nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒11‒06
sixteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Coal Consumption and Economic Growth Revisited: Structural Breaks, Cointegration and Causality Tests for Pakistan By Kumar, Saten; Shahbaz, Muhammad
  2. The effects of privatisation and FDI on economic growth in Argentina By Rania Ihab Naguib
  3. The Nexus between Schooling and Growth: International Evidence since 1870 By Jakob B. Madsen; Isfaaq Timol
  4. Energy Prices, Growth and the Channels Imbetween: Theory and evidence By Lucas Bretschger
  5. Solow or Lucas? Testing Speed of Convergence on a Panel of OECD Countries By Arnold, Jens; Bassanini, Andrea; Scarpetta, Stefano
  6. Economic Growth, Technology Trade and R&D By Daniel Toro Gonzalez
  7. Quality-adjusted Human Capital and Productivity Growth By Md. Rabiul Islam
  8. Outward FDI and home country economic growth: a Malaysian case By Koi Nyen Wong
  9. Endogenous fertility, endogenous lifetime and economic growth: the role of child policies By Fanti, Luciano; Gori, Luca
  10. Growth through Heterogeneous Innovations By Ufuk Akcigit; William R. Kerr
  11. Trends and cycles in regional economic growth : how spatial differences formed the Swedish growth experience 1860-2009 By Martin Henning; Kerstin Enflo; Fredrik NG Andersson
  12. Are Microloans Bad for Growth? By Emerson, Patrick M.; McGough, Bruce
  13. Time, Quality and Growth By Alcalá Francisco
  14. Does Exporter Turnover Contribute to Aggregate Productivity Growth? Evidence from Malaysian Manufacturing. By Ergun Dogan; Koi Nyen Wong; Michael Meow-Chung Yap
  15. Sectoral Hetorgeneity, Resoure Depletion, and Directed Technical Change: theory and policy By Karen Pittel; Lucas Bretschger
  16. Assessing the Effects of Military Expenditure on Growth By Giorgio d'Agostino; Luca Pieroni; J Paul Dunne

  1. By: Kumar, Saten; Shahbaz, Muhammad
    Abstract: A global profusion of coal provides many countries with opportunities for economic growth. The direction of causality between coal consumption and economic growth is useful for policy making, however, existing empirical evidence have failed to reach a consensus. This paper examined the liaison between coal consumption and economic growth for Pakistan over the period 1971-2009. The endogenous two-break LM unit test, derived in Lee and Strazicich (2003), is used to assess the order of integration of the variables and structural breaks in the data series. Application of the Autoregressive Distributed Lag (ARDL) bounds test reveals a cointegrating relationship between real income, real capital stock, labour and coal consumption, and further application of General to Specific (GETS), Engle and Granger (EG), Stock Watson’s Dynamic Ordinary Least Squares (DOLS) and Phillip Hansen’s Fully Modified Ordinary Least Squares (FMOLS) methods show statistical robustness of the estimates. The elasticity with respect to coal consumption is positive and significant. The Vector Error Correction Model (VECM) based Granger causality test is also applied for both short-and long-run situations.
    Keywords: Coal consumption; economic growth; cointegration; Granger causality
    JEL: C22 Q40
    Date: 2010–10–20
  2. By: Rania Ihab Naguib (University of the West of England)
    Abstract: This paper uses time-series model to estimate the effects of privatisation and FDI on economic growth in Argentina over the period 1971- 2000. Unit root tests and Co-integration tests are used to ensure that all variables used are stationary and that there exists a long run relationship among the variables. An error correction model is constructed to estimate both the short- and long-run effects of privatisation and FDI on economic growth in Argentina. The evidence suggest that during 1971- 2000, FDI had no effect on either short- or long-run economic growth in Argentina, while privatisation had negative significant effects on economic growth in the long-run only,
    Keywords: Privatisation, FDI, Economic Growth, Argentina.
    JEL: F O H
    Date: 2010–10
  3. By: Jakob B. Madsen; Isfaaq Timol
    Abstract: The growth effects of schooling are often assumed to be exaggerated because of feedback effects from growth to schooling. This paper investigates the nexus between productivity growth and schooling at different levels using a sample of 19 OECD countries over the period 1870 to 2006. The empirical estimates show 1) that schooling is independent of expected growth and most other variables that are associated with the present value of schooling; 2) a one-way causality from schooling to growth; and 3) that the growth effects of schooling are increased rather than reduced when schooling is instrumented.
    Keywords: Schooling and growth; endogenous growth models; reverse causality
    JEL: O3 O4
    Date: 2010–05
  4. By: Lucas Bretschger
    Abstract: The paper develops a theoretical model with different channels through which energy affects economic growth. The conditions for a crowding out of capital accumulation by intensive energy use are derived. In the empirical part, estimations using a system with five simultaneous equations for a sample of 37 developed countries with five-year average panel data over the period 1975-2004 are presented. It is shown that in the long run rising energy prices are not a threat to development. On the contrary, we find conditions under which decreasing energy input induces investments in physical and knowledge capital. A ten percent increase in energy prices is found to raise the growth rate by 0.4 percentage points.
