nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒09‒16
sixteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Population aging and endogenous economic growth By Klaus Prettner
  2. The causal relationship between patent growth and growth of GDP with quarterly data in the G7 countries: cointegration, ARDL and error correction models By Josheski, Dushko; Koteski, Cane
  3. Inflation variability and the relationship between inflation and growth By Raghbendra Jha; Tu Dang
  4. FDI and Growth: What Cross-Country Industry Data Say By Maria Cipollina; Giorgia Giovannetti; Filomena Pietrovito; Alberto Franco Pozzolo
  5. Demographic Change and Economic Growth in South Asia By David E. Bloom; David Canning; Larry Rosenberg
  6. Growth and Development….. Inclusive Growth: What went wrong with Development? By George, Justine
  7. Government and Growth By Milad Zarin-Nejadan
  8. Reducing Vulnerability in Transition Economies: Crises and Adjustment in Cambodia By Hal Hill; Jayant Menon
  9. The Spirit of Capitalism, Savings, Asset Pricing and Growth By Heng-fu Zou
  10. Does Financial Development Increase Energy Consumption? Role of Industrialization and Urbanization in Tunisia By Muhammad, Shahbaz; Lean, Hooi Hooi
  11. The Dynamics of Electricity Consumption and Economic Growth:A Revisit Study of Their Causality in Pakistan By Muhammad, Shahbaz; Lean, Hooi Hooi
  12. Role of Remittances in Economic Development: An Empirical Study of World’s Two Most Remittances Dependent Pacific Island Economies By Jayaraman, T. K.; Choong , Chee-Keong; Kumar , Ronald
  13. "The Contradictions of Export-led Growth" By Thomas I. Palley
  14. Managing financial integration and capital mobility -- policy lessons from the past two decades By Aizenman, Joshua; Pinto, Brian
  15. Population Dynamics in India and Implications for Economic Growth By David E. Bloom
  16. R&D Offshoring and the Productivity Growth of European Regions By Davide Castellani; Fabio Pieri

  1. By: Klaus Prettner (Harvard Center for Population and Development Studies)
    Abstract: This article investigates the consequences of population aging for long-run economic growth perspectives. We introduce age specific heterogeneity of households into a model of research and development (R&D) based technological change. We show that the framework incorporates two standard specifications as special cases: endogenous growth models with scale eects and semi-endogenous growth models without scale effects. The introduction of an age structured population implies that aggregate laws of motion for capital and consumption have to be obtained by integrating over different cohorts. It is analytically shown that these laws of motion depend on the underlying demographic assumptions. Our results are that (i) increases in longevity have positive effects on per capita output growth, (ii) decreases in fertility have negative effects on per capita output growth, (iii) the longevity effect dominates the fertility eect in case of endogenous growth models and (iv) population aging fosters long-run growth in endogenous growth models, while the converse holds true in semiendogenous growth frameworks.
    Keywords: population aging, endogenous technological change, longrun economic growth
    Date: 2011–07
  2. By: Josheski, Dushko; Koteski, Cane
    Abstract: This empirical study investigates the dynamic link between patent growth and GDP growth in G7 economies. ARDL model showed that there exist positive relationship in long run between quarterly growth of patents and quarterly GDP growth. The error correction term suggests that 20,6 percent of the adjustment back to long run equilibrium of industrial production in G7 countries is corrected by 20,6% a year, following a shock like the one in 1974 , which in our study is controlled by a dummy variable D74. In the short run however at one or two lags there exist negative relationship between quarterly patents growth and quarterly growth of GDP. Johansen’s procedure for cointegration showed that long run multipliers are positive between the patent growth and GDP growth in G7 economies. Granger causality test showed that patent growth Granger cause GDP growth in G7 countries. Unrestricted VAR showed that there exists positive relationship between patent growth and GDP growth at two or three lags.
