nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒05‒08
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Distributed Lag Models and Economic Growth: Evidence from Cameroon By Boniface Bounoung Fouda
  2. The Defense-Growth Nexus: An Application for the Israeli-Arab Conflict By Aamer Abu-Qarn;
  3. Firm Heterogeneity, Credit Constraints, and Endogenous Growth By Jürgen Antony; Torben Klarl; Alfred Maussner
  4. Transition, Structural Divergence,and Performance: Eastern Europe and the former Soviet Union over 2000-2007 By Cornia, Giovanni Andrea
  5. In?ation and Economic Growth in Latin America: Some Panel Time-Series Evidence By Manoel Bittencourt
  6. A comparison of structural reform scenarios across the EU member states - Simulation-based analysis using the QUEST model with endogenous growth By Francesca D'Auria; Andrea Pagano; Marco Ratto; Janos Varga
  7. The Synchronization of GDP Growth in the G7 during U.S. Recessions. Is this Time Different? By Nikolaos Antonakakis; Johann Scharler
  8. How to close the productivity gap between the US and Europe: A quantitative assessment using a semi-endogenous growth model By Werner Roeger; Janos Varga; Jan in 't Veld
  9. On the Role of Relative Prices and Capital Flows in Balance-of-Payments Constrained Growth: the Experiences of Portugal and Spain in the Euro Area By Carlos Garcimartín; Luis Rivas; Pilar García Martínez
  10. Wealth effects on consumption in financial crises: the case of Norway By Eilev S. Jansen
  11. Unexpected changes in tax revenues and the stabilisation function of fiscal policy. Evidence for EU By Salvador Barrios; Pietro Rizza
  12. Multinational Banking in Europe: Financial Stability and Regulatory Implications;Lessons from the Financial Crisis By Giorgio Barba Navaretti; Giacomo Calzolari; Alberto Franco Pozzolo; Micol Levi

  1. 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
  2. By: Aamer Abu-Qarn (Department of Economics, Ben-Gurion University of the Negev); (Department of Economics, Ben-Gurion University of the Negev)
    Abstract: This paper revisits the defence-growth nexus for the rivals of the Israeli-Arab conflict over the last four decades. To this end, we utilize the Toda and Yamamoto (1995) causality test and the generalized variance decomposition. Contrary to the conventional wisdom and many earlier studies, we fail to detect any persistent adverse impact of military expenditures on economic growth. Our conclusions are kept intact even when we account for the possibility of endogenous structural breaks and during the post-1979 peace treaty period. Our findings imply insignificant peace dividends once the conflict is resolved and the military spending is cut to internationally acceptable standards.
    Keywords: Growth, Middle East, Israeli-Arab conflict, Causality, Generalized Forecast Error Variance Decomposition
    JEL: H56 O53
    Date: 2010
  3. By: Jürgen Antony (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, The Netherlands); Torben Klarl (University of Augsburg, Department of Economics); Alfred Maussner (University of Augsburg, Department of Economics)
    Abstract: This paper is concerned with the role of firm heterogeneity under credit constraints for economic growth. We focus on firm size, innovativeness and credit constraints in a semi-endogenous growth model reflecting recent empirical findings on firm heterogeneity. It allows for an explicit solution for transitional growth and balanced growth path productivity as well as the growth maximizing firm heterogeneity. This enables us to draw inference about the impact of key policy parameters of the model on these quantities and to draw conclusions about firm and capital market related policies.
    Keywords: firm heterogeneity, credit constraints, firm size, SME, economic growth
    JEL: E5 O31
    Date: 2010–04
  4. By: Cornia, Giovanni Andrea
    Abstract: During the socialist era the communist regime attempted to reduce development differentials among states and social classes. In contrast, during the last 20 years, the economies in transition experienced considerable divergence in the economic, social, demographic and political areas. As a result, these countries can now be grouped into four structurally different clusters alternatively dependent on manufactured exports, high- and low-tech services, commodities exports, and migrant remittances. Between 2000 and 2007, the cluster with the fastest growth was not that which most reformed its economy and institutions, but that of commodity exporters where, however, life expectancy improved far less than in other clusters.
