nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒03‒12
thirteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Beyond the Crisis: Prospects for Emerging Europe By Zsolt Darvas
  2. Infectious Diseases and Economic Growth By Aditya Goenka; Lin Liu; Manh-Hung Nguyen
  3. Defense Expenditure and Economic Growth under External Predation By Liu, Tao-Xiong; Hu, An-Gang; Zhou, Bi-Hua
  4. Efficient redistribution policy: an analysis focused on the quality of institutions and public education By Elena Sochirca; Sandra Tavares Silva
  5. Infrastructure Policy for Shared Growth Post-2008: More and Better, or Simply More Complex ? By Antonio Estache
  6. Demand-Led Growth Theory: An Historical Approach By Smith, Matthew
  7. Macro-financial Linkage and Financial Deepening in China after the Global Financial Crisis By Kumiko Okazaki; Tomoyuki Fukumoto
  8. Is per capita GDP non-linear stationary in SAARC countries? By Tiwari, Aviral; Shahbaz, Muhammad; Shabbir, Muhammad
  9. Gazelles, Industry Growth and Structural Change By Jaap Bos; Erik Stam
  10. Optimal growth and the golden rule in a two-sector model of capital accumulation By Mehdi Senouci
  11. A Model of Technology Transfer in Japan's Rapid Economic Growth Period By Aoki, Shuhei
  12. "Measuring Macroprudential Risk: Financial Fragility Indexes" By Éric Tymoigne
  13. Reoccurring Financial Crises in the United States By Yochanan Shachmurove

  1. By: Zsolt Darvas (Institute of Economics Hungarian Academy of Sciences)
    Abstract: This paper assesses the impact of the 2008-09 global financial and economic crisis on the medium-term growth prospects of the countries of central and eastern Europe, the Caucasus and Central Asia, which began an economic transition about two decades ago. We use cross-country growth regressions, putting special emphasis on a proper consideration of the crisis and robustness. We find that the crisis has had a major impact on the within-sample fit of the models used and that the positive impact of EU enlargement on growth is smaller than previous research has shown. The crisis has also altered the future growth prospects of the countries studied, even in the optimistic but unrealistic case of a return to pre-crisis capital inflows and credit booms.
    Keywords: crisis; economic growth; growth regressions; transition countries
    JEL: C31 C33 O47
    Date: 2011–01
  2. By: Aditya Goenka; Lin Liu; Manh-Hung Nguyen
    Date: 2011–02
  3. By: Liu, Tao-Xiong; Hu, An-Gang; Zhou, Bi-Hua
    Abstract: This paper develops a growth model of a country under a Hobbesian environment with international conflicts where national defense is the only way to prevent external predation. The long run growth path is determined by the equilibrium of a dynamic game with three players, the external predator, the government and the family. The equilibrium growth path has three phases, submissive equilibrium, tolerant equilibrium and full-protected equilibrium. Different defense strategies result in different growth prospects and sustainable growth will endogenously induce adjustment of defense strategies.
    Keywords: economic growth; predate; defense expenditure
    JEL: F51 E60
    Date: 2011–01–07
  4. By: Elena Sochirca (Faculdade de Economia, Universidade do Porto); Sandra Tavares Silva (CEF.UP, Faculdade de Economia, Universidade do Porto)
    Abstract: In this work we intend to study how the quality of the institutional factor may influence the efficiency of redistribution policy specifically associated with human capital accumulation. We develop a conceptual discussion building on the importance of income redistribution for economic growth and the key role of political institutions in securing growth-enhancing redistribution policies. We introduce endogenous growth theory elements into our analysis by considering as a fundamental source of economic growth human capital accumulation, motivated by tax-financed education secured through efficient redistribution policies. We outline crucial insights on the underlying mechanisms, emphasizing however that extensive research on the subject is undoubtedly still required. In particular, we identify the main factors negatively affecting the decisive role of political institutions and, consequently, distorting efficient redistribution policy. We then define a political-economic equilibrium as a combination of intermediately strong state and efficient control-rights institutions, implying simultaneous protection from expropriation and implementation of efficient redistribution policy, conducive to sustained economic growth.
