nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒06‒04
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Causality between Electricity Consumption & Economic growth : Empirical Evidence from India By Gupta, Geetu; Sahu, Naresh Chandra
  2. Catastrophic Natural Disasters and Economic Growth By Eduardo Cavallo; Sebastian Galiani; Ilan Noy; Juan Pantano
  3. Export-Led growth hypothesis: Evidence from Cote d’Ivoire By N'GUESSAN BI ZAMBE, SERGE CONSTANT
  4. The Aggregate Demand, Aggregate Supply, and Endogenous Growth: A Synthetic neo-Kaleckian Model By Thomas I. Palley
  5. Debt Policy and Economic Growth in a Small Open Economy Model with Productive Government Spending By Koichi Futagami; Ryoji Ohdoi; Takeo Hori
  6. Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries By Andrés Rodríguez-Pose; Roberto Ezcurra
  7. Federal Competition and Economic Growth By Hatfield, John William; Kosec, Katrina

  1. By: Gupta, Geetu; Sahu, Naresh Chandra
    Abstract: In this study ,an attempt has been made to investigate causality between electricity consumption and economic growth in India by adopting Granger Engel causality model for 1960-2006 period .Test results shows that electricity consumption has positive effect on economic growth. The paper support for the reforms in power sector and indicates that electricity act as a catalyst in realizing various social and economic goals.
    Keywords: Electricity consumption; Economic growth ; Granger Engel causality; India .
    JEL: Q48 Q49 Q40
    Date: 2009–10–08
  2. By: Eduardo Cavallo (Inter-American Development Bank, Research Department); Sebastian Galiani (Washington University in St. Louis); Ilan Noy (University of Hawaii, Department of Economics); Juan Pantano (Washington University in St. Louis)
    Abstract: We examine the short and long run average causal impact of catastrophic natural disasters on economic growth by combining information from comparative case studies. We assess the counterfactual of the cases studied by constructing synthetic control groups taking advantage of the fact that the timing of large sudden natural disasters is an exogenous event. We ?find that only extremely large disasters have a negative effect on output both in the short and long run. However, we also show that this result from two events where radical political revolutions followed the natural disasters. Once we control for these political changes, even extremely large disasters do not display any signi?cant effect on economic growth. We also fi?nd that smaller, but still very large natural disasters, have no discernible effect on output in the short run or in the long run.
    Keywords: Natural Disasters, Political Change, Economic Growth and Causal Effects.
    JEL: O40 O47
    Date: 2010–04–28
    Abstract: This paper re-examine the export-led growth hypothesis for Cote d’Ivoire using the Bounds test analysis: unrestricted error correction model (UECM) for the period 1980-2007. Based on the model, exports, labor force and economic liberalization policies have stimulated economic growth, whereas, imports and exchange rate negatively impacted on economic growth. The results indicate that there exists a long-term relationship between economic growth and its determinants in our model. In addition, the VAR Granger/Block-exogeneity Wald tests reveal an evidence of bi-directional causality between exports and economic growth. Thus findings have important messages for policy makers given that export sector dominance in Cote d’Ivoire economy.
    Keywords: Cote d’Ivoire; Economy growth; Cointegration; Causality test; Exports.
    JEL: C32 O55 F20 F43
    Date: 2010–05–29
  4. By: Thomas I. Palley (New America Foundation, Washington DC)
    Abstract: This paper develops a neo-Kaleckian endogenous growth model that incorporates aggregate supply - demand balance and balance between labor force and employment growth. The paper explicitly models income distribution which is a critical channel whereby unemployment affects investment and growth. The model generates a growth unemployment rate trade-off. A reduced propensity to save raises growth but it also raises the unemployment rate because of induced technological progress. This resonates with Alvin Hansen's hypothesis. The paper contains several theoretical innovations including a new mechanism whereby unemployment affects income distribution; introduction of a Phillips curve and inflation effects; and introduction of demand growth expectation effects.
    Keywords: aggregate demand, supply, unemployment, neo-Kaleckian endogenous growth theory
    JEL: E12 O41 O33
    Date: 2010
  5. By: Koichi Futagami; Ryoji Ohdoi; Takeo Hori
    Abstract: In this paper, the effects of introducing constraints on government borrowing have been examined by using a continuous-time overlapping generations model of a small open economy. Government placing constraints on the amount of government bonds have been considered outstanding by establishing an upper limit, or target level, for the ratio of government bonds to gross domestic product. First it is shown that there exist multiple steady states in the model small open economy. Next the target level for bonds affecting economic growth rates at the steady states is examined.
    Keywords: government, borrowing, overlapping, generations, model, positive, amount, asset, holdings, economy
    Date: 2010
  6. By: Andrés Rodríguez-Pose (IMDEA Ciencias Sociales); Roberto Ezcurra (Universidad Pública de Navarra)
    Abstract: The global drive towards decentralization has been increasingly justified on the basis that greater transfers of resources to subnational governments are expected to deliver greater efficiency in the provision of public goods and services and greater economic growth. This paper examines whether this is the case, by analysing the relationship between decentralization and economic growth in 21 OECD countries during the period between 1990 and 2005 and controlling not only for fiscal decentralization, but also for political and administrative decentralization. The results point towards a negative and significant association between fiscal decentralization and economic growth in the sample countries, a relationship which is robust to the inclusion of a series of control variables and to differences in expenditure preferences by subnational governments. The impact of political and administrative decentralization on economic growth is weaker and sensitive to the definition and measurement of political decentralization.
    Keywords: fiscal decentralization;political decentralization;administrative decentralization;economic growth;OECD
    JEL: H71 H72 H77
    Date: 2010–05–24
  7. By: Hatfield, John William (Stanford University); Kosec, Katrina (Stanford University)
    Abstract: We examine the question of how competition between governments within metropolitan areas affects economic growth outcomes. Using data on metropolitan statistical areas (MSAs) in the United States, we find that the number of county governments is significantly and positively correlated with the average annual growth rate of income per employee over 1969-2006. Exploiting exogenous variation in the natural topography of our MSAs to instrument for the number of county governments, we find evidence supporting a causal interpretation of the effect of inter-jurisdictional competition on economic growth. Furthermore, our estimates suggest that not accounting for the endogeneity of inter-jurisdictional competition may lead to systematic underestimation of its growth-enhancing benefits. A natural question is whether our findings merely reflect some form of reversion to the mean. Quite to the contrary, we find that higher inter-jurisdictional competition was already associated with higher income in 1969, and that the disparity only grew over the intervening 37 years.
    JEL: H11 H77
    Date: 2009–09

This nep-fdg issue is ©2010 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.