nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒04‒03
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Electricity consumption and economic growth causality revisited: evidence from Turkey By Muhammad, Shahbaz; Ilhan, Ozturk
  2. Energy consumption and economic growth: evidence from nonlinear panel cointegration and causality tests By Omay, Tolga; Hasanov, Mubariz; Ucar, Nuri
  3. Endogenous human capital formation, distance to frontier and growth By Basu, Sujata; Mehra, Meeta K
  5. Energy Consumption, Economic Growth and CO2 Emissions in Middle East and North African Countries By Arouri, Mohamed El Hedi; Ben Youssef, Adel; M'henni, Hatem; Rault, Christophe
  6. Looking Inward for Transformative Growth in China By Rod Tyers

  1. By: Muhammad, Shahbaz; Ilhan, Ozturk
    Abstract: The study reconsiders the relationship between electricity consumption and economic growth by incorporating financial development, capital and labor as important factors of production using augmented production function in Turkey for the period of 1971-2009. In doing so, we applied ARDL bounds testing approach and found long run relationship between electricity consumption, economic growth, financial development, capital and labour. Further,results indicated that electricity consumption, financial development, capital and labor have positive effect on economic growth. The VECM granger causality analysis shows bidirectional causality between electricity consumption, economic growth, financial development,capital and labor. The findings have important policy implication to sustain economic growth through comprehensive energy policy and developing financial sector in Turkey.
    Keywords: Electricity consumption; Financial development; Economic growth
    JEL: F43 Q4
    Date: 2012–03–01
  2. By: Omay, Tolga; Hasanov, Mubariz; Ucar, Nuri
    Abstract: In this paper, we propose a nonlinear cointegration test for heterogeneous panels where the alternative hypothesis is an exponential smooth transition (ESTAR) model. We apply our tests for investigating cointegration relationship between energy consumption and economic growth for the G7 countries covering the period 1977-2007. Moreover, we estimate a nonlinear Panel Vector Error Correction Model in order to analyze the direction of the causality between energy consumption and economic growth. By using nonlinear causality tests we analyze the causality relationships in low economic growth and high economic growth regimes. Furthermore, we deal with the cross section dependency problem in both nonlinear panel cointegration test and nonlinear Panel Vector Error Correction Model.
    Keywords: Nonlinear panel cointegration; nonlinear Panel Vector Error Correction Model; cross section dependency
    JEL: C13 C23 C33
    Date: 2012–03–26
  3. By: Basu, Sujata; Mehra, Meeta K
    Abstract: We examine human capital's contribution to economy-wide technological progress through two channels -- imitation and innovation -- innovation being more skilled-intensive than innovation. We develop a growth model considering an endogenous ability-driven skill acquisition decision of an individual. We show that skilled labor is growth enhancing in the ``imitation-innovation" regime and the ``innovation-only" regime whereas unskilled labor is growth enhancing in the ``imitation-only" regime. Steady state exists and, in the long run, an economy may or may not converge to the world technology frontier, depending on its initial position and the growth rate of the frontier economy. In the diversified regime, technological progress raises the return to ability and generates an increase in wage inequality between and within groups -- consistent with the pattern observed across countries.
    Keywords: Economic Growth; Endogenous Labor Composition; Imitation-Innovation; Convergence; Wage Inequality
    JEL: O43 I21 O3
    Date: 2011–07–14
  4. By: James B. Ang; Jakob B. Madsen
    Abstract: Although ideas production plays a critical role for growth, there has been only a modicum of research on the role played by financial forces in fostering new inventions. Drawing on Schumpeterian growth theory, this paper tests the roles of risk capital and private credit in stimulating knowledge production. Using panel data for 77 countries over the period 1965-2009, it is found that countries with more developed financial systems are more innovative. A stronger patent protection framework, on the other hand, curbs innovative production.
    Keywords: Schumpeterian growth; financial development; venture capital
    JEL: O30 O40
    Date: 2012–03
  5. By: Arouri, Mohamed El Hedi (EDHEC Business School); Ben Youssef, Adel (University of Nice Sophia-Antipolis); M'henni, Hatem (University of Manouba); Rault, Christophe (University of Orléans)
    Abstract: This article extends the recent findings of Liu (2005), Ang (2007), Apergis et al. (2009) and Payne (2010) by implementing recent bootstrap panel unit root tests and cointegration techniques to investigate the relationship between carbon dioxide emissions, energy consumption, and real GDP for 12 Middle East and North African Countries (MENA) over the period 1981–2005. Our results show that in the long-run energy consumption has a positive significant impact on CO2 emissions. More interestingly, we show that real GDP exhibits a quadratic relationship with CO2 emissions for the region as a whole. However, although the estimated long-run coefficients of income and its square satisfy the EKC hypothesis in most studied countries, the turning points are very low in some cases and very high in other cases, hence providing poor evidence in support of the EKC hypothesis. Thus, our findings suggest that not all MENA countries need to sacrifice economic growth to decrease their emission levels as they may achieve CO2 emissions reduction via energy conservation without negative long-run effects on economic growth.
    Keywords: growth, Environmental Kuznets Curve, energy consumption, carbon dioxide emissions
    JEL: Q43 Q53 Q56
    Date: 2012–03
  6. By: Rod Tyers
    Abstract: Export led growth has been very effective in modernising China’s economy and establishing a large high-saving middle class. Notwithstanding political opposition from trading partners, this growth strategy has also offered the rest of the world an improved terms of trade and cheaper finance. Yet it is believed by China’s government that this convenient strategy has run its course and the transition has begun to a model that “looks inward” for growth, to be driven by expanding consumption and home investment. This paper uses a numerical model of the Chinese economy with oligopoly behaviour to examine the available “inward” sources of transformative growth along with the policies needed to exploit them. Success will require the redistribution of the considerable rents now accruing to connections of key state owned enterprises, suggesting the potential for political resistance and the yet-avoidable possibility that China could fall into a “middle income trap”.
    JEL: D43 D58 E62 L13 L43
    Date: 2012–03

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