    Keywords: Energy Prices and Growth, Endogenous Capital Accumulation, Structural Change, Panel Data
    JEL: Q43 O47 Q56 O41
    Date: 2010
  5. By: Arnold, Jens (OECD); Bassanini, Andrea (OECD); Scarpetta, Stefano (OECD)
    Abstract: We test whether the growth experience of a sample of 21 OECD countries over the past three decades is more consistent with the augmented Solow model or the Uzawa-Lucas model, by exploiting the different non-linear restrictions implied by them as regards the relationship between factor shares and speed of convergence. Using cross-country/time-series data, we specify our growth regression without imposing cross-country homogeneity restrictions on the speed of convergence and short-run parameters. Indeed, both theoretical models imply that the speed of convergence to the steady state differs across countries due to heterogeneity in population growth, technical change or progressiveness of income taxes. Our estimated speed of convergence is too fast to be compatible with the augmented Solow model, but is consistent with the Uzawa-Lucas model with constant returns to scale. Our main findings are robust to several robustness tests.
    Keywords: AK models, speed of convergence, human capital, PMG estimators, panel data
    JEL: O11 O15 O41
    Date: 2010–10
  6. By: Daniel Toro Gonzalez
    Abstract: The present project is oriented to evaluate the performance of technological trade and research and development (R&D) expenditure, as a measure of productivity in explaining economic growth. Using data for OECD countries under a simple neoclassical growth model framework, the role of technology trade and investment in R&D is verified as an approximate measurement of productivity. In this case two thirds of total economic growth can be explained jointly by the introduction of these two variables in to the model specification together with human and capital accumulation.
    Date: 2010–10–27
  7. By: Md. Rabiul Islam
    Abstract: Both the quality and quantity of human capital are important for growth. Although the quality aspects of human capital may have greater potential in explaining growth, given that the quantity effects of human capital have been found to be ambiguous, they have long been ignored in empirical growth literature. This paper empirically tests the joint effects of both the quantity and quality of human capital in stimulating productivity growth for a panel of 89 countries over the period 1970-2007. Based on different measures of human capital quantity and quality, the results show that the growth effects of educational attainment can be significantly enhanced when the quality of schooling is improved. The joint effect of human capital quality and quantity is found to be stronger in developing countries.
    Keywords: quantity, quality, human capital, growth, world
    JEL: I20 O30 O40
    Date: 2010–05
  8. By: Koi Nyen Wong
    Abstract: This paper attempts to explore the causality relationship between outward foreign direct investment (OFDI) and home country economic growth using Malaysia as a case. The main findings do not advocate the OFDI-led growth hypothesis. In order to promote OFDI-led growth, the home government should prepare the private sector for increasing competition in the era of globalization so that linkages can be forged with Malaysian multinationals, and to facilitate home sourcing for OFDI activities. However, the study reveals the evidence of growth-led OFDI, which conforms to the investment development path theory that can potentially internationalize business activities of Malaysian firms abroad.
    JEL: F21
    Date: 2010–05
  9. By: Fanti, Luciano; Gori, Luca
    Abstract: We examine the effects of child policies on both the transitional dynamics and long-run demo-economic outcomes in the conventional overlapping generations model of neoclassical growth extended with endogenous longevity and endogenous fertility. The government invests in public health (Chakraborty, 2004) and the individual survival probability at the end of youth depends on health expenditure through an S-shaped longevity function. This may give rise to four steady states and, hence, development traps are possible. However, poverty or prosperity may not depend on initial conditions, while being the result of a child policy design. In particular, a child tax can be used to effectively allow those economies that were entrapped into poverty to prosper irrespective of where they start from.
    Keywords: Child policy; Endogenous fertility; Health; Life expectancy; OLG model
    JEL: J13 O40 I10
    Date: 2010–10–23
  10. By: Ufuk Akcigit (Department of Economics, University of Pennsylvania); William R. Kerr (Department of Economics, Harvard University)
    Abstract: We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multi-product firms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects.
    Keywords: : Endogenous Growth, Innovation, Exploration, Exploitation, Research and Development, Patents, Citations, Scientists, Entrepreneurs.
    JEL: O31 O33 O41 L16
    Date: 2010–10–27
  11. By: Martin Henning; Kerstin Enflo; Fredrik NG Andersson
    Abstract: Using a novel dataset on regional GDP per worker 1860-2009, this paper analyzes communalities in regional long-term growth trajectories for 24 Swedish provinces. Wavelet Analysis and Principal Component Analysis are used to decompose regional growth trajectories, and to assess to what extent growth in regions share common trend and cyclical properties. It is found that regional trend growth shows strong common features among groups of regions. Primarily natural resource rich regions benefited from the First Industrial Revolution. Contrary to regional development in many other European economies, a strong growth surge in Sweden later benefited virtually the whole country during the Second Industrial Revolution. Growth in this countrywide trend slowed down in the 1970s, when the metropolitan regions became main growth engines. In mid- and short-term cyclical movements regions display more heterogeneous growth patterns, and evidence of mid-term sequential lead-lag patterns in regional growth is found, especially between core and periphery.
