nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒01‒03
sixteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Growth and Crisis, Unavoidable Connection? By Roberto Piazza
  2. The Role of Education in Economic Growth By Cooray, Arusha
  3. Financial Development and Growth: A Positive, Monotonic Relationship? Empirical Evidences from South Africa By Jalil, Abdul; Wahid, Abu N. M.; Shahbaz, Muhammad
  4. Steady-State Growth and the Elasticity of Substitution By Andreas Irmen
  5. Financial Intermediation and Economic Growth: Evidence from the Baltic countries By Soultanaeva, Albina
  6. New Technology, Human Capital and Growth for a Developing Country By Le Van, Cuong; Luong, Thai Bao; Nguyen, Manh-Hung; Nguyen, Tu-Anh
  7. Endogenous growth in a model with heterogeneous agents and voting on public goods By Borissov, Kirill; Surkov, Alexander
  8. Effect of finance on growth through more efficient utilization of technological innovations By Ikonen, Pasi
  9. Public policy, trust and growth: disclosure of government information in Japan. By Yamamura, Eiji
  10. Existence of competitive equilibrium in an optimal growth model with heterogeneous agents and endogenous leisure By Goenka, Aditya; Le Van, Cuong; Nguyen, Manh-Hung
  11. Growth and convergence in a model with renewable and non-renewable resources: existence, transitional dynamics, and empirical evidence By Nguyen, Manh-Hung; Nguyen-Van, Phu
  12. The relationship between bankruptcy risk and growth for non-listed firms By Nordal, Kjell Bjorn; Naes, Randi
  13. Service Sector Productivity in Japan: The key to future economic growth By FUKAO Kyoji
  14. Growth and convergence in a model with renewable and non-renewable resources: existence, transitional dynamics, and empirical evidence By Nguyen, Manh-Hung; Nguyen-Van, Phu
  15. Global Burden of Disease and Economic Growth By Martine AUDIBERT; Pascale COMBES MOTEL; Alassane DRABO
  16. The balance-of-payments constraint on economic growth in a long-term perspective: Spain, 1850-2000 By Oscar Bajo-Rubio

  1. By: Roberto Piazza
    Abstract: In emerging economies periods of rapid growth and large capital inflows can be followed by sudden stops and financial crises. I show that, in the presence of financial markets imperfections, a simple modification of a neoclassical growth model can account for these facts. I study a growth model for a small open economy where decreasing marginal returns to capital appear only after the country has reached a threshold level of development, which is uncertain. Limited enforceability of contracts allows default on international debt. International investors optimally choose to suddenly restrict lending when the appearance of decreasing marginal returns slows down growth. The economy defaults and enters a financial crisis.
    Keywords: Capital inflows , Capital markets , Credit restraint , Debt sustainability , Economic growth , Economic models , Emerging markets , External borrowing , Financial crisis ,
    Date: 2010–11–22
  2. By: Cooray, Arusha (University of Wollongong)
    Abstract: This study examines the effect of the quantity and quality of education on economic growth. Using a number of proxy variables for the quantity and quality of education in a cross section of low and medium income countries, this study finds that education quantity when measured by enrolment ratios, unambiguously influences economic growth. The effect of government expenditure on economic growth is largely indirect through its impact on improved education quality.
    Keywords: Economic Growth, Education Quantity, Enrolment, Government Spending on Education, Education Quality, Cross Country
    JEL: O11 O15
    Date: 2010
  3. By: Jalil, Abdul; Wahid, Abu N. M.; Shahbaz, Muhammad
    Abstract: The objective of this article is to investigate the relationship between development of the financial sector and economic growth for South Africa. For this purpose, we data for 1965-2007 and set the estimation strategy under the ARDL framework. Importantly, four indicators for the financial developments are utilized to accomplish our tasks. We find a positive monotonic relationship between financial development and economic growth for South Africa. Trade openness and per capita real capital are found as the other important determinants of economic growth in South Africa.
