nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2010‒12‒23
nine papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Growth, Income Distribution, and Poverty: A Review By Arne Bigsten; Jörgen Levin
  2. Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India By Bhatt, Antra
  3. On the Latin American Growth Paradox: A Hindsight into the Golden Age By Giorgia Barboni; Tania Treibich
  4. Housing investment in Spain: has it been the main engine of growth? By Carolina Cosculluela Martínez; Rafael Flores de Frutos
  5. Financial Integration and Growth -Is Emerging Europe Different? By Christian Friedrich; Isabel Schnabel; Jeromin Zettelmeyer
  6. The Change of the Financial System and Developmental State in Korea By Kang-Kook Lee
  7. Financial development, trade openness and financial openness: do income levels matter for developing countries? By Simplice A, Asongu
  8. Macroeconomic Regimes, Policies, and Outcomes in the World By Klaus Schmidt-Hebbel
  9. Adoption Technology Targets and Knowledge Dynamics: Consequences for Long-Run Prospects By Verónica Mies

  1. By: Arne Bigsten; Jörgen Levin
    Abstract: This paper reviews recent research dealing with the relationships between economic growth, income distribution, and poverty. This generally fails to find any systematic pattern of change in income distribution during recent decades. Neither does it find any systematic link from fast growth to increasing inequality. The level of initial income inequality is not a robust explanatory factor of growth, but some recent empirical studies have found a negative impact of asset inequality on growth. [Discussion Paper No.2001/129]
    Keywords: pro-poorgrowth,incomedistribution,poverty,survey
    Date: 2010
  2. By: Bhatt, Antra
    Abstract: The paper tests whether productive expenditures share a long run re- lationship with debt to GDP ratio by using a multivariate time series framework. The theoretical model is based on dynamic optimization of utility and productive expenditure with respect to capital and debt. Literature on growth theory has suggested that all less productive expenditures can have a negative effect on the growth rate of real GDP per capita until the optimal level of productive expenditure is reached. This would indeed lead to higher level of debt as growth rate will be reduced. Aggregate yearly data for India covering the period 1980-2009 have been used. The CAPRATIO and Debt to GDP ratio are cointegrated. VAR modeling with error correction reveals that the model can be used for forecasts. The regression coecient between the two variables is negative, signifying the inverse relationship. Having proved the hypothesis of an inverse long run relationship between the two variables, a new indicator based on the Government Inter-temporal budget constraint is suggested, revolving around capital expenditure.
    Keywords: Public Debt sustainability indicators; Capital Expenditure; Growth.
    JEL: E62 C22
    Date: 2010–12–09
  3. By: Giorgia Barboni (LEM, Sant’Anna School of Advanced Studies); Tania Treibich (Observatoire Français des Conjonctures Économiques)
    Date: 2010–11
  4. By: Carolina Cosculluela Martínez (Departamento de Economía Aplicada I, Universidad Rey Juan Carlos, Pº de los Artilleros, s/n 28032, Madrid, Spain); Rafael Flores de Frutos (Departamento de Fundamentos de Análisis Económico II, Universidad Complutense de Madrid. Campus de Somosaguas, 28223, Ma-drid, Spain)
    Abstract: This paper studies dynamic responses of employment and GDP growth to a permanent, uni-tary shock in the housing capital stock for the Spanish economy. It quantifies the importance of this variable in the boom experienced by the Spanish economy during the pre-crisis years. Results confirm that building industry has been the most important engine for output and labour growth.
    Keywords: Housing capital stock, Spanish economy, Building industry, Labour growth.
    Date: 2010
  5. By: Christian Friedrich (Graduate Institute for International and Development Studies, Geneva, Switzerland); Isabel Schnabel (Chair of Financial Economics, Johannes Gutenberg-UniversitŠt Mainz, Germany); Jeromin Zettelmeyer (European Bank for Reconstruction and Development, London, UK)
    Abstract: Using industry-level data, this paper shows that the European transition region benefited much more strongly from financial integration in terms of economic growth than other developing countries in the years preceding the current crisis. We analyze several factors that may explain this finding: financial development, institutional quality, trade integration, political integration, and financial integration itself. The explanation that stands out is political integration. Within the group of transition countries, the effect of financial integration is strongest for countries that are politically closest to the EU. This suggests that political and financial integration are complementary and that political integration can considerably increase the benefits of financial integration.
