nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒06‒25
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Estimates of the steady state growth rates for the Scandinavian countries: a knowledge economy approach By Casadio, Paolo; Paradiso, Antonio; Rao, B. Bhaskara
  2. Research & Development and Long-Term Economic Growth: A Bayesian Model Averaging Analysis By Roman Horváth
  3. A Spatially-related Note on Entrepreneurship and Economic Growth By Torben Klarl
  4. Inequality and Growth in Portugal: a time series analysis By João Sousa Andrade; Adelaide Duarte; Marta Simões
  5. Social protection and economic growth in the Sudan: Trends, perspectives, cointegration and causality By Mohamed Hassan, Hisham
  6. Estimates of the long-run growth rate of Singapore with a CES production function By Rao, B. Bhaskara; Shankar, Sriram
  7. Comparative analysis of monetary and fiscal Policy: a case study of Pakistan By Jawaid, Syed Tehseen; Arif, Imtiaz; Naeemullah, Syed Muhammad
  8. Patterns of Technology, Industry Concentration, and Productivity Growth Without Scale Effects By Colin Davis; Ken-ichi Hashimoto
  9. Vintage capital growth theory: Three breakthroughs By Raouf Boucekkine; David de la Croix; Omar Licandro
  10. From growth to cycles through beliefs By Christopher M. Gunn
  11. Fiscal developments and financial stress: a threshold VAR analysis By António Afonso; Jaromír Baxa; Michal Slavík
  12. Environmental Kuznets curve in Indonesia, the role of energy consumption and foreign trade By Saboori, Behnaz; Soleymani, Abdorreza

  1. By: Casadio, Paolo; Paradiso, Antonio; Rao, B. Bhaskara
    Abstract: This paper estimates the steady state growth rate for Scandinavian countries with a “knowledge economy” approach. We shall use an extended version of the Solow (1956) growth model, in which total factor productivity is assumed to be a function of human capital (measured by average years of education), trade openness and investment ratio. Using this framework we show that these factors, and in particular the education variable, have played an important role to determine the long run growth rates of the Scandinavian countries. Some policy measures are identified to improve the long-run growth rates for these countries.
    Keywords: Endogenous growth models; Trade openness; human capital; investment ratio; Steady state growth rate; Scandinavian countr
    JEL: C22 O52 O40
    Date: 2011–05–30
  2. By: Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: We examine the effect of research and development (R&D) on long-term economic growth using the Bayesian model averaging (BMA) to deal rigorously with model uncertainty. Previous empirical studies investigated the effect of dozens of regressors on long-term growth, but they did not examine the effect of R&D due to data unavailability. We extend these studies by proposing to capture the R&D intensity by the number of Nobel prizes in science. Using our indicator, our estimates show that R&D exerts a positive effect on long-term growth with posterior inclusion probability of 0.25 using our preferred parameter and model priors.
    Keywords: research and development, economic growth, Bayesian model averaging.
    JEL: O30 O32 O10
    Date: 2011–06
  3. By: Torben Klarl (University of Augsburg, Department of Economics)
    Abstract: A large and still growing body of literature suggests that entrepreneurship is of exceptional importance in explaining knowledge spillovers. Although quantifying the impact of entrepreneurial activity for economic growth is an interesting issue – particularly at the regional level – a concise formulation within a theoretical growth model is still missing. This paper in general tries to uncover the link between own- and neighbour-related regional entrepreneurial activity in innovation and regional growth within a spatial semi-endogenous growth model in the spirit of Jones (1995) reflecting recent empirical findings on entrepreneurial activity for economic growth. The paper derives an explicit solution for the transitional as well as for the balanced growth path level of ideas.
