nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒02‒27
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Open economy models of distribution and growth By Robert A. Blecker
  2. Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View By Bordo, Michael D.; Meissner, Christopher M.; Stuckler, David
  3. Do coup leaders matter? Leadership change and economic growth in politically unstable countries By Richard Jong-A-Pin; Shu Yu
  4. The economics of growth. By Aghion, P.; Howitt, P.
  5. Accounting for China's Growth By Loren Brandt; Xiaodong Zhu
  6. Agricultural growth, poverty, and nutrition in Tanzania: By Pauw, Karl; Thurlow, James
  7. Liquidity, Financial Intermediation, and Monetary Policy in a New Monetarist Model By Williamson, Stephen
  8. Financial Regulation, Integration and Synchronization of Economic Activity By Sebnem Kalemli-Ozcan; Elias Papaioannou; José Luis Peydró
  9. Investments in Intangible Assets and Australia's Productivity Growth By Paula Barnes; Andrew McClure
  10. How can the impact of foreign direct investment on human development be measured and regulated?. By De Schutter, Olivier; Swinnen, Johan; Wouters, Jan

  1. By: Robert A. Blecker
    Date: 2010–02
  2. By: Bordo, Michael D. (Rutgers University and NBER); Meissner, Christopher M. (University of California, Davis and NBER); Stuckler, David (Christ Church College, University of Oxford)
    Abstract: Foreign currency debt is widely believed to increase risks of financial crisis, especially after being implicated as a cause of the East Asian crisis in the late 1990s. In this paper, we study the effects of foreign currency debt on currency and debt crises and its indirect effects on short-term growth and long-run output effects in both 1880-1913 and 1973-2003 for 45 countries. Greater ratios of foreign currency debt to total debt is associated with increased risks of currency and debt crises, although the strength of the association depends crucially on the size of a country's reserve base and its policy credibility. We found that financial crises, driven by exposure to foreign currency, resulted in significant permanent output losses. We estimate some implications of our findings for the risks posed by currently high levels of foreign currency liabilities in eastern Europe.
    JEL: F34 F36 F43 N10
    Date: 2009–10
  3. By: Richard Jong-A-Pin (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Shu Yu (University of Groningen, the Netherlands)
    Abstract: We examine the impact of leadership change after a coup d’etat on economic growth. We consider successful coup attempts as our treatment group and use failed coup attempts as controls to condition on political instability. To take account of selection bias, we control for the determinants of coup success. Our main finding is that leadership changes after a coup d’état have a positive effect on economic growth in the least developed countries, but have a negative effect in other developing countries.
    Keywords: economic growth, coup d’etat, political instability
    Date: 2010–02
  4. By: Aghion, P.; Howitt, P.
    Abstract: This comprehensive introduction to economic growth presents the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design. The treatment of growth theory is fully accessible to students with a background no more advanced than elementary calculus and probability theory; the reader need not master all the subtleties of dynamic programming and stochastic processes to learn what is essential about such issues as cross-country convergence, the effects of financial development on growth, and the consequences of globalization. The book, which grew out of courses taught by the authors at Harvard and Brown universities, can be used both by advanced undergraduate and graduate students, and as a reference for professional economists in government or international financial organizations.
    Date: 2009–01
  5. By: Loren Brandt; Xiaodong Zhu
    Abstract: China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. But for the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis point to the role of rising rates of investment. Because labor reallocations across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three sector model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation and capital deepening, and identify rising TFP in the non-state nonagricultural sector as the key driver of growth. We also find significant misallocation of capital: The much less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to rebalance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data
    Keywords: China, Growth, TFP, Investment, intensive vs extensive margins
    JEL: E2 O4
    Date: 2010–02–16
  6. By: Pauw, Karl; Thurlow, James
    Abstract: Rapid economic growth has failed to significantly improve poverty and nutrition outcomes in Tanzania. This raises concerns over a decoupling of growth, poverty, and nutrition. We link recent production trends to household incomes using a regionalized, dynamic computable general equilibrium and microsimulation model. Results indicate that the structure of economic growth—not the level—is currently constraining the rate of poverty reduction in Tanzania. Most importantly, agricultural growth trends have been driven by larger-scale farmers and by crops grown in only a few regions of the country. The slow expansion of food crops and livestock also explains the weak relationship between agricultural growth and nutrition outcomes. Additional model simulations find that accelerating agricultural growth, particularly in maize, greatly strengthens the growth–poverty relationship and enhances households' caloric availability. We conclude that low productivity, market constraints (including downstream agroprocessing), and barriers to import substitution for major food crops are among the more binding constraints to reducing poverty and improving nutrition in Tanzania.
