nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒10‒15
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis. By alberto, botta
  2. Europe as a convergence engine -- heterogeneity and investment opportunities in emerging Europe By Stojkov, Aleksandar; Zalduendo, Juan
  3. "The "farthest" need the best. Human capital composition and development-specific economic growth" By Fabio Manca
  4. Exports and economic growth in Indonesia's fishery sub-sector: Cointegration and error-correction models By Indra Nurcahyo Sjarif; Koji Kotani; Ching-Yang Lin
  5. Growth Spillover Dynamics from Crisis to Recovery By Sebastian Weber; Hélène Poirson
  6. Does agricultural growth have a causal effect on manufacturing growth? By Shifa, Abdulaziz B.
  7. Aid Effectiveness: Opening the Black Box By Channing Arndt; Sam Jones; Finn Tarp
  8. Law, finance, economic growth and welfare: why does legal origin matter? By Simplice A., Asongu
  9. Technology, structural change and BOP constrained growth: a structuralist toolbox By Mario Cimoli; Gabriel Porcile
  10. Institutions and growth revisited: OLS, 2SLS, G2SLS random effects IV regression and panel fixed (within) IV regression with cross-country data By Josheski, Dushko; Fotov , Risto; Lazarov, Darko; Koteski , Cane
  11. Optimal taxation in the Uzawa-Lucas Model with externality in human capital By Arantza Gorostiaga; Jana Hromcová; Miguel Ángel López García

  1. By: alberto, botta
    Abstract: In this paper, we propose a simple post-Keynesian model on the linkages between the financial and real side of an economy. We show how, according to the Minskyan instability hypothesis, financial variables, credit availability and asset prices in particular, may feedback each other and affect economic activity, possibly giving rise to intrinsically unstable economic processes. Through these destabilizing mechanisms, we also explain why governments intervention in the aftermath of the 2007 financial meltdown has been largely useless to restore financial tranquility and economic growth, but transformed a private debt crisis into a sovereign debt one. The paper ends up by looking at the long-run and to the interaction between long-term growth potential and public debt sustainability. We explicitly consider the Euro-zone economic context and the difficulties several EU members currently face to simultaneously support economic recovery and consolidate fiscal imbalances. We stress that: (i) financial turbulences may trigger permanent reductions in long-term growth potential and unsustainable public debt dynamics; (ii) strong institutional discontinuity such as Eurobond issuances may prove to be the only way to restore growth and ensure long-run public debt sustainability.
    Keywords: post-Keynesian models; financial instability; debt sustainability; Eurobonds
    JEL: E12 E44 H63
    Date: 2011–09
  2. By: Stojkov, Aleksandar; Zalduendo, Juan
    Abstract: This paper provides empirical evidence that countries in emerging Europe reaped the benefits of international financial integration over the past 12 years by attracting sizeable foreign capital inflows and accelerating medium-term growth. But the aggregate pattern masks substantial heterogeneity across countries; namely, new European Union member states and the European Union candidate countries are different from the European Union neighborhood. The growth benefits are supported from both a flow and a stock perspective in terms of the link between foreign savings and growth. While foreign savings might in part substitute for national savings, the analysis finds that the channel to high growth in these countries is, primarily, through making possible the pursuit of investment opportunities that would otherwise remain unfunded; in turn, this seems to be intimately linked to the opportunities created by European Union membership. Although this conclusion does not disappear if the outlier observations of the credit boom period that preceded the financial crisis are dropped from the sample, it does suggest that these excesses did not play as positive a role for growth.
