nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒07‒14
eight papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. R&D and economic growth in a cash-in-advance economy By Chu, Angus C.; Cozzi, Guido
  2. Economic Growth and Crime: Does Uncertainty Matter? By Eleftherios Goulas; Athina Zervoyianni
  3. Institutions and growth : A simplied theory of decentralization and corruption By Anton Granik; Francesco Saraceno
  4. The Impact of Business Regulatory Reforms on Economic Growth. By Jamal Ibrahim Haidar
  5. Growth, Deficits and Uncertainty in a Panel of 28 Countries By Eleftherios Goulas; Athina Zervoyianni
  6. Openness, Efficiency and Technology: An Industry Assessment By Dimitris Christopoulos; Peter McAdam
  7. Fiscal Policy Sustainability, Economic Cycle and Financial Crises: The Case of the GIPS By Gabriella Legrenzi; Costas Milas
  8. Immigration, Unemployment and Growth: Empirical Evidence from Greece By Chletsos, Michael; Roupakias, Stelios

  1. By: Chu, Angus C.; Cozzi, Guido
    Abstract: R&D investment has well-known liquidity problems, with potentially important consequences. In this paper, we analyze the effects of monetary policy on economic growth and social welfare in a Schumpeterian model with cash-in-advance (CIA) constraints on consumption, R&D investment, and manufacturing. Our results are as follows. Under the CIA constraints on consumption and R&D (manufacturing), an increase in the nominal interest rate would decrease (increase) R&D and economic growth. So long as the effect of cash requirements in R&D is relatively more important than in manufacturing, the nominal interest rate would have an overall negative effect on R&D and economic growth as documented in recent empirical studies. We also analyze the optimality of Friedman rule and find that Friedman rule can be suboptimal due to a unique feature of the Schumpeterian model. Specifically, we find that the suboptimality or optimality of Friedman rule is closely related to a seemingly unrelated issue that is the overinvestment versus underinvestment of R&D in the market economy, and this result is robust to alternative versions of the Schumpeterian model.
    Keywords: economic growth; R&D; quality ladders; cash-in-advance; monetary policy; Friedman rule
    JEL: O30 O40 E41
    Date: 2012–07
  2. By: Eleftherios Goulas (Department of Economics, University of Patras, Greece); Athina Zervoyianni (Department of Economics, University of Patras, Greece)
    Abstract: This paper contributes to the crime literature by exploring how the crime-uncertainty interaction impacts on economic growth. Using a panel of 25 countries over the period 1991-2007, we find evidence suggesting that increased crime has an asymmetric effect on growth depending on the future prospects of the economy as reflected in the degree of macroeconomic uncertainty. In particular, our results indicate that higher-than-average macroeconomic uncertainty enhances the adverse impact of crime on growth implying that a 10% increase in the crime rate can reduce annual per-capita GDP-growth by between 0.49 and 0.62 percent.
    Keywords: growth, crime, uncertainty
    JEL: O40 K14 D80
    Date: 2012–07
  3. By: Anton Granik (Reims Management School); Francesco Saraceno (Observatoire Francais des Conjonctures Economiques Author-Workplace-Postal :69, quai d'Orsay, Paris 75007, France)
    Abstract: This paper aims at giving a theoretical background to the, some- times observed, puzzling inverse correlation between the degree of de- centralization and economic growth. We provide evidence that there is some interaction between decentralization and corruption in ex- plaining growth. Within an endogenous growth model, we analyze the problem of a benevolent central government trying to determine the optimal degree of fiscal decentralization. Specifically, it can pro- duce a public good directly, but inefficiently, or it can delegate some (or all) of the production to more efficient local bureaucrats. In the latter case, however, some resources will be wasted because of corrup- tion and the costs linked to monitoring expenditures. With respect to the benchmark case, then, the possibility of corruption yields both a distorted allocation of resources (insufficient decentralization) and an overall under provision of the public good.
