nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒05‒08
fourteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Endogenous Risk and Growth By Jesse Perla; Christopher Tonetti
  2. 2012-15 Does finance matter for growth in the small, open Pacific Island Countries? By Parmendra Sharma, Neelesh Gounder
  3. Assessment of the Impact of Fiscal Policy on Economic Growth: An Empirical Analysis By Vijay Varadi; C. Vanlalramsanga
  4. Dynamic analysis of reductions in public debt in an endogenous growth model with public capital By Noritaka Maebayashi; Takeo Hori; Koichi Futagami
  5. Cash-in-advance constraint with status in a neoclassical growth model By Kaminoyama, Ken-ichi; Kawagishi, Taketo
  6. Banks, Free Banks, and U.S. Economic Growth By Matthew Jaremski; Peter L. Rousseau
  7. The monetary growth order By G\"unter von Kiedrowski; E\"ors Szathm\'ary
  8. Technological Leadership and Sectoral Employment Growth:A Spatial Econometric Analysis for U.S. Counties By Valerien O. Pede; Raymond J.G.M. Florax; Henri L.F. de Groot
  9. The Staggering Rise of the South? By Yilmaz Akyüz
  10. Endogenous Growth and Consumption Aggregation By Nicole Tabasso
  11. The impact of related variety on regional employment growth in Finland 1993-2006: high-tech versus medium/low-tech By Matté Hartog; Ron Boschma; Markku Sotarauta
  12. Financial Repression and China’s Economic Imbalances By Johansson, Anders C.
  13. Gender effects of education on economic development in Turkey By Tansel, Aysit; Gungor, Nil D.
  14. Changes in China's Wage Structure By Ge, Suqin; Yang, Dennis Tao

  1. By: Jesse Perla; Christopher Tonetti
    Date: 2012
  2. By: Parmendra Sharma, Neelesh Gounder
    Keywords: Finance, economic growth, Pacific Island Countries, panel data
    JEL: G00 C23
  3. By: Vijay Varadi; C. Vanlalramsanga
    Abstract: The paper attempted to analyzes linkages between fiscal policies (public expenditure and public debt) and economic growth by investigating the impact of public expenditure and public debt on economic growth (GSDP). To find out empirically the relationship between GSDP and Public Debt, the study analyzes annual time series data from 1987-88 to 2009-10 (BE) having 23 observations. The study results indicated that public expenditure correlates positively to GSDP while public debt correlates negatively to GSDP during the study period. The empirical evidence suggests that debt funded public expenditure does not contribute positively to growth in the State and the state government should preferably avoid accumulation of debt. Further, the debt dynamics indicated that persistent generation of public debt in the state is resulting in mounting debt service burden as debt funded investment does not result in generating assets for economic growth.
    Keywords: Debt Dynamics, Economic Growth, Government Expenditure
    JEL: A11 E21 E27 E61 H5 H30
    Date: 2012–06–06
  4. By: Noritaka Maebayashi (Graduate School of Economics, Osaka University); Takeo Hori (College of Economics, Aoyama Gakuin University); Koichi Futagami (Graduate School of Economics, Osaka University)
    Abstract: We construct an endogenous growth model with productive public capital and government debt when government debt is adjusted to the target level. We examine how reducing public debt in an economy with a large public debt affects the transition of the economy and welfare. We find that the government faces the following trade off when reducing its debt. In the short run, public investment is reduced to decrease the debt and this has a negative effect on welfare. However, as the interest payments on the debt decrease, public investment begins to increase. Eventually, the government can increase the amount of public investment by more than before. This has a positive effect on welfare, implying that reducing the debt is welfare improving. Furthermore, we find that the adjustment speed of reductions in debt affects welfare crucially. The relationships between the welfare gains and the adjustment speed are U-shaped in many cases. However, they are decreasing monotonically when the tax rate is low and the initial debt?GDP ratio is sufficiently large.
    Keywords: Reductions in public debt, Debt policy rule, Public capital, Endogenous Growth
    JEL: E62 H54 H63
    Date: 2012–04
  5. By: Kaminoyama, Ken-ichi; Kawagishi, Taketo
    Abstract: In this paper, we assume that a cash-in-advance (CIA) constraint itself depends on relative income, which implies status. This constraint means that agents with higher income are more creditworthy and can make purchases with fewer money holdings. Under this assumption, we construct a one-sector neoclassical growth model and show that there exists a unique steady state that has saddle-path stability without specifying each function. Furthermore, we examine the effects of money growth on capital accumulation. If the status elasticity of CIA constraint is large, the Tobin effect can arise. In contrast, if it is small, the anti-Tobin effect can arise.
