nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒05‒02
sixteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Public debt and economic growth: Is there a causal effect? By Panizza, Ugo; Presbitero, Andrea F.
  2. The Two Faces of R&D and Human Capital: Evidence from Western European Regions By Johanna Vogel
  3. Economic Globalization, Mercantilism and Economic Growth By Gaowang Wang; Heng-fu Zou
  4. A Remark on the Form of Accumulation Functions in Economic Growth Models By Ý. Hakan Yetkiner
  5. Economic growth and inequality patterns in the presence of costly technology adoption and uncertainty By Ziv Chinzara; Radhika Lahiri
  6. Equilibres Multiples, Croissance Endogène et Politiques Publiques By Ali Abcha
  7. Transferts Financiers des Migrants et développement en Afrique subsaharienne By TCHAMANBÉ DJINÉ Louise, TDL; MIAMO WENDJI Clovis, MWC
  8. Ideas Production in Emerging Economies By Luintel, Kul B; Kahn, Mosahid
  9. Geography and high-tech employment growth in U.S. counties By Fallah, Belal; Partridge, Mark
  10. Growth and public finance in Bihar By Das Gupta, Chirashree
  11. Do large agglomerations lead to economic growth? evidence from urban India By Tripathi, Sabyasachi
  12. Demographic Transition and Economic Welfare: The Role of Humanitarian Aid By Pierre-Richard Agénor; Devrim Yilmaz
  13. Financial crisis - US versus Asian. Factors and policy response F By Gulam Hassan, Mohamed Aslam
  14. Economic transformation in Ghana: Where will the path lead? By Kolavalli, Shashi; Robinson, Elizabeth; Diao, Xinshen; Alpuerto, Vida; Folledo, Renato; Slavova, Mira; Ngeleza, Guyslain; Asante, Felix
  15. Public investment and regional growth and convergence: Evidence from Greece By Andrés Rodríguez-Pose; Yannis Psycharis; Vassilis Tselios
  16. The quality of growth By Owen, Ann L.; Videras, Julio

  1. By: Panizza, Ugo; Presbitero, Andrea F.
    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
  2. By: Johanna Vogel
    Abstract: This paper investigates two channels through which research and development (R&D) and human capital may affect regional total factor productivity growth in the manufacturing sector, using panel data on 159 EU-15 regions from 1992 to 2005. Based on the endogenous growth model of Griffith, Redding and Van Reenen (2003), we allow R&D and human capital to influence productivity growth both directly, reflecting own innovation, and indirectly, reflecting imitation of frontier technology. Further, the model allows for conditional convergence to a long-run level of TFP relative to the frontier. We also develop an extension that captures geographically localised technology spillovers. Our preferred system-GMM estimates provide evidence of a positive and significant direct effect of human capital, and a positive and significant indirect effect of R&D on productivity growth. This may be interpreted as lending support to the recent focus of EU regional policy on raising educational attainment and R&D expenditures, although their channels of influence appear to differ. Our results also suggest that TFP convergence has taken place over our sample period and that geographic distance to the technology frontier matters.
    Keywords: Total factor productivity, Convergence, Human capital, Research and development, European regions
    JEL: O30 O47 I25 C23
    Date: 2012
  3. By: Gaowang Wang (Central University of Finance and Economics); Heng-fu Zou (Central University of Finance and Economics)
    Abstract: Obstfeld (1994) shows theoretically that international economic integration accelerates economic growth of all countries in the world, which does not match the data very well. By introducing Zou (1994)'s viewpoints of mercantilism into the Obstfeld model, the paper shows that the excessive pursuits for wealth heighthen the demand for financial assets with high return and high risk in the global financial market which distorts the mechanism of financial market promoting economic growth, and hence leads to different growth performances within different countries. Specifically, for different economies, not only do the same technology or preference shocks have different growth effects, but also economic integration has different growth effects.