    Keywords: Fiscal federalism, corruption, Endogenous growth, Public Capital, Fiscal policy
    JEL: H1 H2 H4 H7 D73
    Date: 2012–06
  4. By: Jamal Ibrahim Haidar (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: I investigate the link between business regulatory reforms and economic growth in 172 countries. I create a five year dataset on business regulatory reforms from the World Bank's Doing Business reports. Then, I test the hypothesis that business regulatory reforms increase economic growth, using data on micro-economic reforms. These data do not suffer the endogeneity issues associated with other datasets on changes in economic institutions. The results provide a robust support for the claim that business regulatory reforms are good for economic growth. The paper establishes that, on average, each business regulatory reform is associated with a 0.15 percent increase in growth rate of GDP.
    Keywords: Growth reform, development, regulations, doing business, institutions.
    JEL: O12 O17 O50 P48
    Date: 2012–05
  5. By: Eleftherios Goulas (Department of Economics, University of Patras, Greece); Athina Zervoyianni (Department of Economics, University of Patras, Greece)
    Abstract: We examine the relationship between fiscal deficits and per-capita income growth in a panel of 28 European countries, allowing for perceived risks, in terms of fiscal sustainability, associated with additional government spending. Such risks are proxied by the conditional variability of manufacturing production and stock market returns and by the unconditional variability of two survey-based economic-sentiment indicators. We find evidence of an asymmetric relationship, in that fiscal deficits give rise to adverse growth effects if they coincide with high uncertainty regarding the future prospects of the economy and no significant negative growth effects in the low-uncertainty case.
    Keywords: growth, fiscal policy, government budget constraint, uncertainty
    JEL: O40 E60 H60 D80
    Date: 2012–07
  6. By: Dimitris Christopoulos (Panteion University); Peter McAdam (University of Surrey and European Central Bank)
    Abstract: Most growth models imply positive impacts on economic growth from greater openness. And a key factor linking openness and growth is the efficiency with which resources are used. Empirically, however, the efficiency impacts of trade have been ambiguous. Using a stochastic frontier analysis, we examine the impact of openness on technical (in)efficiency for a sample of OECD economies. Unlike the bulk of related studies, we work at the industry level. Given recent debates on technology-inspired growth and TFP effects, we additionally examine whether ICT expenditures impacts openness and efficiency. We establish the elasticity of openness with respect to (in)efficiency; TFP and Scale Economies; and Technical Inefficiency across countries and sectors. Both openness and ICT usage have robustly positive impacts on efficiency. Our results shed light on the impact of, spillovers be- tween, and heterogeneity across countries and industries from, increasing openness interacted with the use of advanced technologies.
    Date: 2012–07
  7. By: Gabriella Legrenzi (Keele University, UK; CESifo, Germany; The Rimini Centre for Economic Analysis (RCEA), Italy); Costas Milas (Liverpool University, UK; The Rimini Centre for Economic Analysis (RCEA), Italy;, Greece)
    Abstract: We extend previous work on the sustainability of the government's intertemporal budget constraint by allowing for non-linear adjustment of the fiscal variables, conditional on (i) the sign of budgetary disequilibria and (ii) the phase of the economic cycle. Further, our endogenously estimated threshold for the non-linear adjustment is not fixed; instead it is allowed to vary over time and during financial crises. Our analysis presents particular interest within the current economic scenario of financial crises, poor growth and debt crises. Our empirical analysis, applied to the GIPS, shows evidence of a threshold behaviour for the GIPS, that only correct "large" unbalances, which, in the case of Greece and Portugal, are higher than the EGSP criteria. Financial crises further relax the threshold for adjustment: during financial crises, only "very large" budgetary unbalances are corrected.
    Keywords: debt sustainability, fiscal adjustment, nonlinear models
    JEL: H63 H20 H60 C22
    Date: 2012–07
  8. By: Chletsos, Michael; Roupakias, Stelios
    Abstract: This paper applies cointegration analysis and Granger non-causality tests in order to identify the direction of causality between migration in Greece and two macroeconomic variables: real per capita GDP and unemployment. We use annual data for the period 1980-2011. The data are drawn from the International Migration Statistics (OECD) and the International Monetary Fund Database (IMF). Our results provide empirical evidence that the growth rates of GDP and unemployment cause migration in Granger’s sense. On the contrary, evidence of reverse causality is not established.
    Keywords: Immigration; Unemployment; Growth
    JEL: E24 O10 J61
    Date: 2012–06–08

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