nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒10‒30
thirty papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. R&D-Based Growth in the Post-Modern Era. By Holger Strulik; Klaus Prettner; Alexia Prskawetz
  2. Not-Quite-Great Depressions of Turkey: A Quantitative Analysis of Economic Growth over 1968 - 2004 By Deniz Cicek; Ceyhun Elgin
  3. How to Increase the Growth Rate in South Africa? By Kumar, Saten; Pacheco, Gail; Rossouw, Stephanie
  4. How to Increase the Growth Rate in South Africa? By Saten Kumar; Gail Pacheco; Stephanié Rossouw
  5. An Asymptotically Non-Scale Endogenous Growth Model By Harashima, Taiji
  6. Can Sustained Economic Growth and Declining Population Coexist? Barro-Becker Children Meet Lucas By Ceyhun Elgin; Semih Tumen
  7. Macro Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation By Caprio, Gerard Jr.; D'Apice , Vincenzo; Ferri, Giovanni; Puopolo , Giovanni Walter
  8. Growth and Distributional Effects of Inflation with Progressive Taxation By Seiya , Fujisaki; Kazuo, Mino
  9. Accelerating Economic Growth and Reducing Poverty: The Road Ahead By Ministry of Finance, Government of Pakistan,
  10. Local and Global Externalities, Environmental Policies and Growth By Karen Pittel; Dirk Rübbelke
  11. Modernization of Agriculture and Long-Term Growth By Yang, Dennis; Zhu, Xiaodong
  12. Lessons from Post-colonial Malaysian Economic Development By K. S., Jomo; Chong Hui, Wee
  13. A Growth Model of Global Imbalances By Lionel Artige; Laurent Cavenaile
  14. Are Inequality and Trade Liberalization Influences on Growth and Poverty? By Jennifer Mbabazi; Chris Milner; Oliver Morrissey
  15. Related variety and regional growth in Spain By Ron Boschma; Asier Minondo; Mikel Navarro
  16. A literature review on the tourism-led-growth hypothesis By JG. Brida; Manuela Pulina
  17. Economic Growth in Bahrain: The Contribution of Multifactor Productivity By Bassim Shebeb; Nadhem Al-Saleh
  18. How Do Structural and Policy Factors Affect a Country’s Probability to Achieve the Most (or the Least) Favorable Growth Path? By Carmignani, Fabrizio; Chowdhury, Abdur R.
  19. Government Investment and Fiscal Stimulus By Eric M. Leeper; Todd B. Walker; Shu-Chun S. Yang
  20. Does history matter for the relationship between R&D, Innovation and Productivity? By Elena Huergo; Lourdes Moreno
  21. Emerging Market Economies Leading Global Growth By Duvvuri Subbarao
  22. Bank Lending in Turkey: Effects of Monetary and Fiscal Policies By Deniz Igan; Burcu Aydin
  23. Banks, Credit Market Frictions, and Business Cycles By Ali Dib
  24. Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound By Christiane Baumeister; Luca Benati
  25. The Driving Forces Underlying the Growth of Total Factor Productivity in Cambodia By Bory Seng
  26. Economic Development in Pre-Independence Botswana, 1820-1966: Historical Trends, Contributing and Countervailing Factors By Hlavac, Marek
  27. Borders, market access and urban growth; the case of Saxon towns and the Zollverein By Florian Ploeckl
  28. Financial Frictions, Investment, and Institutions By Stijn Claessens; Kenichi Ueda; Yishay Yafeh
  29. Egypt beyond the crisis : medium-term challenges for sustained growth By Herrera, Santiago; Youssef, Hoda; Youssef, Hoda; Zaki, Chahir
  30. The Myth of Expansionary Fiscal Austerity By Dean Baker

  1. By: Holger Strulik; Klaus Prettner; Alexia Prskawetz
    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 micro-founded 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, postmodern society, post-transitional fertility.
    Date: 2010–10
  2. By: Deniz Cicek; Ceyhun Elgin
    Date: 2010–07
  3. By: Kumar, Saten; Pacheco, Gail; Rossouw, Stephanie
    Abstract: Given the concern about the low growth rates in African countries, this paper deals with the issue of how to increase the said growth rates by using South Africa as a case study. This paper attempts to answer this question by examining the determinants of total factor productivity (TFP)and productivity growth. We utilise the theoretical insights from the Solow (1956) growth model and its extension by Mankiw, Romer and Weil (1992). Our empirical methodology is based on the London School of Economics Hendry’s General to Specific Instrumental Variable method and Gregory and Hansen’s (1996a; 1996b) structural break technique. Our findings imply that variables like human capital, trade openness, foreign direct investment, financial efficiency, democracy and financial reforms improves TFP and productivity growth in South Africa. Importantly, the key determinants appear to be democracy and financial liberalisation.