    Keywords: Globalization, Economic Growth, Mercantilism
    JEL: C61 G11 F43
    Date: 2012
  4. By: Ý. Hakan Yetkiner (Department of Economics, Izmir University of Economics)
    Abstract: This study is a short note designed to underline the importance of using the theoretically required form of accumulation functions. It is now a common knowledge that a growth model must rely on non-diminishing returns to a factor of production in order to generate endogenous growth. In Lucas (1988), for example, there is no diminishing-returns to the accumulation of human capital, which is the source of endogenous growth in the model. This rule, however, can lead to the following potentially misleading assumption: diminishing marginal productivity to each factor of production—given that there is no other source of long run growth—is sufficient for generating steady state equilibrium at levels. In this short note, we make two points. First, diminishing marginal productivity alone is not necessarily sufficient for generating steady state equilibrium at levels. Second, the inclusion of a theoretically required counter-force in the accumulation function together with diminishing returns is sufficient for generating steady state equilibrium. In conclusion, we heuristically argue that an accumulation function with no theoretically required counter-moving force, with or without diminishing returns, may bias the results of the model.
    Keywords: Accumulation function, Stationary state, Steady state, Differential equations, Economic Growth, Long-run Equilibrium
    JEL: O10 O15 O41
    Date: 2012–04
  5. By: Ziv Chinzara (QUT); Radhika Lahiri (QUT)
    Abstract: We develop a stochastic endogenous growth model to explain the diversity in growth and inequality patterns and the non-convergence of incomes in transitional economies where an underdeveloped financial sector imposes an implicit, fixed cost on the diversification of idiosyncratic risk. In the model endogenous growth occurs through physical and human capital deepening, with the latter being the more dominant element. We interpret the fixed cost as 'learning by doing' cost for entrepreneurs who undertake risk in the absence of well developed financial markets and institutions that help diversify such risk. As such, this cost may be interpreted as the implicit returns foregone due to the lack of diversification opportunities that would otherwise have been available, had such institutions been present. The analytical and numerical results of the model suggest three growth outcomes depending on the productivity differences between the projects and the fixed cost associated with the more productive project. We label these outcomes as poverty trap, dual economy and balanced growth. Further analysis of these three outcomes highlights the existence of a diversity within diversity. Specifically, within the 'poverty trap' and 'dual economy' scenarios growth and inequality patterns differ, depending on the initial conditions. This additional diversity allows the model to capture a richer range of outcomes that are consistent with the empirical experience of several transitional economies.
    Keywords: Overlapping generations model, costly technology adoption, uncertainty, economic growth, inequality
    Date: 2012–03–19
  6. By: Ali Abcha
    Abstract: Public policies can change the number of equilibria in an endogenous growth model. This work shows that in a growth model with monopolistic competition the existence of externalities not internalized by the agents can result in a multiplicity of equilibria. Government intervention in the economy can have an impact on this multiplicity by the management of externalities and adverse effects of imperfect competition. However inefficient public intervention can make the economy converge to a suboptimal equilibrium. To this end, we develop a macroeconomic model for a closed economy that has a perfectly competitive sector of final goods and a sector of monopolistically competitive intermediate goods. In order to identify the effects of a public policy on this model we simulate.
    Keywords: multiple equilibria, endogenous growth, public policies
    Date: 2012
    Abstract: The purpose of this paper is to analyze the relationship Workers’ Remittances, poverty, and economic growth in Sub-Saharan African countries. Workers’ Remittances seem to affect the economic development of recipient countries in the same way as Official Development Aid and Foreign Direct Investment. To achieve this objective, we use the fixed effects panel regression models to determine the link between Remittances and poverty on the one hand, Remittances and growth on the other. Recourse to the instrumental variables method turned out to be better for the estimation of the poverty model, while the standard error correction method proved to be well suited for the estimation of the growth model. Empirical results reveal that, Remittances inflows do not contribute significantly to the reduction of poverty. However, it is important to note that Workers’ Remittances seem to be a key element in boosting economic growth in the same manner as investment. Thus, if decision makers allocate a substantial percentage of the fruits derived from this growth to investment in the development of human capital, physical and basic social infrastructures, it is very likely that poverty will be reduced in the long term.
