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on Financial Development and Growth |
| By: | Ahmad, Mahyudin; Hall, Stephen G. |
| Abstract: | Do institutions spatially affect growth? By employing a neoclassical growth model with institutional controls and augmenting the model with a formal spatial framework, this study finds evidence that institutions has spatial spillover effect on economic growth based on a panel observation from 58 developing countries for the period between 1985-2008. This study also shows that the spatial lag model is the most appropriate to model the spillover effect. |
| Keywords: | Institutions; economic growth; spatial dependence; spillover effect; spatial lag model; |
| JEL: | R10 O43 C31 |
| Date: | 2012–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42360&r=fdg |
| By: | Aleksander Berentsen; Mariana Rojas Breu; Shouyong Shi |
| Abstract: | Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the financial sector. A novel feature is that the innovation sector is decentralized. Financial intermediaries arise endogenously to provide liquidity to this sector. Consistent with the data but in contrast to previous work, reducing inflation generates large growth gains. These large gains cannot be easily reproduced by imposing a cash-in-advance constraint in the innovation sector. |
| Keywords: | Inflation; Growth; Search; Innovation; Credit. |
| JEL: | E5 O42 |
| Date: | 2012–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-467&r=fdg |
| By: | Kang, Young ho; Kim, Byung Yeon |
| Abstract: | This paper assesses the heterogeneous effects of immigration on economic growth depending on both the origin and the destination countries. Following the development of a simple growth model augmented by the embodied human capital of immigrants, we estimate the growth equation using both a gravity-style instrument variable approach and the dynamic system-GMM estimator. We find that immigration from developed economies positively affects the economic growth of the host countries. Furthermore, the growth-enhancing effect of immigration is significantly larger when immigration flows from developed to developing economies than when it does to those that include both developed and developing economies. We interpret these results as evidence of immigrants from developed countries bringing with them - upon entry - their advanced knowledge on technology and institutions into the developing countries that host them. |
| Keywords: | Immigration, economic growth, human capital, institutions |
| JEL: | F22 O15 O41 O43 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2012-01&r=fdg |
| By: | Ahmad, Mahyudin; Marwan, Nur Fakhzan |
| Abstract: | Numerous empirical studies have documented the evidence of institutional significance towards economic growth. This study extends such evidence as it examines the link between institutions and growth in developing countries including East Asian region. By using neoclassical growth framework augmented with institutional controls and latest estimation technique in panel data analysis, this study finds evidence of positive institutions growth-effects and uncovers the channel of their effects toward growth. This study also fills the gap in the East Asian growth literature, in which, to the best of our knowledge, only two studies namely Rodrik (1997) and Campos and Nugent (1999) that document the institutional importance toward economic growth for the region and apparently these studies are for the period before the 1997 Asian Financial Crisis. |
| Keywords: | Institutions; economic growth; Asian Financial Crisis; dynamic panel analysis; generalized methods of moments; |
| JEL: | O43 E13 |
| Date: | 2012–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42293&r=fdg |
| By: | Boubtane, Ekrame (University Paris 1); Coulibaly, Dramane (CEPII, Paris); Rault, Christophe (University of Orléans) |
| Abstract: | This paper examines empirically the interaction between immigration and host country economic conditions. We employ panel VAR techniques to use a large annual dataset on 22 OECD countries over the period 1987-2009. The VAR approach allows to addresses the endogeneity problem by allowing the endogenous interaction between the variables in the system. Our results provide evidence of migration contribution to host economic prosperity (positive impact on GDP per capita and negative impact on aggregate unemployment, native- and foreign-born unemployment rates). We also find that migration is influenced by host economic conditions (migration responds positively to host GDP per capita and negatively to host total unemployment rate). |
| Keywords: | unemployment, growth, immigration, panel VAR |
| JEL: | E20 F22 J61 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6966&r=fdg |
| By: | Atif, Syed Muhammad; Mohazzam, Sardar |
