nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒07‒21
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The dynamic of financial development, imports, foreign direct investment and economic growth: cointegration and causality analysis in Pakistan By Muhammad, Shahbaz; mohammad, Mafizur Rahman
  2. Remittance Flows and Economic Growth in Mexico: A Single Break Unit Root and Cointegration Analysis, 1970-2009 By Miguel Ramirez
  3. Entrepreneurship and Economic Growth: An Investigation into the Relationship between Entrepreneurship and Total Factor Productivity Growth in the EU By Andrzej P. Dabkowski
  4. Growth and Pollution Convergence: Theory and Evidence By C. Ordás Criado; S. Valente; T. Stengos
  5. Economic growth in low income countries: How the G20 can help to raise and sustain it By L. Alan Winters; Wonhyuk Lim; Lucia Hanmer; Sidney Augustin
  6. Social Policy and U.S. Poverty 1960-1999: An Economic History By Jaynes, Gerald D.
  7. Resource Windfalls, Macroeconomic Stability and Growth: The Role of Political Institutions By Rabah Arezki; Kazim Kazimov; Kirk Hamilton

  1. By: Muhammad, Shahbaz; mohammad, Mafizur Rahman
    Abstract: The paper investigates the effect of financial development, imports and foreign direct investment (FDI) on output in case of Pakistan over the period of 1990-2008 using quarterly data set. ARDL bounds testing approach is applied to examine the long run relationship and the direction of causality is investigated by using VECM framework. Our findings confirm the existence of cointegration, showing long run relation between financial development, imports, FDI and real GDP. Financial development, imports and FDI have positive and significant effect on the output of the country. Causality analysis reveals bidirectional relation among the variables but strong causality is also running from financial development, economic growth and FDI to real imports.
    Keywords: Financial Development; Imports; FDI; Economic Growth
    JEL: B22
    Date: 2011–07–04
  2. By: Miguel Ramirez (Department of Economics, Trinity College)
    Abstract: This paper gives an overview of remittance flows to Mexico during the 1980-2009 period in absolute terms, relative to GDP, in comparison to FDI inflows, and in terms of their regional destination. Next, the paper reviews the growing literature that assesses the impact of remittances on investment spending and economic growth. Third, it develops a simple endogenous growth model that explicitly incorporates the potential impact of remittance flows on economic and labor productivity growth. Fourth it presents an empirical counterpart to the conceptual model and, using single-break unit root and cointegration analysis, proceeds to determine the impact of changes in these flows on economic growth and labor productivity growth over the 1970-2009 period. The error-correction model estimates suggest that remittance flows to Mexico, along with other relevant variables, have a positive and significant effect on both economic growth and labor productivity growth. The concluding section summarizes the major results and discusses potential avenues for future research on this important topic.
    Keywords: Error-correction model, FDI inflows, Johansen Cointegration test, labor productivity growth, remittance flows, Theil inequality coefficient, Zivot-Andrews single-break unit root analysis
    JEL: C22 F24 O4 O15 O54
    Date: 2011–07
  3. By: Andrzej P. Dabkowski
    Abstract: Endogenous growth theory assigns an important role for entrepreneurship in the process of economic development. This paper sets to formally test the impact of entrepreneurship on economic growth. Entrepreneurship is represented by a number of proxy variables, whereas Total Factor Productivity is used as a measure of economic growth. Panel data of 26 European countries repeatedly sampled over a period of 11 years is used to estimate a Random Effects model. This study finds that entrepreneurship contributes to growth moderately. It is not, nonetheless, a dominant force shaping changes in TFP growth rates. Business Birth Rate, Self-employment Rate, Business Investment and Labour Productivity Growth were all found to be highly significant. The article concludes that more encompassing measure of entrepreneurship needs to be developed, one that would reflect the complexity of the notion.
