nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒07‒13
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial liberalization, financial development and economic growth: An empirical analysis for Turkey By ince, meltem
  2. What Caused the Recent Boom-And-Bust Cycle in Lithuania? Evidence from a Macromodel with the Financial Sector By Tomas Ramanauskas
  3. Equilibrium dynamics in two-sector models of endogenous growth. By Ladrón de Guevara, Antonio; Ortigueira, Salvador; Santos, Manuel S.
  4. Sectoral Structure and Economic Growth By Dobrescu, Emilian
  5. A Matter of Time: Revisiting Growth Convergence in Developing Countries By Andersson, Fredrik N. G.; Edgerton, David; Opper, Sonja
  6. Growth poles and multipolarity By Adams-Kane, Jonathon; Lim, Jamus Jerome
  7. Innovation, Growth and Quality of Life: a Theoretical Model and an Estimate for the Italian Regions By d'Agostino, Giorgio; Scarlato, Margherita
  8. Financialization, Household Credit and Economic Slowdown in the U.S. By Deepankar Basu
  9. Exports and economic growth. The gains from reallocation in Korea.. By España, J.R.
  10. Exponential Growth Bias and Financial Literacy By Almenberg, Johan; Gerdes, Christer
  11. Growth, Colonization, and Institutional Development. In and Out of Africa By Graziella Bertocchi

  1. By: ince, meltem
    Abstract: The objective of the paper is to seek how financial growth affects economic growth in Turkey in the flourishing world. The financial market is changed and developed very rapidly in the last decade. Moreover the change of financial market has also been brought some innovations and new policies. So this study examines whether financial development leads to economic growth in Turkey. The main elements of financial liberalization that have been used commonly in the literature are considered for analysis. This is because financial liberalization is the first step to achieve financial development and can contribute to development. In the light of financial development between the period of 1980 and 2010, cointegration and Granger casuality tests are applied to assess the finance-growth linkages. There is a strong relation between finance and growth in the short-run, but it is failed in the long-run casuality. Contrary to the conventional findings in the literature, the results of the analysis support that there is one way link from financial development to economic growth for Turkey and it is necessary to take different policies to improve growth and maintain the steady economic growth.
    Keywords: Financial growth; financial liberalization; economic growth; Casuality; Cointegration
    JEL: D53 E44 C22 F43
    Date: 2011–04–30
  2. By: Tomas Ramanauskas (Bank of Lithuania)
    Abstract: In this paper we analyse determinants of the recent boom-and-bust cycle of the Lithuanian economy with the help of a medium-sized macroeconometric model that incorporates a functional financial block. Special emphasis is put on the role of credit market conditions during the overheating episode. We quantitatively estimate the impact of credit conditions and externally funded bank lending on macroeconomic developments. There is evidence that easy credit conditions and active credit expansion contributed moderately to real economic growth but significantly added to overheating pressures by pushing up real estate prices, encouraging concentration of labour and capital into procyclical sectors and increasing private sector’s debt burden. During the boom episode buoyant external environment provided strong background for export-led growth, which was later strongly affected by temporary foreign trade collapse at the outset of the economic crisis. Model results also suggest that government’s discretionary fiscal policies may have contributed to economic overheating and severity of the ensuing crisis by not adopting sufficiently prudent fiscal stance during the boom episode. The model confirms that more favourable interest rate environment and accommodating fiscal policies are important for providing a temporary relief for the crisis-stricken economy but deep structural transformation of the economy is needed for the sustainable recovery to take hold.
    Keywords: structural macroeconometric modelling, macrofinancial linkages, economic cycles, credit, banking sector, housing price bubble
    JEL: E10 E17 E37 E51
    Date: 2011–07–04
  3. By: Ladrón de Guevara, Antonio; Ortigueira, Salvador; Santos, Manuel S.
    Abstract: This paper presents an account of the dynamics of endogenous growth models with physical capital and human capital. We consider some important extensions of the basic framework of Lucas (1988) and Uzawa (1964), including physical capital in the human capital technology and leisure activities as an additional argument of agents' welfare.
    Keywords: Endogenous growth; Physical capital; Human capital; Long-term growth; Transitional dynamics;
  4. By: Dobrescu, Emilian (Centre for Macroeconomic Modelling, Romanian Academy)
    Date: 2011–06
  5. By: Andersson, Fredrik N. G. (Department of Economics, Lund University); Edgerton, David (Department of Economics, Lund University); Opper, Sonja (Department of Economics, Lund University)
    Abstract: We propose a new methodology for testing inter-regional growth convergence in developing countries. Labor surplus economies are typically characterized by large inter-regional short-term growth fluctuations, which tend to mask long-term growth trends. These fluctuations render standard tests for growth convergence unreliable. A frequency domain analysis that separates between short and long-run growth offers new insights. We develop a growth model and provide an empirical application using provincial data from China covering the period 1978 - 2009. Our results suggest that provinces diverge over the short-term. Over the long term, however, provinces cluster into two growth clubs of converging provinces.
