc Lueven; Ross Levine |
| Abstract: | We model technological and financial innovation as reflecting the decisions of profit maximizing agents and explore the implications for economic growth. We start with a Schumpeterian endogenous growth model where entrepreneurs earn monopoly profits by inventing better goods and financiers arise to screen entrepeneurs. A novel feature of the model is that financiers also engage in the costly, risky, and potentially profitable process of innovation: Financiers can invent more effective processes for screening entrepreneurs. Every existing screening process, however, becomes less effective as technology advances. Consequently, technological innovation and, thus, economic growth stop unless financiers continually innovate. Historical observations and empirical evidence are more consistent with this dynamic model of financial innovation and endogenous growth than with existing models of financial development and growth. |
| Keywords: | Invention, Economic Growth, Corporate Finance, Financial Institutions, Technological Change, Entrepreneurship. |
| JEL: | G0 O31 O4 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0746&r=fdg |
| By: | Gustavo A. Marrero (Universidad de La Laguna); Juan G. Rodríguez (Universidad Rey Juan Carlos) |
| Abstract: | Theoretical and empirical studies exploring the effects of income inequality upon growth reach a disappointing inconclusive result. This paper postulates that one reason for this ambiguity is that income inequality is actually a composite measure of at least two different sorts of inequality: inequality of opportunity and inequality of returns to effort. These two types of inequality affect growth through opposite channels, so the relationship between income inequality and growth is positive or negative depending on which component is larger. We test this proposal using inequality-of-opportunity measures computed from the PSID database for 23 states of the U.S. in 1980 and 1990. We find robust support for a negative relationship between inequality of opportunity and growth, and a positive relationship between inequality of returns to effort and growth. |
| Keywords: | income inequality; inequality of opportunity; economic growth. |
| JEL: | D63 E24 O15 O40 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2010-154&r=fdg |
| By: | Noritaka Maebayashi (Graduate School of Economics, Osaka University) |
| Abstract: | This paper constructs an endogenous growth model with overlapping generations, whose engine of economic growth is productive public capital. The government faces a trade-off in public policy between public investment and social security provision because of its budget constraint. Larger public investment accelerates economic growth. On the other hand, larger public investment reduces the social security provision. This may reduce the consumption stream of agents. We first show that when the government aims at growth maximization, it chooses no social security provision. However, we also show that the growth-maximizing policy does not maximize welfare levels of each generation on the balanced growth path. Early generations may demand social security provision because the benefits from economic growth caused by an acceleration of public investment are relatively small. In contrast, future generations may require no social security provision but a large amount of public capital. Additionally, by setting the tax rate below the level that maximizes the growth rate, the government can make the welfare levels of all generations from the initial state on the balanced growth path better off. Moreover, in an economy facing an aging population, an increase in the social security provision to the old rather than an increase in public investment can be preferable from the viewpoint of social welfare. |
| Keywords: | public capital, social security, overlapping generations |
| JEL: | E62 H54 H55 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1003&r=fdg |
| By: | Bala Subrahmanya, M. H.; Mathirajan, M.; Krishnaswamy, K. N. |
| Abstract: | This paper probes the drivers, dimensions, achievements, and outcomes of technological innovations carried out by SMEs in the auto components, electronics, and machine tool sectors of Bangalore in India. Further, it ascertains the growth rates of innovative SMEs vis-à-vis non-innovative SMEs in terms of sales turnover, employment, and investment. Thereafter, it probes the relationship between innovation and growth of SMEs by (i) estimating a correlation between innovation sales and sales growth, (ii) calculating innovation sales for high, medium, and low growth innovative SMEs and doing a aggregate one-way ANOVA, and (iii) ascertaining the influence of innovation sales, along with investment growth and employment growth on gross value-added growth by means of multiple regression analysis. The paper brings out substantial evidence to argue that innovations of SMEs contributed to their growth. |
| Keywords: | Technological innovations, sales growth, auto components, electronics, machine tools, Bangalore |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2010-03&r=fdg |
| By: | Christian R. Jaramillo H. |
| Abstract: | Large natural disasters (LNDs) are ubiquitous phenomena with potentially large impacts on the infrastructure and population of countries and on their economic activity in general. Using a panel of 113 countries and 36 years of data, I examine the relationship between different measures of natural disaster impact and long-run economic growth. The sample is partitioned in two separate ways: according to the amount and type of disasters that countries have experienced and to the size of those disasters. For each partition, I present two sets of econometric estimations. The first regressions identify short-run and longer-lasting effects of LNDs. However, these first estimations do not distinguish between temporary but persistent effects and truly permanent ones. I thus estimate a structural model that allows me to identify permanent changes. The results of the first regressions show that for some of the groups of countries the disaster impact persists beyond the 2-5 years in which reconstruction and adaptation are expected to have an effect on the economy. However, the estimates using the structural model show that only for a very small number of countries which share a history of highly devastating natural disasters the negative effects are truly permanent. |
| Date: | 2009–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:006647&r=fdg |