| Abstract: | The mantra of inclusive growth is taking over the public policy debates addressing poverty alleviation and sustained development in the developing world. In order to reduce poverty substantially, rapid pace of growth is not only necessary, but it should be sustainable in the long run and broad-based across sectors, nonetheless, inclusive of country’s labour force at large. Poverty and growth were much discussed and analysed in separation by policymakers in the previous decades. Inclusive growth strategy is an integration of these two strands of analyses implying relationship between the macro and micro determinants of growth. This paper examines the nature of relationship between the macroeconomic and social-development indicators by using a Multiple Regression Framework and Vector Auto Regression Model, as proposed by Toda-Yamamoto, is used to determine the direction of causality between the key macroeconomic variables of Pakistan over the period of 1997-98s to 2009-10. The paper critically examines Inclusive growth paradigm ─ for market led growth, and suggests its weaknesses which can be addressed through review of the pro-poor goals of economic policy of Post Washington Consensus (PWC). Finally, the paper urges to explore the myths and realities of inclusive growth strategies for policymakers in Pakistan to identify and prioritize the Pakistan specific constraints i.e. Low spending on health and education, promote growth in agriculture and rural development for sustained and inclusive growth. -- |
| Keywords: | Inclusive Growth,Washington Consensus,Pakistan,Toda-Yamamoto Causality |
| JEL: | C32 E61 |
| Date: | 2012–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:65714&r=fdg |
| By: | Kimbambu Tsasa Vangu, Jean - Paul |
| Abstract: | This paper investigates and tests empirically the relationship between military expenditure, civil wars and economic performance in the Democratic Republic of Congo (DR Congo). Romer – Taylor model is estimated. The Econometric estimates show that there is a positive effect of military expenditure on economic growth and positive relationship in the short term and negative relationship in the long run between the presence of civil wars and economic growth. A new concept was introduced in the analysis to explain the true causes of the civil war in DR Congo, this is the R – GGC. |
| Keywords: | performances économiques; guerres civiles; dépenses militaires |
| JEL: | E02 A12 E39 |
| Date: | 2012–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42424&r=fdg |
| By: | Costas Azariadis; Been-Lon Chen; Chia-Hui Lu; Yin-Chi Wang |
| Abstract: | This paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas [12] type model, as in Gómez [7], with a separable non-homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors. In spite of the non-concavities due to the leisure externality, the balanced growth path is always unique, which guarantees global stability for comparative-static exercises. We find that small differences in preferences toward leisure or in leisure externalities can generate substantial differences in hours worked and growth, which may play a significant role in explaining differences in growth paths between the US and Europe, in addition to the mechanisms uncovered in Prescott [16] relying on differing marginal tax rates on labor income. Our model indicates, however, that a higher preference for leisure or leisure externality implies less growth but also less education attainment, which seems counterfactual. |
| Keywords: | Labor supply ; Economic growth |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-045&r=fdg |
| By: | Feldkircher, Martin (BOFIT) |
| Abstract: | In this paper, we identify initial macroeconomic and financial market conditions that help explain the distinct response of the real economy of a particular country to the recent global financial crisis. Using four measures of crisis severity, we examine a data set with over 90 potential explanatory factors employing techniques that are robust to model uncertainty. Four findings are of particular note. First, we find empirical evidence for the pivotal role of pre-crisis credit growth in shaping the real economy's response to the crisis. Specifically, a 1% increase in pre-crisis lending translates into a 0.2% increase in the cumulative loss in real output. Moreover, the combination of pronounced growth in lending ahead of the crisis and the country's exposure to external funding from advanced economies is shown to intensify the real downturn. Economies with booming real activity before the crisis are found to be less resilient to the global shock. Buoyant growth in real GDP in parallel with strong growth of credit particularly exacerbated the effects of the recent crisis on the real economy. Finally, we provide empirical evidence on the importance of holding international reserves in explaining the response of the real economy to the crisis. The effect of international reserves accumulation as a shelter to the global shock rises in credit provided by the domestic banking sector. The results are shown to be robust to several estimation techniques, including those allowing for cross-country spillovers. |
