nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒11‒03
thirteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Impact of Inflation Uncertainty on Economic Growth: A MRS-IV Approach By Mustafa Caglayan; Ozge Kandemir; Kostas Mouratidis
  2. Fiscal sustainability using growth-maximising debt targets By Cristina Checherita-Westphal; Andrew Hughes Hallett; Philipp Rother
  3. Do institutions matter for growth? Evidence from East Asian countries By Ahmad, Mahyudin; Hall, Stephen G.
  4. Is Protection Good or Bad for Growth? Lessons from Canada's Cotton Textile Mills By Michael Hinton; Thomas Barbiero
  5. Financial Deregulation, Absorptive Capability, Technology Diffusion and Growth: Evidence from Chinese Panel Data By Qichun He; Meng Sun; Heng-fu Zou
  6. Broadband Infrastructure and Economic Growth: A Panel Data Analysis of OECD Countries By Atif, Syed Muhammad; Endres, James; Macdonald, James
  7. Asymmetries with R&D-Driven Growth and Heterogeneous Firms. By Frédéric Olland
  8. Philippine Productivity Dynamics in the Last Five Decades and Determinants of Total Factor Productivity By Llanto, Gilberto M.
  9. Catch me if you learn: development-specific education and economic growth By Fabio Cerina; F. Manca
  10. Growth, PAYG pension systems crisis and mandatory age of retirement. By Luciano Fanti
  11. The patterns and determinants of household welfare growth in Jordan : 2002-2010 By Mansour, Wael
  12. Does trade foster employment growth in emerging markets? Evidence from Turkey By Alessia LO TURCO; Daniela MAGGIONI
  13. End-of-the-year economic growth and time-varying expected returns By Stig V. Møller; Jesper Rangvid

  1. By: Mustafa Caglayan (Department of Economics, The University of Sheffield); Ozge Kandemir (Department of Economics, The University of Sheffield); Kostas Mouratidis (Department of Economics, The University of Sheffield)
    Abstract: We empirically investigate inflation uncertainty effects on output growth for the US by implementing a Markov regime switching model as we account for endogeneity problems. We show that inflation uncertainty -obtained from a Markov regime switching GARCH model - has a negative and regime dependent impact on output growth. Moreover, we find that the smooth probability of high growth regime falls long before the recent financial crisis was imminent. This might be driven by a regime dependent causality, an issue which has been left unexplored.
    Keywords: Growth; inflation uncertainty; Markov-switching modeling; Markov-switching GARCH.
    JEL: E31 E32
    Date: 2012
  2. By: Cristina Checherita-Westphal (European Central Bank); Andrew Hughes Hallett (Harvard Kennedy School); Philipp Rother (European Central Bank)
    Abstract: This paper highlights the importance of debt-related fiscal rules and derives growth-maximising public debt ratios from a simple theoretical model. On the basis of evidence on the productivity of public capital, we estimate public debt targets that governments should try to maintain if they wish to maximise growth for panels of OECD, EU and euro area countries, respectively. These are not arbitrary numbers, as many of the fiscal rules in the literature suggest, but are founded on long-run optimising behaviour, assuming that governments implement the so-called golden rule over the cycle; that is, they contract debt only to finance public investment. Our estimates suggest that the euro area should target debt levels of around 50% of GDP if member states are to have common targets. That is about 15 percentage points lower than the estimate for the growth-maximising debt ratio in our OECD sample and comfortably within the Stability and Growth Pact’s debt ceiling of 60% of GDP. We also indicate how forward looking budget reaction functions fit into a debt targeting framework. JEL Classification: H63, E22, O40
    Keywords: Public debt, public capital, economic growth
    Date: 2012–09
  3. By: Ahmad, Mahyudin; Hall, Stephen G.
    Abstract: Utilizing neoclassical growth framework augmented with institutional controls and latest estimation technique in panel data analysis, this study identifies the crucial institutional qualities in East Asian and other developing countries and uncovers the channel of their effects toward economic growth. Furthermore, it extends the empirical evidence on the institutional importance toward economic growth in the developing countries particularly the East Asian countries which, apart from Rodrik (1997) and Campos and Nugent (1999), have somehow been left out from the empirical investigation.
