nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒04‒11
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Economic Growth with Bubbles By Alberto Martin; Jaume Ventura
  2. Financial integration and financial development in transition economies : what happens during financial crises ?. By Arjana Brezigar-Masten; Fabrizio Coricelli; Igor Masten
  3. Environmental Taxes and Economic Growth: Evidence from Panel Causality Tests By Morley, Bruce; Abdullah, Sabah
  4. Productivity Growth and Levels in France, Japan, the United Kingdom and the United States in the Twentieth Century. By Cette, G.; Kocoglu, Y.; Mairesse, J.
  5. Growth and crisis in transition : a comparative perspective. By Fabrizio Coricelli; Mathilde Maurel
  6. Endogenous Growth: A Kaldorian Approach By Mark Setterfield
  7. Public Infrastructure, Education, and Economic Growth: Region-Specific Complementarity in a Half-Century Panel of States By Stone, Joe; Bania, Neil; Gray, Jo Anna
  8. Credit and recessions. By Fabrizio Coricelli; Isabelle Roland
  9. Migration, remittances and the current economic crisis: implications for Central and Eastern Europe By Barbara Dietz
  10. The financial crisis hits the real and social sector : Russia in spring 2009 By Manuela Troschke
  11. In the wake of the crisis: dealing with distressed debt across the transition region By Ralph De Haas; Stephan Knobloch

  1. 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.
    JEL: E32 E44 O40
    Date: 2010–04
  2. By: Arjana Brezigar-Masten (Institute for Macroeconomic Analysis and Development); Fabrizio Coricelli (Centre d'Economie de la Sorbonne and CEPR); Igor Masten (European University Institute and University of Ljubjana)
    Abstract: This papers provides an empirical analysis of the role of financial development and financial integration in the growth dynamics of transition countries. We focus on the role of financial integration in determining the impact of financial development on growth, distinguishing "normal times" from periods of financial crises. In addition to confirming the significant positive effect on growth exerted by financial development and financial integration, our estimates show that a higher degree of financial openness tends to reduce the contractionary effect of financial crises, by cushioning the effect on the domestic supply of credit. Consequently, the high reliance on international capital flows by transition countries does not necessarily increase their financial fragility. This implies that financial protectionism is a self-defeating policy, at least for transition countries.
    Keywords: Transition economies, financial integration, financial crises, economic growth, threshold effects.
    JEL: F33 F36 G15
    Date: 2010–02
  3. By: Morley, Bruce; Abdullah, Sabah
    Abstract: The aim of this study is to determine the causal relationship between environmental taxes and economic growth, using different measures of environmental taxes with GDP as well as adjusted net savings. A panel of European countries and a separate panel of OECD countries are used from 1995 to 2006 and the standard Granger noncausality approach is applied, using panel cointegration and a dynamic panel technique to estimate the error correction models. The results suggest some evidence of long-run causality running from economic growth to increased revenue from the environmental taxes, with also some evidence of short-run causality in the reverse direction. However overall there is little evidence to support the double dividend theory.
    Keywords: economic growth; double dividend; environmental taxes; Granger Causality
    Date: 2010–03–31
  4. By: Cette, G.; Kocoglu, Y.; Mairesse, J.
    Abstract: This study compares labor and total factor productivity (TFP) in France, Japan, the United Kingdom and the United States in the very long (since 1890) and medium (since 1980) runs. During the past century, the United States has overtaken the United Kingdom and become the leading world economy. During the past 25 years, the four countries have also experienced contrasting advances in productivity, in particular as a result of unequal investment in information and communication technology (ICT). The past 120 years have been characterized by: (i) rapid economic growth and large productivity gains in all four countries; (ii) a long decline in productivity in the United Kingdom relative to the United States, and to a lesser extent also relative to France and Japan, a relative decline that was interrupted by the second world war (WW2); (iii) the remarkable catching-up to the United States by France and Japan after WW2, interrupted in the case of Japan during the 1990s. Capital deepening (at least to the extent this can be measured) accounts for a large share of the variations in performance; increasingly during the past 25 years, this has meant ICT capital deepening. However, the capital contribution to growth varies considerably over time and across the four countries, and it is always less important, except in Japan, than the contribution of the various other factors underlying TFP growth, such as, among others, labor skills, technical and organizational changes and knowledge spillovers. Most recently (in 2006), before the current financial world crisis, hourly labor productivity levels were slightly higher in France than in the United States, and noticeably lower in the United Kingdom (by roughly 10%) and even lower in Japan (30%), while TFP levels are very close in France, the United Kingdom and the United States, but much lower (40%) in Japan.
    Keywords: Productivity, growth accounting, macro-economic history.
