nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒05‒22
fifteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial liberalization, growth, productivity and capital accumulation: The case of European integration By Agnieszka Gehringer
  2. A further examination of the export-led growth hypothesis By Christian Dreger; Dierk Herzer
  3. Trade and economic growth: A re-examination of the empirical evidence By Busse, Matthias; Königer, Jens
  4. The Political Economy of Distribution and Growth in Chile By Klaus Schmidt-Hebbel
  5. Croyances culturelles éducation et croissance By Jellal, Mohamed; Bouzahzah, Mohamed
  6. Analysis of regional endogenous growth By R. Basile; Stefano Usai
  7. Liberating nations from the debt burden By Rabie, Mohamed
  8. Financial Constraints, Endogenous Markups, and Self-fulfilling Equilibria By Jess Benhabib; Pengfei Wang
  9. Productivity and Growth in UK Industries: An Intangible Investment Approach By Dal Borgo, Mariela; Goodridge, Peter; Pesole, Annarosa
  10. On the estimation of the volatility-growth link By Andrey Launov; Olaf Posch; Klaus Wälde
  11. Evaluation of the Effects of Reduced Personal and Corporate Tax Rates on the Growth Rates of the U.S. Economy By Jacques K Ngoie; Arnold Zellner
  12. State Productivity Growth: Catching Up and the Business Cycle By Ball, V. Eldon; San Juan, Carlos; Ulloa, Camilo
  13. AS-AD in the Standard Dynamic Neoclassical Model: Business Cycles and Growth Trends By Gillman, Max
  14. Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model By Vittorio Peretti; Rangan Gupta; Roula Inglesi-Lotz
  15. Gender Effects of Education on Economic Development in Turkey By Tansel, Aysit; Güngör, Nil Demet

  1. By: Agnieszka Gehringer
    Abstract: In the present contribution, we concentrate on the process of financial liberalization in a specific context of European economic and monetary integration. We implement de facto and de jure measures of financial liberalization and find that formal aspects of financial openness generate a strongly positive impact on economic growth and its sources, productivity growth and capital accumulation. Moreover, there is evidence of a positive contribution to the process stemming from the EU membership, while no substantial effect comes from the euro adoption. Finally, we investigate the effects from financial integration on country groups within the EU.
    Keywords: Financial integration, economic growth, productivity, European integration
    JEL: F41 F36 F43
    Date: 2012–05
  2. By: Christian Dreger; Dierk Herzer
    Abstract: This paper challenges the common view that exports generally contribute more to GDP growth than a pure change in export volume, as the export-led growth hypothesis predicts. Applying panel cointegration techniques to a production function with non-export GDP as the dependent variable, we find for a sample of 45 developing countries that: (i) exports have a positive short-run effect on non-export GDP and vice versa (short-run bidirectional causality), (ii) the long-run effect of exports on non-export output, however, is negative on average, but (iii) there are large differences in the long-run effect of exports on non-export GDP across countries. Cross-sectional regressions indicate that these cross-country differences in the long-run effect of exports on non-export GDP are significantly negatively related to cross-country differences in primary export dependence and business and labor market regulation. In contrast, there is no significant association between the growth effect of exports and the capacity of a country to absorb new knowledge.
    Keywords: Export-led growth, Developing countries, Panel cointegration
    JEL: F43 O11 C23
    Date: 2012–05
  3. By: Busse, Matthias; Königer, Jens
    Abstract: While trade integration is often regarded as a principal determinant of economic growth, the empirical evidence for a causal linkage between trade and growth is ambiguous. This paper argues that the effect of trade in dynamic panel estimations depends crucially on the specification of trade. Both from a theoretical as well as an empirical point of view one specification is preferred: the volume of exports and imports as a share of lagged total GDP. For this trade measure, a positive and highly significant impact on economic growth can be found. --
    Keywords: Openness,Trade,Growth
    JEL: F11 F43 C23
    Date: 2012
  4. By: Klaus Schmidt-Hebbel
    Abstract: This paper addresses the following questions on the political economy of distribution and growth in Chile. How does Chile compare to the world in government size, income distribution, and per capita GDP? Which is the relation between income distribution, government size and structure, and growth in a political-economy model of endogenous growth? How do changes in income distribution affect growth through changes in the size of government, in a model calibrated for Chile? Which are the dynamics of distribution and growth, when they are shaped by political leadership, the policy-making process, and the quality of institutions and policies? Under which conditions of such dynamics does a non-monotonic relation between income distribution and growth emerge, akin to the Kuznets curve? How do Chile’s leadership, policy-making process, and reforms affect equity and growth? Which are the political economy requirements for successful adoption of ten key reforms to support growth and equity in Chile?
