nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒10‒23
thirteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Environmental Policy and Economic Growth: Empirical Evidence from Europe By Morley, Bruce
  2. Aid, Growth, and Development Have We Come Full Circle? By Channing, Arndt; Jones, Sam; Tarp, Finn
  3. On economic growth and minimum wages By Fanti, Luciano; Gori, Luca
  4. Inflation and Economic Growth in Bangladesh: 1981-2005 By Shamim Ahmed; M. Golam Mortaza
  5. Effects of schooling levels on economic growth: time-series evidence from Guatemala By Loening, Josef; Rao, B. Bhaskara; Singh, Rup
  6. Pollution Abatement as a Source of Stabilisation and Long-Run Growth By Theodore Palivos; Dimitrios Varvarigos
  7. Inflation, Human Capital and Tobin's q By Parantap Basu; Max Gillman; Joseph Pearlman
  8. R\&D-based Growth in the Post-modern Era By Strulik, Holger; Prettner, Klaus; Prskawetz, Alexia
  9. Financial Development, Technological Change in Emerging Countries and Global Imbalances By Benhima Kenza
  10. Long Term Trends in the Growth and Structure of the Net State Domestic Product in Kerala By P. Mohanan Pillai; N. Shanta
  11. Determinants of economic growth: A Bayesian panel data approach By Enrique Moral-Benito
  12. Competing Engines of Growth: Innovation and Standardization By Daron Acemoglu; Gino Gancia; Fabrizio Zilibotti
  13. Collective Values, Behavioural Norms and Rules Building Institutions for Economic Growth and Poverty Reduction By Ke-young Chu

  1. By: Morley, Bruce
    Abstract: The aim of this study is to determine whether environmental policies affect economic growth. Using a standard model of economic growth and a panel of European data, there is evidence that environmental taxes have had a negative effect on economic growth over the last ten years, indicating the ‘double dividend’ does not hold. This effect is particularly evident when other distortionary taxes are included in the model. A second contribution of this study is to incorporate the complimentary measure of renewable energy provision into the model. Again the results indicate a negative relationship between renewable energy and economic growth, offering support for the curse of natural resources.
    Keywords: Environmental policy; economic growth; renewable energy; natural resources
    Date: 2010–10
  2. By: Channing, Arndt; Jones, Sam; Tarp, Finn
    Abstract: The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature doubts the ability of foreign aid to foster economic growth and development. This paper assesses the aid-growth literature and, taking inspiration from the program evaluation literature, we re-examine key hypotheses. In our findings, aid has a positive and statistically significant causal effect on growth over the long run, with confidence intervals conforming to levels suggested by growth theory. Aid remains a key tool for enhancing the development prospects of poor countries.
    Keywords: Foreign aid, growth, aid effectiveness, causal effects
    Date: 2010
  3. By: Fanti, Luciano; Gori, Luca
    Abstract: We offer an analysis of the existence of a positive relationship between minimum wages and economic growth in a simple one-sector overlapping generations economy where the usual Romer-typed knowledge spill-over mechanism in production represents the engine of endogenous growth, in the case of both homogeneous and heterogeneous (i.e., skilled and unskilled) labour. Assuming also the existence of unemployment benefits financed with consumption taxes not conditioned on age at a balanced budget, it is shown that minimum wages may stimulate economic growth and welfare despite the unemployment occurrence. Moreover, a growth-maximising minimum wage can exist. A straightforward message, therefore, is that a combination of minimum wage and unemployment benefit policies can appropriately be used to promote balanced growth and welfare.
    Keywords: Endogenous growth; Minimum wage; Unemployment; OLG model
    JEL: O41 J60 H24
    Date: 2010–10–12
  4. By: Shamim Ahmed; M. Golam Mortaza
    Abstract: This paper empirically explores the present relationship between inflation and economic growth in the context of Bangladesh. Using annual data set on real GDP and CPI for the period of 1980 to 2005, an assessment of empirical evidence has been acquired through the co-integration and error correction models. Further, it explores an interesting policy issue of what is the threshold level of inflation for the economy. [BB WP no. 0604].
    Keywords: inflation, economic growth, bangladesh, GDP, CPI, intergration, correction models, inflation, economy, economic growth, Granger Causality, Structural Break, Threshold level, sustainability,
    Date: 2010
  5. By: Loening, Josef; Rao, B. Bhaskara; Singh, Rup
    Abstract: This paper examines the determinants of economic growth in Guatemala, with a particular focus on the schooling level. Results based on an error-correction methodology show a better educated labour force has a positive and significant impact on economic growth. Consistent with micro evidence for Guatemala, primary education is more important than secondary and tertiary education. These findings are robust while changing the conditioning variables, controlling for data issues and endogeneity. Due to social and political conflict, the average per capita growth rate in Guatemala has been low.
