nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒09‒18
fifteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Can Second-Generation Endogenous Growth Models Explain The Productivity Trends and Knowledge Production In the Asian Miracle Economies? By James B. Ang; Jakob B. Madsen
  2. Banking, Credit Market Imperfection and Economic Growth By Mahmoud Sami Nabi; Taoufik Rajhi
  3. Pollution Abatement as a Source of Stabilisation and Long-Run Growth By Theodore Palivos; Dimitrios varvarigos
  4. Scope of Innovations, Knowledge Spillovers and Growth By Gray, Elie; Grimaud, André
  5. Asset Bubbles, Endogenous Growth, and Financial Frictions By Tomohiro Hirano; Noriyuki Yanagawa
  6. A Dynamic Duopoly Investment Game under Uncertain Market Growth By Boyer, Marcel; Lasserre, Pierre; Moreaux, Michel
  7. Nonlinear effect of corruption, uncertainty, and growth By Ratbek, Ratbek
  8. Human Capital Composition, Proximity to Technology Frontier and Productivity Growth By Md. Rabiul Islam
  9. Technology Diffusion and Postwar Growth By Diego A. Comin; Bart Hobijn
  10. The ASEAN Services Sector and the Growth Rebalancing Model By Aldaba, Rafaelita M.; Pasadilla, Gloria O.
  11. Urban governance and planning for Economic growth By Baafi Antwi, Joseph; Oppong Kwakye, Francis
  12. Anticipations of the Crisis: On the Similarities Between Post Keynesian Economics and Regulation Theory By Mark Setterfield
  13. Management of Stock Price and it Effect on Economic Growth: Case study of West African Financial Markets By Drama, Bedi Guy Herve; Yao, Shen
  14. In China's Wake: Has Asia Gained From China's Growth? By Peter E Robertson; Jessica Y Xu
  15. Global analysis of the growth and cycles of multi-sector economies with constant returns: A turnpike approach By Takahashi, Harutaka

  1. By: James B. Ang; Jakob B. Madsen
    Abstract: Using data for six Asian miracle economies over the period from 1953 to 2006, this paper examines the extent to which growth has been driven by R&D and tests which second-generation endogenous growth model is most consistent with the data. The results give strong support to Schumpeterian growth theory but only limited support to semi-endogenous growth theory. Furthermore, it is shown that R&D has played a key role for growth in the Asian miracle economies.
    Keywords: Schumpeterian growth; semi-endogenous growth; Asian growth miracle
    JEL: O30 O40
    Date: 2010–05
  2. By: Mahmoud Sami Nabi (LEGI, Tunisia Polytechnic School and University of Sousse, IHEC, Tunisia); Taoufik Rajhi
    Abstract: We develop a new model that links capital market imperfection to banking emergence and economic growth. It is shown that the banking system emerges endogenously after a first stage of slow economic growth. Interestingly, economic growth increases after the emergence of banking but remains under its potential level. This is due to a credit rationing brake which decreases progressively as the economy develops. Another finding is that a reduction of credit market imperfection reduces the credit rationing stage.
    Date: 2010–09
  3. By: Theodore Palivos (Department of Economics, University of Macedonia); Dimitrios varvarigos (Department of Economics, University of Leicester)
    Abstract: In a two-period overlapping generations model with production, we consider the damaging impact of environmental degradation on health and, consequently, life expectancy. The government’s involvement on policies of environmental preservation proves crucial for both the economy’s short-term dynamics and its long-term prospects. Particularly, an active policy of pollution abatement emerges as an important engine of long-run economic growth. Furthermore, by eliminating the occurrence of limit cycles, pollution abatement is also a powerful source of stabilisation.
    Keywords: Growth, Cycles, Enviromental quality, Pollution Abatement.
    JEL: Q41 Q56
    Date: 2010–09
  4. By: Gray, Elie; Grimaud, André
    Date: 2010–06
  5. By: Tomohiro Hirano (Financial Research and Training Center, Financial Services Agency,); Noriyuki Yanagawa (Faculty of Economics, University of Tokyo)
    Abstract: This paper analyzes the effects of bubbles in an infitely-lived agent model of endogenous growth with financial frictions and heterogeneous agents. We provide a complete characterization on the relationship between financial frictions and the existence of bubbles. Our model predicts that if the degree of pledgeability is sufficiently high or sufficiently low, bubbles can not exist. They can only arise at an intermediate degree. This suggests that improving the financial market condition might enhance the possibility of bubbles. We also examine whether bubbles are growth-enhancing or growth-impairing in the long run. We show that when the degree of pledgeability is relatively low, bubbles boost long-run growth. On the other hand, when it is relatively high, bubbles lower long-run growth. Moreover, we examine the effects of the burst of bubbles, and show that the effects much depend on the degree of the pldgeability, i.e., the quality of financial system.
