nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒06‒04
thirteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. FDI and growth: what cross-country industry data say By Cipollina, Maria; Giovannetti, Giorgia; Pietrovito, Filomena; Pozzolo, Alberto Franco
  2. The Role of Intangible Assets on the Economic Performances in Japan and Korea (Japanese) By MIYAGAWA Tsutomu; TAKIZAWA Miho
  3. Dynamic panels with predetermined regressors: likelihood-based estimation and Bayesian averaging with an application to cross-country growth By Enrique Moral-Benito
  4. Robust Growth Determinants By Doppelhofer, G.; Weeks, M.
  5. Product Innovation and Economic Growth, Part II: The role of intermediate goods for product innovation (Japanese) By YOSHIKAWA Hiroshi; ANDO Koichi; MIYAKAWA Shuko
  6. Commodity Price Volatility and the Sources of Growth By Cavalcanti, V.; Mohaddes, K.; Raissi, M.
  7. The Macroeconomy and Individuals’ Support for Democracy By Friedrichsen, J.; Zahn, P.
  8. An OLG model of growth with longevity: when grandparents take care of grandchildren By Fanti, Luciano; Gori, Luca
  9. Information gathering, innovation and growth By Parello, Carmelo Pierpaolo
  10. Credit cycles: Evidence based on a non linear model for developed countries By Rebeca Anguren Martín
  11. Fiscal and Monetary Institutions in Central, Eastern and South-Eastern European Countries By Zsolt Darvas; Valentina Kostyleva
  12. Ireland’s Sovereign Debt Crisis By Karl Whelan
  13. Sources of Future Economic Growth in Japan: An empirical analysis based on micro-data (Japanese) By FUKAO Kyoji; KWON Hyeog Ug

  1. By: Cipollina, Maria; Giovannetti, Giorgia; Pietrovito, Filomena; Pozzolo, Alberto Franco
    Keywords: Foreign Direct Investment, Economic Growth, Capital Intensity, Technological Progress, Total Factor Productivity
    Date: 2011–05–07
  2. By: MIYAGAWA Tsutomu; TAKIZAWA Miho
    Abstract: Though the economies of both Japan and Korea suffered during the 1997-1998 financial crisis, economic performances in both countries have diverged somewhat after the financial crisis. The Korean economy recovered swiftly and has maintained an economic growth rate of 4%, but Japan's economic growth rate has remained low.<br /><br />Following the McGrattan and Prescott model, which includes intangible assets in the standard real business cycle (RBC) model, we explain the differences in the economic performances of Japan and Korea. According to our simulation results, the shares of intangible assets in Japan and Korea are 10% and 7%, respectively. Growth accounting (using the simulation results) shows that the accumulation of intangible assets and higher total factor productivity (TFP) contributed to the economic growth recorded in Korea, while the low accumulation of both tangible and intangible assets in Japan contributed to its low economic growth.
    Date: 2011–03
  3. By: Enrique Moral-Benito (Banco de España)
    Abstract: This paper discusses likelihood-based estimation of linear panel data models with general predetermined variables and individual-specific effects. The resulting (pseudo) maximum likelihood estimator is asymptotically equivalent to standard GMM but tends to have smaller finite-sample biases as illustrated in simulation experiments. Moreover, the availability of such a likelihood function allows applying the Bayesian apparatus to this class of panel data models. Combining the aforementioned estimator with Bayesian model averaging methods we estimate empirical growth models simultaneously considering endogenous regressors and model uncertainty. Empirical results indicate that only the investment ratio seems to robustly cause long-run economic growth. Moreover, the estimated rate of convergence is not significantly different from zero.
