nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒11‒07
seventeen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Is There a Primary Roleof Institutions on Explaining Cross Country Differences in IncomeLevels and Long-Run Economic Growth? By Flavio Vilela Vieira; Aderbal Oliveira Damasceno
  2. Does Growth Cause Financial Deregulation in China? An Instrumental Variables Approach By He, Qichun
  4. Public Expenditures, Taxes, Federal Transfers, and Endogenous Growth By Liutang Gong; Heng-fu Zou
  5. Manufacturing Industryand Economic Growth in Latin America By Gilberto Libânio; Sueli Moro
  6. The end of an era? The medium- and long-term effects of the global crisis on growth in low-income countries By Berg, Andrew; Papageorgiou, Chris; Pattillo, Catherine; Spatafora, Nicola
  7. Growth Implications of Structure and Size of Public Sectors By Hans Pitlik; Margit Schratzenstaller
  8. Poverty, inflation and economic growth: empirical evidence from Pakistan By Chani, Muhammad Irfan; Pervaiz, Zahid; Jan, Sajjad Ahmad; Ali, Amjad; Chaudhary, Amatul R.
  9. Long-run Welfare under Externalities in Consumption, Leisure, and Production: A Case for Happy Degrowth vs. Unhappy Growth By Ennio Bilancini; Simone D'Alessandro
  10. Brazil’s economy - 1971-2005: growth pattern and structural change By Carmem Feijo; Lionello Punzo; Marcos Tostes Lamonica
  12. Economic growth, energyconsumption and emissions: an extension of Ramsey-Cass-Koopmans modelunder EKC hypothesis By Luiz Fernando Ohara Kamogawa; Ricardo Shirota
  13. Contracting Institutions and Economic Growth By Álvaro Aguirre
  14. A model of economic growth with saturating demand By Kunimune, Kozo
  16. Structural Change,Balance-of-Payments Constraint and Economic Growth: Evidence from the Multi-Sectoral Thirlwall’s Law By Raphael Rocha Gouvêa; Gilberto Tadeu Lima
  17. The Contribution of Chinese FDI to Africa’s Pre Crisis Growth Surge By Aaron Weisbrod; John Whalley

  1. By: Flavio Vilela Vieira; Aderbal Oliveira Damasceno
    Date: 2011
  2. By: He, Qichun
    Abstract: Following Miguel et al. (2004), we use temperature and hours of sunshine variations as instrumental variables for economic growth in 27 Chinese provinces during 1981--98. Our 2SLS (Two-stage least squares) regression finds that growth has no significant effect on financial deregulation after controlling for predetermined home-bias political variable, population size, and time and province effects. Moreover, the home-bias political variable has a significant effect on financial deregulation, which shows that political and cultural factors are important driving forces in determining the path and logic of Chinese financial deregulation. The results hold up when we use GMM (Generalized method of moments) to deal with heteroskedasticity. The results are also robust in LIML (Limited information maximum likelihood) estimation that deals with weak instruments.
    Keywords: Financial Deregulation; Growth; Causality
    JEL: O43 C23
    Date: 2011–10–01
  3. By: Joilson Dias; John McDermott
    Date: 2011
  4. By: Liutang Gong (Guanghua School of Management, Peking University); Heng-fu Zou (CEMA, Central University of Finance and Economics; Shenzhen University; Wuhan University; The World Bank)
    Abstract: This paper extends the Barro (1990) model with single aggregate government spending and one flat income tax to include public expenditures and taxes by multiple levels of government. It derives the rate of endogenous growth and, with both simulations and special examples, examines how that rate changes with respect to federal income tax, local taxes, and federal transfers. It also discusses the growth and welfare-maximizing choices of taxes and federal transfers.
    Keywords: Public expenditures, Taxes, Federal transfers, Endogenous growth
    JEL: E0 H2 H4 H5 H7 O4 R5
    Date: 2011
  5. By: Gilberto Libânio; Sueli Moro
    Date: 2011
  6. By: Berg, Andrew; Papageorgiou, Chris; Pattillo, Catherine; Spatafora, Nicola
    Abstract: This paper investigates the medium- and long-term growth effects of the global financial crises on Low-Income Countries (LICs). Using several methodological approaches, including impulse response function analysis, growth spells techniques and panel regressions, we show that external demand (ED) shocks are not historically associated with sharp declines in output growth. Given existing evidence that LICs were primarily impacted by such a shock in the global financial crisis, our analysis provides some optimism on the chances that LICs will avoid a protracted period of slow growth. However, we also show that there seem to be persistent output losses associated with ED shocks in the medium-run. In terms of policy implications, our analysis provides evidence that countries with lower deficits, lower debt, more flexible exchange rate regimes, and a higher stock of international reserves are more likely to dampen the effects of an ED shock on growth. --
    Keywords: Global financial crisis,external shocks,low-income countries,medium- and long-term growth,impulse response functions,growth spells,panel growth regressions
    JEL: O11 O19 O23 O47
    Date: 2011
  7. By: Hans Pitlik (WIFO); Margit Schratzenstaller (WIFO)
    Abstract: The relationship between government size and growth has received an enormous attention in the economics literature, and the recent financial crisis has forced this topic back on the agenda. A highly controversial debate in this respect is whether large governments are harmful for growth. Endogenous growth theory provides us with the view that tax structure and the composition of public expenditure may be important for growth, perhaps even more than total tax or expenditure levels. Government size and structure are, however, also reflected in the level and structure of market regulations, which may substitute or complement fiscal intervention. The study provides an overview of the growth-friendliness of fiscal and regulatory structures in a cross-section of EU 15 and EU 12 countries and highly developed OECD countries. Peripheral European (transition) countries are also included, whenever respective data are available. Our analysis is based on several measures capturing the expenditure and the tax side of the budgets, as well as regulatory policies. It is shown that the size and the structure of fiscal and regulatory regimes and, hence, the expected long-run growth impact of government activities, still differ markedly across countries.