    Keywords: redistribution policy, human capital, institutions, taxation, public education, economic growth
    JEL: H23 E24 O43
    Date: 2011–03
  5. By: Antonio Estache
    Date: 2010–09
  6. By: Smith, Matthew
    Abstract: This paper develops upon the Keynesian theory of demand-led growth in order to provide an analytical framework conducive to explaining economic growth and development in concrete terms consistent with the fundamental idea that growth in output and employment is determined by the growth in aggregate demand. The framework employs an historical approach to identify the main factors and their role in explaining demand-led growth and the accumulation process. The theoretical model developed abandons steady-state conditions by proposing that capacity utilization varies in the long run as well as in the short run to ensure output has the elasticity to accommodate levels of autonomous demand free of any capacity saving constraint. On the basis of our analytical framework, the paper considers the main factors which explain the growth in aggregate demand: first, by examining the variables that determine the ‘super-multiplier' and what social, institutional and technical conditions can cause its value to change over time; second, by identifying the components of autonomous demand and the main forces explaining their growth; and third, by considering the manner in which technical progress promotes demand-led growth.
    Keywords: economic history; classical economics; Keynesian demand-led growth; growth theory
    Date: 2011–02
  7. By: Kumiko Okazaki (Director and Senior Economist, Deputy Head of Planning and Coordination Group, Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Tomoyuki Fukumoto (Associate Director-General, Head of Planning and Coordination Division, International Department, Bank of Japan (E-mail:
    Abstract: As China's economic integration with the global economy deepens, the amount of capital flow to/from China has been increasing significantly, especially since it joined the WTO. In spite of such environment, the recent global financial crisis has not severely affected the Chinese financial markets because of China's relatively strict control of cross-border capital transactions and its strong economic and financial fundamentals. The government's stimulus policies worked effectively to realize a quick recovery of the country's economic growth. However, on the horizon, the factors that protected the Chinese economy during the crisis also seem to carry with them substantial risks and challenges to its sustainable growth. This paper reviews the factors that have kept the Chinese economy and financial markets relatively stable and analyzes the recent changes in China's macro financial linkage overseas, and highlights the challenges that China faces in realizing a sustainable and efficient economic development.
    Keywords: Macro-financial Linkage, Financial Deepening, Cross-border Capital Flow, Bank Lending
    JEL: F36 O53 P34
    Date: 2011–01
  8. By: Tiwari, Aviral; Shahbaz, Muhammad; Shabbir, Muhammad
    Abstract: Using data for SAARC region, we found real GDP per capita is nonlinear stationary implying that shocks to economy by economic policies (external or internal) have permanent effects on real per capita GDP of SAARC countries. This finding reveals that classical growth model works better to boost economic growth in long run.
    Keywords: GDP; Non-stationarity; panel unit root tets
    JEL: C32 E32
    Date: 2011–02–19
  9. By: Jaap Bos; Erik Stam
    Abstract: This paper examines to what extent gazelles are the drivers of the growth of industries and structural change. To this purpose we analyze gazelles over a 12 year period (annually from 1997 until 2008) in the Netherlands, and relate them to the dynamics in employment per industry. We use a panel vector autoregressive (PVAR) model to explore the relations between the presence of gazelles and industry (employment) growth (with 43 two digit industries). An increase in the presence of gazelles in an industry appears to have a positive effect on the subsequent growth of the industry. We do not find evidence for an inverse causal relation: there are no long run positive effects of increases in industry growth on the presence of gazelles. There is also no relation between the overrepresentation of gazelles and subsequent industry growth.
