nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒05‒15
eighteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Tax Avoidance, Human Capital Accumulation and Economic Growth By María Jesús Freire-Serén; Judith Panadés i Martí
  2. One-step Optimization Model of Warming-driven Damage of Economic Growth By Elena Rovenskaya
  3. What Is Common In Different Economic Growth Models? By Vladimir D. Matveenko; Alexei V. Korolev
  4. Bank credit, asset prices and financial stability: Evidence from French banks By Cyril Pouvelle
  5. Product-Variety, Population, Competition, and Growth By Alberto Bucci
  6. Understanding Bubbly Episodes By Vasco Carvalho; Alberto Martín; Jaume Ventura
  7. Trade in Intermediate Goods, Endogenous Growth and Intellectual Property Rights By Bidisha Chakraborty
  8. Institutions and long-run growth performance: An analytic literature review of the institutional determinants of economic growth By Bluhm, Richard; Szirmai, Adam
  9. Public Investment Policy, Distribution, and Growth: What Levels of Redistribution through Public Investment Maximize Growth? By Yoseph Yilma Getachew
  10. The Generalized Model of Economic Growth with Human Capital Accumulation By Yury A. Kuznetsov; Olga V.Michasova
  11. The Telecommunications Industry and Economic Growth: How the Market Structure Matters By Vahagn Jerbashian
  12. The Farthest Needs the Best. Human Capital Composition and Development Specific Economic Growth By Fabio Manca
  13. Factor Shares, Income Distribution and Capital Flows By Hernando Zuleta
  14. Vintage Capital Growth Theory: Three Breakthroughs By Raouf Boucekkine; David de la Croix and Omar Licandro
  15. Structural Change, Urban Congestion, and the End of Growth By Volker Grossmann
  16. Proximate, intermediate and ultimate causality: Theories and experiences of growth and development By Szirmai, Adam
  17. Industrial policy for growth By Farla, Kristine
  18. Social Capital, Government Expenditures, and Growth By Giacomo Ponzetto; Ugo Troiano

  1. By: María Jesús Freire-Serén; Judith Panadés i Martí
    Abstract: Human capital accumulation may negatively affect economic growth by increasing tax avoidance and reducing effective tax rates and productive public investment. This paper analyzes how the endogenous feedback between human capital accumulation and tax avoidance affects economic growth and macroeconomic dynamics. Our findings show that this interaction produces remarkable growth and welfare effects.
    Keywords: tax avoidance, tax non-compliance, Economic growth
    JEL: E62 H26 O30 O40 O41
    Date: 2011–12
  2. By: Elena Rovenskaya
    Date: 2011–09
  3. By: Vladimir D. Matveenko; Alexei V. Korolev
    Date: 2011–09
  4. By: Cyril Pouvelle
    Abstract: This paper analyses the effect of asset prices on credit growth in France and tries to disentangle credit demand and supply factors, both for the whole 1993-2010 period and during periods of financial instability. Using bank-level panel data at a quarterly frequency, stock price growth is shown to have a significant effect on lending growth over the whole period, but without credit supply factors being singled out. By contrast, housing price growth has a significant effect during periods of financial instability only, even after controlling for credit demand effects. These results show that credit demand factors do play a large role but also provide evidence of tighter credit constraints on households in financial instability periods.
    Keywords: Asset prices , Bank credit , Banks , Corporate sector , Credit demand , Credit expansion , Economic models , Financial stability , Household credit , Housing prices ,
    Date: 2012–04–24
  5. By: Alberto Bucci
    Abstract: This paper analyzes how population and product market competition (PMC) interact with each other in affecting productivity growth. We find that only a fully endogenous growth model with purposeful investment in human capital, an input in the production of intermediate goods, can simultaneously predict (as suggested by the available theoretical/empirical literature) that the relationships between population and economic growth rates and between PMC and economic growth are non-monotonic. The trade-off between specialization-gains and complexity-costs arising from an expansion of product-variety is crucial in determining the sign of these correlations, and the possible complementarity between two key variables in economic growth.
    Keywords: Endogenous and semi-endogenous growth, Population (size and growth), Human capital, Horizontal innovation, Scale effects, Monopolistic competition
    JEL: O41 O31 O33 J10 J24
    Date: 2011–09
  6. By: Vasco Carvalho; Alberto Martín; Jaume Ventura
    Keywords: bubbles, dynamic inefficiency, economic growth, financial frictions, pyramid schemes
    JEL: E32 E44 O40
    Date: 2012–02
  7. By: Bidisha Chakraborty
    Abstract: The present paper develops a product cycle model of North South trade and integrates Romer (1990) model and Helpman (1993) model. In this paper, North innovates the variety of intermediate good and South immitates it. Final goods are not traded while variety of capital intensive intermediate goods are traded. The effect of intellectual property rights on economic growth is studied. It is shown that there may exist a unique steady state balanced growth equilibrium or there may exist multiple steady state equilibria and tighter intellectual property rights may lead to both higher and lower steady state balanced growth rate depending on the human capital endowment of both the countries. This contradicts the result obtained by Helpman (1993).