| Keywords: | financial crisis; credit boom; international shock transmission; Bayesian model averaging; cross-country analysis; non-linear effects |
| JEL: | C11 C15 E01 O47 |
| Date: | 2012–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2012_026&r=fdg |
| By: | Maria Bas; Antoine Berthou |
| Abstract: | This paper investigates the microeconomic effects of financial development on economic growth. The increased availability of credit is usually expected to improve firms’ growth due to the elimination of credit constraints. We investigate this question using a survey of Indian firms in the manufacturing industry during the period 1997-2006, in a context of rapid economic growth and underlying structural changes. We examine how changes in the level credit over GDP in Indian States affected firms’ value added and capital used for production. The baseline estimations show that financial development has boosted within-firm growth in India. Our findings also suggest that the impact of financial development on firms’ growth is heterogeneous across firms and industries. Credit expansion has a greater effect on firms that are initially larger, more productive or profitable. The effect of financial development is less heterogenous in sectors relying on external finance, where both medium-size and large firms have expanded more rapidly than small firms. These results are robust to various specifications that allow to control for other reforms taking place simultaneously, or for potential reverse causality. |
| Keywords: | financial development;banking reforms;firm panel data;firm growth and capital investments |
| JEL: | O16 G21 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2012-22&r=fdg |
| By: | Ahmad, Mahyudin; Hall, Stephen G. |
| Abstract: | This study augments a standard growth model with institutional controls, and models the spatial dependence using geographical and institutional weight matrices. Spatial Durbin model is shown to be the most appropriate to describe the data and political institutions weight matrix best explains the institutional distance concept since it produces identical results to the exogenous geographical-based distance matrix. Overall, the findings give evidence to the institutional quality effects, particularly the security of property rights, on economic growth in the developing countries. We also find evidence of an indirect route of institutions spillover where institutions in a country lead to economic improvement in that country and generate positive effects on the neighbouring countries’ income growth. Furthermore, our study is able to show that countries with similar political institutional settings have an increased spatial dependence and converge to a similar level of growth. |
| Keywords: | Growth; institutions; spillover effects; institutional distance; spatial Durbin model; |
| JEL: | R10 O43 C21 |
| Date: | 2012–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42294&r=fdg |
| By: | Oudheusden, P. van (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: We examine the dynamic feedback effects of fiscal policies on the government budget and economy activity in a calibrated general equilibrium framework featuring endogenous growth through creative destruction. For several European countries, we find that making tax incentives with respect to research effort more generous is the least costly way, in terms of the impact on the government budget, to promote economic growth. It is almost three times as cost effective as lowering the tax rate on capital income. When non-distorting financing options are excluded, adjusting the consumption tax to finance more generous tax incentives for research effort leads to the smallest loss in economic efficiency and the largest welfare gain. |
| Keywords: | Dynamic Scoring;Creative Destruction;Endogenous Growth;Calibration;Taxation. |
| JEL: | E62 H2 H3 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012084&r=fdg |
| By: | Jacobo Campo Robledo (GEE - Grupo de Estudios Económicos - Superintendencia de Industria y Comercio) |
| Abstract: | This article presents an empirical model of non-stationary and cointegrated panel data to explain the impact of industrial property, measured by patents, on the GDP of 10 Latin America countries during the period 1990 to 2010. Apply traditional unit root tests and unit root test of art, which incorporates a structural break and the cross-sectional dependence, proposed by Hadri and Rao (2008). Through the Pedroni (1999, 2000, 2004) cointegration test proves the existence of a long-term relationship between variables and estimates the long-run elasticities. The results show the existence of a positive relationship between the level of innovation and GDP. |