    Keywords: Cash-in-advance constraint; Status; Money growth; Neoclassical growth model; Tobin/anti-Tobin effect
    JEL: O42 E52 E41
    Date: 2012–04–26
  6. By: Matthew Jaremski; Peter L. Rousseau
    Abstract: The “Federalist financial revolution” may have jump-started the U.S. economy into modern growth, but the Free Banking System (1837-1862) did not play a direct role in sustaining it. Despite lowering entry barriers and extending banking into developing regions, we find in county-level data that free banks had little or no effect on growth. The result is not just a symptom of the era, as state-chartered banks seem to have strong and positive effects on manufacturing and urbanization.
    JEL: G21 N21 O43
    Date: 2012–04
  7. By: G\"unter von Kiedrowski; E\"ors Szathm\'ary
    Abstract: Growth of monetary assets and debts is commonly described by the formula of compound interest which for the case of continuous compounding is the exponential growth law. Its differential form is dc/dt = i c where dc/dt describes the rate of monetary growth, i the compounded interest rate and c the actual principal. Exponential growth of this type is fixed to be neither resource-limited nor self-limiting which is in contrast to real economic growth (such as the GDP) which may have exponential, but also subexponential, linear, saturation, and even decline phases. As a result assets and debts commonly outgrow their economic fundament giving rise to the financial equivalent of Malthusian catastrophes after a certain interval of time. We here introduce an alternative for exponential compounding and propose to replace dc/dt = i c by dc/dt = i c^p where the exponent p (called reaction order in chemistry) is a quantity which will be termed monetary growth order. The monetary growth order p is seen as a tuning handle which enables to adjust gross monetary growth to real economic growth. It is suggested that the central banks take a serious look to this control instrument which allows tuning in crisis situations and immediate return to the exponential norm if needed.
    Date: 2012–04
  8. By: Valerien O. Pede (Social Sciences Div., International Rice Research Institute); Raymond J.G.M. Florax (Department of Agricultural Economics, Purdue University, W. Lafayette, IN); Henri L.F. de Groot (USDA:Economic Research Service, Washington, DC)
    Abstract: This paper investigates the determinants of technological catch-up and examines at a refined level of spatial and sectoral aggregation to what extent geographical and/or technological proximity to the technology leader impact regional employment growth. Technological progress is endogenously determined and depends on specialization, competition and diversity. We also allow technological progress to depend on agglomeration economies in proximate regions, and model technological progress by means of a hierarchical process of catch-up to the technology leader. Results indicate that human capital plays a crucial role in promoting sectoral employment growth. The effect of technological distance varies, depending on which sector is considered. Technological distance to the leader shows a positive and significant effect on employment growth in the sectors Construction & Manufacturing, Information & Utilities, and Services. No effect of technological distance was found for Finance & Management, Transportation & Trade, and Natural Resources. The effect of geographical distance to the technology leader on employment growth also varies across sectors. A negative effect is observed for Construction & Manufacturing and Finance & Management, while the effect is positive for Natural Resources and Transportation & Trade, and statistically not different from zero for Information and Utilities and Services.
    Keywords: regional employment growth, technology leadership, space
    JEL: R11 R12 C21 O32 O47
    Date: 2011
  9. By: Yilmaz Akyüz (The South Centre)
    Abstract: This paper argues that the unprecedented acceleration of growth in the developing world in the new millennium in comparison with advanced economies is due not so much to improvements in underlying fundamentals as to exceptionally favourable global economic conditions, shaped mainly by unsustainable policies in advanced economies. The only developing economy which has had a major impact on global conditions, notably on commodity prices, is China. However, growth in China has been driven first by a rapid expansion of exports to advanced economies and more recently, after the global crisis, by an investment boom, neither of which is replicable or sustainable over the longer term. To maintain a rapid growth, export-led Asian economies need to reduce their dependence on foreign markets. For Latin American and African commodity exporters, gaining greater autonomy and achieving rapid and stable growth depend on their success in reducing reliance on capital flows and commodity earnings – the two key determinants of their growth which are largely beyond national control.
