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on Financial Development and Growth |
| By: | Ugo Panizza (UNCTAD and The Graduate Institute, Geneva); Andrea Filippo Presbitero (Universit… Politecnica delle Marche, Department of Economics, MoFiR) |
| Abstract: | This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction. |
| Keywords: | Government Debt, Growth, OECD countries |
| JEL: | F33 F34 F35 O11 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:65&r=fdg |
| By: | Gurgul, Henryk; Lach , Łukasz |
| Abstract: | This paper examines the nexus between political instability and economic growth in 10 CEE countries in transition in the period 1990-2009. Our results support the contention that political instability defined as a propensity for government change had a negative impact on growth. On the other hand, there was no causality in the opposite direction. A sensitivity analysis based on the application of a few hundred different variants of the initial econometric model confirmed the abovementioned findings only in the case where major government changes were applied to the definition of political instability. |
| Keywords: | economic growth; political instability; CEE economies |
| JEL: | O40 |
| Date: | 2012–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37792&r=fdg |
| By: | Miguel A León-Ledesma; Peter McAdam; Alpo Willman |
| Abstract: | Capital-labor substitution and TFP estimates are essential features of many economic models. Such models typically embody a balanced growth path. This often leads researchers to estimate models imposing stringent prior choices on technical change. We demonstrate that estimation of the substitution elasticity and TFP growth can be substantially biased if technical progress is thereby mis-specified. We obtain analytical and simulation results in the context of a model consistent with balanced and near-balanced growth (i.e. departures from balanced growth but broadly stable factor shares). Given this evidence, a Constant Elasticity of Substitution production function system is then estimated for the US economy. Results show that the estimated substitution elasticity tends to be significantly lower using a factor-augmenting specification (well below one). We are also able to reject conventional neutrality forms in favor of general factor augmentation with a non-negligible capital-augmenting component. Our work thus provides insights into production and supply-side estimation in balanced-growth frameworks. |
| Keywords: | Balanced Growth; Technical Progress Neutrality; Factor Income share; Constant Elasticity of Substitution; Factor-Augmenting Technical Change |
| JEL: | C15 C32 E23 O33 O51 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1204&r=fdg |
| By: | Ibrahim Ahmed Elbadawi; Raimundo Soto |
| Abstract: | This paper contributes to the empirical literature on oil and other point-source resource curse. We find that the curse does exist but conditional on bad political governance. Unlike previous studies we estimate a flexible econometric growth model that accounts for long-term country heterogeneity and cross-dependency and retains the virtues of the recent literature, including short-run flexibility, cointegration and error-correction mechanisms. We unpack political institutions into those reflecting the degree of inclusiveness (Polity) and credibility of intertemporal commitments (Political Check and Balances) and find that resource-rich countries with low levels on both scores are likely to experience the curse, while those with high enough levels may turn resource rents into a driver of growth. Countries with high scores on only one dimension may avoid the curse but are not likely to effectively use resource rents to promote growth. This suggests that for the oil-rich Arab world to achieve sustained growth, the Arab spring should not only bring democracy, as badly needed as it is, but should also lay the foundations for strong systems of political checks and balances. |
| Keywords: | Oil and natural resource curse, economic growth, democracy, political checks and balances |
| JEL: | O13 P16 O43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:413&r=fdg |
| By: | Ikefuji, Masako; Horii, Ryo |
| Abstract: | Using an endogenous growth model with physical and human capital accumulation, this paper considers the sustainability of economic growth when the use of a polluting input (e.g., fossil fuels) intensifies the risk of capital destruction through natural disasters. We find that growth is sustainable only if the tax rate on the polluting input increases over time. The long-term rate of economic growth follows an inverted V-shaped curve relative to the growth rate of the environmental tax, and it is maximized by the least aggressive tax policy of those that asymptotically eliminate the use of polluting inputs. Unavailability of insurance can accelerate or decelerate the growth-maximizing speed of the tax increase depending on the relative significance of the risk premium and precautionary savings effects. Welfare is maximized under a milder environmental tax policy, especially when the pollutants accumulate gradually. |
| Keywords: | human capital; global warming; environmental tax; nonbalanced growth path; precautionary saving; risk premium |
| JEL: | O41 H23 Q54 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37825&r=fdg |
| By: | Tiwari, Aviral Kumar; Muhammad, Shahbaz |
| Abstract: | This study investigates the dynamic relationship between coal consumption, economic growth, trade openness and CO2 emissions for Indian economy. In doing so, Narayan and Pop structural break unit test is applied to test the order of integration of the variables. Long run relationship between the variables is tested by applying ARDL bounds testing approach to cointegration developed by Pesaran et al. (2001). The results confirm the existence of cointegration for long run between coal consumption, economic growth, trade openness and CO2 emissions. Our empirical exercise indicates the presence of Environmental Kuznets Curve (EKC) long run as well as short run. Coal consumption as well as trade openness contributes to CO2 emissions. The causality results report the feedback hypothesis between economic growth and CO2 emissions and same inference is drawn between coal consumption and CO2 emissions. Moreover, trade openness Granger causes economic growth, coal consumption and CO2 emissions. |
| Keywords: | Energy; Growth; Emissions; EKC |
| JEL: | O1 Q4 |
| Date: | 2012–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37775&r=fdg |
| By: | Eo, Yunjong; Kim, Chang-Jin |
| Abstract: | In this paper, we relax the assumption of constant regime-specific mean growth rates in Hamilton's (1989) two-state Markov-switching model of the business cycle. We first present a benchmark model, in which each regime-specific mean growth rate evolves according to a random walk process over different episodes of booms or recessions. We then present a model with vector error correction dynamics for the regime-specific mean growth rates, by deriving and imposing a condition for the existence of a long-run equilibrium growth rate for real output. In the Bayesian Markov Chain Monte Carlo (MCMC) approach developed in this paper, the counterfactual priors, as well as the hierarchical priors for the regime-specific parameters, play critical roles. By applying the proposed model and approach to the postwar real GDP growth data (1947Q4-2011Q3), we uncover the evolving nature of the regime-specific mean growth rates of real output in the U.S. business cycle. An additional feature of the postwar U.S. business cycle that we uncover is a steady decline in the long-run equilibrium output growth. The decline started in the mid-1950s and ended in the mid-1980s, coinciding with the beginning of the Great Moderation. Our empirical results also provide partial, if not decisive, evidence that the central bank has been more successful in restoring the economy back to its long-run equilibrium growth path after unusually severe recessions than after unusually good booms. |
| Keywords: | State- Space Model; MCM; Hamilton Model; Markov Switching; Hierarchical Prior; Evolving Regime- Specific Parameters; Counterfactual Prior; Business Cycle; Bayesian Approach |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2123/8150&r=fdg |
| By: | Beatrice Farkas |
| Abstract: | This paper analyzes the necessary local conditions required for the existence of positive spillovers from multinationals' entry and it consists of a unified study of absorptive capacities. We start from the idea that FDI speeds up the diffusion of technologies across countries. Yet, the question that arises is: to what extent are these advanced technologies absorbed and successfully internalized by the receiving countries such that they materialize in welfare gains? The impact of FDI depends on the country specific absorptive capacity. We first interact FDI individually with different growth determinants and we find that the contribution of FDI to economic growth is positive and significant depending on the level of human capital and the development of financial markets, but its presence in developing countries must complement rather than substitute a set of other growth determinants. Then we test the robustness of the linear interaction terms relative to each other and we analyze the set of conditions that are most beneficial for FDI. |
| Keywords: | FDI, economic growth, absorptive capacity |
| JEL: | F23 F43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1202&r=fdg |