nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒03‒08
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Monetary Policy in a New Keynesian Model with Endogenous Growth By Barbara Annicchiarico; Lorenza Rossi
  2. Population and economic growth theme: Longitudinal data for a sample of Balkan countries By Josheski, Dushko; Nikola , Dimitrov; Koteski, Cane
  3. Cointegration, causality and Wagner’s law with disaggregated data: evidence from Turkey, 1968-2004 By Kucukkale, Yakup; Yamak, Rahmi
  4. Economic Consequences of War: Evidence from Sri Lanka By Kumudini R. Ganegodage; Alicia N. Rambaldi
  5. Optimal public investment, growth and consumption: evidence from African countries By Augustin Kwasi Fosu; Yoseph Yilma Getachew; Thomas Ziesemer

  1. By: Barbara Annicchiarico; Lorenza Rossi (Department of Economics, University of Pavia)
    Abstract: We study monetary policy in a New Keynesian (NK) model with endogenous growth and knowledge spillovers external to each firm. We find the following results: (i) technology and government spending shocks have different effects on growth; (ii) disinflationary monetary policies entail positive effects on growth; (iii) the optimal long-run inflation rate is zero; (iv) the Ramsey dynamics implies deviation from full inflation targeting in response to technology and government spending shocks; (v) the optimal operational rule is backward looking and responds to inflation and output deviations from their long-run levels.
    Keywords: Monetary Policy, Endogenous Growth, Disinflation, Ramsey Problem, Optimal Simple Rules
    JEL: E32 E52 O42
    Date: 2012–02
  2. By: Josheski, Dushko; Nikola , Dimitrov; Koteski, Cane
    Abstract: In this paper we use pooled cross-sectional (longitudinal data) in a sample of 10 Balkan countries. The period we cover is from 1950-2009 data are for population and economic growth. In the theoretical part we present optimal intergenerational model of population growth .The optimal population growth depends on capital in the future period and future consumption. Consumption should be greater than zero, and less than total capital of the current generation. In the econometric part OLS regression with dummies the coefficient on Macedonia,is highest significant coefficient meaning, if we control for Macedonia we will on average find more positive association between growth of GDP and population growth. Hausman test was in favor of fixed effects model, but fixed effects and Random effects model showed that there is positive coefficient between GDP growth and population growth. Coefficient in the FE model was statistically significant, which was not case in RE model. From the Fischer’s panel unit root test we reject the null hypothesis that panels contain unit root and we accept the alternative that at least one panel is stationary, for the population growth and GDP growth.
    Keywords: Population growth; economic growth; Fixed effects model; Random effects model; OLS with dummies model
    JEL: R23
    Date: 2012–02–25
  3. By: Kucukkale, Yakup; Yamak, Rahmi
    Abstract: Recent developments in time series analysis have encouraged the economists to re-examine their findings about the Wagner’s Law. That is why, the aggregation in public expenditures may lead some contradictions, disaggregated analyses should perform to have more consistent results. In this paper, the cointegration and causal relationships have re-examined between public expenditure and economic growth by using disaggregated annual data over the period of 1968-2004 for Turkish economy. Obtained results show that there is no common trend between these variables in the long-run. In the short-run, however, there is a strong and bidirectional causal relationship between public investment expenditures and economic growth.
    Keywords: Wagner's Law; Cointegration; Causality; disaggregated data; public expenditures; economic growth
    JEL: E62 O23 C12 B22
    Date: 2012–02–19
  4. By: Kumudini R. Ganegodage (School of Economics, The University of Queensland); Alicia N. Rambaldi (School of Economics, The University of Queensland)
    Abstract: We propose a theoretical and econometric framework to evaluate the impact of war on economic growth of a developing country with an open economy. The theoretical framework encompasses both the neoclassical and endogenous growth models. The econometric model is derived from the theoretical framework and an Autoregressive Distributed Lag framework is used for the estimation. We test this framework using Sri Lankan data. The war had significant and negative effects both in the short and long-run (annual average of 9% of GDP). High returns from investment in physical capital did not translate in sizable positive externalities. No significant effects of openness on growth in the long-run are found; however, effects are significant in the short- run. Inconsistent politically driven policies towards openness are the likely reason. As the ethnic conflict has finally come to an end, a policy framework with appropriate institutional reforms is needed for rapid growth and development.
    Date: 2012
  5. By: Augustin Kwasi Fosu; Yoseph Yilma Getachew; Thomas Ziesemer
    Abstract: Abstract How much does public capital matter for economic growth? How large should it be? This paper attempts to answer these questions, taking the case of Sub-Saharan African (SSA) countries. It develops and estimates a model that posits a non-linear relationship between public investment and growth, to determine the growth-maximising public investment GDP share. It empirically also accounts for the crowding-in and crowding-out effects between public and private investment, with equations estimated separately and simultaneously, using System GMM. The paper further runs a simulation and examines the public investment GDP share that maximises consumption. This is estimated to be between 8.4 percent and 11 percent. The results from estimating the growth model are in the middle of this range, which is larger than the observed value of 7.2 percent at the end of the sample period. These outcomes suggest that, on average, there has been public under-investment in Africa, contrary to previous findings.
    Date: 2012

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