    Keywords: Cointegration; ARDL; Error correction models; Johasens’s procedure; Patent growth; GDP growth
    JEL: C22 O31
    Date: 2011–09–03
  3. By: Raghbendra Jha; Tu Dang
    Abstract: We examine the effect of inflation variability and economic growth using annual historical data on both developing and developed countries. The data cover 182 developing countries and 31 developed countries for the period 1961-2009. Proxying inflation variability by the five-year coefficient of variation of inflation, we obtain the following results: (1) For developing countries, there is significant evidence to suggest that when the rate of inflation exceeds 10 percent inflation variability has a negative effect on economic growth. (2) For developed countries, there is no significant evidence that inflation variability is detrimental to growth.
    Keywords: Inflation, Growth, Threshold, Variablity
    JEL: C51 E31 E58
    Date: 2011
  4. By: Maria Cipollina (University of Molise); Giorgia Giovannetti (University of Florence and European University Institute); Filomena Pietrovito (University of Molise); Alberto Franco Pozzolo (University of Molise, Centro Studi Luca d’Agliano and MoFiR)
    Abstract: The theoretical literature has discussed different channels through which foreign direct investments (FDI) promote host country’s economic growth, but empirical analyses have so far been inconclusive. In this paper we provide evidence that FDI have a positive and statistically significant growth effect in recipient countries, using a panel of 14 manufacturing sectors for (a sample of) developed and developing countries over the period 1992 - 2004. Moreover, we find that this effect is stronger in capital intensive and in technologically advanced sectors, highlighting the importance of sector characteristics. We find that the growth enhancing effect comes primarily from an increase in total factor productivity (TFP) and from capital accumulation. FDI not only contribute to physical capital accumulation, but also generate positive technological spillovers. Our results are robust to the inclusion of other determinants of economic growth. We also address the issue of potential endogeneity and results are confirmed. Policy implications of our findings are important, especially for developing countries, where the growth enhancing promotion of foreign investment in capital intensive and technologically advanced sectors is at the heart of the debate.
    Keywords: Foreign direct investment; Economic growth; Capital intensity, Technological progress; Patents; Total factor productivity
    JEL: F23 F36 F43 O16
    Date: 2011–09–06
  5. By: David E. Bloom (Harvard School of Public Health); David Canning (Harvard School of Public Health); Larry Rosenberg (Harvard School of Public Health)
    Abstract: Identifying factors that influence the pace of national economic growth is a time-worn activity of economists. Strangely, demographic change has often been absent from consideration. But new thinking and evidence have highlighted the powerful contribution that demographic change can make to economic growth, and this line of inquiry has some salient implications for understanding past growth in South Asia and assessing and shaping its future prospects.
    Keywords: economic growth, South Asia, demographic change
    Date: 2011–02
  6. By: George, Justine
    Abstract: This paper critically reviews the debate of ‘growth and development’ since 1950 in order to place and conceptualize the term inclusive growth. The paper argues that the basic objective of inclusive growth is the smooth functioning of nation state and to avoid socio economic and political unrest and it seems that the inherent agenda is to maintain conventional economic growth structure without breaking its persistent momentum. Moreover, the paper described a development strategy for developing countries by considering various empirical and theoretical evidences and it concludes by arguing that, it is very difficult to achieve the developmental outcomes without breaking the conventional growth structure.
    Keywords: Inclusive growth; Growth and development
    JEL: O1 O10 O2 O20
    Date: 2011–06–01
  7. By: Milad Zarin-Nejadan (Institute of economic research IRENE, Faculty of Economics, University of Neuchâtel, Switzerland)
    Abstract: The relative size of the State in industrialized economies has increased dramatically during the past century giving rise to legitimate fears that such a trend might end up having an adverse impact on growth. This paper explores the relationship between the development of government activities and economic growth. It starts by evoking problems related to the measurement of the public sector before reviewing statistical evidence on the long-term growth of the share of the State in the economy. It then provides a number of explanations for this phenomenon including those pertaining to the functioning of the political system itself thereby pointing towards inefficiencies. The next step is to explore the principal avenues along which government interventions can positively or negatively interfere with the growth potential of the economy. It turns out that while public expenditures – especially those responding to market failures – tend to be favorable to growth, most taxes are growth-hindering. The final part of the paper singles out some pitfalls in the empirical investigation of this relationship. The conjecture is that the nonlinear and possibly endogenous nature of the hypothesized nexus can explain the lack of consensus in empirical studies conducted so far.