    Keywords: entrepreneurship, economic growth, innovation, knowledge spillover
    JEL: M13 O31 R5
    Date: 2011–06
  4. By: João Sousa Andrade (Faculdade de Economia/GEMF, Universidade de Coimbra); Adelaide Duarte (Faculdade de Economia/GEMF, Universidade de Coimbra); Marta Simões (Faculdade de Economia/GEMF, Universidade de Coimbra)
    Abstract: Following the recent resurgence of interest on the relationship between inequality and growth and the considerable debate that remains on its sign, we examine this nexus for Portugal during the period 1985–2007 using a time series approach. The results, using different time series methodologies, suggest that earnings inequality has a negative impact on output thus confirming the view that inequality is detrimental to growth. Moreover, according to the results from the impulse response functions based on the preferred trivariate structural VAR model, these effects last in some cases for three years after the inequality shock. As far as education is concerned, the third variable apart from output and inequality considered in our SVAR models, the evidence does not support the theoretical prediction that more inequality reduces human capital accumulation, pointing in fact in the opposite direction: an increase in earnings inequality leads to more educated workers. Thus, the evidence of a negative influence of inequality on output seems to be explained not by the fact that more inequality leads to less human capital accumulation but because it implies more redistribution, with the associated distortionary effects from taxes on investment.
    Keywords: output, inequality, education, Hendry-Krolzig methodology, causality, SVAR.
    JEL: O12
    Date: 2011–06
  5. By: Mohamed Hassan, Hisham
    Abstract: This paper takes into account the recent role of social protection on economic growth as a socio-economic-political stabilizer. Social protection outcome in Sudan is influenced by limited targeting actions with very low interventions between results in economic growth and accesses to basic social services. These may affects the social protection contributes to the process of development in the Sudan during the period under consideration. The results show that more social spending increase output which enhances GDP per capita growth by 0.5% with 3.1% towards convergence equilibrium in the long run. Moreover, universal approach and expanded cover to social protection services which aim at building a social protection as a productive factor may have contributed to enhancing income security, education and health outcomes, reducing the poverty, income inequality, socio-political stability, encouraged poor productive activities and enhancing economic growth lead to sustainable development.
    Keywords: Social Protection; Growth; Cointegration; causality; Sudan
    JEL: C51 A13 B22 G28 C01
    Date: 2010–05
  6. By: Rao, B. Bhaskara; Shankar, Sriram
    Abstract: This paper estimates with the Bayesian methods a CES production function for Singapore for 1960-2009. It is found that the elasticity of substitution is 0.6, technical progress is labour augmenting and the steady state growth rate of Singapore is about 1.8%.
    Keywords: Bayesian methods; CES production function and Technical progress
    JEL: D24 C11
    Date: 2011–06–13
  7. By: Jawaid, Syed Tehseen; Arif, Imtiaz; Naeemullah, Syed Muhammad
    Abstract: This study investigates the comparative effect of fiscal and monetary policy on economic growth in Pakistan using annual time series data from 1981 to 2009. The cointegration result suggests that both monetary and fiscal policy have significant and positive effect on economic growth. The coefficient of monetary policy is much greater than fiscal policy which implies that monetary policy has more concerned with economic growth than fiscal policy in Pakistan. The implication of the study is that the policy makers should focus more on monetary policy than fiscal to enhance economic growth. The role of fiscal policy can be more effective for enhancing economic growth by eliminating corruption, leakages of resources and inappropriate use of resources. However, the combination and harmonization of both monetary and fiscal policy are highly recommended.
    Keywords: Monetary Policy; Fiscal Policy; Economic Growth.
    JEL: H30 E00 O40
    Date: 2010–12
  8. By: Colin Davis (Institute for International Education, Doshisha University); Ken-ichi Hashimoto (Graduate School of Economics, Kobe University)
    Abstract: This paper investigates the relationship between geographic patterns of industrial activity and endogenous growth in a two region model of trade that exhibits no scale effect. The in-house process innovation of manufacturing firms drives productivity growth and is closely associated with firm-level scales of production and relative levels of accessible technical knowledge. Focusing on long-run industry shares and a cross-region productivity gap, we find that dispersed equilibria with positive industry shares for both regions always produce higher growth rates than core-periphery equilibria with all industry locating in one region. Moreover, the highest growth rate arises in a symmetric steady state that features no productivity gap and equal shares of industry leading to the conclusion that the geographic concentration of industry has a negative impact on overall growth. Convergence towards a dispersed equilibrium, however, is contingent on the levels of inter-regional transport costs and knowledge dispersion. Finally, we explore the implications of greater economic integration arising from reduced transport costs and greater knowledge dispersion for patterns of industry and productivity, and for regional welfare levels within a dispersed equilibrium.