    Keywords: Institutions; economic growth; Asian Financial Crisis; dynamic panel analysis; generalized methods of moments
    JEL: O43 E13
    Date: 2012–09–24
  4. By: Michael Hinton (Rimini Centre for Economic Analysis, and Minerva's Owl, Consultants); Thomas Barbiero (Department of Economics, Ryerson University)
    Keywords: Cotton Textiles, 19th Century Canada, Economic Growth, Tariffs, National Policy
    Date: 2012–07
  5. By: Qichun He (CEMA, Central University of Finance and Economics); Meng Sun (SEBA, Beijing Normal University); Heng-fu Zou (Development Research Group, World Bank)
    Abstract: Technological diffusion via FDI is essential for the economic growth of backward economies. However, institutional and policy barriers may slow down technology diffusion. Using a simple theory based on Acemoglu (2009, ch. 18), we predict that there exists an interaction (i.e., a complementary) effect between inward FDI (pool of available world frontier technologies) and financial deregulation (enhancing absorptive capability via lowering institutional and policy barriers) in promoting growth. We test the predictions using the panel data on Chinese provinces during the reform and opening-up period. The Chinese experience is appealing because of the symbiotic financial deregulation and inflow of FDI. We find robust evidence that there is a significant interaction effect between FDI and the level of financial deregulation in promoting economic growth. This furthers our understanding of the reform and opening-up strategy of China.
    Keywords: Absorptive Capability, Gradual Financial Deregulation, Inward FDI, Interaction, Panel Data
    JEL: O11 O33 F43 C23
    Date: 2012
  6. By: Atif, Syed Muhammad; Endres, James; Macdonald, James
    Abstract: Broadband infrastructure facilitates the generation and distribution of decentralised information and ideas in a knowledge economy comprising of markets that rely on information as an input. This paper analyses the effect of broadband penetration on output per capita by estimating a static fixed effects model and a basic linear dynamic model using an annual panel of 31 OECD countries over a period from 1998 to 2010. The results suggest that broadband penetration has had a positive impact on economic growth, and a 10 percent increase in the growth of broadband penetration will raise economic growth per employee by approximately 0.035 percentage points. The conclusion adds further weight to calls for Governments to adopt policies that accelerate broadband penetration and promote investment in broadband infrastructure.
    Keywords: OECD; Broadband; Endogenous Growth Theory
    JEL: O11 C23 O33
    Date: 2012–06–30
  7. By: Frédéric Olland
    Abstract: This paper studies the impact of trade liberalization on the productivity growth of two asymmetric countries in a R&D driven growth model with heterogeneous firms. The Melitz’s reallocation of production induces positive but asymmetric productivity gains. Growth is also affected in an asymmetric way because trade liberalization reduces innovation incentives with a different strength in the two countries. A more productive country suffers a higher slowdown in the productivity growth rate.
    Keywords: heterogeneous firms, trade and endogenous growth, productivity gap.
    JEL: F43 O47
    Date: 2012
  8. By: Llanto, Gilberto M.
    Abstract: Various studies showed that total factor productivity (TFP) has not been a source of growth in the Philippines. It seems that factor accumulation, which is not a sustainable source of growth, has underpinned Philippine economic growth. Studies have also shown that the sustained growth of developed countries has ridden on the back of technological advances rather than on increasing use of factor inputs. Total factor productivity improvement is the only route to sustain economic growth in the long run. After a brief review of economic growth and productivity dynamics of the Philippine economy in the past fifty years, the paper provides an estimation of the determinants of total factor productivity and labor productivity. In the light of the empirical findings reported in this paper, some policy levers present themselves as critical in improving productivity growth in the economy. Investments in education, more government expenditure for improving human capital, greater openness of the economy, and macroeconomic stability are indispensable.
    Keywords: total factor productivity, economic growth, Philippines, labor productivity growth, openness
    Date: 2012
  9. By: Fabio Cerina; F. Manca
    Abstract: This paper presents a theoretical and empirical investigation of the relationship between human capital composition and economic growth. From the theoretical point of view, we generalize Vandenbussche et al. (2006) by allowing for non-constant returns to scale in imitation and innovation activities and we find that - unlike the previous work and for a wide range of parameters’ values - the impact of skilled workers on growth increases at lower stages of development. As for empirical evidence, we estimate Vandenbussche et al. (2006) the size using a 85 countries 1960-2000 panel with developed and developing countries using System GMM technique to address the problem of endogeneity. The analysis supports the model predictions in providing robust evidence of an increasing impact of tertiary education as the economy moves farther away from the frontier. Results are robust to different proxies of human capital and different specifications.