    Keywords: structural transformation, divergence, performance, country clusters
    Date: 2010
  5. By: Manoel Bittencourt (Department of Economics, University of Pretoria)
    Abstract: In this paper we investigate the role of poor macroeconomic per- formance, in terms of high rates of inflation, in determining economic growth in four Latin American countries between 1970 and 2007. The empirical results, based on the relatively novel panel time-series analy- sis, confirm the anecdotal evidence which suggests that inflation has had a detrimental effect to growth in the region. All in all, we high- light the costs that in?ation has had on economic activity, and also the importance of particular economic institutions which were imple- mented in the 1990s - central-bank independence and fiscal responsi- bilities laws- in actually keeping inflation under control in the region, as a first step in the direction of sustained growth and prosperity.
    Keywords: Inflation, Growth, Latin America
    JEL: E31 O11 O42 O54
    Date: 2010–04
  6. By: Francesca D'Auria; Andrea Pagano; Marco Ratto; Janos Varga
    Abstract: This paper calibrates the Roeger-Varga-Veld (2008) micro-founded DSGE model with endogenous growth for all EU member states using country specific structural characteristics and employs the individual country models to analyse the macroeconomic impact of various structural reforms. We analyse the costs and benefits of reforms in terms of fiscal policy instruments such as taxes, benefits, subsidies and administrative costs faced by firms. We find that less R&D intensive countries would benefit the most from R&D promoting and skill-upgrading policies. We also find that shifting from labour to consumption taxes, reducing the benefit replacement rate and relieving administrative entry barriers are the most effective measures in those countries which have high labour taxes and entry barriers.
    Keywords: Structural reforms, endogenous growth, DSGE modelling, EU member states, tax credits, tax shifts, entry barriers, human capital, D'Auria, Pagano, Ratto, Varga
    JEL: E32 E62 O30 O41
    Date: 2009–12
  7. By: Nikolaos Antonakakis; Johann Scharler
    Abstract: Using the dynamic conditional correlation (DCC) model due to Engle (2002), we estimate time varying correlations of quarterly real GDP growth among the G7 countries. In general, we find that rathe heterogeneous patterns of international synchronization exist during U.S. recessions. During the 2007 - 2009 recession, however, international co-movement increased substantially.
    Keywords: Dynamic conditional correlation, Business cycle synchronization, Recession
    JEL: E3 E32 F4 F41
    Date: 2010–04
  8. By: Werner Roeger; Janos Varga; Jan in 't Veld
    Abstract: This paper uses a semi-endogenous growth model to identify possible sources for three interrelated stylised differences between the EU and the US, namely a higher level of productivity and knowledge investment and larger skill premia in the US compared to the EU. The model allows us to explain these differences in terms of differences in subsidies to R and D, mark ups, administrative entry barriers and financial frictions.The paper provides a ranking about the relative importance of these factors. Goods market competition and both administrative and financial entry barriers are the most important explanatory factors for lower productivity in the EU, while entry barriers explain the bulk of the knowledge investment gap and high skilled wage premia.
    Keywords: productivity differences endogenous growth R and D market structure skill composition dynamic general equilibrium modelling Economic P how to close the productivity gap between the US a quantitative assessment using a semi-endogenou Varga Roeger in 't Veld European Economy. Economic Papers
    JEL: C51 E21 E22 E52
    Date: 2010–01
  9. By: Carlos Garcimartín (Universidad Rey Juan Carlos); Luis Rivas (IE University); Pilar García Martínez (Universidad de Salamanca)
    Abstract: Broadly speaking, the balance-of-payments constraint hypothesis as developed by Thirlwall has been empirically supported. Yet, it shows some shortcomings highlighted in the literature. In our opinion, two of them must be analysed. First, temporary disequilibria and capital flows must be incorporated into the balance-of-payments constrained growth models. Second, the role of relative prices must be made explicit, since it can be relevant even in an external constraint framework. This study is aimed at developing a model that incorporates both possibilities: temporary external disequilibria and a the impact of relative prices. This model is subsequently used to analyse the evolution of the Spanish and Portuguese economies in last decades, and, in particular, the different path shown by both countries since their accession to the Eurozone.