    Keywords: Industry Concentration, Industry Share, Productivity Gap, Productivity Growth, Scale Effect
    JEL: F43 O30 O40 R12
    Date: 2011–06
  9. By: Raouf Boucekkine; David de la Croix; Omar Licandro
    Abstract: Vintage capital growth models have been at the heart of growth theory in the 60s. This research line collapsed in the late 60s with the so-called embodiment controversy and the technical sophisitication of the vintage models. This paper analyzes the astonishing revival of this literature in the 90s. In particular, it outlines three methodological breakthroughs explaining this resurgence: a growth accounting revolution, taking advantage of the availability of new time series, an optimal control revolution allowing to safely study vintage capital optimal growth models, and a vintage human capital revolution, along with the rise of economic demography, accounting for the vintage structure of human capital similarly to physical capital age structuring. The related literature is surveyed.
    Keywords: Vintage capital, embodied technical progress, growth accounting, optimal control, endogenous growth, vintage human capital, demography.
    JEL: D63 D64 C61
    Date: 2011–06–15
  10. By: Christopher M. Gunn
    Abstract: I present a theoretical model where the economy endogenously adopts the technological ideas of a slowly evolving technological frontier, and show that the presence of a "technological gap" between unadopted ideas and current productivity can lead to multiple equilibria and therefore the possibility that changes in beliefs can be self-fulfilling, often referred to as sunspots. In the model these sunspots take the form of beliefs about the value of adopting the new technological ideas, and unleash both a boom in aggregate quantities as well as eventual productivity growth, increasing the value of adoption and self-confirming the beliefs. Moreover, I demonstrate that the scope for these indeterminacies is a function of the steady-state growth rate of the underlying technological frontier of ideas, and that during times of low growth in ideas, the potential for indeterminacies disappears. Under this view, technology becomes important for cycles not necessarily because of sudden shifts in the technological frontier, but rather, because it defines a technological regime for the economy such that expectations about its value can produce aggregate fluctuations where in a different regime they could not.
    Keywords: expectations-driven business cycle, sunspot, multiple equilibria, indeterminacy, technology, news shock, intangible capital, investment-specific technical change, embodied, technological transition, technological adoption.
    JEL: C62 C68 E00 E2 E3 O3 O4
    Date: 2011–06
  11. By: António Afonso (European Central Bank, Directorate General Economics, Frankfurt am Main); Jaromír Baxa (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Michal Slavík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We use a threshold VAR analysis to study whether the effects of fiscal policy on economic activity differ depending on financial market conditions. In particular, we investigate the possibility of a non-linear propagation of fiscal developments according to different financial market stress regimes. More specifically we employ a quarterly dataset, for the U.S., the U.K., Germany and Italy, for the period 1980:4-2009:4, encompassing macro, fiscal and financial variables. The results show that (i) the use of a nonlinear framework with regime switches is corroborated by nonlinearity tests; (ii) the responses of economic growth to a fiscal shock are mostly positive in both financial stress regimes; (iii) financial stress has a negative effect on output growth and worsens the fiscal position; (iv) the nonlinearity in the response of output growth to a fiscal shock is mainly associated with different behaviour across regimes; (v) the size of the fiscal multipliers is higher than average in the last crisis.
    Keywords: fiscal policy, financial markets, threshold VAR
    JEL: E62 G15 H60
    Date: 2011–08
  12. By: Saboori, Behnaz; Soleymani, Abdorreza
    Abstract: This study examines the dynamic relationship among carbon dioxide (CO2) emissions, economic growth, energy consumption and foreign trade based on the environmental Kuznets curve (EKC) hypothesis for Indonesia during the period 1971–2007. The Auto regressive distributed lag (ARDL) methodology is used as an estimation technique. The results do not support the EKC hypothesis, which assumes an inverted U-shaped relationship between income and environmental degradation. The long-run results indicate that foreign trade is the most significant variable in explaining CO2 emissions in Indonesia followed by Energy consumption and economic growth. The stability of the variables in estimated models is also examined. The result suggests that the estimated models are stable over the sample period.
    Keywords: Environmental Kuznets curve; CO2 emissions; energy consumption
    JEL: Q53 Q51 Q43
    Date: 2011–06–14

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