nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒03‒20
eight papers chosen by
Iulia Igescu
Global Insight, GmbH

  2. Technical Change and Total Factor Productivity Growth: The Case of Chinese Provinces By Heshmati, Almas; Kumbhakar, Subal C.
  3. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas Ruiz
  4. Educating in the East, Emigrating to the West? By d'Artis Kancs; Julda Kielyte
  6. Switching from convergence to divergence in the European Union: A case study By Grigoris Zarotiadis; Aristea Gkagka
  7. Finance-dominated capitalism in crisis – the case for a Global Keynesian New Deal By Hein, Eckhard; Truger, Achim
  8. Islamic finance: what does it change, what it does not - the structure - objectives mismatch and its consequences By Hasan, Zubair

  1. By: Randall, Alan
    Keywords: Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development,
    Date: 2009–12
  2. By: Heshmati, Almas (Seoul National University); Kumbhakar, Subal C. (Binghamton University, New York)
    Abstract: In the literature technical change is mostly assumed to be exogenous and specified as a function of time. However, some exogenous external factors other than time can also affect technical change. In this paper we model technical change via time trend (purely external non-economic) as well as other exogenous (external economic) factors (technology shifters). We define technology index based on the external economic factors which are indicators of ‘technology’. Thus our definition of production function is amended to accommodate several technology shifters which are not separable from the traditional inputs. That is, these technology shifters allow for non-neutral shift in the production function. In doing so we are able to decompose technical change (a component of TFP change) into two parts. One part is driven by time (manna from heaven) and the other part is related to producer specific external economic factors. These exogenous technology shifters are aggregated (via hedonic aggregator functions) into several groups (technology indices) for parsimonious parametric specification. The empirical model uses panel data on Chinese provinces. We identify a number of key technology shifters and their effect on technical change and TFP growth of provinces.
    Keywords: technical change, total factor productivity growth, technology indicator, technology shifter, Chinese provinces
    JEL: C33 C43 D24 O18 O47
    Date: 2010–02
  3. By: Omar Licandro; Antonio Navas Ruiz
    Abstract: Increasing evidence support the claim that international trade enhances innovation and productivity growth through an increase in competition. This paper develops a two-country endogenous growth model, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition to provide a theoretical support to this claim. Since countries are assumed to produce the same set of varieties, trade openness makes markets more competitive, reducing prices and increasing quantities. Under Cournot competition, trade is pro-competitive. Since firms undertake cost reducing innovations, the increase in production induced by a more competitive market push firms to innovate more. Consequently, a reduction on trade barriers enhances growth by reducing domestic firm's market power.
    Keywords: Trade Openness, Growth, Competition
    JEL: F13 F43 O3
    Date: 2010–03–04
  4. By: d'Artis Kancs; Julda Kielyte
    Abstract: This paper examines the potential impacts of East-West migration of talents on the innovative capital and hence the long-run growth prospects in Eastern sending countries. Complementing previous studies, we examine the impact of high skill migration not only on the formation of human capital, but also consider migration's impact on knowledge capital in the sending countries. In line with previous studies we find that in the short- to medium-term high skill migration strictly reduces national innovative capital and hence increases the gap between East and West. However, these effects might be mitigated by factors such as reinforced education of workers, productive investment of remittances, return migration and increased knowledge transfer. Given that the emigration of highly skilled affects human capital differently than knowledge capital, addressing the adverse impacts of the most talented and highly skilled worker emigration efficiently, differentiated policies are required for human capital and knowledge capital.
    Keywords: International labour migration, skilled workers, growth, human capital.
    JEL: D50 D80 F22 F24 H52 I21 J24 J61 O15
    Date: 2010–01–01
  5. By: Bronisz, Urszula; Heijman, Wim