    Keywords: Economic growth; education; error-correction model; Guatemala
    JEL: N16
    Date: 2010–08–16
  6. By: Theodore Palivos; Dimitrios Varvarigos
    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; Environmental quality; Pollution abatement
    JEL: O41 Q56
    Date: 2010–10
  7. By: Parantap Basu (Durham University); Max Gillman (Institute of Economics - Hungarian Academy of Sciences, Cardiff University); Joseph Pearlman (London Metropolitan University)
    Abstract: A less well-known empirical finding for the US and UK is a pronounced low frequency negative relationship between inflation and Tobin's q; a normalized market price of capital. This stylized fact is explained within a dynamic stochastic general equilibrium model using three key features: (i) a Lucas and Prescott (1971) physical capital adjustment cost with a rising marginal cost of investment, (ii) production of human capital with endogenous growth and (iii) an inflation tax cash-in-advance economy. The baseline endogenous growth model matches the US inflation and q long term correlation, while comparable exogenous growth are unable to do this, and it outperforms the exogenous growth models in explaining business cycle volatilities of q and of stock returns.
    Keywords: Low frequency, Tobin's q; inflation tax, endogenous growth
    JEL: E31 E44 G12
    Date: 2010–09
  8. By: Strulik, Holger; Prettner, Klaus; Prskawetz, Alexia
    Abstract: Conventional R\&D-based growth theory suggests that productivity growth is positively correlated with population size or population growth, an implication which is hard to see in the data. Here we integrate microfounded fertility and schooling into an otherwise standard R\&D-based growth model. We then show how a Beckerian child quality-quantity trade-off explains why higher growth of productivity and income per capita are associated with lower population growth. The medium-run prospects for future economic growth - when fertility is going to be below replacement level in virtually all fully developed countries - are thus much better than predicted by conventional R\&D-based growth theory.
    Keywords: endogenous growth, R\&D, declining population, fertility, schooling, human capital, post-modern society, post-transitional fertility
    JEL: J13 J24 O10 O30 O40
    Date: 2010–10
  9. By: Benhima Kenza
    Abstract: The paper shows that in a general equilibrium model with two countries, characterized by different levels of financial development, and two technologies, one more productive and more financially demanding than the other, the following stylized facts can be replicated: 1) the persistent US current account deficits since the beginning of the 90's; 2) growth of output per worker in developing countries in relative terms with the US during the same period; 3) relative capital accumulation and 4) TFP growth in these countries, also relative to the US. The more productive technology takes more time to implement and is subject to liquidity shocks, while the less productive one, along with external bond assets, can be used as a hoard to finance those liquidity shocks. As a result, after financial globalization, if the emerging economy is capital scarce and if its financial market is sufficiently incomplete, it experiences an increase in net foreign assets that coincides with a fall in the less productive investment and a rise in the more productive one. Convergence towards the steady state implies then both a better allocation of capital that generates endogenous aggregate TFP gains and a rise in aggregate investment that translates into higher growth.
    Keywords: growth; capital flows; credit constraints; financial globalization; technological change
    JEL: F36 F43 O16 O33
    Date: 2010–10
  10. By: P. Mohanan Pillai; N. Shanta
    Abstract: Kerala has been a model to other states for her achievements in social development. But in terms of economic growth her performance has for long been very poor and a matter of deep concern. In this context the turnaround in growth that has occurred in Kerala in the nineties , in contrast to the earlier decades needs to be looked at in detail. This study is an attempt in that direction. It is an analysis of the long terms trends in the State Domestic Product of Kerala for the period 1970-2000. It is concerned with the growth of the different sectors of the economy, the changes in the sectoral composition of output and other related issues such as the sources of growth. [Working Paper No. 376]
    Keywords: SDP growth rates, sectoral shares, service sector, producer services, consumer services, income and price elasticity, structural transformation
    Date: 2010
  11. By: Enrique Moral-Benito (CEMFI)
    Abstract: Model uncertainty hampers consensus on the key determinants of economic growth. Some recent cross-country cross-sectional analyses have employed Bayesian Model Averaging to tackle the issue of model uncertainty. This paper extends that approach to panel data models with country-specific fixed effects in order to simultaneously address model uncertainty and endogeneity issues. The empirical findings suggest that in a panel setting the most robust growth determinants are the price of investment goods, distance to major world cities, and political rights.
    Keywords: Growth determinants, model uncertainty, bayesian model averaging, dynamic panel estimation
    JEL: C11 C23 O4
    Date: 2010–10
  12. By: Daron Acemoglu; Gino Gancia; Fabrizio Zilibotti
    Date: 2010–10–08
  13. By: Ke-young Chu
    Abstract: Economic growth and poverty reduction require for a country to establish efficient rules for economic and political transactions. Poor countries suffer from inadequate, inefficient transaction rules. Formal rules (e.g.,laws,policies) must be nested in hospitable behavioural norms and values. Cultural collectivism in many of these countries and consequent group-oriented values, factionalism, and discretionary rule implementation have adverse implications for their efforts to establish well-defined property rights and other rules. Overtime, these countries must establish rules for government-enforced, widespread impersonal transactions. [DiscussionPaperNo.2001/98]
    Keywords: growth,poverty,rules,institutions,humanbehaviour
    Date: 2010

This nep-fdg issue is ©2010 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.