nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒04‒04
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Infrastructure and Growth: Empirical Evidence By Balazs Egert; Tomasz Kozluk; Douglas Sutherland
  2. Quality Ladders, Competition and Endogenous Growth By Michele Boldrin; David K Levine
  3. Economic Growth with Bubbles By Alberto Martin; Jaume Ventura
  4. Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect? By Coricelli, Fabrizio; Driffield, Nigel; Pal, Sarmistha; Roland, Isabelle
  5. Distributed Lag Models and Economic Growth: Evidence from Cameroon By Boniface Bounoung Fouda
  6. Estimating the Growth Attributes of Mainland China and Hong Kong SAR By Kui-Wai Li; Tung Liu; Hoi Kuan Lam; Liang Wang
  7. Searching for the parallel growth of cities By Chen, Zhihong; Fu, Shihe; Zhang, Dayong
  8. An Analysis on the Growth Attributes of Manufacturing Industries in China By Kui-Wai Li; Tung Liu
  9. Structural Change, Specialization and Growth in EU 25 By Paul J.J. Welfens; Jens K. Perret
  10. CAPITAL INFLOWS, HOUSEHOLD DEBT AND THE BOOM BUST CYCLE IN ESTONIA By Zuzana Brixiova; Laura Vartia; Andreas Woergoetter
  11. A counterfactual analysis of the poverty impact of economic growth in Cameroon By Essama-Nssah, B.; Bassole, Leandre
  12. Regional integration and economic convergence in the post-Soviet space: Experience of the decade of growth By Libman, Alexander; Vinokurov, Evgeny

  1. By: Balazs Egert; Tomasz Kozluk; Douglas Sutherland
    Abstract: Investment in network infrastructure can boost long-term economic growth in OECD countries. Moreover, infrastructure investment can have a positive effect on growth that goes beyond the effect of the capital stock because of economies of scale, the existence of network externalities competition enhancing effects. This paper analyses the empirical relationship between infrastructure and economic growth. Time-series results reveal a positive impact of infrastructure investment on growth. They also show that this effect varies across countries and sectors and over time. In some cases, these results reveal evidence of possible over-investment. Bayesian model averaging of cross-section growth regressions confirms that infrastructure investment in telecommunications and the electricity sectors has a robust positive effect on long-term growth (but not in railways and road networks). Furthermore, this effect is highly nonlinear as the impact is stronger if the physical stock is lower.
    Keywords: investment, infrastructure, network industry, economic growth, cointegration, Bayesian model averaging
    JEL: E22 O11 O40
    Date: 2009–04–01
  2. By: Michele Boldrin; David K Levine
    Date: 2010–03–23
  3. By: Alberto Martin; Jaume Ventura
    Abstract: We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibrium dispersion in the rates of return to investment. During bubbly episodes, unproductive investors demand bubbles while productive investors supply them. Because of this, bubbly episodes channel resources towards productive investment raising the growth rates of capital and output. The model also illustrates that the existence of bubbly episodes requires some investment to be dynamically inefficient: otherwise, there would be no demand for bubbles. This dynamic inefficiency, however, might be generated by an expansionary episode itself.
    Keywords: asset bubbles, dynamic inefficiency, economic growth, financial frictions, pyramid schemes.
    JEL: E32 E44 O40
    Date: 2010–03
  4. By: Coricelli, Fabrizio (Paris School of Economics); Driffield, Nigel (Aston University); Pal, Sarmistha (Brunel University); Roland, Isabelle (London School of Economics)
    Abstract: The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.