    Date: 2010–07
  6. By: Boyer, Marcel; Lasserre, Pierre; Moreaux, Michel
    Date: 2010–07
  7. By: Ratbek, Ratbek
    Abstract: Corruption in the public sector is manifested both in collusive and noncollusive forms. Collusive corruption erodes tax compliance and leads to higher tax evasion. Noncollusive corruption stems from abuse of the public position by corrupt public officials to extort bribes from the private agents, thus, reduces their income. Importantly, in both types of interaction with the public sector the private agents are bound to face uncertainty with respect to their disposable incomes, as neither bribes paid nor gains from tax evasion are deterministic. To analyze effects of corruption by accounting for the uncertainty caused by it, a stochastic dynamic growth model is considered. The model also incorporates possibility of nonlinear impact of corruption on production, which implies that corruption deteriorates the growth potential by preventing producers to enter high productive sectors. Most importantly, it is demonstrated that the rise of corruption, by increasing uncertainty, exerts adverse effects on capital accumulation, thus leads to lower growth rates. Hence, this paper resolves the theoretical ambiguity with regards to the overall growth effect of corruption obtained in previous studies.
    Keywords: Corruption; uncertainty; growth
    JEL: D91 E26 H26
    Date: 2010–08–19
  8. By: Md. Rabiul Islam
    Abstract: The role of human capital composition has been given importance in the most recent endogenous growth models. Assuming that primary as well as secondary education is more suitable for imitation and higher education is more appropriate for innovation, this paper empirically investigates whether the contribution of human capital to productivity growth depends on the composition of human capital and the proximity to technology frontier in a panel of 87 sample countries over the period of 1970 to 2004. The sample is further divided into 28 high, 37 medium, and 22 low income countries to gain some insights into the importance of composition effects of human capital on growth in developing countries relative to their developed counterparts. Using different levels of human capital data from four alternative sources empirical results from system GMM estimator demonstrate that growth enhancing effect of skilled human capital increases with the proximity to the technology frontier only for high and medium income countries. Unskilled human capital is contributing more for low income countries as they move closer to the technology frontier. Matured workers with tertiary education are more growth enhancing for high and medium income countries, whereas younger workers with secondary education are more growth improving for low income countries. Estimated results are consistent across male and female workers.
    Keywords: Human capital composition, proximity, technology frontier, growth, GMM, world
    JEL: I20 O30 O40
    Date: 2010–05
  9. By: Diego A. Comin (Harvard Business School, Business, Government and the International Economy Unit); Bart Hobijn (Federal Reserve Bank of San Francisco)
    Abstract: In the aftermath of World War II, the world's economies exhibited very different rates of economic recovery. We provide evidence that those countries that caught up the most with the U.S. in the postwar period are those that also saw an acceleration in the speed of adoption of new technologies. This acceleration is correlated with the incidence of U.S. economic aid and technical assistance in the same period. We interpret this as supportive of the interpretation that technology transfers from the U.S. to Western European countries and Japan were an important factor in driving growth in these recipient countries during the postwar decades.
    Keywords: wars, economic growth, technology adoption, cross-country studies.
    JEL: E13 O14 O33 O41
    Date: 2010–09
  10. By: Aldaba, Rafaelita M. (Asian Development Bank Institute); Pasadilla, Gloria O. (Asian Development Bank Institute)
    Abstract: <p>The growth rebalancing model, which places the nontradable services sector on center stage, is important to spur on faster growth in this sector and tap its potential to become another engine of growth for ASEAN economies. While ASEAN countries have allocated the bulk of their fiscal stimulus packages to infrastructure spending, the present levels are nevertheless considered insufficient to create a large impact on growth. By focusing on the provision of infrastructure and social services like power, ports, roads, and mass transit, along with health and education, governments can address the large investment backlogs in these sectors. Except for Singapore, ASEAN countries remain protective of their services sectors. To encourage and renew private sector interest in infrastructure investment in the region, governments have an important role to play in creating an enabling environment, particularly in maintaining an efficient and competitive services sector. <p>The growth rebalancing model's emphasis on environmental protection, low carbon growth, and green strategies places the spotlight on new areas of services investment where ASEAN countries could develop market niches. Thus, ASEAN governments should pursue policies that support these new growth areas by encouraging research and development, strengthening mechanisms for the transfer of green technology, and promoting greater private sector participation.
