nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒09‒22
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Data appendix for economic growth in the long run By Tamura, Robert; Dwyer, Gerald P; Devereux, John; Baier, Scott
  2. Looking Inward for Growth By Rod Tyers
  3. The Economic Causes and Consequences of Social Instability in China By Jobn Knight
  4. The finance-growth nexus revisited: From origins to a modern theoretical landscape By Stolbov, Mikhail
  5. Economic growth In the long run By Tamura, Robert; Dwyer, Gerald P.; Devereux, John; Baier, Scott
  6. The impact of TFP growth on the unemployment rate: does on-the-job training matter? By Moreno-Galbis, Eva
  7. Endogeneity and Panel Data in Growth Regressions: A Bayesian Model Averaging Approach By Roberto Leon-Gonzalez; Daniel Montolio
  8. Emulation and Consumer Debt: Implications of Keeping-Up with the Joneses By Yun Kim
  9. Bank ownership and lending patterns during the 2008-2009 financial crisis : evidence from Latin America and Eastern Europe By Cull, Robert; Peria, Maria Soledad Martinez
  10. Some Reflections on the Recent Financial Crisis By Gary B. Gorton
  11. The Inter-linkages between Democracy and Per Capita GDP Growth: A Cross Country Analysis By Madeeha Gohar Qureshi; Eatzaz Ahmed

  1. By: Tamura, Robert; Dwyer, Gerald P; Devereux, John; Baier, Scott
    Abstract: This extended data appendix describes the sources and methods used to construct the data used in our paper "Economic Growth in the Long Run."
    Keywords: physical capital; human capital; investment; schooling
    JEL: O11 O47 O15 J24
    Date: 2012–09–14
  2. By: Rod Tyers (Business School, University of Western Australia)
    Abstract: Export led growth has been very effective in transforming China’s economy and establishing a large high-saving middle class. Notwithstanding political opposition from trading partners, this growth strategy has also offered the rest of the world an improved terms of trade and cheaper finance. Yet it is believed by China’s government that this convenient strategy has run its course and the transition has begun to a model that “looks inward” for growth, to be driven by expanding consumption and home investment. This paper uses a numerical model of the Chinese economy with oligopoly behaviour to examine the available “inward” sources of transformative growth along with the policies needed to exploit them. Success will require the redistribution of the considerable rents now accruing to connections of key state owned enterprises, suggesting the potential for political resistance and the yet-avoidable possibility that China could fall into a “middle incometrap”.
    Date: 2012
  3. By: Jobn Knight
    Abstract: Social instability is a concept that economists rarely analyse, and yet it can lurk behind much economic policy-making. China’s leadership has often publicly expressed its concerns to avoid ‘social instability’. It is viewed as a threat both to the political order and to the continued rapid growth of the economy. This threat to growth in turn endangers the maintenance of social stability. This paper examines the likely economic determinants of social instability, using both surveys and other evidence. After explaining the determinants of China’s rapid growth, the paper goes on to examine the likely mechanisms by which social instability can affect the growth rate. There is a case for more research on the role of social instability in the economic development process.
    Keywords: China, Civl unrest, Corruption, Developmental state, Economic growth, Governance, Happiness, Inequality, Social instability
    JEL: O15 O20 O43 P26
    Date: 2012
  4. By: Stolbov, Mikhail
    Abstract: The paper is a survey of theoretical and empirical approaches applied to analyze the impact of financial system on economic growth. The key issues of the modern theories of the finance-growth nexus are discussed and the theories are classified on the basis of the methodology they rely on. The paper extends earlier overviews of the topic, tracking and seeking to explain an inherent logic of this research program, its evolution, and some issues not covered in other surveys such as the finance-growth nexus in resource rich economies. The challenges this research program is facing are also identified. --
    Keywords: financial system,financial development,financial repression,economic growth
    JEL: E44 O11 O16
    Date: 2012
  5. By: Tamura, Robert; Dwyer, Gerald P.; Devereux, John; Baier, Scott
    Abstract: We present new data on real output per worker, schooling per worker, human capital per worker, real physical capital per worker for 168 countries. The output data represent all available data from Maddison. The physical capital data represent all available data from Mitchell. One major contribution is a new set of human capital per worker, the foundation of which comes mostly from Mitchell. We provide original estimates of schooling per worker & per young worker. With our preferred measure of human capital, between 66 percent to 90 percent of all the variation in long run growth can be explained by variation in the growth of inputs per worker, and only 10-34 percent from variation in TFP growth! Furthermore between 66 percent and 80 percent of the variation in log levels can be explained by variation in the log input levels and only 20 percent to 34 percent is explained by variation in log TFP levels!
    Keywords: economic growth; human capital; variance decomposition
    JEL: O11 O47 O15 J24
    Date: 2012–09–14
  6. By: Moreno-Galbis, Eva
    Abstract: This paper seeks to gain insights into the relationship between growth and unemployment in a setting with heterogeneous skills, human capital accumulation, on-the-job training and capital-skill complementarity. We use an endogenous job destruction framework in the style of Mortensen and Pissarides (1998) with directed search. We show that, when growth accelerates, a larger share of unskilled workers seeks training, increasing firms’ incentives to update job-specific technology (rather than destroying it). By magnifying the impact of growth on employment, the introduction of human capital issues allows the model to more closely match the estimated sensitivity of unemployment with respect to growth. When calibrated, the model manages to reproduce the aggregate capitalization effect estimated using OECD data. We find that growth reduces unemployment for individuals receiving training, while it increases the unemployment rate of unskilled workers without training (creative destruction effect).
