nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒04‒23
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Causal relationship between fossil fuel consumption and economic growth in Japan: a multivariate approach By Hazuki Ishida
  2. Political versus Economic Institutions in the Growth Process By Emmanuel Flachaire; Cecilia Garcìa-Peñalosa; Maty Konte
  3. Democratization, Violent Social Conflicts, and Growth By Cervellati, Matteo; Sunde, Uwe
  4. How does political instability affect economic growth? By Ari Aisen; Francisco José Veiga
  5. A multi-sector version of the Post-Keynesian growth model By Araujo, Ricardo Azevedo; Teixeira, Joanílio Rodolpho
  6. Do State Fiscal Policies Affect State Economic Growth? By James Alm; Janet Rogers
  7. Military Keynesianism: An Assessment By J Paul Dunne
  8. Endogenous growth through knowledge spillovers in entrepreneurship: An empirical test By Delmar, Frédéric; Wennberg, Karl; Hellerstedt, Karin
  9. Technology Growth and Expenditure Growth in Health Care By Amitabh Chandra; Jonathan S. Skinner
  10. Long-run growth expectations and 'global imbalances' By Hoffmann, Mathias; Krause, Michael; Laubach, Thomas

  1. By: Hazuki Ishida (Faculty of Symbiotic Systems Science, Fukushima University)
    Abstract: Fossil fuels (oil, coal, gas) are low-entropy natural resources which seem to be indispensable for our economic prosperity. This paper investigates the relationship between fossil fuel consumption and economic growth in Japan, using a multivariate model of fossil fuels, non-fossil energy, labor and GDP. Using the Johansen cointegration technique, the empirical results indicate that there is a long-run relationship among the variables. Then using vector error correction model, the study reveals unidirectional causality running from fossil fuels to GDP. It implies that decline in fossil fuel consumption may hamper economic growth. On the other hand, non-fossil energy use does not appear to have positive effects on economic growth.
    Keywords: Fossil fuels, Economic growth, Cointegration, Granger causality
    JEL: Q32 Q43 Q57
    Date: 2011–04
  2. By: Emmanuel Flachaire (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Cecilia Garcìa-Peñalosa (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Maty Konte (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: After a decade of research on the relationship between institutions and growth, scholars in this field seem to be divided. Economic institutions perform well in growth regressions and a body of literature argues that this supports the key importance of institutions for development. Other authors maintain that the type of constraints that the recent theoretical literature describes are the more stable political institutions, and these have been found to play no role in empirical growth analyses. In this paper we re-examine the role that institutions play in the growth process using cross-section and panel data for both developed and developing economies over the period 1970-2000. Our results indicate that the data is best described by an econometric model with two growth regimes. Political institutions are the key determinant of which growth regime an economy belongs to, while economic institutions have a direct impact on growth rates within each regime. These findings support the hierarchy of institutions hypothesis, whereby political institutions set the stage in which economic institutions and policies operate.
    Keywords: growth; institutions; cross-country regressions; mixture regressions
    Date: 2011–04–14
  3. By: Cervellati, Matteo (University of Bologna); Sunde, Uwe (University of St. Gallen)
    Abstract: This paper investigates the empirical role of violent conflicts for the causal effect of democracy on economic growth. Exploiting within-country variation to identify the effect of democratization during the “Third Wave”, we find evidence that the effect of democratization is weaker than reported previously once one accounts for the incidence of conflict, while the incidence of conflict itself significantly reduces growth. The results show in turn that permanent democratic transitions significantly reduce the incidence and onset of conflict, which suggests that part of the positive growth effect of democratization arises because democratization reduces conflict incidence. When accounting for the role of violence during democratization, we find evidence that peaceful transitions to democracy have a significant positive effect on growth that is even larger than reported in the previous literature, while violent transitions to democracy have no, or even negative, effects on economic growth.
    Keywords: democratization, armed conflict, civil war, economic growth, democratization scenario, peaceful transition
    JEL: O43 N10 N40
    Date: 2011–04
  4. By: Ari Aisen; Francisco José Veiga
    Abstract: The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by slowing productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a slight negative effect.
    Date: 2010–04
  5. By: Araujo, Ricardo Azevedo; Teixeira, Joanílio Rodolpho
    Abstract: With this inquiry we seek to develop a disaggregated version of the post-Keynesian approach to economic growth, by showing that indeed it can be treated as a particular case of the Pasinettian model of structural change and economic expansion. By relying upon vertical integration it becomes possible to carry out the analysis initiated by Kaldor (1956) and Robinson (1956, 1962), and followed by Dutt (1984), Rowthorn (1982) and later Bhaduri and Marglin (1990) in a multi-sectoral model in which demand and productivity increase at different paces in each sector. By adopting this approach it is possible to show that the structural economic dynamics is conditioned not only to patterns of evolving demand and diffusion of technological progress but also to the distributive features of the economy, which can give rise to different regimes of economic growth. Besides, we find it possible to determine the natural rate of profit that makes the mark-up rate to be constant over time.