    Keywords: Financial integration; political integration; economic growth; parent banking; European transition economies
    JEL: E43 E52 E58 D44
    Date: 2010–11–17
  6. By: Kang-Kook Lee
    Abstract: This study examines the role of institutions and their change related to the rapid economic development and the 1997 Korean financial crisis. In Korea, the government built a state- led financial system through the 1960s and 1970s and a specific government-bank-business relationship based on it. It promoted economic growth by allocating financial resources controlled by it to targeted industries or firms, with discipline over business achieved through these institutions. [Research in Progress 19]
    Keywords: institutions, rapid economic development, Korea, financial system, firms
    Date: 2010
  7. By: Simplice A, Asongu
    Abstract: Using a panel of 29 African middle and low income countries with data spanning from 1988 to 2007, we analyze linkages between openness and financial intermediary development when income levels matter. Main findings are four: firstly, openness in the last two decades has not been the effect of growth and welfare, but of structural adjustment policies imposed by the IMF and World Bank; secondly, but for the positive impact of trade openness on the financial depth of low income countries, openness in sampled countries fail to bring about financial intermediary development; thirdly, financial openness brings trade openness for both income levels, but the reverse is true only for middle income countries; lastly, low income countries will benefit more from trade openness through financial deepening and financial openness than their middle income counterparts.
    Keywords: Openness; financial intermediary development; income levels; panel; Africa.
    JEL: E00 A10 D60 E40
    Date: 2010–12–14
  8. By: Klaus Schmidt-Hebbel
    Abstract: This paper summarizes a research project focused on the empirical determinants of and interrelations between macroeconomic regimes, policies, and performance in the world. The project’s hypotheses are structured into three related themes. The first aim is analyzing the determinants of the likelihood of adoption of macroeconomic policy regimes. The second project theme focuses on cyclicality of macroeconomic policies and accuracy in attaining inflation targets. Finally, the project tests for the behavior of two key macroeconomic variables - economic growth and inflation – focusing on their sensitivity to different macroeconomic regimes and policies. A large world database was assembled for this project from both publicly available and private databases. Data coverage extends to more than 100 countries, with annual time series extending from 1970 to 2008. A wide spectrum of frontier estimation techniques is applied to the country panel data series, appropriate for discrete-choice and continuous variable estimation. The key research results are the following. Country choice of macroeconomic policy regimes (exchange-rate regimes, money-based targeting, inflation targeting, and rule-based fiscal regimes) is explained by countries’ structural and institutional features, macroeconomic performance, financial development, and international integration. The cyclical behavior of fiscal policy reflects the quality of country institutions, financial openness, and financial development. Central bank accuracy in meeting inflation targets is also a result of domestic institutional strength and macroeconomic credibility. Long-term growth is significantly shaped by the quality of policies, financial development, foreign aid, and exchange-rate misalignment, in addition to standard growth determinants. Growth volatility is a result of domestic macroeconomic policy volatility, external shocks, international integration, and financial development. Country inflation rates are determined by international factors and domestic determinants, including fiscal policy, institutional development, monetary and exchangerate regimes, and financial depth and integration.
    Keywords: Macroeconomic Regimes, Macroeconomic Policies, Inflation, Growth.
    JEL: E58 E62 O47
    Date: 2010
  9. By: Verónica Mies
    Abstract: When targeting frontier technologies, less developed economies usually face obstacles to achieve high growth in the long run, because of their low level of knowledge relative to the adoption technology target. If the intensity in which the adoption activity uses knowledge is high, then the less developed economy may end up trapped in a low growth equilibrium. We show that in this case it is beneficial to target less advanced technologies, which helps to compensate the scarcity of knowledge during the transition. Nevertheless, polarization is possible. If knowledge intensity in the adoption activity is low, then possessing a low stock of knowledge allows targeting the technology frontier even in a poor R&D environment. In this case, all economies achieve a high growth equilibrium in which only income level differences persist in the long run.
    Keywords: R&D, adoption, innovation, growth, development, transitional dynamics.
    JEL: O30 O33 O40
    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.
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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.