nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒10‒20
eight papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. 2012-11 Financial development and economic growth in Fiji: New empirical evidence By Neelesh Gounder
  2. Unsustainable growth: Lessons from South Africa By Jan Hofmeyr
  3. Towards Greater Equality in China: The Economic Growth Dividend By Guanghua Wan
  4. Financial Development and Poverty: a Panel Data Analysis By Pablo Ordóñez
  5. Fiscal Policy, Banks and the Financial Crisis By Robert Kollmann; Marco Ratto; Werner Roeger; Jan in'tVeld
  6. Can Venture Capital Foster Innovation in Canada? Yes, but Certain Types of Venture Capital Are Better Than Others By Tariq Fancy
  7. Deriving India's Potential growth from theory and structure By Ashima Goyal; Sanchit Arora
  8. Health, Human Capital Formation and Knowledge Production: Two Centuries of International Evidence By Jakob Madsen

  1. By: Neelesh Gounder
    Keywords: Financial development, economic growth, Fiji
    JEL: G20 O40 C50
  2. By: Jan Hofmeyr (Jan Hofmeyr heads the Policy and Analysis Unit of theInstitute for Justice and Reconciliation)
    Date: 2012–03
  3. By: Guanghua Wan
    Date: 2012–03
  4. By: Pablo Ordóñez
    Abstract: The relationship between financial development and poverty is one that has not been extensively explored in the literature. This is the main objective of this paper. With a panel dataset of 147 countries between 1960 and 2008, and using infant mortality as a proxy indicator of poverty, the results show that the relationship between financial development and infant mortality is negative. This means that higher levels of financial development are associated with lower levels of poverty. The result is important since it already controls for the effect that economic growth has on poverty reduction, given the well documented fact that financial development has a positive effect on economic growth. The results are robust to the use of other variables as indicators of financial development, as the long-run relationship is still negative. The findings in this paper highlight the importance of financial development in poverty reduction, and suggest that future research could try and explain what are the mechanisms behind this relationship.
    Date: 2012–09–02
  5. By: Robert Kollmann; Marco Ratto; Werner Roeger; Jan in'tVeld
    Abstract: This paper studies the effectiveness of Euro Area (EA) fiscal policy, during the recent financial crisis, using an estimated New Keynesian model with a bank. A key dimension of policy in the crisis was massive government support for banks—that dimension has so far received little attention in the macroeconomics literature. We use the estimated model to analyze the effects of bank asset losses, of government support for banks, and other fiscal stimulus measures, in the EA. Our results suggest that support for banks had a stabilizing effect on EA output, consumption and investment. Increased government purchases helped to stabilize output, but crowded out consumption. Higher transfers to households had a positive impact on private consumption, but a negligible effect on output and investment. Banking shocks and increased government spending explain half of the rise in the public debt/GDP ratio since the onset of the crisis.
    Keywords: financial crisis; bank rescue measures; fiscal policy
    JEL: E62 E32 G21 H63 F41
    Date: 2012–10
  6. By: Tariq Fancy (former Principal, CPP Investment Board)
    Abstract: Canada’s problem with lagging productivity growth has led policymakers to focus on boosting innovation, in part by supporting Canadian venture capital funding for business. But which types of venture capital (VC) funds are most effective in spurring innovation? This study examines that question in the Canadian context by examining the records of VC funding in generating new patent applications for the period 1996-2008. Overall, Canadian VC funding spurs innovation more effectively on a dollar-for-dollar basis than investment in research and development (R&D). The type of VC fund also matters. Private and institutional VC funds consistently foster innovation; corporate and government VC funds do reasonably well in promoting innovation; but retail, bank and other VC dollars perform poorly on that score.
    Keywords: Economic Growth and Innovation, venture capital, Canada
    JEL: G24 H2
    Date: 2012–09
  7. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Sanchit Arora (Indira Gandhi Institute of Development Research)
    Abstract: Estimates suggest that Indian aggregate supply is elastic but subject to upward shocks. If supply shocksmake a high persistent contribution to inflation, it implies second round pass through is occurring, implying growth has reached its potential. This measure of potential growth draws on both theory and the structure of the Indian economy. It turns out supply shocks largely explain inflation. Output reached potential only in the years 2007-08 when growth rates exceeded 9 percent. In the period 2010-11 there was no sustained excess of growth over potential. Inflation was due to multiple supply shocks, rather than second round effects. Estimated linear and Markov switching policy rules suggest there wasovercorrection in 2011.They show a two percent underestimate of potential output leads to a 50 basis point rise in policy rates.
    Keywords: Potential growth, demand and supply shocks, Markov switching policy rules
    JEL: E22 E32 E52
    Date: 2012–09
  8. By: Jakob Madsen
    Abstract: Recent medical research shows that health is highly influential for learning and the ability to think laterally; however, past economic studies have failed to empirically examine the influence of health on learning, schooling, and ideas production; the main drivers of growth in endogenous growth models. This paper constructs a measure of health-adjusted educational attainment among the working age population based on their health status during the time they did their education. Using annual data for 21 OECD countries over the past two centuries it is shown that health has been highly influential for the quantity and quality of schooling, innovations and growth.
    JEL: O1 O2 O4
    Date: 2012–10

This nep-fdg issue is ©2012 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.