    Keywords: North-South trade, Product development, Intellectual property rights, Human Capital, Endogenous growth, Steady state equilibrium
    Date: 2011–09
  8. By: Bluhm, Richard (UNU-MERIT / MGSOG, Maastricht University); Szirmai, Adam (UNU-MERIT / MGSOG, Maastricht University)
    Abstract: This paper provides an analytic review of selected contributions to the study of institutions and economic growth. We review the contributions to the study of institutional determinants of long-run growth by Engerman and Sokoloff, and Acemoglu, Johnson and Robinson. We discuss the work of Rodrik and others who focus on institutions and institutional reform and take steps towards bridging the gap between the study of long-run and short-run growth performances. In addition, we review two new theoretical frameworks by North, Wallis and Weingast and Khan that relate the structure of institutions to short-run volatility and long-run growth trends. We survey a wide array of supplementary econometric evidence and criticisms relating to each of these key contributions. Special attention is given to identifying the underlying causal relationships, the empirical methods and the kind of data used to test theories and hypotheses found in the literature. Further, we compare the findings in different strands of the literature using a sources-of-growth framework which distinguishes between ultimate, intermediate and proximate causes of growth and development.
    Keywords: growth, institutions, inequality, development
    JEL: O43 O30 O11
    Date: 2012
  9. By: Yoseph Yilma Getachew
    Abstract: This paper studies the distributional and the growth effects of public investment in a simple growth model with incomplete market where both growth and inequality are endogenously determined. Taxation lowers growth through distorting private investment, whereas public investment stimulates long run growth. Higher inequality corresponds to lower growth when the credit and insurance markets are missing as these prevent the efficient amount of investment to be undertaken in the economy. In this case, public investment may have additional efficiency benefit through substituting for the missing markets. It serves as means to relax resource constraints that impede certain investment. The efficiency effect of complementary public investment, on the other hand, is compromised as it aggravates it.
    Keywords: Public Capital; Elasticity of Substitution; Wealth Mobility; Growth. Incomplete Market
    JEL: D3 E25 H4 O11
    Date: 2011–09
  10. By: Yury A. Kuznetsov; Olga V.Michasova
    Abstract: In this paper we proposed and study the generalized model of economic growth with human capital accumulation. The existence of a balanced growth path (BGP, the trajectory with constant growth rates of all variables) can be proved for the model. The paper identifies the conditions of existence and some qualitative features of the paths. The study of the BGP qualitative features, as well as the detailed study of the structure of the phase space in a neighborhood of a steady-state for the set of parameters which are typical for the developed economies, were carried out using numerical and analytical methods with MatLab.
    Keywords: Economic Growth, Human Capital, Balanced Growth Path
    Date: 2011–09
  11. By: Vahagn Jerbashian
    Abstract: This paper presents an endogenous growth model where, in line with the recent empirical evidence, the telecommunications industry (telecom) is an engine of growth. In such a framework, this paper analyzes the channels through which telecom contributes to economic growth and focuses on market structure analysis for telecom, in the light of the recent changes in it. This paper suggests how the market structure of telecom and the competition type in the telecom market can matter for its contribution to economic growth. It also proposes the optimal market structure for telecom from the social welfare perspective. In addition, it suggests the direction of telecom policies which can improve social welfare, and uses its theoretical results for qualitative evaluation of the Telecommunications Act of 1996 and similar policies.
    Keywords: Telecommunications industry; Market structure; Economic growth; Policy evaluation
    JEL: O41 O25 O38 L10
    Date: 2011–09
  12. By: Fabio Manca
    Abstract: In this study we provide robust and compelling evidence of the larger effect of tertiary education on the growth of less developed countries and of the relatively smaller impact on the growth of developed ones. This argues for the accumulation of high skills especially in technologically under-developed countries and, contrary to the common wisdom, independently of the fact that these economies might be initially producing low(er)-technology goods or performing technology imitation. Our results are robust to the different measures used to proxy for human capital and to the adjustment for cross-country differences in the quality of education. Country-specific insitutional quality, as well as other various indicators such as the legal origin, the religious fractionalization and openness to trade have been used to control for the robustness of the results. They are also shown to speed up technology convergence confirming previous empirical literature. Our estimates tackle endogeneity by applying a variety of techniques such as IV (both panel and cross-section) and two-step efficient system GMM.
