nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒08‒22
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Fiscal Federalism, Public Capital Formation, and Endogenous Growth By Liutang Gong; Heng-fu Zou
  2. Further Evidence on Defence Spending and Economic Growth in NATO Countries By Alper Ozun; Erman Erbaykal
  3. Estimating the Permanent Growth Effects of Human Capital By Rao, Bhaskara; Shankar, Sriram
  4. Modeling parameter heterogeneity in cross-country regression models By Andros Kourtellos
  5. A Quantitative Assessment of Financial Conditions in Asia By D. Filiz Unsal; Carolina Osorio; Runchana Pongsaparn

  1. By: Liutang Gong (Guanghua School of Management, Peking University; Institute for Advanced Study, Wuhan University); Heng-fu Zou (Guanghua School of Management, Peking University; Institute for Advanced Study, Wuhan University; Development Research Group, The World Bank)
    Abstract: This paper extends the Barro (1990) growth model with one aggregate government spending and one flat income tax to include federal and local public consumption, federal and local public capital formation, federal and local taxes, and federal transfers to locality. It derives the rate of endogenous growth and examines how the growth rate and welfare respond to changes in federal taxes, local taxes, and federal transfers.
    Keywords: Fiscal federalism, Public expenditures, Public capital, Taxes, Federal transfers, Endogenous growth
    JEL: E0 G1 H0 O0
    Date: 2011
  2. By: Alper Ozun (Bradford University, School of Management, UK); Erman Erbaykal (Istanbul University, Department of Economics, Turkey)
    Abstract: The main purpose of this paper is to analyze the causal relationships between defence spending and economic growth using the Toda–Yamamoto approach to Granger causality test in the case of selected NATO countries for the period of 1949-2006. NATO countries spend biggest proportion of defence spending in the world. Granger causality test on defence-growth issue employed by number of scholars but this paper is firstly used Toda–Yamamoto approach to granger causality to analyze relationship between defence spending and growth. The results show that unidirectional causality exists in seven NATO countries while for five countries no causal relationships were found. On the other hand, Turkey differs from other countries in that the relationship is bilateral.
    Keywords: defence spending, Turkish economy, Granger causality, NATO, economic growth, Toda–Yamamoto approach
    JEL: H56 C22
    Date: 2011–08
  3. By: Rao, Bhaskara; Shankar, Sriram
    Abstract: This paper estimates with the least trimmed least squares (LTS) a specification suitable to estimate the permanent growth effects of human capital, using educational attainment (H) as a proxy. Our results show that H has significant permanent growth effects but these are much smaller than in Temple (1999).
    Keywords: Least Trimmed Squares; Human capital; Educational attainment; Permanent growth effects
    JEL: O15 O40
    Date: 2011–08–12
  4. By: Andros Kourtellos
    Abstract: We employ various local generalizations of the Solow growth model that model parameter heterogeneity using human development at the beginning of the period with adult literacy rates and life expectancy at birth as a proxy. The model takes the form of a semiparametric varying coefficient model along the lines of Hastie and Tibshirani (1992). The empirical results show substantial parameter heterogeneity in the cross-country growth process, a finding that is consistent with the presence of multiple steady state equilibria and the emergence of convergence clubs.
    Keywords: Solow growth model, parameter heterogeneity, varying coefficient model, human development
    Date: 2011–07
  5. By: D. Filiz Unsal; Carolina Osorio; Runchana Pongsaparn
    Abstract: We propose a new Financial Condition Index (FCI) for Asian economies based on two different methodologies: a VAR model and a Dynamic Factor Model. The paper shows that this index has predictive power in forecasting GDP growth and may be thus used as a leading indicator. Based on the FCI, financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in the stock markets and tighter credit conditions. In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, thanks to accommodative monetary policies and a rapid rebound in regional equity markets.
    Keywords: Asia , Economic growth , Economic conditions , Financial sector , Forecasting models , Global Financial Crisis 2008-2009 , Gross domestic product ,
    Date: 2011–07–18

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