nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒06‒11
thirteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond By Ugur, Mehmet; Dasgupta, Nandini
  2. Economic Growth and Political Survival By Paul J Burke
  3. Financial Innovation and Endogenous Growth By Stelios Michalopoulos; Luc Laeven; Ross Levine
  4. The Scorecard on Development, 1960-2010: Closing the Gap? By Mark Weisbrot; Rebecca Ray
  5. Remittances and Economic Growth in Africa, Asia, and Latin American-Caribbean Countries: A Panel Unit Root and Panel Cointegration Analysis. By Bichaka Fayissa; Christian Nsiah
  6. Is Fiscal Policy Alone Enough for Growth ? A Simulation Analysis for Bolivia By Carlos Gustavo Machicado; Paul Estrada; Ximena Flores
  7. Elite Political Instability and Economic Growth: An Empirical Evidence from the Baltic States By Ladislava Grochová; Luděk Kouba
  8. Intangible capital and Productivity Growth in European Countries By Cecilia Iona Lasinio; Massimiliano Iommi; Stefano Manzocchi
  9. Impact of Trading Gains on Economic Growth in BRICs for 1995-2010: Some Lessons from BRICs By Kuboniwa, Masaaki
  10. The Remarkable Durability of Thirlwall’s Law By Mark Setterfield
  11. Illegal Immigration, Factor Substitution and Economic Growth By Theodore Palivos; Jianpo Xue; Chong K. Yip
  12. From ‘Plan B’ to ‘Plan V’: what the UK economy needs to reboot and rebalance growth. By Van Reenen, John
  13. On Firm Growth and Innovation. Some new empirical perspectives using French CIS (1992-2004) By Alessandra Colombelli; Naciba Haned; Christian Le Bas

  1. By: Ugur, Mehmet; Dasgupta, Nandini
    Abstract: Corruption is a symptom and outcome of institutional deficiency, with potentially adverse effects on economic growth. This paper aims to provide a synthesis of the existing evidence on the relationship between corruption and economic growth - controlling for effect type, data sources, and country groupings. Using 32 key search terms and 43 low-income country names, we searched in 20 electronic databases and obtained 1,002 studies. Initial screening on the basis of PIOS (Population-Independent Variable-Outcome-Study Design) criteria and critical evaluation on the basis VRA (Validity-Reliability-Applicability) criteria led to inclusion of 115 studies for analysis. We conduct a meta-analysis of the empirical findings in 72 empirical studies, using fixed-effect and random-effect weighted means and testing for significance through precision-effect tests (PETs). Our findings indicate that corruption has a negative effect on per-capita GDP growth overall. We also report that corruption is relatively more detrimental in mixed countries as opposed to low-income countries only and that indirect effects of corruption on growth (through the human capital and public finance channels) are larger than its direct effects.
    Keywords: Corruption; institutions; governance; economic growth; meta-analysis; systematic reviews
    JEL: O11 O47 O43
    Date: 2011–04–20
  2. By: Paul J Burke
    Abstract: Using data for 160 countries for the period 1963-2001, this paper examines the short-run relationship between economic growth and changes in national leader. To address the potential endogeneity of economic growth, I use exogenous variation in commodity export prices, export partner incomes, precipitation, and temperature to instrument for a country's rate of economic growth. The results indicate that more rapid economic growth increases the short-run likelihood that national leaders will retain their positions. The findings are similar for both democracies and autocracies and indicate that faster economic growth reduces the likelihoods of both regular leader exits and irregular leader exits such as coups. The results also suggest that stronger economic growth reduces the likelihood that national leaders employ oppressive tactics against opponents.
    Keywords: economic growth, politics, political survival, political change, leader turnover
    JEL: D72 O40 P16
    Date: 2011
  3. By: Stelios Michalopoulos (Tufts University); Luc Laeven (IMF and CEPR); Ross Levine (Brown University and NBER)
    Abstract: We model technological and ?nancial innovation as re?ecting the decisions of pro?t maximizing agents and explore the implications for economic growth. We start with a Schumpeterian growth model where entrepreneurs earn pro?ts by inventing better goods and ?nanciers arise to screen entrepreneurs. A novel feature of the model is that ?nanciers also engage in the costly, risky, and potentially pro?table process of innovation: Financiers can invent more e¤ective processes for screening entrepreneurs. Every screening process, however, becomes less e¤ective as technology advances. Consequently, technological inno- vation and economic growth stop unless ?nanciers continually innovate. The model also allows for rent-seeking ?nancial innovation, in which ?nanciers engage in privately pro?table but socially ine¢ cient innovation that slows growth. Empirical evidence is more consistent with this dynamic, synergistic model of ?nancial and technological innovation than with existing theories.