    Keywords: Fiscal Income distribution, economic growth, political economy
    JEL: O15 O40 P16
    Date: 2012
  5. By: Jellal, Mohamed; Bouzahzah, Mohamed
    Abstract: We consider a growth model with education, externalities and a cultural norm . We show that endogenous emergence of this cultural belief may lead to increasing the stock of human capital and accelerating national growth.The mechanism of this internalization is based on the existence of endogenous social status or identity pattern that encourages to the accumulation of knowledge. This cultural norm is presented as an informal mechanism which may be an effective substitute tool to a the formal institution given by a system of income taxation.
    Keywords: Culture; Beliefs; Education; Growth
    JEL: O43 I21 D83
    Date: 2012
  6. By: R. Basile; Stefano Usai
    Abstract: Endogenous growth theory has deeply influenced regional growth analyses and inspired regional development policies. Evidence of lack of convergence, club convergence and spatial polarization of per worker income levels has led scholars to question the explanatory power of neoclassical exogenous growth models and to look at endogenous growth theories as proper frameworks to interpret regional development. In particular, those models, which emphasize the role of knowledge spillovers as driving forces for economic growth and identify a large set of self- reinforcing mechanisms that can potentially cause low-productivity traps, have become central in the scientific debate. Only during the last ten years, however, there have been some analytical attempts to regionalize endogenous growth theory. This paper provides a critical survey of the growing literature on regional extensions of endogenous growth analysis. The focus is on those theoretical and empirical studies which have tried to explain lack of regional convergence, multiple equilibria and spatial polarization. The paper also suggests some directions for future research in this field.
    Keywords: Endogenous growth; regional analysis
    JEL: R11 O4
    Date: 2012
  7. By: Rabie, Mohamed
    Abstract: the paper outlines a plan to liberate all rich and poor nations form the debt burden, restructure the international monetary system and create the necessary conditions for sustainable global economic growth and developemt.
    Keywords: global debt crisis; restructuring the international monetary system; sustainable economic growth; societal development
    JEL: F01 Q01 H63
    Date: 2011
  8. By: Jess Benhabib; Pengfei Wang
    Abstract: We show that self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan to output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks as well as serial autocorrelation in output growth rates.
    JEL: E02 E2 E44
    Date: 2012–05
  9. By: Dal Borgo, Mariela (University of Warwick); Goodridge, Peter (Imperial College Business School); Pesole, Annarosa (Imperial College Business School)
    Abstract: This paper tries to calculate some facts for the “knowledge economy”. Building on the work of Corrado, Hulten and Sichel (CHS, 2005,9), using new data sets and a new micro survey, we (1) document UK intangible investment and (2) see how it contributes to economic growth. Regarding investment in knowledge/intangibles, we find (a) this is now greater than tangible investment at, in 2008, £141bn and £104bn respectively; (b) that R&D is about 11% of total intangible investment, software 15%, design 17%, and training and organizational capital 22%; (d) the most intangible-intensive industry is manufacturing (intangible investment is 20% of value added) and (e) treating intangible expenditure as investment raises market sector value added growth in the 1990s due to the ICT investment boom, but slightly reduces it in the 2000s. Regarding the contribution to growth, for 2000-08, (a) intangible capital deepening accounts for 23% of labour productivity growth, against computer hardware (12%) and TFP (40%); (b) adding intangibles to growth accounting lowers TFP growth by about 15% (c) capitalising R&D adds 0.03% to input growth and reduces lnTFP by 0.03% and (d) manufacturing accounts for just over 40% of intangible capital deepening plus TFP
    Keywords: : innovation, productivity growth
    Date: 2012
  10. By: Andrey Launov (University of Mainz, CESifo, and UCL Louvain la Neuve); Olaf Posch (Aarhus University and CREATES, CESifo); Klaus Wälde (University of Mainz, Center for Structural Estimation and University of Bristol)
    Abstract: It is common practice to estimate the volatility-growth link by specifying a standard growth equation such that the variance of the error term appears as an explanatory variable in this growth equation. The variance in turn is modelled by a second equation. Hardly any of existing applications of this framework includes exogenous controls in this second variance equation. Our theoretical ?ndings suggest that the absence of relevant explanatory variables in the variance equation leads to a biased and inconsistent estimate of the volatility-growth link. Our simulations show that this effect is large. Once the appropriate controls are included in the variance equation consistency is restored. In short, we suggest that the variance equation must include relevant control variables to estimate the volatility-growth link.