    Keywords: Financial Development; Trade; Growth; South Africa; ARDL; Monotonic relationship
    JEL: O40 G21
    Date: 2010–12–24
  4. By: Andreas Irmen (University of Luxembourg and CESifo, Munich)
    Abstract: In a neoclassical economy with endogenous capital- and labor-augmenting technical change the steady-state growth rate of output per worker is shown to increase in the elasticity of substitution between capital and labor. This confirms the assessment of Klump and de La Grandville (2000) that a greater elasticity of substitution allows for faster economic growth. However, unlike their findings my result applies to the steady-state growth rate. Moreover, it does not hinge on particular assumptions on how aggregate savings come about. It holds for any household sector allowing savings to grow at the same rate as aggregate output.
    Keywords: Capital Accumulation, Elasticity of Substitution, Direction of Technical Change, Neoclassical Growth Model.
    JEL: E22 O11 O33 O41
    Date: 2010
  5. By: Soultanaeva, Albina (Department of Economics, Umeå University)
    Abstract: The hypothesis that financial development promotes economic growth is largely supported by empirical studies. This hypothesis is tested for the three Baltic countries using a time series approach that allows for interactions between the three countries. We find that economic growth is a positive function of financial development, proxied by banking credit available to private sector, in the long run. The results also show that there are long run interactions between the three Baltic countries.
    Keywords: Cointegration; Spillovers; Financial development; Emerging markets
    JEL: C32 F43 O16
    Date: 2010–12–21
  6. By: Le Van, Cuong; Luong, Thai Bao; Nguyen, Manh-Hung; Nguyen, Tu-Anh
    Date: 2010–12
  7. By: Borissov, Kirill; Surkov, Alexander
    Abstract: We consider a Barro-type endogenous growth model in which the government’s purchases of goods and services enter into the production function. The provision of government services is financed by flat-rate (linear) income or lump-sum taxes. It is assumed that individuals differing in their discount factors vote on the tax rates. We propose a concept of voting equilibrium leading to some versions of the median voter theorem for steady-state equilibria, fully characterize steady-state equilibria and show that if the median voter discount factor is sufficiently low, the long-run rate of growth in the case of flat-rate income taxation is higher than that in the case of lump-sum taxation.
    Keywords: economic growth; voting; proportional; flat-rate; linear tax; lump-sum tax; heterogeneous agents; endogenous growth
    JEL: E62 H21 H31 H41 D91 D72 O4
    Date: 2010
  8. By: Ikonen, Pasi (Bank of Finland Research)
    Abstract: This paper models the effects of financial development on economic growth through better or more efficient utilization of technological innovations. The model is based on the endogenous growth theory of Aghion and Howitt and its derivatives, especially the growth model of Aghion, Howitt and Mayer-Foulkes, which covers the effect of financial development on convergence. The main contribution of this paper is to model the innovation channel of finance explicitly. The paper focuses particularly on the interaction term between the measure of own innovation and financial development. As countries approach the technological frontier, own innovation becomes more important to sustain a high growth rate. An adequate level of financial development is needed to realize the full potential of own innovation for economic growth. The data covers the period 1960–2007 for anvanced economies, emerging markets and some other countries for which data are available. In estimation of the model, different regression specifications for the data panel are applied. The robustness of the results is also tested in several ways. The results show a significant and positive sign for the interaction term between the measure of own innovation and financial development in the most important configurations. This suggests that the innovation channel of finance is likely to have a positive role to play in economic growth.
    Keywords: endogenous growth; innovation; financial development; growth empirics
    JEL: O31 O33 O47
    Date: 2010–12–23
  9. By: Yamamura, Eiji
    Abstract: Since the end of the 1990s, local governments in Japan have enacted Information Disclosure Ordinances, which require the disclosure of official government information. This paper uses Japanese prefecture-level data for the period 1998–2004 to examine how this enactment affected economic growth. Furthermore, this paper explores how generalized trust is associated with the effect of information disclosure on economic growth. The Dynamic Panel model is used to control for unobserved prefecture specific effects and endogenous bias. The major findings are: (1) disclosure of government information has a positive effect on GDP growth; and (2) generalized trust enhances this effect on GDP growth. This implies that social trust has a critical influence on the effectiveness of policy.