| Keywords: | Economic Growth, Patents, Production Function, Panel Unit Roots, Panel. |
| Date: | 2012–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00744361&r=fdg |
| By: | Sandra Poncet; Felipe Starosta de Waldemar |
| Abstract: | Our work contributes to the literature relating output structure and economic development by showing that growth gains from upgrading are not unconditional. Relying on data from a panel of Chinese cities, we show that the level of capabilities available for domestic firms operating in ordinary trade is an important driver of economic growth. However, no direct gains emanate from the complexity of goods produced by either processing-trade activities or foreign firms. This suggests that the sources of product upgrading matter, and that domestic embeddedness is the key for capacity building and technology adoption to be growth enhancing. |
| Keywords: | Economic complexity;export upgrading;FDI;processing trade;growth;China |
| JEL: | F10 O11 O14 O40 O53 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2012-26&r=fdg |
| By: | Viren , Matti (Department of Economics and the PCRC in the University of Turku, Finland; Monetary Policy and Research, Bank of Finland) |
| Abstract: | This paper deals with economic growth in Europe. The special emphasis is in key institutional factors that are commonly assumed to affect aggregate growth: functioning of labor markets, availability of labor and capital, and the size of government. For more explicit measures, we use the data on profit rates, average working hours, dependency ratios, tax rates and other measures of the size of government (e.g. employment shares), measures of price competitiveness, and finally the structure of production. The data also include the terms of trade, interest rates, and foreign demand as control variables. Empirical analysis makes use of cross-country panel data for EU15 countries for 1971–2010. The results suggest that profitability and competitiveness do indeed constitute the main determinants of growth. However, also other variables like working hours and the size of government appear to affect growth in an important manner. All in all, slowdown of growth in Europe does not appear to be a paradox but at least with some margin something can be done in achieving more ambitious growth rates. |
| Keywords: | growth; working hours; taxes; competitiveness |
| JEL: | O40 O43 |
| Date: | 2012–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2012_029&r=fdg |
| By: | Jan Babecký (Czech National Bank); Tomáš Havránek (Czech National Bank; Charles University, Institute of Economic Studies); Jakub Matějů (Czech National Bank; Center for Economic Research and Graduate Education - Economics Institue (CERGE-EI)); Marek Rusnák (Czech National Bank; Charles University, Institute of Economic Studies); Kateřina Šmídková (Czech National Bank; Charles University, Institute of Economic Studies); Bořek Vašíček (Czech National Bank) |
| Abstract: | We construct and explore a new quarterly dataset covering crisis episodes in 40 developed countries over 1970–2010. First, we examine stylized facts of banking, debt, and currency crises. Banking turmoil was most frequent in developed economies. Using panel vector autoregression, we confirm that currency and debt crises are typically preceded by banking crises, but not vice versa. Banking crises are also the most costly in terms of the overall output loss, and output takes about six years to recover. Second, we try to identify early warning indicators of crises specific to developed economies, accounting for model uncertainty by means of Bayesian model averaging. Our results suggest that onsets of banking and currency crises tend to be preceded by booms in economic activity. In particular, we find that growth of domestic private credit, increasing FDI inflows, rising money market rates as well as increasing world GDP and inflation were common leading indicators of banking crises. Currency crisis onsets were typically preceded by rising money market rates, but also by worsening government balances and falling central bank reserves. Early warning indicators of debt crisis are difficult to uncover due to the low occurrence of such episodes in our dataset. Finally, employing a signaling approach we show that using a composite early warning index increases the usefulness of the model when compared to using the best single indicator (domestic private credit). JEL Classification: C33, E44, E58, F47, G01 |
| Keywords: | Early warning indicators, Bayesian model averaging, macro-prudential policies |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121485&r=fdg |