    JEL: O47 O57 E22 J24 N10
    Date: 2010
  5. By: Fabrizio Coricelli (Centre d'Economie de la Sorbonne and CEPR); Mathilde Maurel (Centre d'Economie de la Sorbonne)
    Abstract: The paper provides an empirical analysis of the growth performance of transition countries in a comparative perspective, separating episodes of crises from those of growth. Performance is measured by the output response following recessions, rather than average rates of growth that aggregate periods of recessions and periods of growth. Results highlight significant differences between transition and non-transition countries, and heterogeneity within the transition group. Distinguishing the performance following the so-called "transitional recession" from that of "normal recessions", the analysis allows separating the role of initial conditions, pre-transition, from the effects determined by the economic structure that emerged after the launch of market reforms. The post-recession behavior of output in Central-Eastern Europe resembles that of emerging and developing countries in the aftermath of banking and financial crises, often following significant liberalizations. In contrast, the post-crisis performance of CIS countries resembles the output response observed during episodes of civil wars, and remains significantly different from the normal response of an average market country. Therefore, the ability to rebound after a crisis is a key element of the growth performance of different transition countries. Furthermore, we distinguish three components of the growth performance associated to a crisis, namely the capacity to rebound, the depth and the lenght of the crisis. We observe that such performance depends on economic reforms and especially on the complementarities among different reforms.
    Keywords: Recessions, crises, reform complementarities, transition.
    JEL: C23 F43 O40 P27
    Date: 2010–02
  6. By: Mark Setterfield (Department of Economics, Trinity College)
    Abstract: This chapter explores the Kaldorian approach to endogenous growth theory. The central principles of this approach are explored, including the claims that growth is: (a) demandled, with trade playing a central role in aggregate demand formation; and (b) pathdependent. It is shown that both the actual and natural rates of growth are path dependent in the Kaldorian tradition. The implications of inequality between the actual and natural rates of growth are investigated, and it is shown that mechanisms exist within the Kaldorian tradition that are capable of reconciling these growth rates. This results in the sustainability (in principle) of any particular equilibrium value of the actual rate of growth.
    Keywords: endogenous growth, Kaldor, path dependence, demand-led growth, technical change, institutions, natural rate of growth
    JEL: O41 O43 O47 O31 E12
    Date: 2010–03
  7. By: Stone, Joe; Bania, Neil; Gray, Jo Anna
    Abstract: We find region-specific complementarity between investments in public infrastructure and education, both k-12 and postsecondary. The complementarity helps to explain how regions capture returns to investments in education even when residents are mobile, and is strong enough for the effect of tax-financed expenditures on either public infrastructure or education to be significantly positive when spending on the other is high, even though the independent effect of either one is negative. Effects are identified using a recursive structure, very long lags, GMM-instrumental variables, and multiple controls for heterogeneity. Estimates are robust across identification strategies, estimators, and instruments.
    Keywords: infrastructure; education complementarity economic growth
    JEL: J00
    Date: 2010–03
  8. By: Fabrizio Coricelli (Centre d'Economie de la Sorbonne and CEPR); Isabelle Roland (LSE)
    Abstract: The paper develops a simple model on the asymmetric role of credit markets in output fluctuations. When credit markets are underdeveloped and enterprise activity is financed by trade credit, shocks may induce a break-up of credit and production chains, leading to sudden and sharp contractions. The development of a banking sector can reduce the probability of such collapses and hence plays a crucial role in softening output declines. However, the banking sector becomes a shock amplifier when shocks originate in the financial sector. Using industry-level data across a large cross-section of countries, we provide evidence in support of the model's predictions.
    Keywords: Credit chains, trade credit, recessions, financial development.
    JEL: O40 F30
    Date: 2010–01
  9. By: Barbara Dietz (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: In recent years labour migration from Central and Eastern Europe has increased, resulting in a comparatively stable and high inflow of remittances into these countries. This briefing explores how the current economic crisis impacts on the development of migration and remittance flows into EU-10 and CIS countries. There is evidence for a reduction of migration movements in the short run and a likely decrease of remittance flows into this region.
    Date: 2009–07
  10. By: Manuela Troschke (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Date: 2009–05
  11. By: Ralph De Haas (European Bank of Reconstruction and Development); Stephan Knobloch (European Bank of Reconstruction and Development)
    Abstract: This paper reviews the origin and spread of the distressed debt problem in the transition region. We argue that while the crisis was triggered abroad, the current high level of distressed debt in various transition countries mainly reflects home-grown vulnerabilities. As in the West, the root causes of the debt problem were abundant and cheap funding and a gradual relaxation of banks’ lending standards – in particular an excessive reliance on rising real estate values.
    Keywords: distressed debt, insolvemcy, financial crisis
    JEL: F34 F36 G21 G28 G33 K0
    Date: 2010–02

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