    Keywords: Information disclosure; Local government; Trust; Growth
    JEL: D73 D78 Z13 D79
    Date: 2010–12–20
  10. By: Goenka, Aditya; Le Van, Cuong; Nguyen, Manh-Hung
    Date: 2010–12
  11. By: Nguyen, Manh-Hung; Nguyen-Van, Phu
    Date: 2010–12
  12. By: Nordal, Kjell Bjorn (Norges Bank); Naes, Randi (University of Stavanger)
    Abstract: .
    Keywords: Non-listed firms; growth; bankruptcy risk
    JEL: G10 G30
    Date: 2010–12–17
  13. By: FUKAO Kyoji
    Abstract: This paper aims to examine three issues: how bad the productivity performance in Japan’s service sector has been; why it is important to accelerate TFP growth in the service sector; and why TFP has stagnated in Japan’s service sector. The main findings of the paper are as follows. First, TFP growth in the manufacturing sector is much higher than that in other sectors, although the manufacturing sector’s share is declining rapidly. For Japan, whose population is in decline, productivity growth in the service sector is key for economic growth. Second, TFP growth in ICT-using sectors declined substantially after 1995. Third, accumulation of ICT assets in Japan was very slow in comparison with other developed countries. Forth, the low level of intangible investment is probably one important cause of the stagnation of TFP; another is that Japan’s service sector has fallen behind with regard to investment in ICT. Fifth, it seems that Japan’s low metabolism also impedes productivity growth. Sixth, firms invest little in on-the-job training and off-the-job training for part-time workers, and the increase in part-time workers may have slowed down human-capital accumulation. Seventh, it appears that Japanese firms have fallen behind in terms of internationalization and economies of scale.
    Date: 2010–09
  14. By: Nguyen, Manh-Hung; Nguyen-Van, Phu
    Date: 2010–12
  15. By: Martine AUDIBERT (Centre d'Etudes et de Recherches sur le Développement International); Pascale COMBES MOTEL (Centre d'Etudes et de Recherches sur le Développement International); Alassane DRABO
    Abstract: Relationships between health and economic prosperity or economic growth are difficult to assess. The direction of the causality is often questioned and the subject of a vigorous debate. For some authors, diseases or poor health had contributed to poor growth performances especially in low-income countries. For other authors, the effect of health on growth is relatively small, even if one considers that investments which could improve health should be done. It is argued in this paper that commonly used health indicators in macroeconomic studies (e. g. life expectancy, infant mortality or prevalence rates for specific diseases such as malaria or HIV/AIDS) imperfectly represent the global health status of population. Health is rather a complex notion and includes several dimensions which concern fatal (deaths) and non-fatal issues (prevalence and severity of cases) of illness. The reported effects of health on economic growth vary accordingly with health indicators and countries included in the analyses. The purpose of the paper is to assess the effect of a global health indicator on growth, the so-called disability-adjusted life year (DALY) that was proposed by the World Bank and the WHO in 1993. Growth convergence equations are run on 159 countries over the 1999-2004's period, where the potential endogeneity of the health indicator is dealt for. The negative effect of poor health on economic growth is not rejected thus reinforcing the importance of achieving MDGs.
    Keywords: Disease Global Burden, DALYs, economic growth, macroeconomic health impact, cross-country analysis
    JEL: E22 E24 I10 I18 O47
    Date: 2010
  16. By: Oscar Bajo-Rubio (Universidad de Castilla-La Mancha)
    Abstract: The balance of payments can act as a constraint to the rate of growth of output, on setting a limit to the growth of the level of demand to which supply can adapt. In this paper, we examine this issue for the case of Spain, using time series data extending over one-and-a-half century, i.e., the period 1850-2000. Our results show that the foreign sector would have worked as a constraint to growth only during some periods of remarkably high growth in comparison with the Western European average, such as 1914-1935, and, especially, 1950-1975.
    Keywords: Economic growth, External deficit, Spanish economy.
    JEL: F41 F43 N10
    Date: 2010–12

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