    Keywords: regional convergence; developing countries; growth; China
    JEL: O14 O33 O41 R11
    Date: 2011–07–04
  6. By: Adams-Kane, Jonathon; Lim, Jamus Jerome
    Abstract: This paper develops an empirical measure of growth poles and uses it to examine the phenomenon of multipolarity. The authors formally define several alternative measures, provide theoretical justifications for these measures, and compute polarity values for nation states in the global economy. The calculations suggest that China, Western Europe, and the United States have been important growth poles over the broad course of world history, and in modern economic history the United States, Japan, Germany, and China have had prominent periods of growth polarity. The paper goes on to analyze the economic and institutional determinants, both at the proximate and fundamental level, that underlie this measure of polarity, as well as compute measures of dispersion in growth polarity shares for the major growth poles.
    Keywords: Economic Theory&Research,Achieving Shared Growth,Economic Growth,Population Policies,Currencies and Exchange Rates
    Date: 2011–06–01
  7. By: d'Agostino, Giorgio; Scarlato, Margherita
    Abstract: ABSTRACT. This paper carries out an explanatory investigation into the relationship between socio-institutional conditions, quality of life indicators and economic growth in the Italian regions. Previous studies stress the importance of institutional quality, social capital and social conditions in determining disparities between richer and poorer regions. Building on this literature, we consider a three-sector model of semi-endogenous growth with negative externalities depending on structural and institutional factors that affect the innovative capacity of regional systems (the “social externalities hypothesis”). Simulations based on the scaled stationary system confirm that endogenous socio-economic conditions are crucial for the successful translation of innovation into economic growth. It is suggested that generating a development strategy designed to improve social conditions and well-being in the poorer regions may yield dividends in terms of the effectiveness of public policy and economic development.
    Keywords: Development; growth; regional disparities; well-being
    JEL: R58 O10 O30 C23 C61 R11 O40
    Date: 2011–06–28
  8. By: Deepankar Basu
    Abstract: Three important features of the U.S. economy during the neoliberal era since the mid-1970shave been: (a) growing financialization, (b) increasing household debt, and (c) stagnant real wages for production and nonsupervisory workers. This paper develops a discrete-time Marxian circuit of capital model to analyze the links between these three features and economic slowdown. The discrete-time model is used to address two important theoretical issues of general interest to the heterodox economic tradition: profit-led versus wage-led growth, and the growth-reducing impact of non-production credit. First, it is demonstrated that both profitled and wage-led growth regimes can be accommodated within the Marxian circuit of capital model. Second, it is demonstrated that the steady-state growth rate of a capitalist economy is negatively related to the share of consumption credit in total net credit, when the total credit is large to begin with. Bringing these two results together, the paper demonstrates that the three characteristics of the U.S economy under neoliberalism can have a growth-reducing impact on a capitalist economy. Hence, this paper oers a novel explanation, rooted in Marx’s analysis of the circuits of capital, of the slowdown of the U.S. economy during the neoliberal period.
  9. By: España, J.R.
    Abstract: This paper presents some empirical evidence suggesting that promotion of manufactured exports can lead to accelerated rates of growth in a developing economy. Based on a two-sectoral model involving exports and non-exports, a method is developed to measure the gains obtained through a reallocation of resources from the domestic to the external sector. The benefits from continued export expansion are found to decline over time. Cointegration tests confirm the long-run character of the estimated relationships. A simulation based on a dynamic, optimal control model illustrates the growth effects of different shocks and policies affecting the Korean export sector.
    Keywords: Export expansion; Economic growth; Rellocation gains; Korea;
  10. By: Almenberg, Johan (Ministry of Finance, Sweden); Gerdes, Christer (SOFI, Stockholm University)
    Abstract: The tendency to underestimate the future value of a variable growing at a constant rate, an example of exponential growth bias, has been linked to household financial decision making. We show that exponential growth bias and standard measures of financial literacy are negatively correlated in a representative sample of Swedish adults. Since financial literacy is linked to household decision making, our results indicate that examining the relationship between exponential growth bias and household finance without adequate controls for financial literacy may generate biased results.
    Keywords: exponential growth bias, financial literacy, household finance
    JEL: D12 D14
    Date: 2011–06
  11. By: Graziella Bertocchi
    Abstract: This essay investigates the determinants of the growth performance of Africa. I start by illustrating a broader research agenda which accounts not only for basic economic and demographic factors, but also for the role of history and institutional development. After reporting results from standard growth regressions, I analyze the role of Africa’s peculiar history, which has been marked by its colonization experience. Next I discuss the potential growth impact of state fragility, a concept which reflects multiple facets of the dysfunctions that plague the continent. The last topic I address is the influence, in and out of Africa, of the slave trades. The essay ends with critical conclusions and suggestions for further research.
    Keywords: Growth; Africa; history; colonization; institutions; state fragility; slavery
    JEL: O43 N17 H11
    Date: 2011–06

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