    Keywords: Solow model; total factor productivity; productivity growth
    JEL: O10 O15
    Date: 2010–09–05
  4. By: Saten Kumar; Gail Pacheco; Stephanié Rossouw
    Abstract: Given the concern about the low growth rates in African countries, this paper deals with the issue of how to increase the said growth rates by using South Africa as a case study. This paper attempts to answer this question by examining the determinants of total factor productivity (TFP) and productivity growth. We utilise the theoretical insights from the Solow (1956) growth model and its extension by Mankiw, Romer and Weil (1992). Our empirical methodology is based on the London School of Economics Hendry’s General to Specific Instrumental Variable method and Gregory and Hansen’s (1996a; 1996b) structural break technique. Our findings imply that variables like human capital, trade openness, foreign direct investment, financial efficiency, democracy and financial reforms improves TFP and productivity growth in South Africa. Importantly, the key determinants appear to be democracy and financial liberalisation.
    Keywords: Solow model; total factor productivity; productivity growth.
    JEL: O10 O15
    Date: 2010–10–11
  5. By: Harashima, Taiji
    Abstract: This paper presents an endogenous growth model in which the economy grows without either scale effects or population growth. The key mechanism is substitution between investments in capital and technology when firms face increasing uncompensated knowledge spillovers. The model indicates that, as population increases, firms invest more in capital than in technology because there are more uncompensated knowledge spillovers as a result of both Marshall-Arrow-Romer and Jacobs externalities. Consequently, scale effects asymptotically diminish as population increases and disappear at a sufficiently large population while the economy can grow without population growth. In present-day industrialized economies, therefore, both scale effects and population growth have little influence over economic growth.
    Keywords: Endogenous growth; Scale effects; Non scale model; Balanced growth; Knowledge spillovers
    JEL: O41 O33 E10
    Date: 2010–10–20
  6. By: Ceyhun Elgin; Semih Tumen
    Date: 2010–11
  7. By: Caprio, Gerard Jr.; D'Apice , Vincenzo; Ferri, Giovanni; Puopolo , Giovanni Walter
    Abstract: By analysing the macro financial determinants of the Great Financial Crisis of 2007-2009 on 83 countries, we find that the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit deposit ratio whereas it was lower for countries having higher levels of: i) net interest margin, ii) concentration in the banking sector, iii) restrictions to bank activities, iv) private monitoring. Our findings contribute to the ongoing discussion that can help policymakers calibrate new regulation, by achieving a reasonable trade-off between financial stability and economic growth.
    Keywords: Banking Crisis; Government Intervention; Regulation
    JEL: G18 G15 G21
    Date: 2010–10–21
  8. By: Seiya , Fujisaki; Kazuo, Mino
    Abstract: This paper examines the growth and income distribution effects of inflation in a growing economy with heterogeneous households and progressive income taxation. Assuming that the cash-in-advance constraint applies to investment as well as to consumption spending, we show that a higher growth of monetary supply yields a negative impact on growth and an ambiguous effect on income distribution. Numerical example with plausible parameter values, however, demonstrate that those long-run effects of inflation tax are rather small. In contrast, fiscal distortion caused by progressive taxation yield significant impacts on growth and distribution
    Keywords: Inflation Tax; Progressive Income Tax; Growth; Income Distribution
    JEL: E32 O40
    Date: 2010–10–20
  9. By: Ministry of Finance, Government of Pakistan,
    Abstract: It outlines the broad framework and the strategy for poverty reduction based on four pillars: (a) accelerating economic growth while maintaining the macroeconomic stability; (b) improving the governance; (c) investing in human capital; and (d) targeting the poor and the vulnerable. The PRSP also highlights the programs and policies of the Government under each of these pillars and proposed indicators to monitor the outcome of these policies as well as intermediate indicators for social sectors.