    Keywords: Growth, Balance of payments constraint, Exchange rate.
    Date: 2010
  10. By: Eilev S. Jansen (Statistics Norway)
    Abstract: A dynamic consumption function, where consumption in the long run is determined by households’ disposable income and wealth, has been superior to the Euler equation in explaining the development of Norwegian aggregate consumption over several decades. This period covers the years of financial deregulation in the mid 1980s, the banking crisis around 1990 following the deregulation and the current international financial crisis. In the current version, long run consumption is homogeneous in income and wealth and there is also a significant effect from after-tax real interest rates. A change in the correlation pattern between real interest rates and wealth, which is related to a change in the monetary policy regime, is the reason why both variables need to be included in the long run relationship in order to explain the development over the past four years.
    Keywords: financial crisis; consumption; wealth effects; interest rates; savings rate.
    JEL: C51 C52 C53 E21
    Date: 2010–04
  11. By: Salvador Barrios; Pietro Rizza
    Abstract: This paper analyzes the size and the determinants of unexpected changes in EU countries' tax revenues and their impact on the ability of EU governments to use fiscal policy as a macroeconomic stabilisation device. We make use of information taken from the Stability and Convergence Programmes (SCP) setting countries' medium-term fiscal plans and focus on the period preceding the 2008/2009 global financial crisis. Tax revenue surprises are found to have fluctuated widely, alternating periods of sizeable windfalls and periods of substantial shortfalls.When analysing this, we find that GDP growth surprises and, in some cases (i.e. Ireland, Spain the UK and Finland) asset prices fluctuations have exerted the most significant influence. In the sequel we provide evidence on the incidence of these unexpected changes in governments' tax revenues on the ability of governments to conduct counter-cyclical fiscal policies, which are desirable from a macroeconomic perspective.We find that countries that have experienced the largest tax revenue windfalls in the run-up to the 2008/2009 crisis have also tended to run more pro-cyclical fiscal policies although these results vary depending on the use of ex-post vs. real-time data and on the method used to calculate the cyclical position of the economy. Put differently, these results tend to indicate that while tax revenue windfalls may be good for the public purse during favourable times they may also (paradoxically) dwindle the ability of the countries concerned to run counter-cyclical fiscal policies when cyclical conditions revert.
    Keywords: european union eu tax revenues windfalls shortfalls business cycles fiscal policy stabilisation barrios rizza
    JEL: E62 E63 E65 E32 H2 H6
    Date: 2010–02
  12. By: Giorgio Barba Navaretti (University of Milan, Centro Studi Luca d'Agliano); Giacomo Calzolari (University of Bologna, CEPR, Centro Studi Luca d'Agliano); Alberto Franco Pozzolo (University of Molise, Centro Studi Luca d'Agliano); Micol Levi (Centro Studi Luca d'Agliano)
    Abstract: This paper examines whether multinational banks have a stabilising or a destabilising role during times of financial distress. With a focus on Europe, it looks at how these banks' foreign affiliates have been faring during the recent financial crisis. It finds that retail and corporate lending of these foreign affiliates has been stable and even increasing between 2007 and 2009. This pattern is related to the functioning of the internal capital market through which these banks funnel funds across their units. The internal capital market has been an effective tool to support foreign affiliates in distress and to isolate their lending from the local availability of financial resources, notwithstanding the systemic nature of the recent crisis. This effect has been particularly large within the EU integrated financial market and for the EMU countries, thus showing complementarity between economic integration and multinational banks' internal capital markets. In light of these findings, this paper supports the call for an integration of the European supervisory and regulatory framework overseeing multinational banks. The analysis is based on an analytical framework which derives the main conditions under which the internal capital market can perform this support function under idiosyncratic and systemic stresses. The empirical evidence uses both aggregate evidence on foreign claims worldwide, and firm-level evidence on the behaviour of banking groups' affiliates, compared to standing alone national banks.
    Date: 2010–04

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