    Keywords: Economic Theory&Research,Currencies and Exchange Rates,Achieving Shared Growth,Emerging Markets,Access to Finance
    Date: 2011–10–01
  3. By: Fabio Manca (Faculty of Economics, University of Barcelona)
    Abstract: We provide robust and compelling evidence of the marked impact of tertiary education on the economic growth of less developed countries and of its the relatively smaller impact on the growth of developed ones. Our results argue in favor of the accumulation of high skill levels especially in technologically under-developed countries and, contrary to common wisdom, independently of the fact that these economies might initially produce low(er)-technology goods or perform technology imitation. Our results are robust to the different measures used in proxying human capital and to the adjustments made for cross-country differences in the quality of education. Country-specific institutional quality, as well as other indicators including legal origin, religious fractionalization and openness to trade have been used to control for the robustness of the results. These factors are also shown to speed up technology convergence thereby confirming previous empirical studies. Our estimates tackle problems of endogeneity by adopting a variety of techniques, including instrumental variables (for both panel and cross-section analyses) and the two-step efficient dynamics system GMM.
    Keywords: Economic growth, human capital, imitation, innovation, convergence. JEL classification:I20, O30, O40
    Date: 2011–10
  4. By: Indra Nurcahyo Sjarif (International University of Japan); Koji Kotani (International University of Japan); Ching-Yang Lin (International University of Japan)
    Abstract: This paper investigates the causal relationship between fishery's exports and its economic growth in Indonesia by utilizing cointegration and error-correction models. Using annual data from 1969 to 2005, we find the evidence that there exist the long-run relationship as well as bi-directional causality between exports and economic growth in Indonesia's fishery sub-sector. To the best of our knowledge, this is the first research that examine this issue focusing on a natural resource based industry, and the results shed light on the role of agriculture sector for economic growth in the developing countries.
    Keywords: export growth, economic growth, shery sub-sector, cointegration, error-correction models
    JEL: Q57 Q58
    Date: 2011–06
  5. By: Sebastian Weber; Hélène Poirson
    Abstract: Can positive growth shocks from the faster-growing countries in Europe spill over to the slower growing countries, providing useful tailwinds to their recovery process? This study investigates the potential relevance of growth spillovers in the context of the crisis and the recovery process. Based on a VAR framework, our analysis suggests that the U.S. and Japan remain the key source of growth spillovers in this recovery, with France also playing an important role for the European crisis countries. Notwithstanding the current export-led cyclical upswing, Germany generates relatively small outward spillovers compared to other systemic countries, but likely plays a key role in transmitting and amplifying external growth shocks to the rest of Europe given its more direct exposure to foreign shocks compared to other European countries. Positive spillovers from Spain were important prior to the 2008 - 09 crisis, however Spain is generating negative spillovers in this recovery due to a depressed domestic demand. Negative spillovers from the European crisis countries appear limited, consistent with their modest size.
    Keywords: Cross country analysis , Economic growth , Economic recovery , Euro Area , Europe , Financial crisis , Germany , Global Financial Crisis 2008-2009 , Spillovers ,
    Date: 2011–09–19
  6. By: Shifa, Abdulaziz B.
    Abstract: Though the role of agricultural growth for manufacturing growth has been at the center of the discourse on economic development, empirically identifying the causal effect of agricultural growth on manufacturing growth has remained illusive for the correlation between the two doesn't necessarily imply causality. This paper attempts to overcome the identi cation problem. Since agriculture is heavily dependent on the weather, random weather variations are used as instruments to identify the causal impact of agricultural growth on manufac- turing growth. Results show that agricultural growth has a signicant positive impact on manufacturing growth. The impact is higher the higher is agricul- ture's share in the economy (as measured by GDP and employment share). For example, in an economy with 50% of agricultural GDP, a 1% increase in agricultural output increases manufacturing output by about 1%.
    Keywords: Agricultural Growth, Manufacturing Growth, Instrumental variable., Community/Rural/Urban Development, International Development, O14, O25, Q10,
    Date: 2011–09–02
  7. By: Channing Arndt; Sam Jones; Finn Tarp
    Abstract: Controversy over the aggregate impact of foreign aid has focused on reduced form estimates of the aid-growth link. The causal chain, through which aid affects developmental outcomes including growth, has received much less attention. We address this gap by: (i) specifying a structural model of the main relationships; (ii) estimating the impact of aid on a range of final and intermediate outcomes; and (iii) quantifying a simplied representation of the full structural form, where aid impacts on growth through key intermediate outcomes. A coherent picture emerges: aid stimulates growth and reduces poverty through physical capital investment and improvements in health.
