nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒10‒27
fourteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial Development, International Trade and Economic Growth in Australia:New Evidence from Multivariate Framework Analysis By Muhammad, Shahbaz; Mohammad , Mafizur Rahman; Abdul, Farooq
  2. Do business and public sector research and development expenditures contribute to economic growth in central and eastern European countries? A dynamic panel estimation By Pop-Silaghi, Monica; Jude, Cristina; Alexa, Diana; Litan, Cristian
  3. Social Capital as an Engine of Growth. Multisectoral Modelling and Implications By Youyou Baende Bofota; Raouf Boucekkine; Alain Pholo Bala
  4. A two-sector growth model with institutional saving and investment By Donald A. R. George (University of Edinburgh)
  5. Non-linear Effects of Taxation on Growth By Nir Jaimovich; Sergio Rebelo
  6. Green growth -- lessons from growth theory By Smulders, Sjak; Withagen, Cees
  7. Accelerating Guyana’s Growth Momentum By Grenade, Kari; Pasha, Sukrishnalall
  8. Forecasting Chinese inflation and output: A Bayesian vector autoregressive approach By Huang, Y-F.
  9. A Curse or a Blessing? Natural Resources in a Multiple Growth Regimes Analysis By Maty Konte
  10. Concept-Based Bayesian Model Averaging and Growth Empirics By Magnus, J.R.; Wang, W.
  11. UK Innovation Index: productivity and growth in UK industries By Haskel, J; Goodridge, P; Wallis, G
  12. Redistribution spurs growth by using a portfolio effect on human capital By Jan Lorenz; Fabian Paetzel; Frank Schweitzer
  13. Germs, Social Networks and Growth By Alessandra Fogli; Laura Veldkamp
  14. Convergence and Growth: Portugal in the EU 1986-2010 By Marta Simões; João Sousa Andrade; Adelaide Duarte

  1. By: Muhammad, Shahbaz; Mohammad , Mafizur Rahman; Abdul, Farooq
    Abstract: This study investigates the relationship between financial development, international trade and economic growth in case of Australia over the period of 1965-2010. The ARDL bounds testing approach to cointegration was applied to examine the long run relationship among the series, while stationarity properties of the variables were tested by applying two structural break tests i.e. Zivot-Andrews (1992) and Clemente et al. (1998). Our empirical evidence confirmed the long run relationship among the variables. The results showed that financial development, international trade and capital are the drivers of economic growth both in short run as well as in long run. The feedback effect exists between international trade and economic growth. Financial development Granger causes economic growth validating supply-side hypothesis in case of Australia.
    Keywords: Financial Development; International Trade; Economic Growth; Australia
    JEL: F4
    Date: 2012–10–02
  2. By: Pop-Silaghi, Monica (Babeș-Bolyai University); Jude, Cristina (Babeș-Bolyai University); Alexa, Diana (Babeș-Bolyai University); Litan, Cristian (Babeș-Bolyai University)
    Abstract: This paper examines the impact of R&D expenditures in business and private sector on economic growth in Central and Eastern European Countries over the period 1998-2008. Using a Generalised Method of Moments estimator, we find that business R&D has a high and stable contribution to economic growth. Public R&D has no effect on growth but does not crowd out private activity. The paper also finds that part of the business R&D effect is accounted for by human capital. The results remain robust after considering macroeconomic control variables.
    Keywords: R&D; human capital; economic growth; CEE; dynamic panel-GMM.