    Keywords: Workers’ Remittances; Poverty; Economic Growth; Development
    JEL: F22 I31 F24
    Date: 2012
  8. By: Luintel, Kul B (Cardiff Business School); Kahn, Mosahid
    Abstract: We model ‘new ideas’ production in a panel of 17 emerging countries. Our results reveal: (i) ideas production is duplicative, (ii) externality associated with domestic knowledge stocks is of above unit factor proportionality, (iii) OECD countries raise the innovation-bar for emerging countries, (iv) there is no significant knowledge diffusion across emerging countries, and (v) growth in emerging countries appear far from a balanced growth path.
    Keywords: Ideas Production; Knowledge Diffusion; Panel Co-integration
    JEL: C2 O3 O4
    Date: 2012–03
  9. By: Fallah, Belal; Partridge, Mark
    Abstract: This paper investigates the role of geography in high-tech employment growth across U.S. counties. The geographic dimensions examined include industry cluster effects, urbanization effects, proximity to a research university, and proximity in the urban hierarchy. Growth is assessed for overall high-tech employment and for employment in various high-tech sub-sectors. Econometric analyses are conducted separately for samples of metropolitan and nonmetropolitan counties. Among our primary findings, we do not find evidence of positive localization or within-industry cluster growth effects, generally finding negative growth effects. We instead find evidence of positive urbanization effects and growth penalties for greater distances from larger urban areas. Universities also appear to play their primary role in creating human capital rather than knowledge spillovers for nearby firms. Quantile regression analysis confirms the absence of within-industry cluster effects and importance of human capital for counties with fast growth in high-tech industries.
    Keywords: High-tech industries; employment growth; regional growth
    JEL: O18
    Date: 2012
  10. By: Das Gupta, Chirashree
    Abstract: This paper explores the causal links between the role of public finance and Bihar's growth and development in the last decade; and argues that these links are tenuous. Bihar's growth acceleration precedes the ‘policy reforms' in public finance based on the ‘good governance' agenda initiated since 2005-06. However, the constraints on sustaining efforts to close Bihar's development gap with the rest of India stems from the nature of the growth process in its regional, sectoral and social dimensions and the contradictory means and ends of the ‘policy reforms' in public finance. Together, this has not only prevented the economic growth to add to public coiffeurs of the state but also occluded the role of tax institutions.
    Keywords: India, Corporate governance, Public finance, Local economy, Good Governance, Growth, Bihar, Political Economy
    JEL: O20 O40 P41 P43 R11 R58
    Date: 2012–03
  11. By: Tripathi, Sabyasachi
    Abstract: The cities and towns of India constitute the world’s second largest urban system besides contributing over 50 per cent of the country’s Gross Domestic Product (GDP). This phenomenon has been neglected by the existing studies and writings on urban India. By considering 59 large cities in India and employing new economic geography models, this paper investigates the relevant state and city-specific determinants of urban agglomeration. In addition, the spatial interactions between cities and the effect of urban agglomeration on India’s urban economic growth are estimated. The empirical results show that agglomeration economies are policy-induced as well as market-determined and offer evidence of the strong positive effect of agglomeration on urban economic growth and support for the non-linearity of the Core-Periphery (CP) model in India’s urban system.
    Keywords: Urban Agglomeration; Urban Economic Growth; New Economic Geography; India
    JEL: O18 R12 R11
    Date: 2012–03–04
  12. By: Pierre-Richard Agénor; Devrim Yilmaz
    Abstract: This paper analyzes the dynamics of public debt in a simple two-period overlapping generations model of endogenous growth with productive public goods. Alternative fiscal rules are defined, with particular attention devoted to the golden rule. Conditions under which multiple equilibria may emerge under that rule are characterized. The analysis is then extended to consider the case of an endogenous risk premium, a generalized golden rule, and network externalities. If network effects are sufficiently strong, an increase in public investment may shift the economy from a low-growth equilibrium to a steady state characterized by both higher public debt ratios and higher output growth. This shift may enhance welfare as well. These results illustrate the importance of preserving the allocation of resources to specific types of public investment, even in a context of fiscal retrenchment.