    Keywords: poor, vulnerable, livestock, fisheries, law, statistics, poverty, pakistan, governance, economic growth, social sectors,
    Date: 2010
  10. By: Karen Pittel; Dirk Rübbelke
    Abstract: The paper analyzes the implications of local and global pollution when two types of abatement activities can be undertaken. One type reduces solely local pollution (e.g., use of particulate matter filters) while the other mitigates global pollution as well (e.g., application of fuel saving technologies). In the framework of a 2-country endogenous growth model, the implications of different assumptions about the degree to which global externalities are internalized are analyzed. Subsequently, we derive policy rules adapted to the different scenarios. Special attention is paid to pollution, growth and optimal policy in the case of asymmetric internalization.<br />
    Keywords: economic growth, global and local externalities, government policies
    Date: 2010–10
  11. By: Yang, Dennis (Chinese University of Hong Kong); Zhu, Xiaodong (University of Toronto)
    Abstract: This paper develops a two-sector model that illuminates the role played by agricultural modernization in the transition from stagnation to growth. When agriculture relies on traditional technology, industrial development reduces the relative price of industrial products, but has a limited effect on per capita income because most labor has to remain in farming. Growth is not sustainable until this relative price drops below a certain threshold, thus inducing farmers to adopt modern technology that employs industry-supplied inputs. Once agricultural modernization begins, per capita income emerges from stasis and accelerates toward modern growth. Our calibrated model is largely consistent with the set of historical data we have compiled on the English economy, accounting well for the growth experience of England encompassing the Industrial Revolution.
    Keywords: long-term growth, transition mechanisms, relative price, agricultural modernization, structural transformation, Industrial Revolution, England
    JEL: O41 O33 N13
    Date: 2010–10
  12. By: K. S., Jomo; Chong Hui, Wee
    Abstract: Malaysian economic development has been shaped by public policy in response to changing national and external conditions. Public investments peaked in the 1970s and early 1980s, until the policy reversals driven by sovereign debt concerns and new policy ideology fads. Foreign investments continued to be favoured after independence for ethnic political reasons. Thus, foreign investments continued to be very significant in financial services as well as manufacturing growth, both for import substitution from the 1960s and for export from the 1970s. Private investments were attracted by government provision of infrastructure, cheap but schooled labour, tax incentives, lax environmental regulations and an undervalued currency. Poverty reduction and ownership redistribution by ethnicity were most successful during the 1970s and early 1980s, although it is unclear how much these improved inter-ethnic relations. Economic liberalization and the growing influence of business interests and political elites have undermined the government’s developmental role, culminating in the 1997–8 financial crisis and lacklustre growth since. Malaysian industrialization could only have been achieved with appropriate incentives for investments and technical progress through key policy interventions.
    Keywords: Malaysia, development strategies, liberalization, intervention
    Date: 2010
  13. By: Lionel Artige; Laurent Cavenaile
    Abstract: Global imbalances are considered as one of the main culprits of the financial crisis which started in the United States in 2007. This paper aims to build a two- country deterministic growth framework with overlapping generations to investigate the macroeconomic effects of global imbalances that originate from forced saving in one country. This framework allows us to study the existence of a dynamic equi- librium with global imbalances, the impact on the world interest rate, and the short-run and long-run welfare implications on the young and old generations in both countries. In particular, we show that global imbalances worsen the welfare of the young generations of both countries in the short run and can offset the potential gain of the international integration of capital markets.
    Date: 2010
  14. By: Jennifer Mbabazi; Chris Milner; Oliver Morrissey
    Abstract: There has been a recent resurgence of interest in the relationship between income inequality and growth, manifested in a number of important publications. In parallel with this, concern with the impact of economic reform and globalization on developing countries has led to an upsurge of interest in linkages between policy reform, growth, inequality and poverty. They use the WIDER/UNDP World Income Inequality Database to investigate the links between growth, inequality and trade liberalization for a sample of developing countries, and the more limited World Bank Global Poverty Monitoring Database for an exploratory analysis of the influence of these variables on levels of poverty. The cross-section results suggest that in the long-run, higher inequality is associated with lower growth. [DiscussionPaperNo.2001/132]
    Keywords: trade,inequality,growth,poverty,developingcountries
    Date: 2010
  15. By: Ron Boschma; Asier Minondo; Mikel Navarro
    Abstract: This paper investigates whether related variety, among other types of spatial externalities, affected regional growth in Spain at the NUTS 3 level during the period 1995-2007. We found evidence that related variety matters for growth across regions, especially when measured with the assistance of the Porter's cluster classification and the proximity index proposed by Hidalgo et al.. That is, Spanish provinces with a range of industries that are technologically related tend to show higher economic growth rates, controlling for the usual suspects. We did not find, however, any evidence of regional growth effects that come from technologically related sectors imports.