    Keywords: Post-Keynesian growth model; structural change; multi-sector models
    JEL: O11 D33 E11
    Date: 2011–04–14
  6. By: James Alm (Department of Economics, Tulane University); Janet Rogers (Department of Planning Section, Nevada Department of Administration Division of Budget & Planning)
    Abstract: What factors influence state economic growth? This paper uses annual state (and local) data for the years 1947 to 1997 for the 48 contiguous states to estimate the effects of a large number of factors, including taxation and expenditure policies, on state economic growth. A special feature of the empirical work is the use of orthogonal distance regression (ODR) to deal with the likely presence of measurement error in many of the variables. The results indicate that the correlation between state (and state and local) taxation policies is often statistically significant but also quite sensitive to the specific regressor set and time period; in contrast, the effects of expenditure policies are much more consistent. Of some interest, there is moderately strong evidence that a state's political orientation has consistent and measurable effects on economic growth; perhaps surprisingly, a more "conservative" political orientation is associated with lower rates of economic growth. Finally, correction for measurement error is essential in estimating the growth impacts of policies. Indeed, when measurement error is considered via ODR estimation, the estimation results do not support conditional convergence in state per capita income.
    Keywords: fiscal policies, regional economic growth, orthogonal distance regression
    JEL: H2 H7 O1 O4 R1 R5
    Date: 2011–04
  7. By: J Paul Dunne (University of the West of England and University of Cape Town)
    Abstract: The recent recession has seen something of resurgence in the debate over military Keynesianism. Recent commentators who should no better have claimed that it would make sense to stimulate the US economy through increases in military spending, as though this has not been a commonly contested view over the last 40 years. A large literature has debated the economic effects of military spending and while it has reached no consensus, there is also little support for any belief that military spending is a good way of stimulating the economy. This paper makes a contribution to the debate by assessing the theoretical perspectives and the empirical approaches used. It then undertakes an analysis of the US using a number of approaches and the results suggest that the simple Military Keynesian arguments still lack empirical support.
    Keywords: Military Spending; economic growth; VAR; CVAR
    JEL: H56 E12 E60
    Date: 2011–04
  8. By: Delmar, Frédéric (Research Institute of Industrial Economics and Center for Research in New Venture Creation and Growth); Wennberg, Karl (The Ratio Institute and Stockholm School of Economics); Hellerstedt, Karin (Jönköping International Business School)
    Abstract: Endogenous growth theory is based on the notion that technological knowledge stimulates growth, yet the micro foundations of this process are rarely investigated and remain obscure. Knowledge spillover theory posits that growth is contingent on the technology dependence of industries, forming the landscape for technology entrepreneurs to launch and grow new ventures. We investigate these theoretical contingencies of endogenous growth with two research questions at two levels of analysis: First, do industries with a greater need for new technology-based entrepreneurship grow disproportionately faster than other industries? Second, do the knowledge spillover effects foster the growth of new technology based firms contingent on certain industry structures? These questions are examined empirically, using a comprehensive employee-employer data set on the science and technology labor force in Sweden from 1995 to 2002.
    Keywords: Endogenous Growth; Entrepreneurship; Industry Evolution
    JEL: D24 L11 L26 M13
    Date: 2011–04–12
  9. By: Amitabh Chandra; Jonathan S. Skinner
    Abstract: In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country. We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth. We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs. The model implies a typology of medical technology productivity: (I) highly cost-effective “home run” innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g. stents), and (III) “gray area” treatments with uncertain clinical value such as ICU days among chronically ill patients. Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the U.S. to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.
    JEL: D24 I1 I12
    Date: 2011–04
  10. By: Hoffmann, Mathias; Krause, Michael; Laubach, Thomas
    Abstract: This paper examines to what extent the build-up of 'global imbalances' since the mid-1990s can be explained in a purely real open-economy DSGE model in which agents' perceptions of long-run growth are based on filtering observed changes in productivity. We show that long-run growth estimates based on filtering U.S. productivity data comove strongly with long-horizon survey expectations. By simulating the model in which agents filter data on U.S. productivity growth, we closely match the U.S. current account evolution. Moreover, with household preferences that control the wealth effect on labor supply, we can generate output movements in line with the data. --
    Keywords: open economy DSGE models,trend growth,Kalman filter,real-time data,news and business cycles,current account
    JEL: F32 E32 D83
    Date: 2011

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