nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒07‒03
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Fiscal policy and growth in Saudi Arabia By Ghazi A. Joharji; Martha A. Starr
  2. Inference Based on Alternative Bootstrapping Methods in Spatial Models with an Application to County Income Growth in the United States By Daniel C. Monchuk; Dermot J. Hayes; John Miranowski; Dayton M. Lambert
  3. Ghana's Economic Growth in perspective: A time series approach to Convergence and Growth Determinants By Baafi Antwi, Joseph
  4. A Dynamic Model of Specialization and Market Development as Engines of Economic Growth By Phillips, Kerk L.
  5. Four Centuries of British Economic Growth: The Roles of Technology and Population By Madsen, Jakob; Ang, James; Banerjee, Rajabrata
  6. The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth By Hein, Eckhard
  7. Country size, Government taxes and financial crises By Augusto Hasman; Agel L Lopez
  8. Regional growth in Portugal: assessing the contribution of earnings and education inequality By Adelaide Duarte; Marta Simões
  9. The Service Sector as India’s Road to Economic Growth? By Barry Eichengreen; Poonam Gupta
  10. Public debt and Financial development: A theoretical exploration By M Ismihan; G Ozkan

  1. By: Ghazi A. Joharji; Martha A. Starr
    Abstract: Whether government spending can boost the pace of economic growth is widely debated. In the neoclassical growth model, it is supplies of productive resources and productivity that determine growth in the long-run. In endogenous growth models, an increase in government spending may raise the steady-state rate of growth due to positive spillover effects on investment in physical and/or human capital. This paper examines the relationship between government spending and non-oil GDP in the case of Saudi Arabia. Using time-series methods and data for 1969-2005, we find that increases in government spending have a positive and significant long-run effect on the rate of growth. Estimated effects of current expenditure on growth turn out to exceed those of capital expenditure -- suggesting that government investment in infrastructure and productive capacity has been less growth-enhancing in Saudi Arabia than programs to improve administration and operation of government entities and support purchasing power. We discuss possible reasons for this finding in the Saudi case and draw some policy implications.
    Keywords: Fiscal policy, growth, Saudi Arabia JEL classification: E62, O40, O53
    Date: 2010–05
  2. By: Daniel C. Monchuk; Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); John Miranowski; Dayton M. Lambert
    Abstract: This study examines aggregate county income growth across the 48 contiguous states from 1990 to 2005. To control for endogeneity we estimate a two-stage spatial error model and infer parameter significance by implementing a number of spatial bootstrap algorithms. We find that outdoor recreation and natural amenities favor positive growth in rural counties, densely populated rural areas enjoy stronger growth, and property taxes correlate negatively with rural growth. We also compare estimates from the aggregate county income growth model with per capita income growth and find that these two growth processes can be quite different.
    Keywords: county income growth, rural development, spatial bootstrapping.
    JEL: O18 R11 R58
    Date: 2010–05
  3. By: Baafi Antwi, Joseph
    Abstract: Economic growth around the world has not been equal for a long time. Some economics grow faster while others grow slower. But economists have predicted that the slower growing economics will eventually converge with the faster growing economy as some point in the future. This is known as the convergence hypothesis. In this study, we test this hypothesis for Ghana and the Western Europeans countries with UK been a proxy for these countries, using time series data to determine whether or not it holds. We determine how fast or slow this convergence process is by using the returns to scale concept on Ghana’s economy and latter account for factor that determines economic growth in sectors. The study supported the null hypothesis of convergence i.e. Ghana is catching up with the Western European countries. The study also shown that Ghana growth accounting exhibit decreasing returns meaning convergence is relatively slow and also signifies that Ghana is not on a balanced growth path (this refers to the simultaneous, coordinated expansion of several sectors of the economy). The study showed a negative relationship between GDP and labour both in the long run and short run relationship. Again the study showed a positive relationship between GDP and capital, Agric and Industrial sector. Lastly, the study showed a negative relationship between GDP and AID and Service in the long run and positive relationship in the short run.
    Keywords: Convergence; Economic Growth; Time series
    JEL: C32 O41 O47 O4
    Date: 2010–05–24
  4. By: Phillips, Kerk L.
    Abstract: This paper constructs a model of growth based on Adam Smith's notions of specialization and extent of the market. We seek to explain the following stylized facts. 1) The share of household production in total output has fallen over time as the economy has grown. 2) Services as a percent of GDP have risen at the same time. In this paper growth depends on specialization of labor according to comparative advantage in production and learning-by-doing in transactions services. It is a model of sustained, but not infinite, growth. Indeed, the main point of the paper is that it is possible to build growth models that match the historic experience without relying in unbounded growth. The model can replicate the above stylized facts for reasonable annual GDP growth rates. Simulations show that inequality over the growth episode is characterized by an inverted U-shaped curve.