    Keywords: economic growth, Poverty, Nutrition, household incomes, Computable general equilibrium (CGE) modeling, Agricultural growth, Microsimulation model, livestock, Food crops, low productivity, market constraints, Development strategies,
    Date: 2010
  7. By: Williamson, Stephen
    Abstract: A model of monetary exchange with private financial intermediation is constructed. Claims on financial intermedaries of two types are traded in transactions: circulating notes and deposits. There can be a role for the government in supplying liqudity, and level changes in the money supply accomplished through open market operations can be nonneutral. A Friedman rule is suboptimal, due to costs of maintaining the stock of currency. The model is used to address some issues related to current monetary policy in the United States.
    Keywords: Monetary policy; financial intermediation; financial crisis
    JEL: E5 E4
    Date: 2009–12
  8. By: Sebnem Kalemli-Ozcan (University of Houston and NBER); Elias Papaioannou; José Luis Peydró
    Abstract: We investigate the effect of financial integration on the degree of international business cycle synchronization. For identfication, we use a confidential database on banks' bilateral exposure over the past three decades and employ a novel bilateral country-pair panel instrumental vari- ables approach. First, we show that conditional on global shocks and country-pair fixed factors countries that become more financially integrated over time have less synchronized growth pat- terns, in line with the standard theories of output fluctuations. Second, to isolate the one-way impact of financial integration on output co-movement and account for measurement error in the financial integration measure, we exploit variation in the transposition dates of the European Union-wide legislative acts (the "Directives") from the Financial Services Action Plan (FSAP). These laws are designed to harmonize regulation of financial markets in the European Union. We find that increases in financial integration stemming from regulatory-legislative harmoniza- tion policies in capital markets are followed by more divergent output cycles, even when we condition on monetary unification. Our results contrast with those of the previous empirical studies. We reconcile the different results by showing that the earlier estimates suffer from the standard identification problems.
    Keywords: Banking Integration, Co-movement, Fluctuations, Financial Legislation
    JEL: E32 F15 F36 G21 O16
    Date: 2010–02
  9. By: Paula Barnes; Andrew McClure (Productivity Commission)
    Abstract: Investment in capital is important for economic growth. But capital is not just physical assets; firms also invest in 'soft' capital such as knowledge, firm-specific skills, and better ways of doing business. This investment results in accumulation of 'intangible assets'. Intangible assets have been categorised as computerised information, innovative property (including R&D) and economic competencies (including firm-specific human capital and organisational capital), and most are difficult to measure. These assets can depreciate more rapidly than physical capital, but they are investments nonetheless, delivering benefits over time, not just in the period the expenditure was made. Many elements of spending on intangibles are treated as a current expense in the national accounts rather than as an investment. This leads to an understatement of investment in the economy. It also may affect measures of multifactor productivity (MFP) growth. Applying the methodology of Corrado, Hulten and Sichel (2006) found that intangible investment currently is almost half the size of tangible investment in the market sector of the Australian economy. While experimental in nature, the estimates suggest that - market sector investment in intangibles was $57 billion in 2005-06, 80 per cent of which is currently not treated as investment in the national accounts; average annual growth in intangible investment has been about 1.3 times that of tangibles since 1974-75; including intangible investment in total investment largely removes the past downward trend in the market sector ratio of investment to output (gross value added); investments in organisational capital (strategic planning, adaptation and reorganisation) and computerised information have grown at relatively high rates — making up 27 and 13 per cent of intangible investment in 2005-06. Treating investment in intangible assets as capital raises measured final output and measured capital inputs and alters the capital-labour ratio, hence the effect on measured MFP growth is complex. However, in Australia, adjusting for intangible investment not currently included in the national accounts does not have a large direct effect on the level or pattern of conventionally-measured MFP growth. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.
    Keywords: multifactor productivity (MFP) growth, organisational capital, Intangible assets, economic growth, computerised information, innovative property, R&D, economic competencies, human capital
    JEL: O
    Date: 2009–03
  10. By: De Schutter, Olivier; Swinnen, Johan; Wouters, Jan
    Abstract: The lowering of barriers to foreign direct investment and waves of privatisation have caused amounts of FDI to increase greatly in recent decades, allowing enormous sums of money to flow into certain countries. Olivier De Schutter, Jo Swinnen and Jan Wouters introduce recent research focusing on the impact of FDI on Human Rights, beyond the much studied impact of FDI on growth, with a particular emphasis on measurement and policy issues.
    Date: 2009–11

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