    JEL: O32 O33 O52
    Date: 2012–07
  3. By: Youyou Baende Bofota (Université Catholique de Louvain (UCL), Ires); Raouf Boucekkine (Aix-Marseille Université, Greqam and UCL, Ires-Core); Alain Pholo Bala (University of Johannesburg)
    Abstract: We propose a multisector endogenous growth model incorporating social capital. Social capital only serves as input in the production of human capital and it involves a cost in terms of the final good. We show that in contrast to existing alternative specifications, this setting assures that social capital enhances productivity gains by playing the role of a timing belt driving the transmission and propagation of all productivity shocks throughout society whatever the sectoral origin of the shocks. Further econometric work is conducted in order to estimate the contribution of social capital to human capital formation. We find that depending on the measure of social capital considered, the elasticity of human capital to social capital varies from 6% to 10%. Finally we investigate the short-term dynamics and imbalance effect properties of the models depending on the value of this elasticity (taking the Lucas-Uzawa model as a limit case). In particular, it’s shown that when the substitutability of social capital to human capital increases, the economy is better equipped to surmount initial imbalances as individuals may allocate more working time in the final goods sector without impeding economic growth.
    Keywords: social capital, human capital, economic growth, imbalance effects.
    JEL: C61 E20 E22 E24 O41
    Date: 2012–03–12
  4. By: Donald A. R. George (University of Edinburgh)
    Abstract: This paper develops a two-sector growth model in which institutional investors play a significant role. A necessary and sufficient condition is established under which these investors own the entire capital stock in the long run. The dependence of the long-run growth rate on the behaviour of such investors, and the effects of a productivity increase are analysed.
    JEL: O41 O43
    Date: 2012–05–16
  5. By: Nir Jaimovich; Sergio Rebelo
    Abstract: We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.
    JEL: H2 O4
    Date: 2012–10
  6. By: Smulders, Sjak; Withagen, Cees
    Abstract: This paper reviews dynamic general equilibrium models in order to collect insights on the interaction between economic growth and environmental issues. The authors discuss the Ramsey model and extend it for natural resource inputs and pollution, as well as for endogenous technical change. Green growth becomes within reach if there is good substitution, a clean backstop technology, a small share of natural resources in gross domestic product, and/or green directed technical change.
    Keywords: Environmental Economics&Policies,Economic Theory&Research,Political Economy,Climate Change Economics,Climate Change Mitigation and Green House Gases
    Date: 2012–10–01
  7. By: Grenade, Kari; Pasha, Sukrishnalall
    Abstract: Guyana has been able to reverse decades of economic decline and stagnation with five consecutive years of robust growth during the period 2006-2010. The study probes whether Guyana has finally turned the corner. The study finds that good policies as well as good luck explain much of the recent growth. In particular, improved governance, sound macroeconomic management and favourable terms of trade have been the key growth propellers. The paper offers strategies to further accelerate growth in the medium to long term, which include increasing economic dynamism, fully exploiting and better utilising natural resources, and strengthening and entrenching good governance.
    Keywords: economic growth; growth strategies; Caribbean; Guyana
    JEL: O20 E00 O40
    Date: 2012–02–01
  8. By: Huang, Y-F.
    Abstract: This study compares several Bayesian vector autoregressive (VAR) models for forecasting price inflation and output growth in China. The results indicate that models with shrinkage and model selection priors, that restrict some VAR coefficients to be close to zero, perform better than models with Normal prior.
    Keywords: BVAR; factor model; shrinkage priors
    JEL: C32 C11
    Date: 2012–10
  9. By: Maty Konte (Aix-Marseille Université, Greqam)
    Abstract: The literature on the impact of an abundance of natural resources on economic performance remains inconclusive. In this paper we consider the possibility that countries may follow different growth regimes, and test the hypothesis that whether natural resources are a curse or a blessing depends on the growth regime to which economy belongs. We follow recent work that has used a mixture of regression method to identify different growth regimes, and find two regimes such that in one regime resources have a positive impact on growth, while in the other they have a negative impact or at best have no impact on growth. Our analysis of the determinants of whether a country belongs or not to the blessed resources regime indicates that the level of democracy plays an important role while education and economic institutions have no effect.
    Keywords: Natural Resources, Mixture of regression, Multiple equilibria.