    Keywords: Government growth, Public expenditure, Taxes, Economic growth, Endogenous growth
    JEL: E62 H11 H21 H50 O40
    Date: 2011–08
  8. By: Hal Hill; Jayant Menon
    Abstract: This paper examines the impact of the global financial crisis on Cambodia, and the lessons learned. Cambodia is an interesting case study: after extremely rapid economic growth 2000-07, it experienced a sharp growth collapse in 2008-09. This highlighted a number of its peculiar vulnerabilities, including a narrow economic base, a pre-crisis asset price boom, a fragile financial system, and the limited array of defensive economic policy levers available to the government. The economy has begun to rebound since early 2010, and the crisis episode provides the government with an opportunity to place the country's economic growth trajectory on a more sustainable footing. Apart from diversifying the economy and creating the preconditions for dedollarization, we also consider policies that could improve the business climate and make growth more inclusive.
    Keywords: Cambodia, transition economies, economic crises
    JEL: O53 P20
    Date: 2011
  9. By: Heng-fu Zou (CEMA, Central University of Finance and Economics)
    Abstract: This study extends the traditional growth model and recent endogenous growth model to consider how a social and cultural element-the spirit of capitalism in the Weberian sense of accumulation for the sake of accumulation-impacts on savings, asset accumulation, stock market prices, and economic growth and development over time and across countries.
    JEL: B10 E21 E22 G12 O40
    Date: 2011
  10. By: Muhammad, Shahbaz; Lean, Hooi Hooi
    Abstract: This paper assesses the relationship among energy consumption, financial development, economic growth, industrialization and urbanization in Tunisia from 1971-2008. The autoregressive distributed lag bounds testing approach to cointegration and Granger causality tests are employed for the analysis. The result confirms the existence of long-run relationship between energy consumption, economic growth, financial development, industrialization and urbanization in Tunisia. Moreover, financial development, industrialization and urbanization are positively related to energy consumption especially in the long-run. Long-run bidirectional causal relationships are found between financial development and energy consumption, financial development and industrialization, and industrialization and energy consumption. Hence, sound and developed financial system which can attract investors, boost the stock market and improve the efficiency of economic activities should be encouraged in the country. Nevertheless, promoting industrialization and urbanization can never be left out from the process of development. On the other hand, the unidirectional causality from energy consumption to financial development implies that government should implement loose monetary policy which will stimulates investment activities and enhances economic growth and hence the energy consumption.
    Keywords: Energy Consumption; Financial Development; Economic Growth
    JEL: E44 Q4
    Date: 2011–09–01
  11. By: Muhammad, Shahbaz; Lean, Hooi Hooi
    Abstract: This study revisits the relationship between electricity consumption and economic growth in Pakistan by controlling and investigating the effects of two major production factors - capital and labor. The empirical evidence confirms the cointegration among the variables and indicates that electricity consumption has a positive effect on economic growth. Moreover, bi-directional Ganger causality between electricity consumption and economic growth has been found. The findings suggests that adoption of electricity conservation policies to conserve energy resources may unwittingly decline growth and the lower growth rate will in turn further decrease the demand for electricity. Therefore, governments contemplating such conservationist policies should instead explore and develop alternate sources of energy as a strategy rather than just increasing electricity production per se in order to meet the rising demand for electricity in their quest towards sustaining development in the country.
    Keywords: Electricity Consumption; Economic Growth; Ganger Causality
    JEL: F43 Q4
    Date: 2011–09–01
  12. By: Jayaraman, T. K.; Choong , Chee-Keong; Kumar , Ronald
    Abstract: In the context of the ongoing world-wide recession and the consequent dim prospects for exports from small Pacific island countries, mobilization of foreign exchange earnings assumes considerable importance. The dependency of Samoa and Tonga on inward remittances is well known, as the two Polynesian island countries in recent years have been amongst the first top ten remittance recipient countries of the world. This paper examines the long-run nexus between economic growth and inward remittances during a three-decade period (1981-2008). The paper also discusses some important policy implications arising out of the study findings.