    Keywords: technological relatedness, related variety, regional branching, regional diversification
    JEL: R11 O14 N94
    Date: 2010–10
  16. By: JG. Brida; Manuela Pulina
    Abstract: The aim of this paper is to provide a comprehensive literature review on the temporal relationship between tourism and economic growth. Specifically, the role of a such economic activity, as a promoter of short and long run economic growth, is investigated by assessing the so-called Tourism Led Growth Hypothesis (TLGH). To this aim, various methodological approaches have been used, such as VAR, VECM, ARDL, ARCH, GARCH, cross section and panel data. The cointegrating relationship of the economic variables allows one to test the short and long run Granger no-causality. Overall, the empirical findings, emerging from the existing literature, provide evidence that indeed tourism activity drives economic development in all the countries analysed. This outcome further supports the well-established contribution that international tourism has to the economic development.
    Keywords: tourism; economic growth; Granger causality; comprehensive review
    JEL: D30 E43 L83
    Date: 2010
  17. By: Bassim Shebeb (University of Bahrain); Nadhem Al-Saleh
    Abstract: With the process of expansion and the structural transformation taking place in Bahrain, it is crucial to measure and analyze the growth rates of gross domestic product (GDP), gross output and multifactor productivity (MFP) to develop proper policies that are in line with the new economic vision of Bahrain, known as Vision 2030. Thus, this paper comes with two main objectives: first, to provide explainable estimates for the growth rate of the gross output in the Bahraini economy and secondly to identify the main sources of the growth. The main findings of this study show that the annual growth rate of the gross output in Bahrain ranged from a maximum of about 11.7% in the year 2006 to a minimum of about 7.7% in the year 2002. The average annual growth rate of gross output over the time period 2002–2008 was 9.43%. The empirical findings also show that the MFP’s annual growth rate was relatively low over the study time period. Consequently, it could be concluded that the relatively high growth rate of gross output in the Bahraini economy was mainly due to the high growth rate of other inputs (M) over the last few years. The study concludes that there is an urgent need to improve MFP in Bahrain to contribute significantly to the output growth rates. Therefore, the study calls for further research to identify the main components that contribute to the growth of MFP in Bahrain and its decomposition.
    Date: 2010–10
  18. By: Carmignani, Fabrizio (School of Economics The University of Queensland); Chowdhury, Abdur R. (Department of Economics Marquette University)
    Abstract: We ask which economic policies can help a country create the most favourable conditions for development. We observe that the dynamics of several development indicators can be grouped into four clusters, each cluster corresponding to a different combination of growth and changes in inequality. Based on this observation, we define four different development scenarios and use limited dependent variable regressions to study how structural and policy factors affect a country’s probability to achieve the most (or the least) favourable of these scenarios. Our results point to a comforting picture: through the choice of appropriate policies countries can effectively increase their chances to achieve the most favourable development scenarios.
    Keywords: development, inequality, growth, economic policy, limited dependent variables, Economics
    JEL: I30 O15 O40 C25
    Date: 2010–09
  19. By: Eric M. Leeper; Todd B. Walker; Shu-Chun S. Yang
    Abstract: Effects of government investment are studied in an estimated neoclassical growth model. The analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus: implementation delays for building public capital and expected fiscal adjustments to deficit-financed spending. Implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run. Anticipated fiscal adjustments matter both quantitatively and qualitatively for long-run growth effects. When public capital is insufficiently productive, distorting financing can make government investment contractionary at longer horizons.
    Date: 2010–10–14
  20. By: Elena Huergo; Lourdes Moreno
    Abstract: This paper analyzes the relationship between R&D expenditures, innovation and productivity growth, taking into account the possibility of persistence in firms’ behaviour. We study this relationship for a sample of Spanish manufacturing firms between 1990 and 2005, estimating a model with four equations: participation in technological activities, R&D intensity, the generation of innovations and the impact of these technological outputs on total factor productivity growth. Our results reflect the existence of true state dependence both in the decision of R&D investment and in the production of innovations. The omission of this persistence leads to an overestimation of the current impact of innovations on productivity growth. However, the presence of persistence in technological inputs and outputs entails current R&D activities having long–run effects on a firm’s productivity.
    Keywords: CDM model, productivity growth, persistence in R&D and innovation.
