nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒03‒06
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Steady-State Growth and the Elasticity of Substitution By Irmen, Andreas
  2. Does Conflict Disrupt Growth? Evidence of the Relationship between Political Instability and National Economic Performance By Polachek, Solomon; Sevastianova, Daria
  3. Escaping Chronic Poverty Through Economic Growth By Chronic Poverty Research Centre CPRC
  4. Trade, Growth and Povety: A Case of Pakistan By Khan, Rana Ejaz Ali; Sattar , Rashid
  5. Structural Change and Growth in India By Singh, Nirvikar; Cortuk, Orcan
  6. Accounting for China's Growth By Brandt, Loren; Zhu, Xiaodong
  7. Growth with Time Zone Differences By Toru Kikuchi; Sugata Marjit
  8. Real exchange rate misalignments and economic performance for the G20 countries By Audrey Sallenave
  9. Economic consequences of low fertility in Europe By Bloom, David E.; Sousa-Poza, Alfonso
  10. Stabilization and growth under dictatorship: the experience of Franco's Spain By Leandro Prados de la Escosura; Joan R. Rosés; Isabel Sanz Villarroya
  11. The Impact of International Trade Flows on the Growth of Brazilian States By Marie Daumal; Selin Ozyurt
  12. Long-Term Economic Growth and the Standard of Living in Indonesia By Pierre van der Eng; Joerg Baten; Mojgan Stegl

  1. By: Irmen, Andreas
    Abstract: In a neoclassical economy with endogenous capital- and labor-augmenting technical change the steady-state growth rate of output per worker is shown to increase in the elasticity of substitution between capital and labor. This confirms the assessment of Klump and de La Grandville (2000) that the elasticity of substitution is a powerful engine of economic growth. However, unlike their findings my result applies to the steady-state growth rate. Moreover, it does not hinge on particular assumptions on how aggregate savings come about. It holds for any household sector allowing savings to grow at the same rate as aggregate output.
    Keywords: Capital Accumulation; Elasticity of Substitution; Direction of Technical Change; Neoclassical Growth Model
    Date: 2010–02–10
  2. By: Polachek, Solomon (Binghamton University, New York); Sevastianova, Daria (University of Southern Indiana)
    Abstract: Current empirical growth models limit the determinants of country growth to geographic, economic, and institutional variables. This study draws on conflict variables from the Correlates of War (COW) project to ask a critical question: How do different types of conflict affect country growth rates? It finds that wars slow the economy. Estimates indicate that civil war reduces annual growth by .01 to .13 percentage points, and high-intensity interstate conflict reduces annual growth by .18 to 2.77 percentage points. On the other hand, low-intensity conflict slows growth much less than high-intensity conflict, and may slightly increase it. The detrimental effect of conflict on growth is intensified when examining non-democracies, low income countries, and countries in Africa.
    Keywords: war, economic growth, conflict
    JEL: C2 O1 O47 O57 P47 P52
    Date: 2010–02
  3. By: Chronic Poverty Research Centre CPRC
    Abstract: It is discussed how chronically poor people participate in growth (or are excluded), and how different forms of growth connect to poverty. Important policy levers, in relation to agriculture, urbanisation, social protection and fiscal reform are discussed. [CPRC Policy Brief 8].
    Keywords: agriculture, poverty, growth, excluded, chronically poor people, urbanisation, social protection, fiscal reform, economic, social change
    Date: 2010
  4. By: Khan, Rana Ejaz Ali; Sattar , Rashid
    Abstract: It is generally argued that open trade is crucial for economic growth and development. The economic literature also argues that growth is an important option for reducing poverty in developing countries. The paper analyzed the causality between the trade, growth and poverty for Pakistan using annual time series data from 1973-2009. Granger causality results based on Error-Correction Models have shown that in the case of Pakistan there exists two way relationship between trade and growth in the long-run but for the short-run growth enhance the trade. For the growth and poverty, there exists long-run relation from growth to poverty while for the short-run there exists no relationship. It may be concluded that international trade can play an important role towards growth and ultimately alleviation of poverty. From the policy perspective government should focus on trade.
    Keywords: F14; F41; O19; I3.
    JEL: F14 I3 O19 F41
    Date: 2010–01–15
  5. By: Singh, Nirvikar; Cortuk, Orcan
    Abstract: This paper examines the link between structural change and growth in India. It constructs indices of structural change, and performs a time series analysis of the data. It finds that 1988 marks a break in the time series of growth and structural change. There is one-way causality from structural change to growth in the period 1988-2007, whereas there is no evidence for this linkage before 1988.
    Keywords: Indian economy; structural change; growth; causality
    JEL: O1 O5
    Date: 2010–02–10
  6. By: Brandt, Loren (University of Toronto); Zhu, Xiaodong (University of Toronto)
    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. 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 points to the role of rising rates of investment. Because labor reallocation 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 dynamic 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 from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sector as the key driver of growth. We also find significant misallocation of capital: The 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 re-balance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.
    Keywords: China, investment, growth, productivity, capital market distortions
    JEL: E2 O4
    Date: 2010–02
  7. By: Toru Kikuchi (Graduate School of Economics, Kobe University); Sugata Marjit (Centre for Studies in Social Sciences, Calcutta, India)
    Abstract: We propose a two-country growth model of intermediate businessservices trade that captures the role of time zone differences. It is shown that a time-saving improvement in intermediate businessservices trade involving production in different time zones can have a permanent impact on productivity.