    Keywords: excess leverage, bank efficiency, market capitalization, TFP growth, Threshold model, non-linear relationship, transition experience
    JEL: G32 O16
    Date: 2010–03
  5. By: Boniface Bounoung Fouda (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: This paper studies the intertemporal effects of various economic variables on the cameroonian growth. Using a Geometric Lag Model, we find out that 50% of the total effect of variables used is accomplished in less than half of a year. When we employ a Polynomial Distributed Lag, we find out that even if investment has a positive impact on growth in the current year, but in the presence of government expenditures, this effect becomes negative after one year due probably to the eviction effect. In addition, we find out that the consumption causes economic growth after three years whereas economic growth causes the consumption after only one year. The main lesson from this study is that any economic policy to sustain economic growth must boost in priority investment and foreign direct investment. The government should pursue policies that stimulate production instead to encourage consumption.
    Keywords: Distributed Lag Models, Geometric Distributed Lag, Polynomial Distributed Lag, Economic Growth, Cameroon
    Date: 2010–01–11
  6. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University); Hoi Kuan Lam (City University of Hong Kong, Hong Kong SAR); Liang Wang (City University of Hong Kong, Hong Kong SAR)
    Abstract: Since Hong Kong’s reversion of political sovereignty to Mainland China in 1997, the pace of economic integration between the two economies has increased. This paper first examines the economic benefits and institutional differences between Mainland China and Hong Kong. The empirical section of the paper used a stochastic frontier model with the incorporation of a human capital variable to decompose the economic and productivity growth of Mainland China and Hong Kong into the four attributes of input growth, adjusted scale effect, technical progress, and efficiency growth.
    Keywords: technical progress, technical efficiency, returns to scale, human capital, China economy, Hong Kong economy
    JEL: O47 R11
    Date: 2010–02
  7. By: Chen, Zhihong; Fu, Shihe; Zhang, Dayong
    Abstract: Three urban growth theories predict parallel growth of cities. The endogenous growth theory predicts deterministic parallel growth; the random growth theory implies that city growth follows Gibrat’s law with a steady-state distribution; and the hybrid growth theory suggests the co-movement of random city growth. This paper uses the Chinese city size data from 1984-2006 and time series econometric techniques to test for parallel growth. The results from various types of stationarity tests on pooled heterogeneous cities show that city growth is random. However, once growth trend and structural change are taken into account, certain groups of cities with common group characteristics, such as similar natural resource endowment or policy regime, grow parallel.
    Keywords: Urban growth; Parallel growth; Zipf’s law; Unit root; Structural change
    JEL: C22 R12 R11
    Date: 2010–03–19
  8. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University)
    Abstract: This paper examines the growth attributes of manufacturing industries in China for the sample period of 1999-2007. A revised Solow’s growth decomposition method is used to consider four growth attributes of input growth, scale effect, technical progress, and technical efficiency change. For the aggregates of all industries, we found no technical efficiency change. The technical progress, input growth, and scale effect explain 45%, 38%, and 17% of output growth, respectively. When all manufacturing industries are disaggregated into four major groups and twenty-nine sub-manufacturing industries, we find that estimates exhibit increasing returns to scale and positive scale effect. When the manufacturing industries data are aggregated in different provinces and regions, we find that input growth is more significant in the Southern region than in other regions. Only the Southern region shows an increase in technical efficiency. Technical progress is more important in the Western and Northeastern regions than the other two regions.
    Keywords: technical progress, technical efficiency, economies of scale, human capital, China economy
    JEL: C2 D24 O4 O53
    Date: 2010–03
  9. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (Eiiw)); Jens K. Perret (Europäisches Institut für Internationale Wirtschaftsbeziehungen (Eiiw))
    Abstract: Based on the OECD's classification of goods, we take a closer look at EU 15 countries and EU accession countries in terms of the dynamics of sectoral output growth - with due emphasis on the distinction between labor-intensive and science-intensive products. Sectoral output dynamics are explained by the (modified) revealed comparative advantage (RCA), specialization in terms of input intensity, the growth rate of RCA, past sectoral output dynamics and per capita output. In addition, we consider the development of nominal sectoral output development. Considerable differences between EU 15 and EU 10 countries were found, which point to different production regimes in leading EU countries and the Eastern European accession countries, respectively. This panel-based bottom-up approach to output growth suggests that structural change will affect the responsiveness of the supply side considerably.