    Keywords: Technological frontier; innovation; imitation; human capital; skilled; unskilled; growth
    JEL: O33 O47 O11
    Date: 2012
  10. By: Luciano Fanti
    Abstract: Since in many countries - plagued by low fertility - significant increases of the mandatory retirement age have been recently introduced with the declared objective to sustain PAYG pension budgets, then in this paper we investigate whether and how such boosts are effective. It is shown - in the basic two-period overlapping generations model of endogenous growth, which is maybe the toy-model most used for pension policy analyses - that the postponement of the retirement age is always harmful for growth and even for pension payments. Therefore this result suggests that the effects of boosts of mandatory retirement ages for sustaining PAYG pension budgets may not be warranted.
    Keywords: Retirement age; Pensions; OLG model
    JEL: J26 O41
    Date: 2012–09–01
  11. By: Mansour, Wael
    Abstract: Jordan's economic growth in the past decade has translated into a significant rise in household consumption and a decline in poverty and inequality indicators. Yet, the sentiment of the overall population seems to point to worsening disparities. Using official household expenditure surveys for 2002, 2008, and 2010, this paper analyzes the patterns and determinants of household welfare growth and examines the extent to which economic growth has been inclusive of the more vulnerable groups. Using counterfactual decompositions, the paper dwells first on the dynamics observed behind the drop in poverty and inequality. It then carries out regression analysis using re-centered influence functions to examine the economic determinants of household welfare growth throughout the decade. The paper finds that welfare growth as opposed to welfare distribution was the main driver behind poverty reduction, and that the drop in inequality was primarily driven by a regional catching-up effect. In addition, the analysis identifies rent, access to human capital services, and more importantly employment in the services sector and the public sector as the major determinants of welfare growth in Jordan. Public hiring in particular was used extensively as a tool for poverty alleviation, especially for residents outside the capital.
    Keywords: Rural Poverty Reduction,Access to Finance,Economic Theory&Research,Regional Economic Development,Inequality
    Date: 2012–10–01
  12. By: Alessia LO TURCO (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Daniela MAGGIONI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)
    Abstract: This work investigates the impact of importing, exporting and two-way trading on the firm labour demand in Turkish manufacturing. Adopting multiple propensity score matching techniques and Difference in Difference estimator, we support the positive internationalisation effects on the firm employment growth for an emergent country. Our evidence reveals the existence of complementarity effects between exports and imports, which is strengthened for high trade intensity firms. Furthermore, only high intensity exporting seems to promote the workforce skill upgrading, as measured by the R&D worker share. The disclosed employment effect reflects the large positive impact of firminternationalisation on its production scale.
    Keywords: Exporter, Importer, Turkey, Two-way traders, employment, firm growth
    JEL: C41 F14 F16 J62
    Date: 2012–10
  13. By: Stig V. Møller (Aarhus University, Department of Economics and Business and CREATES); Jesper Rangvid (Copenhagen Business School, Department of Finance)
    Abstract: We show that macroeconomic growth at the end of the year (fourth-quarter or December) strongly predicts the returns of the aggregate market, small- and large-cap stocks, portfolios sorted on book-to-market and dividend yields, bond returns, and international stock returns, whereas economic growth during the rest of the year does not predict returns. End-of-the-year economic growth rates contain considerably more information about expected returns than standard variables used to predict returns, are robust to the choice of macro variables, and work in-sample, out-of-sample, and in subsamples. To explain these results, we show as the second main fi?nding of our paper that economic growth and growth in economic confidence (consumer con?dence and business con?dence) are strongly correlated during the fourth quarter, but not during the other quarters. In summary, we therefore show that when economic growth is low at the end of the year, confi?dence in the economy is also low such that investors require higher future returns. During the rest of the year, there are no such relations between growth, confi?dence, and returns.
    Keywords: End-of-the-year (fourth-quarter) economic growth, expected returns, consumer con?fidence, purchasing managers index, risk compensation
    JEL: E44 G12 G14
    Date: 2012–10–22

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