nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒07‒24
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Decomposition of the effect of government size on growth By Yamamura, Eiji
  2. Investigating the Relationship between Health and Economic Growth: Empirical Evidence from a Panel of 5 Asian Countries By Seema Narayan; Paresh Kumar Narayan; Sagarika Mishra
  3. Procyclical Effects of the banking System during the financial and economic Crisis 2007-2009: the Case of Europe By Nikolov, Pavel
  5. Environmental Policy, Education and Growth with Finite Lifetime: the Role of Abatement Technology By Xavier Pautrel
  6. The Sustainability of `Sustainable´ Energy Use: Historical Evidence on the Relationship between Economic Growth and Renewable Energy By Roger Fouquet
  7. Growth accounting with misallocation: Or, doing less with more in Singapore By John Fernald; Brent Neiman
  8. Do clusters generate greater innovation and growth? An analysis of European regions By Andrés Rodríguez-Pose; Fabrice Comptour
  9. Economic Policy and Output Volatility in Spain, 1950-1998: Was Fiscal Policy Destabilizing? By Battilossi, Stefano; Escario, Regina; Foreman-Peck, James
  10. Energy Supply and the Sustainability of Endogenous Growth By Karen Pittel; Dirk Rübbelke

  1. By: Yamamura, Eiji
    Abstract: Empirical results through a fixed effects regression model show that government size has a negative effect on growth mainly through hampering capital accumulation. When a sample is divided into OECD and non-OECD countries, the negative effect of government size on capital accumulation persists for non-OECD countries but not for OECD countries.
    Keywords: Government size; Efficiency improvement; Capital accumulation; Fixed effects
    JEL: H11 O43
    Date: 2010–05–10
  2. By: Seema Narayan; Paresh Kumar Narayan; Sagarika Mishra
    Abstract: In this paper, we investigate the relationship between health and economic growth through including investment, exports, imports, and research and development (R&D), for 5 Asian countries using panel unit root, panel cointegration with structural breaks and panel long-run estimator for the period 1974-2007. We model this relationship within the production function framework, and unravel two important results. First, we find that in three variants of the growth model, variables share a long-run relationship; that is, they are cointegrated. Second, we find that in the long-run, while health, investment, exports, and R&D have contributed positively to economic growth, imports have had a statistically significant negative effect while education has had an insignificant effect. We draw important policy implications from these findings.
    Keywords: Health; Economic Growth; Panel Unit Root; Panel Cointegration.
    JEL: C23 C33 I10 I20
    Date: 2010–07–16
  3. By: Nikolov, Pavel
    Abstract: This paper examines the relationship between adverse shocks to the banking system and their effect on the general economy in Europe. This topic was brought to the spotlight during the 2007-2009 financial and economic crisis, when the relatively healthy, at that time, European economy was severely hit by the spread of the US sub-prime mortgage problems. This interbanking contagion may have been one of the main, if not the primary, reasons why the region entered into a recession during the period. If significant evidence can be found to support this theory, it will make the need for more regulations on the financial system and stricter capital requirements even more apparent. The research includes comprehensive literature survey on past and recent financial crises, procyclical banking practices and their impact on the economy. Then it goes on to developing a theoretical model of the transmission of negative economic shocks from the financial system to the rest of the economy. The theoretical model is empirically tested on a range of banking specific and macroeconomic variables. The results show that a loss of confidence in the financial system and banking losses are followed by a significant decrease in the new loans to non-financial companies and subsequent economic contraction. Moreover, countries with better capitalized banks experienced smaller declines during the crisis and in general Tier 1 capital is correlated positively with economic growth.
    Keywords: economic shocks; financial crisis; banking system stability; procyclical effects
    JEL: E0 E32 E5
    Date: 2010–06–11
  4. By: Sagarika Mishra; Paresh Kumar Narayan
    Abstract: In this paper we examine a familiar topic in financial economics: the financial system-economic growth nexus. However, we depart from the extant literature in the sense that we empirically show that proposed models and variables are nonparametric, implying that the use of estimation techniques that assume a linear data generating process are questionable. We, thus, use a nonparametric panel data model to estimate the financial-economic growth relationship. We find that the banking sector shows a greater case of a statistically significant positive effect on GDP: for example, domestic credit and private credit both have a statistically significant positive effect on GDP in six of the seven panels. On the other hand, the evidence from the stock market suggests relatively less cases of a statistically significant positive effect on GDP: for only four panels in the case of market capitalization and two panels in the case of stocks traded.