    Date: 2011–10–28
  8. By: Chani, Muhammad Irfan; Pervaiz, Zahid; Jan, Sajjad Ahmad; Ali, Amjad; Chaudhary, Amatul R.
    Abstract: This study aims to investigate the role of economic growth and inflation in explaining the prevalence of poverty in Pakistan. ARDL bound testing approach to co-integration confirms the existence of long run relationship among the variables of poverty, economic growth, inflation, investment and trade openness over the period of 1972-2008. Empirical results show that economic growth and investment have negative and inflation has positive impact on poverty. The effect of trade openness on poverty is insignificant in this study. The short run analysis reveals that economic growth has negative and inflation has positive impact on poverty whereas the role of investment and trade openness in poverty reduction in short run is not significant.
    Keywords: Poverty; Inflation; Economic Grovvth; Pakistan; Macroeconomic Policy; Welfare; Trade Openness
    JEL: E31 F43 C01 I32
    Date: 2011
  9. By: Ennio Bilancini; Simone D'Alessandro
    Abstract: In this paper we contribute to the debate on the relationship between growth and well-being by examining an endogenous growth model where we allow for externalities in consumption, leisure, and production. We analyze three regimes: a decentralized economy where each household makes isolated choices without considering their external effects, a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities, and a planned economy with a fully informed planner. We first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path. We provide a number of ndings. First, in a decentralized economy growth or labor (or both) are greater than in the regime with a fully informed planner, and hence are sub-optimal from a welfare standpoint. Second, a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime. Third, we provide a case for happy degrowth: a transition to the optimal balanced growth path that is associated with downscaling of production, a reduction in private consumption, and an ongoing increase in leisure and well-being.
    Keywords: degrowth; endogenous growth; consumption externalities; leisure externalities; production externalities
    JEL: Q13 E62 H21 H23
    Date: 2011–11
  10. By: Carmem Feijo; Lionello Punzo; Marcos Tostes Lamonica
    Date: 2011
    Date: 2011
  12. By: Luiz Fernando Ohara Kamogawa; Ricardo Shirota
    Date: 2011
  13. By: Álvaro Aguirre
    Abstract: This paper studies the effects of contracting institutions on economic development. A growth model is presented with endogenous incomplete markets, where financial frictions generated by the imperfect enforcement of contracts depend on the future growth of the economy, which determines the costs of being excluded from financial markets after defaulting. As the economy approaches its balanced growth path, frictions and their effect on income become more important because the net benefits of honoring contracts decrease. Therefore, as the economy approaches its steady state, the effect of contracting institutions on GDP per capita increases. This effect is due not only to a slower accumulation of capital, but also to a misallocation of resources toward labor-intensive productive sectors, where self-enforcing incentives are stronger. To validate the model empirically, the paper modifies previous specifications of cross-country regressions to estimate the effect of contracting institutions on per capita GDP. In line with the main predictions of the model, the econometric evidence shows that this effect is larger in economies that were relatively close to their steady states in 1950. Unlike contracting institutions, the evidence shows that property-rights institutions, included in an extension to the model, have an effect on income per capita throughout the development process.
    Date: 2011–09
  14. By: Kunimune, Kozo
    Abstract: This study presents a model of economic growth based on saturating demand, where the demand for a good has a certain maximum amount. In this model, the economy grows not only by the improvement in production efficiency in each sector, but also by the migration of production factors (labor in this model) from demand-saturated sectors to the non-saturated sector. It is assumed that the production of a brand-new good will begin after all the existing goods are demand-saturated. Hence, there are cycles where the production of a new good emerges followed by the demand saturation of that good. The model then predicts that should the growth rate be stable and positive in the long run, the above-mentioned cycle must become shorter over time. If the length of cycles is constant over time, the growth rate eventually approaches zero because the number of goods produced grows.
    Keywords: Economic growth, Economic development, Demand Saturation
    JEL: O1 O11 O4
    Date: 2011–03
    Date: 2011
  16. By: Raphael Rocha Gouvêa; Gilberto Tadeu Lima
    Date: 2011
  17. By: Aaron Weisbrod; John Whalley
    Abstract: In the 3 years before the 2008 Financial Crisis, GDP growth in sub Saharan Africa (averaged over individual economies) was around 6%, or 2 percentage points above mean growth rates for the preceding 10 years. This period also coincided with significant Chinese FDI flows into these countries, accounting for up to 10% of total inward FDI flows for certain countries in these years. We use growth accounting methods to assess what portion of this elevated growth can be attributed to Chinese inward FDI. We follow Solow (1957), Dennison (1962), and others and use data for individual economies between 1990 and 2008 to calculate Solow residuals for these years for individual economies. We use capital stock data, workforce, and factor share data by country. Capital stock data is unavailable directly, and so we use perpetual inventory methods to construct the data. Factor shares come from UN National Accounts data. We then run counterfactual growth accounting experiments for thirteen Sub-Saharan African countries excluding Chinese FDI inflows for 2005-2007 and also 2003-2009. Our individual results vary by year and country, but there are several year/country combinations where Chinese FDI contributed to an additional one half of a percentage point or above to GDP growth. These results suggest that a significant, even if in some cases small, portion of the elevated growth in sub Saharan Africa in the three years before the Financial Crisis and also in the two years afterwards (2008-2009) can be attributed to Chinese inward investment.
    JEL: F21 F43 O4 O47 O55
    Date: 2011–10

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