    Keywords: Invention, Economic Growth, Corporate Finance, Technological Change, Entrepreneurship
    JEL: G0 O31 O4
    Date: 2011–05
  4. By: Mark Weisbrot; Rebecca Ray
    Abstract: This paper examines data on economic growth and various social indicators for 193 countries over the past 50 years, divided into three periods: 1960-1980, 1980-2000, and 2000-2010. The paper finds that after a sharp slowdown in economic growth and in progress on social indicators during the second (1980-2000) period, there has been a recovery on both economic growth and, for many countries, a rebound in progress on social indicators (including life expectancy, adult, infant, and child mortality, and education) during the past decade. The paper discusses some of the economic and policy changes that might explain the slowdown and rebound.
    Keywords: economic development, growth, social indicators, growth failure, recovery, developing countries, education, health
    JEL: O10 O40 O11
    Date: 2011–06
  5. By: Bichaka Fayissa; Christian Nsiah
    Abstract: This study estimates the macroeconomic impact of remittances and some control variables such as openness of the economy, capital/labor ratio, and economic freedom on the economic growth of African, Asian, and Latin American-Caribbean countries using newly developed panel unit-root tests, cointegration tests, and Panel Fully Modified OLS (PFMOLS). We use annual panel data from 1985- 2007for 64 countries consisting of 29 from Africa, 14 from Asia, and 21 from Latin America and the Caribbean region, respectively. We find that remittances, openness of the economy, and capital labor ratio have positive and significant effect on economic growth for all regions as a group and in each of the three in study. While the economic freedom index also has a positive and significant effect on growth in Africa and Latin America, however, its effect on the economic growth of Asia is mixed.
    Keywords: Workers’ Remittances, Economic Growth, Unit-Root tests, Error Correction Model, PFMOLS, Panel Data, Africa, Asia, Latin America/Caribbean
    JEL: E21 F21 G22 J61 O16
    Date: 2011–06
  6. By: Carlos Gustavo Machicado; Paul Estrada; Ximena Flores
    Abstract: This paper develops a dynamic stochastic general equilibrium (DSGE) model to analyze the growth effects of fiscal policy in Bolivia. It is a multi-sector model with five representative sectors for the Bolivian economy: Non-tradables, importables, hydrocarbons, mining and agriculture. Public capital is included as a production factor in each of these sectors. The model is calibrated and a number of interesting scenarios are simulated by modifying each of the available fiscal policy instruments. In particular, we analyze the sustainability of Bolivian social policy based on government transfers to households along with the short- and long-run implications of fiscal policy for growth and welfare. We find that fiscal policy alone is unable to generate high rates of growth: it must be accompanied by an efficient provision of public capital and productivity boosts in the economic sectors.
    Keywords: Fiscal policy, Infrastructure, multi-sector growth model
    JEL: E62 H54 O41
    Date: 2011
  7. By: Ladislava Grochová (Department of Economics, FBE MENDELU in Brno); Luděk Kouba (Department of Economics, FBE MENDELU in Brno)
    Abstract: The growth theory of new political economics defines some factors that are necessary for economic growth among which political stability. There are distinguished two types of political instability – elite and non-elite – in topical literature. While non-elite political instability concerns about violent coups, riots or civil wars, elite political instability is represented with “soft changes” such as government breakdowns, fragile majority or minority governments. We don ́t doubt the importance of general political stability for successful economic development. Nevertheless, we don ́t agree that elite political instability can be understood as an insuperable obstacle for it. The aim of the paper is to disprove the hypothesis that elite political stability is a necessary condition for economic growth. Equally with other papers, a number of government changes is used as a proxy of elite political instability. The disproof of the hypothesis is demonstrated on data from the Baltic states where a number of government changes takes place and still fast economic growth could be seen within last two decades. The model has a form of augmented production function and includes growth rates of investments, exports, and labour as independent variables and government changes as an elite political instability dummy variable. The data resulting from estimations applying GMM and GLS because of endogeneity and autocorrelation problems are statistically significant for all three countries and confirm our hypothesis that elite political stability is a necessary condition for economic growth.