    Keywords: volatility and growth, growth regression, endogenous variance unbiased estimates.
    JEL: E32 O47
    Date: 2012–04–30
  11. By: Jacques K Ngoie; Arnold Zellner
    Abstract: Using several variants of a Marshallian Macroeconomic Model (MMM), see Zellner and Israilevich (2005) and Ngoie and Zellner (2012), this paper investigates how various tax rate reductions may help stimulate the U.S. economy while not adversely affecting aggregate U.S. debt. Variants of our MMM that are shown to fit past data and to perform well in forecasting experiments are employed to evaluate the effects of alternative tax policies. Using quarterly data, our one-sector MMM has been able to predict the 2008 downturn and the 2009Q3 upturn of the U.S. economy. Among other results, this study, using transfer and impulse response functions associated with our MMM, finds that permanent 5 percentage points cut in the personal income and corporate profits tax rates will cause the U.S. real GDP growth rate to rise by 3.0 percentage points with a standard error of 0.6 percentage points. Also, while this policy change leads to positive growth of the government sector, its share of total real GDP is slightly reduced. This is understandable since short run effects of tax cuts include the transfer of tax revenue from the government to the private sector. The private sector is allowed to manage a larger portion of its revenue while government is forced to cut public spending on social programs with little growth enhancing effects. This broadens private economic activities overall. Further, these tax rate policy changes stimulate the growth of the federal tax base considerably which helps to reduce annual budget deficits and the federal debt.
    Keywords: Marshallian Macroeconomic Model, Disaggregation, Transfer Functions, Impulse Response Functions, U.S. Fiscal Policy Analysis.
    JEL: E27
    Date: 2012
  12. By: Ball, V. Eldon; San Juan, Carlos; Ulloa, Camilo
    Keywords: Agriculture, convergence, total factor productivity, Production Economics, Productivity Analysis, Research and Development/Tech Change/Emerging Technologies,
    Date: 2012
  13. By: Gillman, Max (Cardiff Business School)
    Abstract: The paper shows how a dynamic neoclassical AS-AD can be derived and used to describe business cycles and growth trends to undergraduates. Derived within the Ramsey-Cass-Koopmans (RCK) model, the AS-AD is the stationary equilibrium of the deterministic dynamic general equilibrium framework. Allowing Solow exogenous growth, the AS-AD is derived along the balanced growth path equilibrium. The derivation first builds consumption demand, aggregate demand, and then aggregate supply through the equilibrium conditions and a closed form solution for the capital stock. Through a comparative static change in goods sector productivity, the paper shows the basic failing of the standard RBC model. Allowing a second comparative static change in the consumer's time endowment, this captures a change in the "external margin" of labor supply. These comparative statics enable explanation of the business cycle, and "Solow-plus" growth trends including education time and working time. In extension of RCK, the paper shows beyond the undergraduate level, how to derive AS-AD when including human capital and endogenous growth. This allows an endogenous change in the time endowment for work and leisure through a change in human capital productivity, with a similar but more fundamental AS-AD story of business cycles and growth trends.
    Keywords: Ramsey-Cass-Koopmans; supply; demand; state variable
    JEL: A22 A23 E13
    Date: 2012–05
  14. By: Vittorio Peretti (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria); Roula Inglesi-Lotz (Department of Economics, University of Pretoria)
    Abstract: This paper investigates the existence of spillovers from the housing sector onto consumption and the interest rate for South Africa using a time-varying vector autoregressive (TVP-VAR) model with stochastic volatility. In this regard, we estimate a three-variable TVP-VAR model comprising of real consumption growth rate, the nominal three-months Treasury bill rate and the growth rate of real house prices. The results suggest that, in general, consumption responded positively to a house price shock over the entire sample, with the effect being stronger post financial liberalization. On the other hand, a positive delayed response of nominal interest rate followed a house price shock, with the effect being weaker post financial liberalization until the South African Reserve Bank (SARB) moved to the official inflation-targeting regime. The effect of house prices on both consumption and interest rate was understandably weak during the financial crisis.
    Keywords: Bayesian Inference, Consumption, House Price, Markov Chain Monte Carlo, Monetary Policy, Structural Vector Autoregression; Stochastic Volatility, Time-Varying Paremeter
    JEL: C11 C15 C32 E31 E32 E44 E52
    Date: 2012–05
  15. By: Tansel, Aysit (Middle East Technical University); Güngör, Nil Demet (Atilim University)
    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 O15 I21 J16
    Date: 2012–04

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