    Date: 2012
  13. By: Gulam Hassan, Mohamed Aslam
    Abstract: The financial crisis which erupted in the United States of America in 2007 drove the real economic sector into a crisis that has diminshed the world’s economic growth thereafter. There is no single theory that can explain what has happened in the US. Eventhough there were a few financial crises models, however all the models are “meaningless”. Traditional macroeconomic policies were used to restore the distress economy but the policies seemed to be ineffective. In this regards, heterodox economic perspectives may provide some answers in dealing with such economic crisis that have been experienced by the US. The financial crisis experienced in Asia in 1997-98 could provide some ideas for economic crisis solutions. The aim of this paper is (a) to discuss the financial crisis in the US and East Asia 1997/1998, and (b) to look at unorthodox economic policies that could possibly be considered in dealing with the financial crisis.
    Keywords: Financial Crisis; Macroeconomics; Heterodox Economic Policy; Capital Control
    JEL: B50 E60 G01
    Date: 2012–01–10
  14. By: Kolavalli, Shashi; Robinson, Elizabeth; Diao, Xinshen; Alpuerto, Vida; Folledo, Renato; Slavova, Mira; Ngeleza, Guyslain; Asante, Felix
    Abstract: In the context of the Ghanaian government's objective of structural transformation with an emphasis on manufacturing, this paper provides a case study of economic transformation in Ghana, exploring patterns of growth, sectoral transformation, and agglomeration. We document and examine why, despite impressive growth and poverty reduction figures, Ghana's economy has exhibited less transformation than might be expected for a country that has recently achieved middle-income status. Ghana's reduced share of agriculture in the economy, unlike many successfully transformed countries in Asia and Latin America, has been filled by services, while manufacturing has stagnated and even declined. Likely causes include weak transformation of the agricultural sector and therefore little development of agroprocessing, the emergence of consumption cities and consumption-driven growth, upward pressure on the exchange rate, weak production linkages, and a poor environment for private-sector-led manufacturing.
    Keywords: agglomeration, Economic transformation,
    Date: 2012
  15. By: Andrés Rodríguez-Pose (IMDEA Social Sciences); Yannis Psycharis (Panteion University); Vassilis Tselios (University of Groningen)
    Abstract: This paper estimates the impact of public investment on regional economic growth and convergence at the NUTS III level in Greece. Using a new database of public expenditure per region for the period 1978-2007, it proposes a model which captures not just the impact of public investment in Greek prefectures, but also the spillover effects related to the existence of externalities from neighbouring regions. The results point to a positive long-run impact of public investment per capita on regional economic growth – but not on convergence – which also generates considerable spillover effects. However, the returns vary according to different types of public investment, with education and infrastructure spillovers having the highest impact. In general, public investment externalities seem to be more relevant for regional growth than direct public investment in each region. Finally, the impact of different types of public investment in Greece is mediated by politics and political factors, but the effect of politics disappears once we control for political-period-specific spatial-invariant variables.
    Keywords: public investment; economic growth; spillover effects; convergence; spatial econometrics; regional economics; regional policy; Greece
    JEL: R11 R12 R53 R58
    Date: 2012–04–25
  16. By: Owen, Ann L.; Videras, Julio
    Abstract: We use latent class analysis to categorize development experiences. This technique allows us to consider a broad range of country characteristics including per capita income growth, health, inequality, environmental performance, and life satisfaction. We show that each of these indicators is important in explaining the classifications based on the quality of growth. We then predict membership in growth quality classes using many of the standard determinants of growth. We find that they are related to growth quality in a non-linear way and that population growth is more consistently related to our broader measure of growth quality than is typically found in standard growth regressions.
    Keywords: long-run growth; standard of living; human development; finite mixture model
    JEL: I3 O4
    Date: 2012–04–23

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