nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒08‒28
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Is Tolerance Good or Bad for Growth? By Berggren, Niclas; Elinder, Mikael
  2. Oil Exports and the Iranian Economy By Hadi Salehi Esfahani; Kamiar Mohaddes; M. Hashem Pesaran
  3. When Unstable,Growth is Less Pro-Poor By Guillaumont, Patrick; Korachai, Catherine
  4. Assessing the Parfit's Repugnant Conclusion within a canonical endogenous growth set-up By Raouf Boucekkine; Giorgio Fabbri
  5. The Impact of Data Revisions on the Robustness of Growth Determinants - A Note on 'Determinants of Economic Growth. Will Data Tell?' By Feldkircher, Martin; Zeugner, Stefan
  7. Trade Openness and Growth: An Analysis of Transmission Mechanism in Pakistan By Siddiqui, Aamir Hussain; Iqbal, Javed
  8. ICT Sector, Globalization and Urban Economic Growth: Evidence from Bangalore (India) By Narayana, M. R.
  9. Liquidity Transformation and Bank Capital Requirements By Hajime Tomura
  10. Poverty reduction and growth interactions: what can be learned from the Syrian experience ? By Anda Mariana David; Mohamed Ali Marouani

  1. By: Berggren, Niclas (The Ratio Institute); Elinder, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: We investigate to what extent tolerance, as measured by attitudes toward different types of neighbors, affects economic growth. Data from the World Values Survey enable us to investigate tolerance–growth relationships for 54 countries. We provide estimates based on cross-sectional as well as panel-data regressions. In addition we test for robustness with respect to model specification and sample composition. Unlike previous studies, by Richard Florida and others, we find that tolerance toward homosexuals is negatively related to growth. For tolerance toward people of a different race, we do not find robust results, but the sign of the estimated coefficients is positive, suggesting that inclusion of people irrespective of race makes good use of productive capacity. We propose mechanisms to explain these divergent findings, which clarify why different kinds of tolerance may be of different economic importance.
    Keywords: Tolerance; Growth; Diversity; Human Capital; Creativity; Innovatio
    JEL: O40 Z13
    Date: 2010–08–16
  2. By: Hadi Salehi Esfahani (Department of Economics, University of Illinois); Kamiar Mohaddes; M. Hashem Pesaran
    Abstract: This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also .find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran’s .financial markets.
    Date: 2010–07
  3. By: Guillaumont, Patrick; Korachai, Catherine
    Abstract: Macroeconomic instability has been increasingly considered as a factor lowering average income growth and, in this way, is a factor slowing down poverty reduction. But it can also result in slower poverty reduction for a given average rate of growth, due to poverty traps, often examined at the microeconomic level. Testing a model of poverty change on a panel of data for more than 80 countries from 1981 to 2005, we find that income instability results in a lower poverty reduction for a given growth. It reflects a distributional effect not fully captured by a change in the Gini coefficient.
    Keywords: income instability, poverty, inequality, economic growth, growth elasticity of poverty, poverty trap
    Date: 2010
  4. By: Raouf Boucekkine; Giorgio Fabbri
    Abstract: Parfit's Repugnant Conclusion stipulates that under total utilitar- ianism, it might be optimal to choose increasing population size while consumption per capita goes to zero. We evaluate this claim within a canonical AK model with endogenous fertility and a reduced form re- lationship between demographic growth and economic growth. While in the traditional linear dilution model, the Parfit Repugnant Conclu- sion can never occur for realistic values of intertemporal substitution, we show that it occurs when population growth is linked to economic growth via an inverted U-shaped relationship. Finally, we find moving from the Benthamite to the Millian social welfare function may not only cause optimal population size to go up and consumption to go down, it may also favor the realization of the Repugnant Conclusion.
    Keywords: Parfit's Repugnant Conclusion, AK models, endogenous fertility, intertemporal altruism
    JEL: O41 I20 J10
    Date: 2010–07
  5. By: Feldkircher, Martin (Oesterreichische Nationalbank); Zeugner, Stefan (Université Libre de Bruxelles)
    Abstract: Ciccone and Jarocinski (2010) show that inference in Bayesian model averaging (BMA) can be highly sensitive to small changes in the dependent variable. In particular they demonstrate that the importance of growth determinants in explaining growth varies tremendously over different revisions of Penn World Table (PWT) income data. They conclude that ’agnostic’ priors appear too sensible for this strand of growth empirics. In response, we show that the instability found owes much to a specific BMA set-up: the variation in results can be considerably reduced by applying an evenly ’agnostic’, but flexible prior.
    Keywords: Bayesian model averaging; Growth determinants; Zellner’s g prior; Model uncertainty
    JEL: C11 C15 E01 O47
    Date: 2010–08–20
  6. By: Enrique Moral-Benito (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this paper I estimate empirical growth models simultaneaously considering endogenous regressors and model uncertainty. In order to apply Bayesian methods such as Bayesian Model Averaging (BMA) to dynamic panel data models with predetermined or endogenous variables and fixed effects, I propose a likelihood function for such models. The resulting maximum likelihood estimator can be interpreted as the LIML counterpart of GMM estimators. Via Monte Carlo simulations, I conclude that the finite-sample performance of the proposed estimator is better than that of the commonly-used standard GMM. In contrast to the previous consensus in the empirical growth literature, empirical results indicate that once endogeneity and model uncertainty are accounted for, the estimated convergence rate is not significantly different from zero. Moreover, there seems to be only one variable, the investment ration, that causes long-run economic growth.