    Keywords: growth rebalancing model; asean services sector; governmental policies
    JEL: F40 L80 L91
    Date: 2010–09–07
  11. By: Baafi Antwi, Joseph; Oppong Kwakye, Francis
    Abstract: Governance in short is a shift from bureaucratic process to shared power for the people. Governance in the urban areas goes hand in hand with planning. Issues of governance cannot be dealt with completely without proper planning. However, planning in the two largest cities of Kumasi and Accra has seen some major changes over time both spatially and administratively. Spatial, urban planning system has moved from new towns and town expansion to high standards of living. Administratively there has been the frantic effort of merging all law governing land use into one legal document which was not previously the case. But planning for growth and governance are faced with the following weakness; selective restraint, institutional and geographical fragmentation, short termism and power and resources.
    Keywords: Governance; Planning; Growth
    JEL: P41 O2
    Date: 2010–08–22
  12. By: Mark Setterfield (Department of Economics, Trinity College)
    Abstract: The purpose of this paper is to explore the similarities between Post Keynesian Economics (PKE) and Regulation Theory (RT). It is argued that, despite important differences between these traditions, the analytical contents of PKE and RT display broad similarities with respect to their treatments of the income-generating process, the crisis-prone nature of capitalism, and the institutional contingency of capitalist growth and development. This thesis is then exemplified and substantiated with reference to the 2007—2009 financial crisis and “Great Recession”. Specifically, it is shown that important strands of both PKE and RT characterize and were successful in anticipating the crisis as the result of the exhaustion of a financialized growth process.
    Keywords: Post Keynesian Economics, Regulation Theory, Great Recession, financial crisis
    JEL: B50 E11 E12 E21 E24
    Date: 2010–09
  13. By: Drama, Bedi Guy Herve; Yao, Shen
    Abstract: Abstract This paper investigates the statistical properties of stock returns in the West African regional stock market and the link between the West African regional stock market and economic growth. To examine the nature of the distribution of West African regional stock returns, the daily closing prices of the two stock index of West African regional stock market, and eighteen of it sub-indices were utilized. Nine years data from 1998 to 2007 interval were employed. The analysis of our study shows that the distribution of the West African regional stock market returns is non-normal and non-i.i.d (independent, identically and normally distributed). The linear and non-linear dependencies in the returns appeared to be the main reasons for the data being non-i.i.d. The study also demonstrates the presence of the day-of-the-week effect in West African regional stock market.
    Keywords: Key words: West Africa regional stock markets; day of the week effects; growth.
    JEL: G15
    Date: 2010–09–10
  14. By: Peter E Robertson (UWA Business School, The University of Western Australia); Jessica Y Xu (Australian Government, The Treasury)
    Abstract: China’s growth has been rapid but the value of China's international trade has grown even faster. This trade-biased growth is bringing both challenges and opportunities for Asian economies that are highly integrated with Chinese trade networks. Moreover in ASEAN countries such as Indonesia and Malaysia, China’s success has been seen as a threat to its existing trade and manufacturing base. We use an historical simulation analysis to examine the impacts of China’s growth on Asian economies. We find that a decade of China’s growth has raised GDP per capita in the developed Asian economies by around 16%. The effect on the ASEAN-4 economies is not as strong but still large, the GDP of the ASEAN-4 economies increased by approximately 7%. The main source of these gains is found to be lower durable goods import costs which induce accumulation of machinery and equipment capital.
    Keywords: Economic Growth, China, Trade Costs
    Date: 2010
  15. By: Takahashi, Harutaka
    Abstract: In Section 1, we explain the neoclassical optimal growth model, which includes multi capital goods, and is derived from neoclassical production functions; the transformations to the reduced model are also explained. Section 2 pertains to the explanation of the methods for proving the consumption turnpike theorem demonstrated by Scheinkman (1976) and McKenzie (1983). Also, the case in which the essentials of the von Neumann-McKenzie facet, which plays an important role in the next part, became a two-sector model and is explained using figures. In Section 3, we postulate a two-sector neoclassical optimal growth model, and the optimal path behavior in the vicinity of the optimal steady state path (modified golden rule path) are classified using the characteristics of von Neumann-McKenzie facet. Also, we will use these results to prove, based on a weaker hypothesis, that the theorem that the optimal path local stability and the optimal path attained by Benhabib and Nishimura(1985)becomes a two-term periodic solution. In Section 4, the generalization of the global asymptotic stability conclusion achieved with two divisions into a case that includes two or more types of capital goods. In Addendum, the important fundamental principles used in the main text will be defined, and a number of theorems will be proved.
    Keywords: multi-sector model; turnpike theory; optimal growth; the Neumann-McKednzie facet
    JEL: O41 D24 O21
    Date: 2010–06

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