    JEL: O13 O47
    Date: 2012–03
  10. By: Magnus, J.R.; Wang, W. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: In specifying a regression equation, we need to determine which regressors to include, but also how these regressors are measured. This gives rise to two levels of uncertainty: concepts (level 1) and measurements within each concept (level 2). In this paper we propose a hierarchical weighted least squares (HWALS) method to address these uncertainties. We examine the effects of different growth theories taking into account the measurement problem in the growth regression. We find that estimates produced by HWALS provide intuitive and robust explanations. We also consider approximation techniques when the number of variables is large or when computing time is limited, and we propose possible strategies for sensitivity analysis.
    Keywords: Hierarchical model averaging;Growth determinants;Measurement problem.
    JEL: C51 C52 C13 C11
    Date: 2012
  11. By: Haskel, J; Goodridge, P; Wallis, G
    Date: 2012–07
  12. By: Jan Lorenz; Fabian Paetzel; Frank Schweitzer
    Abstract: We demonstrate by mathematical analysis and systematic computer simulations that redistribution can lead to sustainable growth in a society. The human capital dynamics of each agent is described by a stochastic multiplicative process which, in the long run, leads to the destruction of individual human capital and the extinction of the individualistic society. When agents are linked by fully-redistributive taxation the situation might turn to individual growth in the long run. We consider that a government collects a proportion of income and reduces it by a fraction as costs for administration (efficiency losses). The remaining public good is equally redistributed to all agents. We derive conditions under which the destruction of human capital can be turned into sustainable growth, despite the losses from the random growth process and despite the administrative costs. Sustainable growth is induced by redistribution. This effect could be explained by a simple portfolio-effect which re-balances individual stochastic processes. The findings are verified for three different tax schemes: proportional tax, taking proportional more from the rich, and proportionally more from the poor. We discuss which of these tax schemes is optimal with respect to maximize growth under a fixed rate of administrative costs, or with respect to maximize the governmental income. This leads us to some general conclusions about governmental decisions, the relation to public good games, and the use of taxation in a risk taking society.
    Date: 2012–10
  13. By: Alessandra Fogli; Laura Veldkamp
    Abstract: Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, how does this effect operate and how big is it? Using network analysis tools, we explore how different social structures affect technology diffusion and thereby a country's rate of technological progress. The network model also explains why societies with a high prevalence of contagious disease might evolve toward growth-inhibiting social institutions and how small initial differences can produce large divergence in incomes. Empirical work uses differences in the prevalence of diseases spread by human contact and the prevalence of other diseases as an instrument to identify an effect of social structure on technology diffusion.
    JEL: E02 O1 O33
    Date: 2012–10
  14. By: Marta Simões (GEMF and Faculty of Economics, University of Coimbra); João Sousa Andrade (GEMF and Faculty of Economics, University of Coimbra); Adelaide Duarte (GEMF and Faculty of Economics, University of Coimbra)
    Abstract: The Portuguese convergence and growth experience after EU membership can be divided into two periods: 1986-1998, a convergence period during which growth in the Portuguese economy accelerated and Portugal grew faster than the EU15/14 average; and a stagnation/divergence period from 1999 onwards when its growth rate slowed down to figures lower than the reference group average. After EU accession, Portugal benefitted from better macroeconomic policies (associated with the process of nominal convergence on the way to the euro in 1990s), structural reforms, in the financial, labour and product markets, investments in physical and human capital, and improvements in other growth enhancing factors, which help to explain its good performance in the first sub-period. However, Portugal continues to present low values for most growth indicators when compared with their levels in the rest of the EU14, especially in what concerns educational attainment, technological infrastructures and investments in research and development and the dissemination of knowledge. The resurgence of macroeconomic instability associated with the increase in the government size, and the increased specialization pattern towards low productivity services sub-sectors also help to understand why Portugal stopped converging and is facing poor long-term growth prospects. The results from the estimation of a growth regression with quantile regressions techniques support this concern by revealing that for lower rates of growth an increase of the non-tradables sector and a loss of competitiveness are especially harmful for growth.
    Keywords: Financial economic growth, convergence, Portugal, quantile regression, government size, non-tradables sector.
    JEL: C23 O47 O52
    Date: 2012–10

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