nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2011‒11‒14
eight papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Home-bias Politics, Financial Deregulation and Economic Growth: A Causal Relationship By He, Qichun
  2. Financial liberalization and macroeconomic performance, empirical evidence from selected Asian countries By Raza, Muhammad Wajid; Mohsin, Hasan M
  3. Urban agglomeration and the aggregate economic growth By Domingo Pérez Ximénez-De-Embún; Marcos Sanso
  4. What has really happened to poverty and inequality during the growth process in developing countries? By Nomaan Majid
  5. Inequality, growth and public spending in Central, East and Southeast Europe By Mario Holzner
  6. Forecasting GDP growth in times of crisis: private sector forecasts versus statistical models By Jasper de Winter
  7. Is informality welfare-enhancing structural transformation ? evidence from Uganda By Fox, Louise; Pimhidzai, Obert
  8. Innovation and Growth with Financial, and Other, Frictions By Jonathan Chiu; Césaire Meh; Randall Wright

  1. By: He, Qichun
    Abstract: We re-examine the finance-growth nexus using the Chinese financial deregulation experience during the reform period 1981-1998. We use lagged home-bias political variables as instruments for financial deregulation. Dealing with weak instruments by LIML (limited-information maximum likelihood) estimation, we find that financial deregulation has a significant causal effect on economic growth. The result holds up when we control for conditional convergence, other growth determinants, and time and province effects.
    Keywords: Financial Deregulation; Home-bias Politics; Causality; Growth
    JEL: O21 G20
    Date: 2011–10–15
  2. By: Raza, Muhammad Wajid; Mohsin, Hasan M
    Abstract: Financially repressed economy cannot grow with an increasing growth rate. That’s why most of the developing countries move toward liberalized financial system. The basic objective of this paper is to provide a comparative analysis of Pakistan, China, and India financial sector liberalization and its impact on macroeconomic performance. This study uses Johansen co integration to provide cross country evidence of long run relationship between macroeconomic variables and financial openness. Results show that there is long run relation among financial openness and macro economic performance in all three countries. Financial liberalization has positive and significant effect on Pakistan macroeconomic performance while negative and significant effect on china economy. The relationship in India is positive but not significant
    Keywords: Financial liberalization; financial depth. Economic growth
    JEL: E0 N20 F43
    Date: 2011–05–15
  3. By: Domingo Pérez Ximénez-De-Embún; Marcos Sanso
    Abstract: This paper presents a theoretical approach to solve the main problems faced to explain the relationship between aggregate economic growth and the urban structure. The most significant conclusion reached is that there is a theoretical relationship between aggregate economic growth and urban concentration with an inverted-U shape. This result had been previously found in an empirical context (Henderson, 2003), but not as outcome of a theoretical model. An overlapping generations model with four different types of goods (some with both technological and local externalities) and two cities where their production could be located provides the dynamics of the movements of labor and goods across cities. The resulting system of two cities with different patterns of specialization, urban concentration and economic growth rates, makes clear how to set out the comparison of aggregate growth rates: only the aggregate growth rate between two steady states, one without migration but with trade specialization and the other after migration and specialization, makes sense. Henderson, V. (2003), The Urbanization Process and Economic Growth: The So-What Question, Journal of Economic Growth, 8, 47-71.
    Date: 2011–09
  4. By: Nomaan Majid (International Labour Office, Economic and Labour Market Analysis Department)
    Keywords: poverty / income distribution / poverty alleviation /economic growth / globalization / developing countries
    Date: 2011
  5. By: Mario Holzner (The Vienna Institute for International Economic Studies)
    Abstract: The article analyses the joint determinants of inequality and growth with a special emphasis on public spending structures in transition. We find especially government expenditures on subsidies to be negatively correlated with both inequality and growth, as more generally government expenditures seem to act counter-cyclically and inequality reducing. Also, there is a mutual benefit of low real interest rates, to both equity and economic development. This hints to the fact that in the late 1990's and early 2000's the European integration process allowed several of the transition economies to aim for the best of both worlds: equity and economic development.
    Keywords: Inequality; Government Expenditures, Economic Growth, Transition
    JEL: D63 H5 O4 P2
    Date: 2011
  6. By: Jasper de Winter
    Abstract: This paper examines the accuracy of short run forecasts of Dutch GDP growth by several linear statistical models and private sector analysts. We focus on the financial crisis of 2008-2009 and the dot-com recession of 2001-2002. The dynamic factor model turns out to be the best model. Its forecast accuracy during the crisis deteriorates much less than that of the other linear models and hardly at all when backcasting and nowcasting. Moreover, the dynamic factor model beats the private sector forecasters at nowcasting. This finding suggests that adding judgement to a mechanical model may not improve short-term forecasting performance.
    Keywords: Nowcasting; Professional Forecasters; Factor Model; Forecasting
    JEL: E52 C53 C33
    Date: 2011–11
  7. By: Fox, Louise; Pimhidzai, Obert
    Abstract: While Africa's recent decade of growth and poverty reduction performance has been lauded, concern has been expressed regarding the structure of this growth. In particular, questions have been raised about whether the growth is based on a commodities boom, or whether it is the beginning of a structural transformation that will lift workers from low-productivity jobs into higher-productivity ones. Macro evidence has suggested that the structural transformation has not started. But macro analysis misses the evidence that the process of transformation has started, because this process begins at the household level. Household livelihoods do not move from ones based on subsistence farming and household level economic activities into livelihoods based on individual wage and salary employment away from the household in one leap -- this process takes generations. The intermediate step is the productive informal sector. It is income gains at the household level in this sector that fuel productivity increases, savings, and investment in human capital in this sector. Ensuring that most households are able to diversify their livelihoods into the non-farm sector through productive informality not only increases growth, but also allows the majority of the population to share in the growth process. This paper illustrates this point with the case of Uganda which followed this path and experienced two decades of sustained growth and poverty reduction.
    Keywords: Rural Poverty Reduction,Achieving Shared Growth,Labor Policies,Regional Economic Development,Economic Theory&Research
    Date: 2011–10–01
  8. By: Jonathan Chiu; Césaire Meh; Randall Wright
    Abstract: The generation and implementation of ideas, or knowledge, is crucial for economic performance. We study this process in a model of endogenous growth with frictions. Productivity increases with knowledge, which advances via innovation, and with the exchange of ideas from those who generate them to those best able to implement them (technology transfer). But frictions in this market, including search, bargaining, and commitment problems, impede exchange and thus slow growth. We characterize optimal policies to subsidize research and trade in ideas, given both knowledge and search externalities. We discuss the roles of liquidity and financial institutions, and show two ways in which intermediation can enhance efficiency and innovation. First, intermediation allows us to finance more transactions with fewer assets. Second, it ameliorates certain bargaining problems, by allowing entrepreneurs to undo otherwise sunk investments in liquidity. We also discuss some evidence, suggesting that technology transfer is a significant source of innovation and showing how it is affected by credit considerations.
    Keywords: Economic models; Potential output; Productivity
    JEL: E4 G2 O3 O4
    Date: 2011

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