    Keywords: Dynamic panel estimation, growth regressions, Bayesian Model Averaging, weak instruments, maximum likelihood.
    JEL: C11 C33 O40
    Date: 2010–07
  7. By: Siddiqui, Aamir Hussain; Iqbal, Javed
    Abstract: This paper investigates the linkages between trade policy openness and economic growth for Pakistan for the period 1973 to 2008. The paper tests the hypothesis that trade policy does not affect economic growth directly rather it affects through some growth determining economic variables, which then effect economic growth. For this purpose a simultaneous system of equations is estimated through the Three Stage Least Squares. The results suggest a positive impact of trade policy openness on Black Market Premium, Domestic Investment and Foreign Direct Investment (FDI) and negative impact on Macro Policy Index. However, Black Market Premium and FDI show negative and Domestic Investment shows positive impact on economic growth.
    Keywords: Openness; Growth; Transmission Mechanism; Pakistan
    JEL: F10 C30
    Date: 2010–08–18
  8. By: Narayana, M. R.
    Abstract: This paper aims at economic analysis of economic globalization and urban growth of Bangalore, the Silicon Valley of India, as they are related to ICT sector. Overall analyses offer new insights and evidences for ICT sector as a major contributor for degree of economic globalization and urban economic growth, mainly driven by ICT services. Bangalore’s performance is remarkable compared to all-India level and OECD averages. These results offer empirical justification for continuing with and strengthening of public policies for promotion of globalizing and growth-oriented ICT sector in Bangalore with implications for comparable Indian and Asian cities.
    Keywords: globalization, ICT sector, urbanization, urban economic growth, Bangalore
    Date: 2010
  9. By: Hajime Tomura
    Abstract: This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information. Moreover, the liquidity mismatch in banks' balance sheets leads to endogenous bank capital (outside equity) requirements for preventing bank runs. The model indicates that banking has both positive and negative effects on long-run economic growth and that business-cycle dynamics of asset prices, asset illiquidity and bank capital requirements are interconnected.
    Keywords: Financial stability; Financial system regulation and policies
    JEL: E44 G21 D82
    Date: 2010
  10. By: Anda Mariana David (Université Paris-Dauphine, UMR DIAL); Mohamed Ali Marouani (UMR « Développement et Société »,IEDES / Université Paris1-Panthéon-Sorbonne, DIAL and ERF)
    Abstract: (english) The aim of this paper is to realize an in-depth analysis of the growth and poverty interactions in Syria, which undertook a series of economic reforms in the past decade to reduce the intervention of the Government in the economy. One of the main tools of the pro-poor growth literature used is the index developed by Bibi (2010), which takes into account at the same time the evolution of the welfare variable and its distribution. The results show that during the 1996-2004 period growth was not equitable at both national and regional levels. When the objective of halving poverty in 2015 is used as a benchmark, growth is pro-poor neither at the national level nor in the majority of the regions. Moreover, the main other characteristic of the Syrian growth and poverty performance is the widening of the gap between urban and rural areas. This could be mainly due to a pattern of growth where oil played an increasing role and agriculture a decreasing one. Agricultural and land policy reforms could have had a negative impact on poverty in some rural regions, such as the North-Eastern rural region, despite their positive effect on agricultural productivity. _________________________________ (français) L’objectif de cet article réaliser une analyse approfondie des interactions entre croissance et pauvreté en Syrie, pays ayant mis en place une série de réformes économiques dans la décennie passée pour réduire l'intervention de l'État dans l'économie. Un des principaux outils d’analyse de la croissance pro-pauvres auxquels on fait appel est l’indicateur développé par Bibi (2010), qui prend en compte à la fois l’évolution de l’agrégat de bien-être et sa distribution. Nos résultats montrent que la croissance en Syrie n’a pas été équitable au cours de la période 1996-2004. Lorsque l’on utilise comme référence le taux de croissance qui permettrait de réduire de moitié la pauvreté en 2015, la croissance n’apparaît pro-pauvre ni au niveau national, ni dans la majorité des régions. Par ailleurs, l’accroissement de l’écart de croissance entre les zones urbaines et rurales est l’une des caractéristiques majeures observées entre 1996 et 2004. Cela pourrait être principalement dû à un modèle de croissance où le pétrole a joué un rôle croissant et l’agriculture un rôle déclinant. De plus, les réformes foncières et agricoles ont pu avoir un impact négatif sur la pauvreté dans certaines régions rurales, telles que celle du Nord-est, en dépit de leurs effets positifs sur la productivité agricole.
    Keywords: Poverty, inequality, pro-poor growth, Syria and MENA, Pauvreté, inégalité, croissance pro-pauvres, Syrie et Moyen-Orient.
    JEL: D63 I32 O40
    Date: 2010–07

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