    Keywords: global growth, decoupling, developing and emerging economies, advanced economies
    JEL: F43 N10 O57
    Date: 2012
  10. By: Nicole Tabasso (University of Surrey)
    Abstract: In this paper general CES consumption preferences are introduced into an endogenous growth model `a la Bernard, Eaton, Jensen, and Kortum (2003) and Eaton and Kortum (2001). This is in contrast to the more generally used assumption of logarithmic preferences. The paper shows that the CES preference structure does not alter the expected profits from engaging in R&D and therefore the growth path. This is proof that the analytically more convenient logarithmic preferences do not sacrifice generality. It is argued that the driving force behind this result is the common assumption of undirected research.
    Keywords: CES Preferences, Endogenous Growth, Research
    JEL: O30 O40
    Date: 2012–05
  11. By: Matté Hartog; Ron Boschma; Markku Sotarauta
    Abstract: This paper investigates the impact of related variety on regional employment growth in Finland between 1993 and 2006 by means of a dynamic panel regression model. We find that related variety in general has no impact on growth. Instead, after separating related variety among low-and-medium tech sectors from related variety among high-tech sectors, we find that only the latter affects regional growth. Hence, we find evidence that the effect of related variety on regional employment growth is conditioned by the technological intensity of the local sectors involved.
    Keywords: evolutionary economic geography, Finland, high-tech, regional employment growth, related variety
    JEL: D62 O18 R11
    Date: 2012–05
  12. By: Johansson, Anders C. (China Economic Research Center)
    Abstract: Increasing domestic and external imbalances pose a serious challenge to economic development in China. While several forms of economic imbalances have been identified and discussed, many of these imbalances represent symptoms rather than the main issues that Chinese policymakers have to deal with in order to sustain economic growth over the next decade. Building on recent research on the relationship between financial repression and economic imbalances, the main premise of this paper is that financial repression in China has been at least partly responsible for extremely high levels of investments, a very strong industrial sector and a weakly developed service sector, serious external imbalances and rising inequality. This paper discusses how the Chinese government has used repressive financial policies since the beginning of the reforms, how these policies have resulted in economic imbalances, and some initial suggestions on financial reforms that would help in the pursuit of rebalancing the Chinese economy.
    Keywords: Financial repression; Structural imbalances; External imbalances; Inequality; Financial liberalization; Financial reform; China
    JEL: F41 G18 L52 O16 O40
    Date: 2012–04–27
  13. By: Tansel, Aysit; Gungor, Nil D.
    Abstract: Several recent empirical studies have examined the gender effects of education on economic growth or on steady-state level of output using the much exploited, familiar cross-country data in order to determine their quantitative importance and the direction of correlation. This paper undertakes a similar study of the gender effects of education using province level data for Turkey. The main findings indicate that female education positively and significantly affects the steady-state level of labor productivity, while the effect of male education is in general either positive or insignificant. Separate examination of the effect of educational gender gap was negative on output. The results are found to be robust to a number of sensitivity analyses, such as elimination of outlier observations, controls for simultaneity and measurement errors, controls for omitted variables by including regional dummy variables, steady-state versus growth equations and considering different samples.
    Keywords: Labor Productivity; Economic Development; Education; Gender; Turkey
    JEL: O11 I21 J16
    Date: 2012–04–26
  14. By: Ge, Suqin (Virginia Tech); Yang, Dennis Tao (Chinese University of Hong Kong)
    Abstract: Using a national sample of Urban Household Surveys, we document several profound changes in China's wage structure during a period of rapid economic growth. Between 1992 and 2007, the average real wage increased by 202 percent, accompanied by a sharp rise in wage inequality. Decomposition analysis reveals 80 percent of this wage growth to be attributable to higher pay for basic labor, rising returns to human capital, and increases in the state-sector wage premium. Employing an aggregate production function framework, we account for the sources of wage growth and wage inequality in the face of globalization and economic transition. We find capital accumulation, skill-biased technological change, and export expansion to be the major forces behind the evolving wage structure in China.
    Keywords: wage growth, wage premium, wage inequality, capital accumulation, trade expansion, technological change, China
    JEL: J31 E24 O40
    Date: 2012–04

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