    Keywords: Remittances; financial sector development; economic growth; bounds test; Samoa; Tonga
    JEL: F43 F24
    Date: 2011–05
  13. By: Thomas I. Palley
    Abstract: The export-led growth paradigm is a development strategy aimed at growing productive capacity by focusing on foreign markets. It rose to prominence in the late 1970s and became part of a new consensus among economists about the benefits of economic openness. According to Thomas I. Palley, this paradigm is no longer relevant because of changed conditions in both emerging-market (EM) and developed economies. He outlines the stages of the export-led growth paradigm leading to its adoption worldwide, as well as the various critiques of this agenda that have become increasingly prescient. He concludes that we should reduce reliance on strategies aimed at attracting export-oriented foreign direct investment and institute a new paradigm based on a domestic demand-led growth model. Otherwise, the global economy is likely to experience asymmetric stagnation and increased economic tensions between EM and industrialized economies.
    Date: 2011–08
  14. By: Aizenman, Joshua; Pinto, Brian
    Abstract: The accumulated experience of emerging markets over the past two decades has laid bare the tenuous links between external financial integration and faster growth, on the one hand, and the proclivity of such integration to fuel costly crises on the other. These crises have not gone without learning. During the 1990s and 2000s, emerging markets converged to the middle ground of the policy space defined by the macroeconomic trilemma, with growing financial integration, controlled exchange rate flexibility, and proactive monetary policy. The OECD countries moved much faster toward financial integration, embracing financial liberalization, opting for a common currency in Europe, and for flexible exchange rates in other OECD countries. Following their crises of 1997-2001, emerging markets added financial stability as a goal, self-insured by building up international reserves, and adopted a public finance approach to financial integration. The global crisis of 2008-2009, which originated in the financial sector of advanced economies, meant that the OECD"overshot"the optimal degree of financial deregulation while the remarkable resilience of the emerging markets validated their public finance approach to financial integration. The story is not over: with capital flowing in droves to emerging markets once again, history could repeat itself without dynamic measures to manage capital mobility as part of a comprehensive prudential regulation effort.
    Keywords: Debt Markets,Emerging Markets,Currencies and Exchange Rates,Banks&Banking Reform,Economic Theory&Research
    Date: 2011–08–01
  15. By: David E. Bloom (Harvard School of Public Health)
    Abstract: Demographic change in India is opening up new economic opportunities. As in many countries, declining infant and child mortality helped to spark lower fertility, effectively resulting in a temporary baby boom. As this cohort moves into working ages, India finds itself with a potentially higher share of workers as compared with dependents. If working-age people can be productively employed, India's economic growth stands to accelerate. Theoretical and empirical literature on the effect of demographics on labor supply, savings, and economic growth underpins this effort to understand and forecast economic growth in India. Policy choices can potentiate India's realization of economic benefits stemming from demographic change. Failure to take advantage of the opportunities inherent in demographic change can lead to economic stagnation.
    Keywords: age structure, China-India comparison, conditional convergence, demographic dividend, demographic transition, economic growth, economic growth in India, policy reform, population health, population of India
    Date: 2011–01
  16. By: Davide Castellani (Department of Economics, Finance and Statistics, University of Perugia and Centro Studi Luca D'Agliano, Milan); Fabio Pieri (Department of Economics, Finance and Statistics, University of Perugia)
    Abstract: The recent increase in R&D oshoring have raised fears that knowledge and competitive- ness in advanced countries may be at risk of `hollowing out'. At the same time, economic research has stressed that this process is also likely to allow some reverse technology transfer and foster growth at home. This paper addresses this issue by investigating the extent to which R&D oshoring is associated with productivity dynamics of European (NUTS2) regions. In particular, we explore whether R&D investments abroad have a dierent impact from those in manufacturing and other business activities. We nd that oshoring regions have higher productivity growth, but this positive eect fades down with the number of investment projects carried out abroad. However, a large and positive correlation emerge between the extent of R&D oshoring and the home region produc- tivity growth, supporting the idea that carrying out R&D abroad strengthen European competitiveness.
    Keywords: Regional Productivity, Foreign Investments, Europe, R&D Offshoring
    JEL: C23 F23 O47 O52 R11
    Date: 2011–08

This nep-fdg issue is ©2011 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.