    JEL: D24 L6 O3
    Date: 2010–10–21
  21. By: Duvvuri Subbarao
    Abstract: The three issues laid out in today’s agenda are particularly relevant at this juncture and how we answer them in the months ahead will determine how the world regains and then sustains economic growth and financial stability. [Remarks at a panel discussion on “Role of Emerging Economies Going Forward and Key Policy Challenges†at the IMF, Washington DC].
    Keywords: china, infrastructure deficit, social sector, GDP, EMEs, global, growth, emerging economies, market, India,global economic prosperity,
    Date: 2010
  22. By: Deniz Igan; Burcu Aydin
    Abstract: The period following the 2000-01 crisis was marked by a successful disinflation program sustained through inflation targeting and fiscal discipline in Turkey. This paper studies the impact of monetary and fiscal policies on credit growth during this period. Using quarterly bank-level data covering 2002-08, we find evidence that liquidity-constrained banks have sharper decline in lending during contractionary monetary policies and that crowding-out effect disappears more for banks with a retail-banking focus when fiscal policies are prudent.The results are statistically weak, suggesting that bank lending channel is not strong in Turkey and government finances has limited direct impact on credit.
    Date: 2010–10–18
  23. By: Ali Dib
    Abstract: The author proposes a micro-founded framework that incorporates an active banking sector into a dynamic stochastic general-equilibrium model with a financial accelerator. He evaluates the role of the banking sector in the transmission and propagation of the real effects of aggregate shocks, and assesses the importance of financial shocks in U.S. business cycle fluctuations. The banking sector consists of two types of profitmaximizing banks that offer different banking services and transact in an interbank market. Loans are produced using interbank borrowing and bank capital subject to a regulatory capital requirement. Banks have monopoly power, set nominal deposit and prime lending rates, choose their leverage ratio and their portfolio composition, and can endogenously default on a fraction of their interbank borrowing. Because it is costly to raise capital to satisfy the regulatory capital requirement, the banking sector attenuates the real effects of financial shocks, reduces macroeconomic volatilities, and helps stabilize the economy. The model also includes two unconventional monetary policies (quantitative and qualitative easing) that reduce the negative impacts of financial crises.
    Keywords: Economic models; Business fluctuations and cycles; Credit and credit aggregates; Financial stability
    JEL: E32 E44 G1
    Date: 2010
  24. By: Christiane Baumeister (Research Department, Bank of Canada, 234 Wellington Street, Ottawa, Ontario, Canada, K1A 0G9.); Luca Benati (Monetary Policy Research Division, Banque de France, 31, Rue Croix des Petits Champs, 75049 Paris CEDEX 01, France.)
    Abstract: We explore the macroeconomic impact of a compression in the long-term bond yield spread within the context of the Great Recession of 2007-2009 via a Bayesian time-varying parameter structural VAR. We identify a ‘pure’ spread shock which, leaving the short-term rate unchanged by construction, allows us to characterise the macroeconomic impact of a compression in the yield spread induced by central banks’ asset purchases within an environment in which the short rate cannot move because it is constrained by the zero lower bound. Two main findings stand out. First, in all the countries we analyse (U.S., Euro area, Japan, and U.K.) a compression in the long-term yield spread exerts a powerful effect on both output growth and inflation. Second, conditional on available estimates of the impact of the FED’s and the Bank of England’s asset purchase programmes on long-term government bond yield spreads, our counterfactual simulations indicate that U.S. and U.K. unconventional monetary policy actions have averted significant risks both of deflation and of output collapses comparable to those that took place during the Great Depression. JEL Classification: E30, E32.
    Keywords: Great Recession, structural VARs, time-varying parameters, Bayesian VARs, stochastic volatility, Monte Carlo integration, policy counterfactuals.
    Date: 2010–10
  25. By: Bory Seng (Technology Management, Economics, and Policy Program (TEMEP), Seoul National University)
    Abstract: This case study explores the driving force of the productivity growth in Cambodia, one of the least developed countries. Quantitative and qualitative studies were used to analyze the source and impact of the input factors on the nation¡¯s productivity growth. For a quantitative study, a small panel data set was formed that allowed the adoption of a simple linear regression and a non-parametric approach of divisia index as the main methodologies for the quantitative analysis. Beside the conventional inputs of the growth model, the study selected the energy consumption and the aid and investment in the telecommunication sector to be additional factors of the growth. The selection of additional factors was based on the consistent precedents in literature that highlighted the important of each variable, and the availability of the data and the background of the country. The properties of the estimation were used for another empirical step to examine Total Factor Productivity (TFP), which in this study is a proxy of the national economic growth. The focus of the study was to explore the direct contribution factors of the productivity in Cambodia by performing the second regression of TFP. For qualitative analysis, a successful country case will be reviewed and used as development references. Referring to the results of both analyses, suggestions and policy implications are offered.