    Keywords: RCA, Output Growth, Sektoral Output Analysis
    JEL: C23 O47 O52 R10
    Date: 2010–01
  10. By: Zuzana Brixiova; Laura Vartia; Andreas Woergoetter
    Abstract: From 2000 to 2007, Estonia was one of the fastest growing emerging market economies. A housing boom, fuelled by capital inflows and credit, resulted in skyrocketing house prices and an over-expanded construction sector. However, the currency board limited the Bank of Estonia’s ability to curb credit growth, while the fiscal policy framework amplified the cycle through pro-cyclical spending increases and tax cuts. As credit was mostly financed by cross-border loans from foreign banks, the risks of disruptions to credit flows and financial contagion have increased. Some have already materialised through tightened lending standards and capital outflows. Estonia is now in a severe recession. To restore high and sustainable growth, the country will need to rebalance its resources from non-tradables towards exports. Regaining external competitiveness will be challenging, however, given the fixed exchange rate and recent devaluations in partner countries. Flexibility of the economy will thus be crucial. Over the medium term, policymakers could also strengthen incentives for a better functioning of the housing finance market and gradually remove the pro-cyclical bias of fiscal policy.
    Keywords: capital inflows; credit; household debt; boom-bust cycle; Estonia
    JEL: E3 E62 C2
    Date: 2009–07–01
  11. By: Essama-Nssah, B.; Bassole, Leandre
    Abstract: The Government of Cameroon has declared poverty reduction through strong and sustainable economic growth the central objective of its socioeconomic policy. This paper uses available household survey data to assess the performance of the economy with respect to this objective over the period 1996-2007. The authors use counterfactual decompositions based on both the Shapley method and the generalized Oaxaca-Blinder framework to identify proximate factors that might explain differences in observed outcomes over time, across regions and households. The concept of pro-poorness provides a basis for a normative evaluation of these outcomes. The analysis of changes in the size distribution of economic welfare reveals that formal sector employment, access to credit, education, and urban residence are characteristics that bring significantly high returns to households. Employment in smallholder agriculture has a negative impact on welfare across quantiles. Economic growth was accompanied by significant poverty reduction between 1996 and 2001. But poverty barely decreased between 2001 and 2007 due to very weak growth. Over the same period, household investment in human capital took a serious hit. Given the additional finding that the pattern of growth is characterized by urban bias and regional disparity, the overall assessment is that economic growth has been weakly pro-poor in Cameroon. There is therefore a need to re-examine and possibly reform the mechanisms governing the allocation of public resources designed to support individuals'efforts to improve their standard of living.
    Keywords: Rural Poverty Reduction,Achieving Shared Growth,Regional Economic Development,Inequality
    Date: 2010–03–01
  12. By: Libman, Alexander; Vinokurov, Evgeny
    Abstract: This paper examines the dynamics of regional integration and economic convergence in the post-Soviet world during the period 1999-2008. This is the period, when FSU countries experienced rapid economic growth, following the “Big Bang” of the disintegration of the Former Soviet Union (FSU) and the deep economic recession of the 1990s. It starts by discussing a set of indicators reflecting various aspects of interaction of post-Soviet countries (trade, labor migration, integration in key functional markets and economic convergence in different areas) and examines the dynamics of these indicators for the whole region and sub-groups of countries, as well as potential causes and conclusions to be drawn. In addition, it looks at the clusters of regional integration and economic convergence using the hierarchical cluster analysis and attempts to identify the reasons for their formation. We find that during the period studied the trade integration experienced a negative trend, but at the same time we observe an unprecedented expansion of labor migration – thus suggesting that integration of factor flows can outperform integration of markets for goods and services. Finally, clustering processes of the post-Soviet states for the economic convergence and for the economic integration seems to be unaffected by each other.
    Keywords: regional integration; economic convergence; post-Soviet space; integration clubs
    JEL: F15 P27
    Date: 2010

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