    Keywords: growth; foreign aid; aid effectiveness; simultaneous equations
    Date: 2011
  8. By: Simplice A., Asongu
    Abstract: This paper proposes and empirically validates four theories of why legal origin influences growth and welfare through finance. It is a natural extension of “Law and finance: why does legal origin matter?” by Thorsten Beck, Asli Demirgüç-Kunt and Ross Levine (2003). We find only partial support for the Mundell(1972), La Porta et al. (1998) and Beck et al.(2003) hypotheses that English common-law countries tend to have better developed financial intermediaries than French civil-law countries. While countries with English legal tradition have legal systems that improve financial depth, activity and size, countries with French legal origin overwhelmingly dominate in financial intermediary allocation efficiency. Countries with Portuguese legal origin fall in-between.
    Keywords: Law; Financial development; Growth; Welfare
    JEL: O1 K2 G2 P5 K4
    Date: 2011–08–18
  9. By: Mario Cimoli (CEPAL e Universidad de Venecia); Gabriel Porcile (CEPAL e Universidade Federal do Paraná)
    Abstract: The Latin American Structuralism (LAS) is a significant part of the heterodox tradition in the theory of long run growth, with a focus on the problems of developing economies which started their industrialization process when other regions had already accumulated substantial technological capabilities. The emergence of a centre-periphery system posed specific problems to growth and distribution in laggard economies which LAS discusses in a systematic way. In this paper we presented a simple model which, firstly, captures key insights of the LAS school, such as the persistency of technological asymmetries and structural heterogeneity; secondly, it can be used to analyze the impacts of shocks and policies based on how they affect supply-side and demand side parameters of the model; thirdly, it links more closely (Post-) Keynesian macroeconomics based on the BOP constraint with the evolutionary microeconomics concerned with the dynamics of learning; lastly, it can be used as a toolbox and a teachable model in the analysis of the interactions between structural change, technological catching up and long run growth.
    Date: 2011
  10. By: Josheski, Dushko; Fotov , Risto; Lazarov, Darko; Koteski , Cane
    Abstract: This paper revisits the Institutions and growth models. Econometric techniques have been applied on cross-country data, just to confirm the apriori knowledge that Institutions effect on growth is positive and highly statistically significant. This evidence was confirmed by all four models. OLS proved as a better technique for our data than 2SLS, this simply because overidentification test showed that instrument cannot be considered exogenous, also Hausman test showed that OLS is better than 2SLS at 1% and 5% levels of significance. G2SLS estimator and Fixed effects panel estimators just confirmed the results from the OLS and 2SLS. As a proxy variable for institutions we used Rule of law variable, also as instruments were used revolutions and Freedom house rating as well as War casualties variables. Also as conclusion here Trade is insignificant in influence to GDP growth compared with quality of institutions.
    Keywords: Institutions; Growth; 2SLS; OLS; G2SLS Random effects IV regression and Panel Fixed (within) IV regression; cross-country data; Hausman test; Overidentification test
    JEL: F33
    Date: 2011–10–02
  11. By: Arantza Gorostiaga (Dpto. Fundamentos del Análisis Económico II); Jana Hromcová (Universitat de Girona); Miguel Ángel López García (Dpt. Economia Aplicada)
    Abstract: We show that in the Uzawa-Lucas model with externality in human capital with agents that value both consumption and leisure, the government pursuing the first best can achieve its goal by subsidizing the foregone earnings while studying. The subsidy should be financed by a schooling fee. We obtain that countries with similar initial conditions may issue different fees because multiple equilibria can arise for empirically plausible values of parameters. This result differs from the one obtained in ananalogous economy where agents only value consumption.
    Keywords: optimal policy, two-sector model, endogenous growth, indeterminacy.
    JEL: O41 E62 H31
    Date: 2011–09

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