    Keywords: entrepreneurship, total factor productivity, economic growth, the EU
    JEL: O11 O30 O47 O52 L26
    Date: 2011–07
  4. By: C. Ordás Criado (ETH Zurich, Center for Energy Policy and Economics (CEPE), Switzerland; Université Laval, Département d’économique, Canada); S. Valente (ETH Zurich, Center of Economic Research (CER), Switzerland); T. Stengos (University of Guelph, Department of Economics, Canada)
    Abstract: Stabilizing pollution levels in the long run is a pre-requisite for sustainable growth. We develop a neoclassical growth model with endogenous emission reduction predicting that, along optimal sustainable paths, pollution growth rates are (i) positively related to output growth (scale effect) and (ii) negatively related to emission levels (defensive effect). This dynamic law reduces to a convergence equation that is empirically tested for two major and regulated air pollutants - sulfur oxides and nitrogen oxides - with a panel of 25 European countries spanning the years 1980-2005. Traditional parametric models are rejected by the data. More flexible regression techniques confirm the existence of both the scale and the defensive effect, supporting the model predictions.
    Keywords: Air pollution, convergence, economic growth, nonparametric regressions
    JEL: C14 C23 O13 Q53
    Date: 2011–07
  5. By: L. Alan Winters (Department of Economics, University of Sussex); Wonhyuk Lim (Center for International Development, Korea); Lucia Hanmer (Department for International Development, London); Sidney Augustin (Department for International Development, London)
    Abstract: This paper aims to operationalise the G20 commitment to ensure that the benefits of global growth are shared with Low Income Countries. Growth is central to poverty reduction and the achievement of MDGs, and in developing countries it is episodic and volatile. However, while the current LICs have poor growth histories, the countries that started off the 1960s as LICs have had virtually the same average growth rates as other country groups. We review the evidence connecting long-run growth and growth accelerations and collapses to six areas of policy: trade, skills development, macro-stability, financial development, infrastructure investment and human development. Growth strategies have to be developed and owned by LIC governments and societies and they need to be tailored to individual country needs. However, there are some things which the G20 can do to help. We group these actions under three headings: mitigating downturns, boosting underlying growth rates and developing institutions and knowledge. A final annex describes how Korea’s spectacular growth strategy can be viewed through these lenses.
    Keywords: growth, low income countries, G20
    JEL: O10 O11 O19
    Date: 2010–10
  6. By: Jaynes, Gerald D. (Yale University)
    Abstract: Interrogates poverty debate (growth versus redistribution) reignited by underperforming poverty reductions during 1980s' social spending austerity compared to 1960s' "War on Poverty." Growth and inequality explain 75% 1959-1999 poverty variation; census measurement changes 17%. Significantly, census measurement changes plus overestimated inflation biased-up 1980s measured poverty (deflated 1960s) partly explaining eighties' underperformance. Growth's poverty effect remained constant; rising inequality required 1980's growth 50% higher (1960s) for equivalent poverty reductions. Counterfactual simulations 1959-1999: absent rising earnings inequality, growth drives poverty to 5.4%; increased workerless households offset two-thirds poverty reduction from cash transfers; had Carter and Reagan redistributed like predecessors, poverty reduced one-half.
    JEL: N12 N32
    Date: 2011–05
  7. By: Rabah Arezki; Kazim Kazimov; Kirk Hamilton
    Abstract: We use a new dataset on non-resource GDP to examine the performance of commodity-exporting countries in terms of macroeconomic stability and economic growth in a panel of up to 129 countries during the period 1970-2007. Our main findings are threefold. First, we find that overall government spending in commodity-exporting countries has been procyclical. Second, we find that resource windfalls initially crowd out non-resource GDP which then increases as a result of the fiscal expansion. Third, we find that in the long run resource windfalls have negative effects on non-resource sector GDP growth. Yet, the effects turn out to be statistically insignificant when controlling for government spending. Both the effects of resource windfalls on macroeconomic stability and economic growth are moderated by the quality of political institutions.
    Keywords: Agricultural exports , Commodities , Developing countries , Economic growth , Energy , Exports , Fiscal policy , Fiscal stability , Governance , Government expenditures , Natural resources ,
    Date: 2011–06–17

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