    Keywords: Economic history, Economic geography, Regional growth, Wavelet analysis, Sweden
    JEL: N9 O14 R11 C22
    Date: 2010–10
  12. By: Emerson, Patrick M. (Oregon State University); McGough, Bruce (Oregon State University)
    Abstract: This paper constructs a two-period overlapping generations model of human capital investment decisions where a microloan program designed to finance entrepreneurial activities is active. It is shown that, in the presence of human capital externalities (social returns to education) there exists a range of microloan amounts that are growth depressing and welfare decreasing through their affect on the opportunity cost of schooling. By increasing the opportunity cost of schooling, microloans divert investment away from human capital: by failing to internalize the social returns to education, households’ individually optimal investment decisions in the face of microcredit availability act to depress the growth of the economy and result in sub-optimal welfare outcomes.
    Keywords: microloans, growth, human capital
    JEL: E24 O10 O40
    Date: 2010–10
    Abstract: Consumption requires time (consumption and time are complements of each other). In addition higherquality goods provide more utility per unit of time allocated to consumption, though at a higher monetary cost. Since time is limited, higher income is decreasingly spent augmenting the number of units of goods being consumed and increasingly spent upgrading their quality. After analyzing the basic microeconomics of consumer quantity/quality choices, this working paper investigates its implications on growth. As a country develops, raising the quality of output becomes increasingly important as a component of gross domestic product (GDP) growth relative to quantity growth. Furthermore technological progress is increasingly quality-biased. Lower income inequality raises the scale of output while reducing average quality. This is positive for technical progress and growth at early stages of economic development but may be negative at later stages. These results are broadly consistent with the existing empirical evidence on the composition of GDP growth, international trade patterns of vertical specialization across countries, and the nonlinearity of the impact of inequality on growth. This working paper also explores the potential role of progressive consumption taxes as a growth policy.
    Keywords: Allocation of time, product quality, inequality, growth, distortionary consumption taxes.
    Date: 2009–10
  14. By: Ergun Dogan; Koi Nyen Wong; Michael Meow-Chung Yap
    Abstract: Malaysia’s economic success is to a significant extent underpinned by its export-oriented manufacturing sector. The sector has a large foreign presence, with MNCs attracted by the open trade and investment regime, and FDI-friendly policies. Using unpublished manufacturing census data for 2000 and 2005, we apply the methodology by Foster et al. (1998) to decompose productivity growth. The analysis shows that exporters were more productive than domestic-oriented establishments, and were distinctly more competitive. The empirical evidence also shows that establishment turnover is important in boosting productivity growth. In particular, we find that turnover of exporters made a larger contribution to aggregate productivity growth compared to domestic-oriented establishments during the period from 2000 to 2005. Surviving establishments (those that operated in both years), on the other hand, made a negative contribution. It is noteworthy that entrants to export markets were more productive than surviving non-exporters and even surviving exporters. Exiters from export markets or “export failuresâ€, on the other hand, were less productive than continuing exporters. Given the importance of turnover to productivity growth, the government should ensure unrestricted entry to the export sectors for both foreign and domestic investors. Continuing with pro-FDI policies is also important, given the keener global competition.
    Keywords: Exporting; plant turnover; productivity; manufacturing; Malaysia
    JEL: F14 L60 O40
    Date: 2010–05
  15. By: Karen Pittel; Lucas Bretschger
    Abstract: We analyze an economy in which sectors are heterogeneous with respect to the intensity of natural resource use. Long-term dynamics are driven by resource prices, sectoral composition, and directed technical change. We study the balanced growth path and determine stability conditions. Technical change is found to be biased towards the resource-intensive sector. Resource taxes have no impact on dynamics except when the tax rate varies over time. Constant research subsidies raise the growth rate while increasing subsidies have the opposite effect. We also find that supporting sectors by providing them with productivity enhancing public goods can raise the growth rate of the economy and additionally provide an effective tool for structural policy.
    Keywords: sustainable development, sectoral heterogeneity, directed technical change
    JEL: O4 Q01 Q3
    Date: 2010
  16. By: Giorgio d'Agostino (Università degli Studi di Roma and UWE, Bristol); Luca Pieroni (University of Perugia and UWE, Bristol); J Paul Dunne (University of the West of England and University of Cape Town)
    Abstract: Military spending is an expenditure by governments that has influence beyond the resources it takes up, especially when it leads to or facilitates conflicts. This chapter provides an overview of the issues involved in analysing the effects of military spending on growth. It considers the alternative general economic theories that inform the development of models to undertake empirical analyses, and estimation issues in undertaking those analyses. The Feder-Ram model, the modified Solow and the endogenous growth models, are discussed in detail, before being estimated to illustrate the issues involved in estimating the models and to compare their performance.
    Keywords: Military spending; growth; panels spending,semi-parametric estimation
    JEL: H56 O40
    Date: 2010–10

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