    Keywords: growth; unemployment; training; capital-skill complementarity; human capital depreciation; capitalization; creative destruction effect
    JEL: J23 J24 O33
    Date: 2012–09
  7. By: Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies); Daniel Montolio (University of Barcelona and Barcelona Institute of Economics)
    Abstract: Bayesian model averaging (BMA) has been successfully applied in the empirical growth literature as a way to overcome the sensitivity of results to different model specifications. In this paper, we develop a BMA technique to analyze models that differ in the set of instruments, exogeneity restrictions, or the set of controlling regressors. Our framework allows for both cross-section regressions with instrumental variables and for the commonly used panel data model with xed effects and endogenous or predetermined regressors. The large model space that typically arises can be effectively analyzed using a Markov Chain Monte Carlo algorithm. We apply our technique to the dataset used by Burnside and Dollar (2000) who investigated the eect of international aid on GDP growth. We show that BMA is an eective tool for the analysis of panel data growth regressions in cases where the number of models is large and results are sensitive to model assumptions.
    Date: 2012–09
  8. By: Yun Kim (Department of Economics, Trinity College)
    Abstract: We develop a stock-flow consistent neo-Kaleckian macro model which incorporates consumption emulation and consumer debt accumulation. Income distributional dimension is also incorporated via the conflict-claims approach of inflation. Using this model, we investigate the macroeconomic effects of lower income group's consumption emulation of higher income group through borrowing. We find that emulation could expand aggregate demand and hence generate a faster economic growth. Our results also indicate that consumption emulation could be a source of widening income inequality.
    Keywords: consumer debt, emulation, income distribution, growth
    JEL: E12 E44 O41
    Date: 2012–09
  9. By: Cull, Robert; Peria, Maria Soledad Martinez
    Abstract: This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008-2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, it analyzes the growth of banks'total gross loans as well as the growth of corporate, consumer, and residential mortgage loans. Although domestic private banks in Eastern Europe and Latin America contracted their loan growth rates during the crisis, there are differences in foreign and government-owned bank credit growth across regions. In Eastern Europe, foreign bank total lending fell by more than domestic private bank credit. These results are primarily driven by reductions in corporate loans. Furthermore, government-owned banks in Eastern Europe did not act counter-cyclically. The opposite was true in Latin America, where the growth of government-owned banks'corporate and consumer loans during the crisis exceeded that of domestic and foreign banks. Contrary to the case of foreign banks in Eastern Europe, those in Latin America did not fuel loan growth prior to the crisis and did not contract lending at a faster pace than domestic banks during the crisis.
    Keywords: Banks&Banking Reform,Access to Finance,Debt Markets,Public Sector Corruption&Anticorruption Measures,Bankruptcy and Resolution of Financial Distress
    Date: 2012–09–01
  10. By: Gary B. Gorton
    Abstract: Economic growth involves metamorphosis of the financial system. Forms of banks and bank money change. These changes, if not addressed, leave the banking system vulnerable to crisis. There is no greater challenge in economics than to understand and prevent financial crises. The financial crisis of 2007-2008 provides the opportunity to reassess our understanding of crises. All financial crises are at root bank runs, because bank debt—of all forms—is vulnerable to sudden exit by bank debt holders. The current crisis raises issues for crisis theory. And, empirically, studying crises is challenging because of small samples and incomplete data.
    JEL: E02 E3 E30 E32 E44 G01 G1 G2 G21
    Date: 2012–09
  11. By: Madeeha Gohar Qureshi (Pakistan Institute of Development Economics, Islamabad.); Eatzaz Ahmed (Quaid-i-Azam University, Islamabad)
    Abstract: The empirical growth literature gives no clear indication as to how democracy impacts growth; there is evidence of both positive and negative effects and also of no direct link in democracy and growth nexus. In this study an attempt has been made to resolve this controversy by putting this question in a dynamic simultaneous equation framework that combines in a system the regression in differences with regression in levels applied on a cross county data set over the period 1987-2002. This type of modelling not only controls for the endogeneity of the explanatory variables and the unobserved country-specific effects but also allows us to analyse the impact of democracy on per capita GDP growth and the reverse causation from per capita GDP growth on political and civil freedom simultaneously. Our result shows evidence in support of a quadratic impact of the democracy on per capita GDP growth (an inverted U relationship) that is per capita GDP is found to be increasing in democracies at low levels but after a certain moderate level of democracy this relation turns negative. The support of reverse causation from per capita GDP growth to political and civil freedom is found only in countries grouped as partially free and free democracies. However we do not find any evidence in support of Lipset Hypothesis that prosperity leads to increase in propensity to experience political freedom taking all countries into consideration.
    Keywords: Democracy, Per Capita GDP Growth, Quadratic Relationship, Lipset Hypothesis
    JEL: C22 O43
    Date: 2012

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