    Date: 2011–09
  13. By: Hernando Zuleta
    Abstract: We present an endogenous growth model where innovations are factor-saving and model the choice of technologies in an Overlapping Generations Model where any technology can be adopted paying a cost. Markets are competitive and marginal productivity of factors determines factor prices; therefore, the income share of reproducible factors increases with the stage of development. Beyond the standard results of this type of model we find that (i) In poor economies technological change may reduce future income, (ii) without bequests long run growth is not possible, (iii) if the economy presents long run growth then intra generation inequality may last forever but if the economy does not present long run growth then in steady state there is no intra generation inequality (iv) when the economy is open the pattern of capital flows depends not only on the relative abundance of factors but also on the technologies and, for this reason, capital may not flow from rich to poor economies (v) consequently, capital flows may not help to break poverty traps.
    Keywords: Endogenous Growth, Capital Income Share, Income Distribution, Technology, Capital Flows
    Date: 2011–09
  14. By: Raouf Boucekkine; David de la Croix and Omar Licandro
    Abstract: Vintage capital growth models have been at the heart of growth theory in the 60s. This research line collapsed in the late 60s with the so-called embodiment controversy and the technical sophistication of the vintage models. This paper analyzes the astonishing revival of this literature in the 90s. In particular, it out- lines three methodological breakthroughs explaining this resurgence: a growth accounting revolution, taking advantage of the availability of new time series, an optimal control revolution allowing to safely study vintage capital optimal growth models, and a vintage human capital revolution, along with the rise of economic demography, accounting for the vintage structure of human capital similarly to physical capital age structuring. The related literature is surveyed.
    Keywords: Vintage capital, embodied technical progress, growth accounting, optimal control, endogenous growth, vintage human capital, demography
    JEL: D63 D64 C61
    Date: 2011–06
  15. By: Volker Grossmann
    Abstract: This paper develops a two-sector R&D-based growth model with congestion effects from increasing urban population density. We show that endogenous technological progress causes structural change if there are positive productivity spillovers from the modern to the traditional sector and Engel’s law holds. In turn, urban congestion effects cause a productivity slowdown in the modern sector. Eventually, economic growth may cease in the long-run. We also show that land dilution from a higher workforce may give rise to negative scale effects on GDP per capita. Finally, we investigate how the optimal land allocation depends on the strength of urban congestion effects.
    Keywords: Congestion, Endogenous growth, Engel’s law, Structural change, Urbanization
    Date: 2011–09
  16. By: Szirmai, Adam (UNU-MERIT / MGSOG, Maastricht University)
    Abstract: For a better understanding of development, we are interested in why in the long run some countries or societies forge ahead, while others stagnate or fall behind. We are especially interested in the conditions under which growth and catch- up can be realised in developing countries. In section 1 of this paper, we develop a framework of proximate, intermediate and ultimate sources of growth and development which serves to structure the analysis and measurement of economic development. Sections 2 to 6 offer a review of classical and modern theories of development and stagnation, in the context of the framework of proximate and ultimate causality developed in section 1. Special attention is paid to the interactions between institutions and growth in different theoretical traditions. Section 7 presents empirical time series on long-run economic trends in a sample of 31 developing countries representing 80 percent of the population of the developing world. These series focus on proximate causality and on socio-economic outcomes and highlight some of the key issues discussed in the theoretical overview in sections 2-6.
    Keywords: Theories of Economic Development, Economic Growth, Proximate Causality, Intermediate Causality, Ultimate Causality
    JEL: O10 O43 N10
    Date: 2012
  17. By: Farla, Kristine (UNU-MERIT / MGSOG, Maastricht University)
    Abstract: This study distinguishes between industrial policy that stimulates incumbent industry development, `pro-business policy', and industrial policy that promotes the development of free markets, `pro-market policy'. We find that there is a positive relation between the level of countries' implementation of these policies. However, we find opposite effects of pro-business and pro-market policies when estimating the policy effect on growth and income level. Pro-business policy has a positive effect on economic development, and pro-market policy has a negative effect on economic development.
    Keywords: Industrial Policy, Industrial Development, Economic Development, Economic Growth
    JEL: L50 O11 O25 O43
    Date: 2012
  18. By: Giacomo Ponzetto; Ugo Troiano
    Abstract: Countries with greater social capital have higher economic growth. We show that social capital is also highly positively correlated across countries with government expenditure on education. We develop an infinite-horizon model of public spending and endogenous stochastic growth that explains both facts through frictions in political agency when voters have imperfect information. In our model, the government provides services that yield immediate utility, and investment that raises future productivity. Voters are more likely to observe public services, so politicians have electoral incentives to under-provide public investment. Social capital increases voters' awareness of all government activity. As a consequence, both politicians' incentives and their selection improve. In the dynamic equilibrium, both the amount and the efficiency of public investment increase, permanently raising the growth rate.
    Keywords: Social Capital, Government Expenditures, Economic Growth, Public Investment, Elections, Imperfect Information
    JEL: D72 D83 H50 H54 O43 Z13
    Date: 2012–02

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