    Abstract: This article aims at presenting different approaches to the phenomenon of social capital. The concept of social capital is ambiguous and that is why we will highlight a number of definitions of this notion. The central attention of the paper focuses on the relationship between social capital and regional development and competitiveness. The fundamental question concerns the impact of social capital on the regional economic performance. Hence, we will survey the empirical examination of 16 Polish regions in terms of social capital. We will also study whether the regional level of social capital depends on the level of competitiveness. The purpose of this article is also to make a contribution to the discussion concerning the relationship between economic development and social capital.
    Keywords: Social capital, Regional growth, Polish regions, Community/Rural/Urban Development, International Development, Labor and Human Capital,
    Date: 2009–12
  6. By: Grigoris Zarotiadis (Aristotle’s University of Thessaloniki); Aristea Gkagka (University of Ioannina)
    Abstract: EU member states do not get much from participating in a regional trade agreement and economic integration regime: beside the questionable effects on growth perspectives (€-area grew since 1960 with a gradually smaller rate than the world economy), there is a clear evidence for a profound, unpleasant, structural change regarding convergence. During the first two decades of the period we studied, the coefficient of variation of per capita (p.c.) GDP fell strongly and labour remuneration grew substantially relative to non-labour income. Yet, this picture changed after 1980! The previous trend of closing the gap among the countries reversed completely: in 2005, coefficient of variation grew back to the levels of 1960. At the same time, all previous gains of labour vanished: in the period 1980-2005 real wages lost about 35% against p.c. GDP. A persisting period of continuous divergence emerged after 1980, probably due to permanent, structural developments!
    Keywords: cross-country convergence, domestic inequality.
    JEL: O47 F15
    Date: 2010
  7. By: Hein, Eckhard; Truger, Achim
    Abstract: We analyse the long-run imbalances of finance-dominated capitalism underlying the present crisis – which began in 2007 – with a focus on developments in the US and Germany. We argue that beyond inefficient regulation of the financial sector, the severeness of the present crisis has been mainly caused by increasing inequalities of income distribution and rising imbalances in the world economy associated with finance-dominated capitalism. From this it follows that in the near and not so near future, the US will no longer be able to act as the driving force for world demand. In order to avoid a period of deflationary stagnation in major parts of the world economy, we finally propose the policy package of a Global Keynesian New Deal which should consist of: 1. re-regulation of the financial sector, 2. re-orientation of macroeconomic policies along (Post-)Keynesian lines, and 3. re-construction of international macroeconomic policy co-ordination, in particular on the European level, and a new world financial order.
    Keywords: Finance-dominated capitalism; financial crisis; macroeconomic policies; Global Keynesian New Deal
    JEL: E32 E65 E63 E44 E61
    Date: 2010–02
  8. By: Hasan, Zubair
    Abstract: This paper raises the issue of an initial structure-objective mismatch in the launching of Islamic finance. The abolition of interest and promotion of growth with equity were goals of the conceived system. These goals expressed a long run vision to improve the condition of the Muslim communities across the world. However, the organizational form adopted for Islamic finance was of the existing commercial banks which provided essentially short-term loans on interest to trade industry and commerce. The choice thus involved an intrinsic mismatch between the structure and objectives of Islamic finance. The mismatch did carry some advantages, but on a more important side it exposed Islamic finance to commitments and influences which could not mostly align well with the goals the pioneers had in mind. Note that in focus here is not the reversal of the mismatch but its consequences that have forced the nascent Islamic system to convergence and competition with the mature conventional finance the West dominates. It is not the ground realities that are being adapted to Shari’ah norms; it is the norms that are being stretched to limit for meeting the demands of the conventional system. Ordinary Muslims who hoped to benefit from Islamic financing remain unattended. Thus, what Islamic finance can or cannot change will depend on where its ongoing integration with the conventional system leads it to. Currently, most merits claimed for the Islamic system defy evidence. The basic reforms financial systems require in the face of current crisis are the control of credit, leverage lure, and speculation. Islamic finance is in principle better equipped to achieve these ends.
    Keywords: Islam; Finance; convergence; credit creation; leverage; social responsibility;derivatives;Shari'ah; financial crisis
    JEL: D63 E51 E50 E61
    Date: 2010–02–21

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