    Keywords: entrepreneurship, gazelles, industry growth, structural economic change
    JEL: C23 D31 J31 J60
    Date: 2011–02
  10. By: Mehdi Senouci (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We contribute to the literature on optimal growth in two-sector models by solving a Ram- sey problem with a concave utility function. The unique possible steady-state is independent of initial conditions and of the instantaneous utility function, but not of the discount rate, and is characterized by a wage-rental ratio depending solely on the technology of the capital sector. For an initially low-capital economy, we show that the wage-rental ratio increasingly converges to its balanced value during transition. If the consumption sector is relatively capital-intensive, the relative price of capital increases during transition. If the investment sector is relatively more capital-intensive, it decreases. We also prove that a negative shock on the subjective rate of impatience, that makes the social planner more patient, leads to an immediate positive jump in asset prices.
    Keywords: capital accumulation ; optimal growth ; golden rule ; two-sector models
    Date: 2011–02
  11. By: Aoki, Shuhei
    Abstract: Why did the Japanese economy stagnate before World War II, how did it achieve rapid economic growth after the war, and why did it stagnate again after the 1970s? To answer these questions, I developed a two-country trade model with technology transfer, where rms in the two countries compete in a Bertrand fashion, where rms in a developed country (the U.S.) transfer technology to rms in a developing country (Japan) if it is protable to do so, and where the technology transfer is the engine of economic growth. In this model, among multiple equilibria, the equilibrium with low labor cost in Japan was chosen during the rapid growth period. As a result, the rms in the developed country transferred technology to the rms in the developing country, resulting in rapid growth. However, during the other periods, the equilibrium with high labor cost in Japan was chosen, which caused stagnation. The model is quantitatively consistent with the per capita GDP relative to the U.S., the purchasing power parity-exchange rate ratio, and to some degree, the swings in labor share of postwar Japan.
    Keywords: Japan's rapid economic growth; Licensing; Technology transfer; Undervaluation of yen.
    JEL: O11 O41 F43
    Date: 2011–03–01
  12. By: Éric Tymoigne
    Abstract: With the Great Recession and the regulatory reform that followed, the search for reliable means to capture systemic risk and to detect macrofinancial problems has become a central concern. In the United States, this concern has been institutionalized through the Financial Stability Oversight Council, which has been put in charge of detecting threats to the financial stability of the nation. Based on Hyman Minsky's financial instability hypothesis, the paper develops macroeconomic indexes for three major economic sectors. The index provides a means to detect the speed with which financial fragility accrues, and its duration; and serves as a complement to the microprudential policies of regulators and supervisors. The paper notably shows, notably, that periods of economic stability during which default rates are low, profitability is high, and net worth is accumulating are fertile grounds for the growth of financial fragility.
    Keywords: Financial Fragility; Financial Regulation; Financial Crises; Macroprudential Risk; Debt-Deflation Process; Ponzi Finance
    JEL: E32 G18 G28 G38
    Date: 2011–03
  13. By: Yochanan Shachmurove (Department of Economics, University of Pennsylvania and The City College of The City University of New York)
    Abstract: The economic history of the United States is riddled with financial crises and banking panics. During the nineteenth-century, eight major such episodes occurred. In the period following World War II, some believed that these crises would no longer happen, and that the U.S. had reached a time of everlasting financial stability and sustainable growth. The Savings and Loans Crisis of the 1980s, the 2001 dot-com bust and the 2007 housing bubble that led to the current global financial crises demonstrate that these phenomena are still reoccurring. Regulators and policy makers should keep aware of the recurrence of such crises.
    Keywords: Financial Crises; Financial Regulations and Reforms; Banking Panics; Banking Runs; Nineteenth and Twentieth Century Crises; Bankruptcies; Federal Reserve Bank; Subprime Mortgage; Troubled Asset Relief Program (TARP); Collateralized Debt Obligations (CDO); Mortgage Backed Securities (MBO); Glass-Steagall Act; J.P. Morgan Chase; Bear Stearns; Augustus Heinze; Timothy Geithner; Paul Volcker.
    JEL: E0 E3 E44 E5 E6 N0 N1 N2 G0 G18 G38
    Date: 2011–07–01

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