    Keywords: Regression analysis, total factor productivity growth, economic growth, benchmark parameter, Korean economic development.
    JEL: C23 C30 C33
    Date: 2010–10
  26. By: Hlavac, Marek
    Abstract: This paper examines the trajectory of economic development in Botswana between the years 1820 and 1966, when it achieved independence. First, I review the historical trends in the country’s economic and social development indicators. I then proceed to analyze what factors have encouraged or hindered economic development in Botswana: In particular, I focus on the roles of physical geography, climate, disease ecology, economic and political institutions, geopolitical relations, demographic trends, as well as on ethnic divisions and cultural belief systems. Finally, I discuss how prepared Botswana was for modern economic growth when it gained independence in 1966.
    Keywords: Botswana; economic development; economic history; institutions; economic growth; economic geography
    JEL: N57 N47 O43
    Date: 2010–10–20
  27. By: Florian Ploeckl (University of Oxford)
    Abstract: The Zollverein, the 1834 customs union between independent German states, removed all internal borders. This paper investigates its economic impact focussing on urban population growth in the state of Saxony. Implications from a economic geography model are tested with a data set on town populations and location characteristics as well as an improved distance measure created with GIS techniques to include geography and infrastructure. Saxony's Zollverein membership led to significantly higher growth for towns close to the liberalized border. The effect depended on a town's size, was reinforced through neighboring markets and worked through influencing migration and natural increase.
    Keywords: Economic geography, market access, customs union, GIS
    JEL: N93 F15 R12 R23
    Date: 2010
  28. By: Stijn Claessens; Kenichi Ueda; Yishay Yafeh
    Abstract: Financial frictions have been identified as key factors affecting economic fluctuations and growth. But, can institutional reforms reduce financial frictions? Based on a canonical investment model, we consider two potential channels: (i) financial transaction costs at the firm level; and (ii) required return at the country level. We empirically investigate the effects of institutions on these financial frictions using a panel of 75,000 firm-years across 48 countries for the period 1990 - 2007. We find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.
    Date: 2010–10–15
  29. By: Herrera, Santiago; Youssef, Hoda; Youssef, Hoda; Zaki, Chahir
    Abstract: The paper analyzes the impact of the recent global crisis in the context of the previous two decades'growth and capital flows. Growth decomposition exercises show that Egyptian growth is driven mostly by capital accumulation. To estimate the share of labor in national income, the analysis adjusts the national accounts statistics to include the compensation of self-employed and non-paid family workers. Still, the share of labor, about 30 percent, is significantly lower than previously estimated. The authors estimate the output costs of the current crisis by comparing the output trajectory that would have prevailed without the crisis with the observed and revised gross domestic product projections for the medium term. The fall in private investment was the main driver of the output cost. Even if private investment recovers its pre-crisis levels, there is a permanent loss in gross domestic product per capita of about 2 percent with respect to the scenario without the crisis. The paper shows how the shock to investment is magnified due to the capital-intensive nature of the Egyptian economy: if the economy had the traditionally-used share of labor in income (40 percent), the output loss would have been reduced by half.
    Keywords: Economic Theory&Research,Debt Markets,Access to Finance,Emerging Markets,Banks&Banking Reform
    Date: 2010–10–01
  30. By: Dean Baker
    Abstract: Recently governments, economists, and international financial institutions have been debating the merits of further fiscal stimulus to combat the Great Recession versus fiscal austerity or “adjustment” – that is, higher taxes and/or lower government spending – to combat budget deficits. Some supporters of austerity have gone as far as arguing that fiscal adjustment could restore economic growth. These analyses are being touted to oppose increased stimulus to boost the economy. This paper examines the arguments for austerity and emonstrates that current economic conditions in the United States do not support the case for fiscal adjustment.
    Keywords: budget deficit, deficit, fiscal austerity, stimulus, unemployment, deficit spending
    JEL: E E6 E60 E61 E62 E63 E64 E65 E66 H H2 H5 H6 H60 H61 H62 H63 H68
    Date: 2010–10

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