    Date: 2010–07–16
  5. By: Xavier Pautrel (Université de Nantes, Laboratoire d’Économie et de Management de Nantes (LEMNA), Institut d’Économie et de Management de Nantes - IAE)
    Abstract: This note shows that the assumptions about the abatement technology modify the impact of the environmental taxation (both the size and the “direction”) on the long-run growth driven by human capital accumulation à la Lucas (1988), when the source of pollution is private consumption and lifetime is finite. When the human capital’s share in the abatement services production is higher (respectively lower) than in the final output production, a higher environmental tax reduces (resp. increases) the allocation of human capital in production sectors (abatement service and final output) and boostes (resp. decreases) the BGP rate of growth. When abatement services are produced with the final output, the environmental taxation does not influence growth.
    Keywords: Growth, Environment, Overlapping Generations, Human capital, Finite Lifetime, Abatement
    JEL: Q5
    Date: 2010–06
  6. By: Roger Fouquet
    Abstract: Understandably, focus on a transition to a low carbon economy has overshadowed what happens when the transition has been completed. This paper tries to offer lessons about the very long run aspects of a future economy reliant predominantly on renewable energy sources. The evidence is based on past economies and civilizations and their experiences of economic expansion driven by renewable energy resources. The paper proposes that economies around the world, since antiquity, have managed to survive, and even develop and grow driven by renewable energy sources. Successful long run economic growth depended on sound management of demand, supply and trade of woodfuel. Where governments failed to develop appropriate policies, growth and development was severely constrained. Despite the uncertainty about the future, this paper proposes that researchers start to consider the nature of long run economic growth and appropriate policies within renewable energy systems.<br />
    Keywords: renewable energy; economic growth; low carbon economy; economic history
    Date: 2010–07
  7. By: John Fernald; Brent Neiman
    Abstract: We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain estimates of aggregate and sectoral technology growth as well as reallocation effects. We also apply our framework to reconcile divergent TFP estimates in Singapore and to resolve other empirical puzzles regarding Asian development.
    Keywords: Industrial productivity ; Productivity ; Technology ; Singapore
    Date: 2010
  8. By: Andrés Rodríguez-Pose (IMDEA Social Sciences Institute); Fabrice Comptour (College of Europe, Bruges)
    Abstract: The analysis of clusters has attracted considerable interest over the last few decades. The articulation of clusters into complex networks and systems of innovation – generally known as regional innovation systems – has, in particular, been associated with the delivery of greater innovation and growth. However, despite the growing economic and policy relevance of clusters, little systematic research has been conducted into their association with other factors promoting innovation and economic growth. This paper addresses this issue by looking at the relationship between innovation and economic growth in 152 regions of Europe during the period between 1995 and 2006. Using an econometric model with a static and a dynamic dimension, the results of the analysis highlight that: a) regional growth through innovation in Europe is fundamentally connected to the presence of an adequate socioeconomic environment and, in particular, to the existence of a well-trained and educated pool of workers; b) the presence of clusters matters for regional growth, but only in combination with a good ‘social filter’, and this association wanes in time; c) more traditional R&D variables have a weak initial connection to economic development, but this connection increases over time and, is, once again, contingent on the existence of adequate socioeconomic conditions.
    Keywords: clusters; regional innovation systems; innovation; regional economic growth; socioeconomic conditions; regions; European Union
    Date: 2010–07–12
  9. By: Battilossi, Stefano; Escario, Regina; Foreman-Peck, James (Cardiff Business School)
    Abstract: Was Spanish fiscal policy destabilizing? We estimate policy reaction functions and test the impact of fiscal shocks on growth volatility over the period 1950-1998. We find that a transition from pro-cyclical to countercyclical fiscal policy occurred in the late years of the Franco regime, contributing to the stabilization of the growth pattern. The timing of the shift, between the late 1960s and early 1970s, was not determined by a single policy change, but rather by gradual pressure from economic liberalization, the external constraint imposed by a fixed exchange rate regime and the modernization of fiscal policy instruments. The aggressiveness of fiscal shocks also decreased over time, thus contributing to the progressive stabilization of output growth. There appears to be little necessity to appeal to a 'Great Moderation' of monetary policy to understand the greater stability of the Spanish economy from the 1980s
    Keywords: fiscal reaction function; fiscal shocks; SVAR; growth volatility
    JEL: E32 E62 N14
    Date: 2010–07
  10. By: Karen Pittel; Dirk Rübbelke
    Abstract: The paper provides an introduction to energy, respective resource, use within the framework of endogenous growth models. We provide an overview of different modeling approaches as well as intuition with respect to the results obtained. We consider the source problem, i.e. the supply of energy, as well as the sink problem, i.e. pollution generated by the consumption of energy resources. The introduction to the theoretical framework shortly discusses the use of neoclassical versus endogenous growth models and also points to the implications of the different types of endogenous growth approaches. We additionally give an introduction to CGE-models that include energy use and present an example of a numerical solvable model in detail. The paper closes with an outlook on future research.<br />
    Keywords: endogenous growth, energy, resources, pollution, CGE-models
    Date: 2010–07

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