    Keywords: dynamic panel estimation, maximum likelihood, weak instruments, growth regressions, bayesian model averaging
    JEL: C11 C33 O40
    Date: 2011–05
  4. By: Doppelhofer, G.; Weeks, M.
    Abstract: This paper investigates the robustness of determinants of economic growth in the presence of model uncertainty, parameter heterogeneity and outliers. The robust model averaging approach introduced in the paper uses a flexible and parsimonious mixture modeling that allows for fat-tailed errors compared to the normal benchmark case. Applying robust model averaging to growth determinants, the paper finds that eight of eighteen variables found to be significantly related to economic growth by Sala-i-Martin et al. (2004) are sensitive to deviations from benchmark model averaging. For example, the GDP shares of mining or government consumption, are no longer robust or economically significant once deviations from the normal benchmark assumptions are allowed. The paper identifies outlying observations - most notably Botswana - in explaining economic growth in a cross-section of countries.
    JEL: C11 C21 C52 O20 O47 O50
    Date: 2011–01–31
  5. By: YOSHIKAWA Hiroshi; ANDO Koichi; MIYAKAWA Shuko
    Abstract: Technological progress, especially product innovation, plays an important part in generating economic growth under the conditions of low fertility and an aging population. Technological progress is typically measured by growth accounting, that is, total factor productivity (TFP). The analysis of IT products measured by TFP is certainly important, but it does not provide the whole picture regarding the contribution of IT products to economic growth. <br /><br />Based on our previous paper, this paper further explains the relationship between product innovation and TFP theoretically. To capture the wider picture of product innovation, Part II examines solar power and smart phones, both of which have shown remarkable demand-driven growth recently. Also, we discuss the role of intermediate goods for product innovation in a broad sense.
    Date: 2011–03
  6. By: Cavalcanti, V.; Mohaddes, K.; Raissi, M.
    Abstract: This paper studies the impact of the level and volatility of commodity terms of trade on economic growth, as well as on the three main growth channels: total factor productivity, physical capital accumulation, and human capital acquisition. We argue that volatility, rather than abundance per se, drives the "resource curse" paradox and also investigate empirically whether export diversification of commodity dependent countries contribute to faster growth. We use the standard system GMM approach as well as an augmented version of the pooled mean group (PMG) methodology of Pesaran et al. (1999) for estimation. The latter takes account of cross-country heterogeneity and cross-sectional dependence, while the former controls for biases associated with simultaneity and unobserved country-specific effects. Using both annual data for 1970-2007 and five-year non-overlapping observations, we find that while commodity terms of trade growth enhances real output per capita, volatility exerts a negative impact on economic growth operating mainly through lower accumulation of physical capital. Our results indicate that the negative growth effects of CTOT volatility offset the positive impact of commodity booms.
    Keywords: Growth, resource curse, commodity prices, volatility
    JEL: C23 F43 O13 O40
    Date: 2011–01–26
  7. By: Friedrichsen, J.; Zahn, P.
    Abstract: How important are national macroeconomic indicators for people’s satisfaction with democracy? This paper empirically explores the link from macroeconomic variables to support for established democratic systems. We combine country-level data on growth, inflation, and unemployment from the OECD with survey data from the Eurobarometer for nineWestern European countries for the period 1976-2001. We regress individual satisfaction with democracy on macroeconomic variables and individual controls. Our regressions include country-specific time trends as well as fixed effects for countries and surveyyears. Pooling observations from nine countries, we find that growth (inflation and unemployment) is positively (negatively) correlated with satisfaction with democracy. The effect goes beyond what can be explained by individual characteristics and is non-negligible if interpreted in light of the recent economic crisis. Our findings are robust to alternative specifications using logit and ordered logit models.
    Keywords: Satisfaction with democracy, Economic Growth, Political Economy
    JEL: H11 O42 P16
    Date: 2011–01–26
  8. By: Fanti, Luciano; Gori, Luca
    Abstract: By assuming that grandparents take care of grandchildren, in this paper we aim at studying the effects of longevity on economic growth in the basic OLG model with endogenous fertility. We show that a rise in longevity can actually reduce long-run growth. Moreover, we also find that an increasing longevity (i) increases the supply of labour by the young parents, and (ii) causes fertility either to increase of decrease depending on the size of the grandparental child rearing time.