    Keywords: growth; extent of the market; market development; specvialization
    JEL: D13 O47 O40
    Date: 2010–03
  5. By: Madsen, Jakob; Ang, James; Banerjee, Rajabrata
    Abstract: Using long historical data for Britain over the period 1620-2006, this paper seeks to explain the importance of innovative activity, population growth and other factors in inducing the transition from the Malthusian trap to the post-Malthusian growth regime. Furthermore, the paper tests the ability of two competing second-generation endogenous growth models to account for the British growth experience. The results suggest that innovative activity was an important force in shaping the Industrial Revolution and that the British growth experience is consistent with Schumpeterian growth theory.
    Keywords: endogenous growth; British Industrial Revolution
    JEL: O30 O40
    Date: 2010
  6. By: Hein, Eckhard
    Abstract: We review the main arguments put forward against the horizontalist view of endogenous credit and money and an exogenous rate of interest under the control of monetary policies. We argue that the structuralist arguments put forward in favour of an endogenously increasing interest rate when investment and economic activity are rising, due to increasing indebtedness of the firm sector or decreasing liquidity in the commercial bank sector, raise major doubts from a macroeconomic perspective. This is shown by means of examining the effect of increasing capital accumulation on the debt-capital ratio of the firm sector in a simple Kaleckian distribution and growth model. In particular we show that rising (falling) capital accumulation may be associated with a falling (rising) debt-capital ratio for the economy as a whole and hence with the ‘paradox of debt’. Therefore, the treatment of the rate of interest as an exogenous macroeconomic distribution parameter in Post-Keynesian distribution and growth models seems to be well founded.
    Keywords: interest rate; horizontalism; distribution; debt; capital accumulation
    JEL: E43 E12 E25 E51
    Date: 2010–06
  7. By: Augusto Hasman (Observatoire Français des Conjonctures Économiques; SKEMA); Agel L Lopez (Universidad Carlos III)
    Date: 2010–01
  8. By: Adelaide Duarte (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal); Marta Simões (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)
    Abstract: Regional economic growth in Portugal has mainly been studied from the perspective of convergence with data ending by the early 2000’s. The country as a whole has stopped converging to the output levels of the richest European countries by this period and has also become one of the most unequal EU member-states in terms of income distribution in the meantime. It is thus important to analyze the growth performance at the regional level in a more recent period, 1995-2007, emphasizing regional disparities in inequality as explanatory factors. This study examines the relationship between inequality and regional growth in Portugal at NUTS III level exploring the explanatory power of earnings and education inequality measures computed with data from the Quadros de Pessoal database. The results point to a positive relationship between initial inequality and regional growth, stronger for education than for earnings inequality, but with earnings inequality measures revealing a higher explanatory power. Moreover, there is evidence that it is inequality at the top of the distribution that is the relevant to explain regional growth, a result that reinforces the higher propensities to save of the richer and the incentives mechanisms of transmission from inequality to growth. Additionally, the evidence does not support the existence of convergence among Portuguese NUTS III regions during the period under analysis. These findings are robust to the introduction of most additional control variables and the consideration of alternative measures of earnings and education inequality.
    Keywords: regional growth, Portugal, earnings inequality, education inequality
    Date: 2010–06
  9. By: Barry Eichengreen; Poonam Gupta
    Abstract: Among fast growing developing countries, India is distinctive for the role of the service sector. However, sceptics have raised doubts about both the quality and sustainability of the increase in service sector activity and its implications for economic development. Using National Accounts Statistics and cross-county data, we show that the growth of services has been broad-based. We show that the growth of service sector employment is not simply disguised manufacturing activity. We also find that the skilled-unskilled mix of labour in the two sectors is becoming increasingly similar. Hence, it is no longer obvious that manufacturing is the main destination for the vast majority of Indian labour moving into the modern sector and that modern services are only a viable destination for the highly skilled few. To the extent that the expansion of both modern manufacturing and modern services is constrained by the availability of skilled labour, this just underscores the importance for India of continuing to invest in labour skills. We conclude that sustaining economic growth and raising living standards will require shifting labour out of agriculture into both manufacturing and services and not just into one or the other.[Working Paper No. 249]
    Keywords: The Service Sector as India’s Road to Economic Growth?
    Date: 2010
  10. By: M Ismihan; G Ozkan
    Abstract: This paper proposes an analytical framework to examine the role of public debt in financial development, which remains largely unexplored in the existing literature. We find that in countries where the banking sector extends substantial credit to government, public debt is likely to harm financial development, with unfavourable implications for economic activity. As such, our results provide an alternative explanation for the ‘contractionary fiscal expansions’. We also show that the lower the financial depth, the greater the adverse effects of public borrowing on financial development and macroeconomic outcomes.
    Keywords: Financial sector; credit to government; public debt.
    JEL: E52 E63 H63
    Date: 2010–06

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