| By: | Sifis Kafkalas (University of Crete); Pantelis Kalaitzidakis (Dept of Economics, University of Crete, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece) |
| Abstract: | This paper analyzes the relationship between tax evasion and the two main policy instruments affecting evasion rates, namely, the announced tax rate and the share of tax revenues allocated to tax monitoring mechanisms. For doing so, we adopt a simple one-sector endogenous growth model modified under tax evasion following Roubini and Sala-i-Martin (1993) analysis on income taxes and tax evasion. Our model confirms Barro�s (1990) theoretical finding stating that the optimal tax rate is equal to the elasticity of private capital. However, when tax evasion matters to the social welfare, the effective tax rate is lower than the output elasticity in line with Futagami et al., (1993) and Turnovsky (1997) theoretical results. Our model is then calibrated using data from 145 developed and developing countries for 2011. Simulation results suggest that both tax evasion and output growth are decreasing with the share of tax revenues allocated to monitoring expenses, while welfare maximizing policies imply an announced tax rate lower from the elasticity of public capital and a share of monitoring expenses around 6.0%. |
| Keywords: | tax evasion, tax monitoring, effective tax rate, social loss. |
| JEL: | H21 H26 H54 |
| Date: | 2012–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:1202&r=fdg |
| By: | James M Nason; Ellis Tallman |
| Abstract: | This paper explores the hypothesis that the sources of economic and financial crises differ from noncrisis business cycle fluctuations. We employ Markov-switching Bayesian vector autoregressions (MS-BVARs) to gather evidence about the hypothesis on a long annual U.S. sample running from 1890 to 2010. The sample covers several episodes useful for understanding U.S. economic and financial history, which generate variation in the data that aids in identifying credit supply and demand shocks. We identify these shocks within MS-BVARs by tying credit supply and demand movements to inside money and its intertemporal price. The model space is limited to stochastic volatility (SV) in the errors of the MS-BVARs. Of the 15 MS-BVARs estimated, the data favor a MS-BVAR in which economic and financial crises and noncrisis business cycle regimes recur throughout the long annual sample. The best-fitting MS-BVAR also isolates SV regimes in which shocks to inside money dominate aggregate fluctuations. |
| Keywords: | Business cycles ; Forecasting ; Financial markets ; Economic history |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1221&r=fdg |
| By: | Costas Azariadis; Leo Kaas |
| Abstract: | We propose a sectoral–shift theory of aggregate factor productivity for a class of economies with AK technologies, limited loan enforcement, and a constant production possibilities frontier. Both the growth rate and TFP respond to random and persistent endogenous fluctuations in the sectoral distribution of physical capital which, in turn, responds to reversible exogenous shifts in relative sector productivities. Surplus capital from less productive sectors is lent to more productive ones in the form of secured collateral loans, as in Kiyotaki–Moore (1997), and also as unsecured reputational loans suggested in Bulow–Rogoff (1989). Endogenous debt limits slow down capital reallocation, preventing the equalization of risk–adjusted equity yields across sectors. Economy–wide factor productivity and the aggregate growth rate are both negatively correlated with the dispersion of sectoral rates of return, sectoral TFP and sectoral growth rates. We also find highly volatile limit cycles in economies with small amounts of collateral. |
| Keywords: | Productivity ; Economic growth |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-046&r=fdg |
| By: | Wang, Ping; Xie, Danyang |
| Abstract: | This paper studies the consequences of labor-market frictions for the real effects of steady inflation when cash is required for households' consumption purchases and firms' wage payments. Money growth may generate a positive real effect by encouraging vacancy creation and raising job matches. This may result in a positive optimal rate of inflation, particularly in an economy with moderate money injections to firms and with nonnegligible labor-market frictions in which wage bargains are not efficient. This main finding holds for a wide range of money injection schemes, with alternative cash constraints, and in a second-best world with pre-existing distortionary taxes. |
| Keywords: | Cash Constraints; Nonsuperneutrality of Money; the Friedman rule; Labor-Market Frictions |
| JEL: | O42 D90 E41 |
| Date: | 2012–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42291&r=fdg |
| By: | Christoph Höglinger; Tanja Sinozic; Franz Tödtling |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwsre:sre-disc-2012_07&r=fdg |