    Keywords: new political economics, political instability, elite political instability, production function, single equation, Baltic states
    JEL: B59 C20 O52 P26
    Date: 2010–02
  8. By: Cecilia Iona Lasinio (Istat and Luiss Lab); Massimiliano Iommi (ISTAT); Stefano Manzocchi (Università Luiss "Guido Carli")
    Abstract: This paper provides evidence about the diffusion of intangible investment across the EU27 member countries and investigates the role of intangible capital as a source of growth to improve our understanding of the international differences in the mix of drivers of productivity growth across Europe. Our study shows that the capitalization of intangible assets, allow identifying additional sources of long-run growth. We show that intangibles have been a relevant source of growth across European countries and that they cannot be omitted from national accounts. In particular, the ?unexplained? component of macro-economic dynamics, the Total Factor Productivity, becomes less important, while physical capital turns out to be strongly complementary with intangible capital.
    Keywords: Intangible capital, Productivity Growth, European countries
    JEL: O3 O4 O5
    Date: 2011
  9. By: Kuboniwa, Masaaki
    Date: 2011–05
  10. By: Mark Setterfield (Department of Economics, Trinity College)
    Abstract: This paper contemplates the robustness of Thirlwall’s Law, a parsimonious expression that relates long run equilibrium growth in any one region to the product of world income growth and the ratio of the income elasticities of demand for exports and imports. Various extensions of the balance-of-payments-constrained growth model from which Thirlwall’s Law is derived are contemplated. In each case, Thirlwall’s Law is shown to reassert itself as a good approximation of the equilibrium growth rate. It is hypothesized that this robustness helps explain the widespread empirical success of Thirlwall’s Law.
    Keywords: Thirlwall’s law, balance-of-payments-constrained growth, export-led growth, demand-led growth, natural rate of growth.
    JEL: O41 E12
    Date: 2011–06
  11. By: Theodore Palivos (Department of Economics, University of Macedonia); Jianpo Xue (School of Finance, Renmin University of China, Beijing); Chong K. Yip (Department of Economics, The Chinese University of Hong Kong)
    Abstract: This paper develops a growth model with illegal immigration in which there exist two types of domestic labor, skilled and unskilled. These two types enter the production via a CES aggregator. In a similar manner, the paper also allows for the possibility of imperfect substitution between native and immigrant labor. Within such a framework it analyzes the eects of an increase in immigration on the average capital stock, individual wages, asset holdings and the distribution of wealth. Contrary to previous results in the literature, the paper shows that illegal immigration may not necessarily make the distribution of wealth more unequal and unskilled labor worse o. This is so because the end results depend on the elasticities of substitution between dierent types of labor. Thus, assuming erroneously that immigrants and natives are perfect substitutes could lead to results that are not only over-estimated but also of the wrong sign.
    Keywords: Illegal Immigration, Economic Growth, Income Distribution, Factor Sub- stitution.
    JEL: O41 F22 E25
    Date: 2011–06
  12. By: Van Reenen, John
    Abstract: With the threat of stagflation and interest rate rises, the current economic climate shows little sign of improvement in the near future. John Van Reenen finds that the government’s severe austerity programme, with its very pessimistic view of future UK growth is risking the recovery through premature scrapping of our economic capital. Policies such as the cap on skilled migrants and the planning decentralisation will reduce the potential for growth, not raise it. Instead, the government should get the conditions right for increasing competition, innovation and education, and focus on matching the UK’s comparative advantage with areas of future growth such as higher education.
    Date: 2011–02–25
  13. By: Alessandra Colombelli; Naciba Haned; Christian Le Bas
    Abstract: In the paper we wish to examine if the firms that innovate know a higher growth than the firm that do not. We use diverse waves of CIS for the French industries over the period 1992- 2004 and carry out different models and new econometric methods (quantile regression). Our main findings are that innovative firms produce more growth than non innovative firms. The estimates show that the results are robust to the different types of models that we have implemented. Process innovators are more productive in terms of growth than product innovators when OLS and Random effects models are used. The reverse is true for Fix effect model and quantile regression. In the three growth equations estimated by GMM the coefficients related to innovation product are always higher. Our study does not give definitive results with respect to the magnitude of the effects of the type of innovation on firm growth.
    Keywords: Innovation, process and product, firm growth, CIS
    JEL: L20 L60 O31 O33
    Date: 2011–06

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