    Keywords: Business-Services Trade; Time Zone Differences; Growth;AK model
    JEL: F12
    Date: 2010–02
  8. By: Audrey Sallenave
    Abstract: We evaluate the growth effects of real effective exchange rate misalignments for the G20 countries over the period 1980-2006. To this end, we first estimate real effective equilibrium exchange rates relying on the behavioral approach BEER, from which misalignments are derived. Second, we estimate a dynamic panel growth model in which among the traditional determinants of growth, our measure of misalignments is included. Our findings put forward some important differences between developed and emerging economies. The magnitude of the misalignments is more pronounced in the case of emerging countries, and the speed of convergence towards the estimated equilibrium exchange rate is slower for industrialized ones. Turning to our growth regression analysis, we find that misalignments have a negative effect on the economic growth. As a consequence, an appropriate exchange rate policy would close the gap between real exchange rates and their equilibrium level.
    Keywords: Equilibrium Real Effective Exchange Rate, Group of Twenty, Growth, Misalignments, Panel Cointegration
    JEL: C23 F31 O47
    Date: 2010
  9. By: Bloom, David E.; Sousa-Poza, Alfonso
    Abstract: This paper focuses on possible economic consequences of low fertility in Europe. It summarizes a selection of papers that were presented at a conference at the University of St. Gallen in April 2008. This introduction also reviews the history of falling fertility in Europe and the literature that explores its causes, its potential implications, and possible policy responses. It summarizes the evolution of thinking about the relationship between population growth and economic development, with attention to recent work on the mechanisms through which fertility decline can spur economic growth if the necessary supporting conditions are met. The paper also identifies some of the challenges of population aging that are associated with low fertility and suggests that there may be less reason for alarm than has been suggested by some observers. --
    Date: 2010
  10. By: Leandro Prados de la Escosura; Joan R. Rosés; Isabel Sanz Villarroya
    Abstract: Stabilizing and liberalizing policies are key elements of the Washington Consensus. This paper adds a historical dimension to the ongoing debate by assessing the economic impact of market-oriented reforms undertaken during General Franco’s dictatorship, the 1959 Stabilization and Liberalization Plan. Using an index of macroeconomic distortions (IMD) the relationship between economic policies and the growth record is examined. Although a gradual reduction in macroeconomic distortions was already in motion during the 1950s, the 1959 Plan opened the way to a new institutional design that favoured a free-market allocation of resources and allowed Spain to accelerating growth and catching up with Western Europe. Without the 1959 Plan, per capita GDP would have been significantly lower in 1975.
    Keywords: Macroeconomic policy, Stabilization, Liberalization, Growth, Dictatorship, Anti-market policies, Spain
    JEL: E65 F43 N14 N44 O43
    Date: 2010–02
  11. By: Marie Daumal (Université Paris 8 Vincennes-Saint-Denis, Université Paris-Dauphine, LEDa, UMR DIAL); Selin Ozyurt (Université Paris-Dauphine)
    Abstract: The aim of this paper is to explore the impact of Brazil’s trade openness on regional inequalities by estimating the effect of international trade flows on growth of Brazilian states, depending on their income level. For this purpose, we run dynamic growth regressions, using the system GMM estimator, on a panel data set including 26 Brazilian states for the 1989 - 2002 period. Growth rates of Brazilian states are regressed on control variables and on Brazilian states’ trade openness variables. All variables vary across both states and year. The results indicate that trade openness benefits more the Brazilian states with higher levels of per capita income, thereby tending to increase regional inequalities in Brazil. Besides, we find that trade openness advantages more the states with a good level of human capital as well as the industrialized states rather than the states whose main activity is agriculture. The problem that this study reveals is that international trade seems to provide additional advantages to already well developed Brazilian states while one of the priorities of the Brazilian federal government is to achieve a better territorial balance in Brazil. _________________________________ Ce travail a pour objectif d’estimer l’impact des flux de commerce international sur la croissance des Etats brésiliens. A l’aide de l’estimateur GMM, le taux de croissance des Etats brésiliens est régressé sur divers déterminants de la croissance et sur leur taux d’ouverture commerciale. La base de données en panel contient les 26 Etats brésiliens sur la période 1989 - 2002. Les estimations de l’équation de croissance montrent que les flux de commerce international des Etats favorisent davantage la croissance des Etats riches que celle des Etats les moins développés. Nous montrons également qu’il existe au Brésil une convergence conditionnelle. Les Etats pauvres ont un taux de croissance plus élevé que les Etats riches mais il semble que leurs états stationnaires soient très différents les uns des autres, ce qui nous amène à penser que les inégalités régionales resteront importantes dans l’avenir.
    Keywords: International trade, growth equation, GMM estimator, Brazilian states, Commerce international, équation de croissance, estimateur GMM, Etats brésiliens.
    JEL: F43 R11
    Date: 2010–01
  12. By: Pierre van der Eng; Joerg Baten; Mojgan Stegl
    Abstract: This paper analyses the relationship between economic growth and improvements in the standard of living, indicated by average heights. It uses four sets of anthropometric data to construct time series of average human height since the 1770s. The paper observes a significant decline of heights in the 1870s, followed by only modest recovery during the next three decades. Both are related to a sequence of disasters. Average heights increased from the 1900s, accelerating after World War II. The Japanese occupation and war of independence in the 1940s were a set-back. Average height growth is related to improvements in food supply and the disease environment, particularly hygiene and medical care. GDP per capita and average height followed each other in broad terms, but the correlation is far from perfect. The paper offers several hypotheses to explain this fact.
    JEL: N35 O15 I31
    Date: 2010–02

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