    Keywords: Longevity; OLG model
    JEL: J13 O41 J22
    Date: 2011–05–28
  9. By: Parello, Carmelo Pierpaolo
    Abstract: In this paper we study the economic implications of IPR protection on corporate intelligence, R&D investment and economic growth. To accomplish this objective, we introduce trade secret and information leakage into a standard quality-ladder growth model and study the long-run implications of improving the privacy of firms' data. We find that reducing the set of practices of information gathering is more effective in protecting firms' privacy than strengthening trade secrets.
    Keywords: Quality-improvement; R&D; information leakages; corporate intelligence; growth.
    JEL: L51 D91 O32 K42 O33
    Date: 2011–03–02
  10. By: Rebeca Anguren Martín (Banco de España)
    Abstract: We propose an econometric analysis of the evolution of bank credit to the private sector in order to describe credit cycles and identify phases of particularly low (or negative) credit growth such as those that typically accompany financial or banking crises. We use a sample of twelve developed countries, which improves the reliability of our estimation results and provides a global view of the situation of credit for developed countries. In our preferred specification, the credit cycle is characterized as a three-state Markov-switching model that identifies episodes of credit expansion, intermediate credit growth and subpar growth or credit crisis. This specification identifies six of the countries as having experienced period of credit adjustment after the beginning of the financial crisis in 2007 (Canada, Germany, Netherlands, Spain, Switzerland and US). By the end of the sample period, credit growth was still impaired in three of these countries (Germany and Spain in 2010:I; and United States in 2009:IV). The analysis also uncovers a systematic cyclical pattern in the bank lending sector of the group of advanced countries considered in our sample, which have experienced five episodes of synchronous restrictions in bank lending: 1974-75, 1980-82, 1991-93, 2001-02 and from 2008 to the end of the sample.
    Keywords: credit cycle, banking crisis, fi nancial crisis, Markov, business cycle
    JEL: E44 E51 G21
    Date: 2011–05
  11. By: Zsolt Darvas; Valentina Kostyleva (OECD Public Governance and Territorial Development Directorate)
    Abstract: This paper studies the role of fiscal and monetary institutions in macroeconomic stability and budgetary control in central, eastern and south-eastern European countries (CESEE) in comparison with other OECD countries. CESEE countries tend to grow faster and have more volatile output than non-CESEE OECD countries, which has implications for macroeconomic management: better fiscal and monetary institutions are needed to avoid pro-cyclical policies. The paper develops a Budgetary Discipline Index to assess whether good fiscal institutions underpin good fiscal outcomes. Even though most CESEE countries have low scores, the debt/GDP ratios declined before the crisis. This was largely the consequence of a very favourable relationship between the economic growth rate and the interest rate, but such a favourable relationship is not expected in the future. Econometric estimations confirm that better monetary institutions reduce macroeconomic volatility and that countries with better budgetary procedures have better fiscal outcomes. All these factors call for improved monetary institutions, stronger fiscal rules and better budgetary procedures in CESEE countries.
    Keywords: CESEE countries, Budgetary Discipline Index, budget process, fiscal institutions, budgetary institutions, monetary institutions, macroeconomic stability, econometric analysis, budgetary procedures, fiscal outcomes, fiscal rules
    JEL: E32 E50 H11 H60
    Date: 2011–04
  12. By: Karl Whelan (University College Dublin)
    Date: 2011–05–23
  13. By: FUKAO Kyoji; KWON Hyeog Ug
    Abstract: Using micro-data of the <i>Establishment and Enterprise Census and the Basic Survey of Japanese Business Structure and Activities</i>, we examine the characteristics of firms that were active in jobs creation, capital accumulation, and the improvement of total factor productivity (TFP). We also analyze in what industries jobs were created. Our main findings are as follows: (1) younger firms and affiliates of foreign firms have created many jobs through new entry and firm expansion, whereas most of the older and larger firms have been reducing employment; (2) most of the new jobs were created in the service sector, while job destruction mainly occurred in the manufacturing and construction sectors; (3) younger firms were also active in capital accumulation; (4) younger firms and foreign-owned firms tended to have a higher TFP level and achieve higher TFP growth; and (5) large firms, which were active in R&D, international trade, and direct investment abroad, also tended to have a higher TFP level and achieve higher TFP growth.
    Date: 2011–04

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