nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒08‒21
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. What Determines the Long run Growth in Kenya? By Kumar, Saten; Pacheco, Gail
  2. Neoliberalism’s relationship with economic growth in the developing world: Was it the power of the market or the resolution of financial crisis? By Cohen, Joseph N
  3. "Using Capabilities to Project Growth, 2010-30" By Jesus Felipe; Utsav Kumar; Arnelyn Abdon
  4. Debt and Growth Revisited By Reinhart, Carmen; Rogoff, Kenneth
  5. The Growth-Volatility Relationship: New Evidence Based on Stochastic Volatility in Mean Models By Lemoine, M.; Mougin, C.
  6. Comparing the Welfare of Growing Economies By B. Asheim, Geir
  7. Credit Monitoring in the USA and EU Countries By Kadish, Peter

  1. By: Kumar, Saten; Pacheco, Gail
    Abstract: Lifting the long run growth rate is, arguably, the pursuit of every economy. What should Kenya do to enhance its long run growth rate? This paper attempts to answer this question by examining the determinants of total factor productivity (TFP) in Kenya. We utilized the theoretical insights from the Solow (1956) growth model and its extension by Mankiw, Romer and Weil (1992) and followed Senhadji’s (2000) growth accounting procedure. We find that growth in Kenya, until the 1990s was mainly due to factor accumulation. Since then, TFP has made a small contribution to growth. Our findings imply that while variables like overseas development aid, foreign direct investment and progress of financial sector improves TFP, trade openness is the key determinant. Consequently, policy makers should focus on policies that improve trade openness if long run growth rate is to be raised.
    Keywords: Solow model; growth accounting; total factor productivity
    JEL: O10 O15
    Date: 2010–08–01
  2. By: Cohen, Joseph N
    Abstract: This article examines the relationship between "economic freedom" and economic growth. Previous studies have found a positive relationship between economic growth rates and "economic freedom", and used this relationship as a basis for arguing that more liberal economic policies promote development. "Economic freedom" conflates laissez-faire policy with other important concepts, like good governance and macroeconomic stability. When laissez-faire is parsed from these other concepts, it shows no positive relationship with growth outside of the early-1990s, a period in which financially-strained developing governments and financial systems enjoyed debt bailouts in exchange for liberalization reforms. Further analysis shows that laissez-faire exerts no discernible effect on economic growth net of the debt relief, inflation containment and improved inward investment that occurred after the Cold War. I argue that free market capitalism itself may not have promoted economic development in the post-Cold War era. Instead, free market reforms occurred alongside domestic and international political developments that helped developing countries resolve a serious financial crises, and that the resolution of these crises were most important in explaining the comparative prosperity of the 1990s and 2000s.
    Keywords: economic freedom; neoliberalism; laissez faire; periodicity; economic growth; economic development; capitalism
    JEL: P11 P17 O21 E61 O4
    Date: 2010–07–15
  3. By: Jesus Felipe; Utsav Kumar; Arnelyn Abdon
    Abstract: We forecast average annual GDP growth for 147 countries for 2010-30. We use a cross-country regression model where the long-run fundamentals are determined by countries’ accumulated capabilities and the capacity to undergo structural transformation.
    Keywords: Capabilities; Forecast; Growth
    JEL: C53
    Date: 2010–08
  4. By: Reinhart, Carmen; Rogoff, Kenneth
    Abstract: In a recent paper, we studied economic growth and inflation at different levels of government and external debt. The public discussion of our empirical strategy and results has been somewhat muddled. Here, we attempt to clarify matters, particularly with respect sample coverage (our evidence encompasses forty-four countries over two centuries--not just the United States), debt-growth causality (our book emphasizes the bi-directional nature of the relationship), as well as nonlinearities in the debt-growth connection and thresholds evident in the data (absolutely central points that seem to have been lost in some commentary.) In addition to clarifying the earlier results, this paper enriches our original analysis by providing further discussion of the high debt (over 90 percent of GDP) episodes and their incidence. Some of the implications of our analysis, including for the United States, are taken up in the final section.
    Keywords: debt; growth; crisis; advanced economies; historical
    JEL: E62 F30 N20 E44
    Date: 2010–08
  5. By: Lemoine, M.; Mougin, C.
    Abstract: This paper models the relationship between growth and volatility for G7 economies in the time period 1960-2009. It delivers for the first time estimates of this relationship based on a logarithm variant of stochastic volatility in mean (SV-M) models. The relationship appears significantly positive in Germany and Italy, but insignificant in other countries. We also show that output volatility has increased in all countries since the beginning of the financial crisis, which illustrates the end of the great moderation. For comparison, the paper also delivers estimates based on a logarithm variant of GARCH in mean (log-GARCH-M) models, the class of time series models previously used in the literature to estimate the growth-volatility relationship. We show that SV-M models deliver results preferable to those of log-GARCH-M models, despite the high computational cost of their estimation. SV-M models fit generally better data than log-GARCH-M ones. As their residuals do not violate distribution assumptions, they do not deliver dubious conclusions concerning the significance of the relationship, which is the case of the log-GARCH-model for France, the UK and the US. Finally, SV-M models suggest a positive impact of unexpected volatility on output growth, which is not taken into account by log-GARCH-M models.
    Keywords: Growth, Volatility, Sequential Monte-Carlo Methods.
    JEL: O40 E32 C15
    Date: 2010
  6. By: B. Asheim, Geir (Dept. of Economics, University of Oslo)
    Abstract: Economies that currently have the same productive capacity may implement different growth rates. This entails that it is insufficient to base international comparisons of welfare solely on current well-being, or introducing the potential for future growth in an arbitrary manner. NNP-based measures trade off current well-being and the potential for future growth in a consistent manner. This paper shows that it matters for NNP-based measures whether different growth rates in different economies are due to different technological opportunities or different social preferences for development.
    Keywords: National accounting; Growth; Dynamic welfare
    JEL: D60 D90 O47
    Date: 2010–02–10
  7. By: Kadish, Peter
    Abstract: In order to analyze current state of events in the world economy, parallel analysis with the country that has gone through boom cycle in real estate and financial asset prices (as US did during the last decade) and sudden consequential bust in mid 70s and late 80s (USA 2007), namely Japan, is performed. The definition and role of money in the economy in its various forms from narrow to the most broad credit aggregates and interrelations between central bank policy and growth of credit is discussed.
    Keywords: Credit; Monetary Policy; Monetary Aggregates; Money Supply; Deflation
    JEL: E51 E52 E50 E40
    Date: 2010–08

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