nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2012‒12‒10
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis By Muhammad, Shahbaz; Saleheen , Khan; Mohammad , Iqbal Tahir
  2. International trade and economic growth in Mexico By Fullerton, Thomas M., Jr.; Kababie, Kababie; Boehmer, Charles R.
  3. Growth Models with Exogenous Saving Rates, Unemployment and Wage Inertia By Xavier Raurich (Universitat de Barcelona); Valeri Sorolla (Universitat Autonoma de Barcelona)
  4. Public debt, economic growth and nonlinear effects: Myth or reality? By Balázs Égert
  5. Social capital as an engine of growth: Multisectoral modelling and implications By Youyou Baende Bofota, Raouf Boucekkine and Alain Pholo Bala
  6. Public Debt and Functional Finance in an OLG Model with Imperfect Competition By Peter Skott; Soon Ryoo
  7. Growth Over the Very Long-Run: Implications of a Specific Factors Model of Economic Development With Endogenous Technological Change By Caspari, Volker; Eschenhof-Kammer, Sabine; Pertz, Klaus

  1. By: Muhammad, Shahbaz; Saleheen , Khan; Mohammad , Iqbal Tahir
    Abstract: This study investigates the relationship between energy consumption and economic growth by incorporating financial development, international trade and capital as important factors of production function in case of China over the period of 1971-2011. The ARDL bounds testing approach to cointegration was applied to examine long run relationship among the series while stationarity properties of the variables was tested by applying structural break test. Our empirical evidence confirmed long run relationship among the variables. The results showed that energy consumption, financial development, capital, exports, imports and international trade have positive impact on economic growth. The Granger causality analysis revealed that unidirectional causal relationship running from energy consumption to economic growth. Financial development and energy consumption Granger cause each other. There is bidirectional causality between trade and energy consumption. The feedback relation exists between financial development and international trade. There is also bidirectional causality exists between capital and energy consumption, financial development and economic growth and, international trade and economic growth. This paper makes significant contribution in energy literature and opens up new direction for policy makers to explore new and alternative sources of energy to meet the rising demand of energy due to sustained rate of economic growth.
    Keywords: Growth; Energy; Financial Development; Trade
    JEL: E44 F1 Q4
    Date: 2012–11–10
  2. By: Fullerton, Thomas M., Jr.; Kababie, Kababie; Boehmer, Charles R.
    Abstract: This study empirically examines on the role of international trade on economic growth in Mexico. To allow for potentially dynamic, as well as endogenous, patterns often associated with exports, imports, and growth, the analysis relies upon time series approaches involving causality and vector error correction methods. Results indicate that imports play a more critical role than exports do for economic growth in Mexico. As such, the outcomes contribute to the growing body of international evidence regarding import led growth in the global economy.
    Keywords: International Trade; Growth; Mexico; Dynamic Models
    JEL: O54 F43
    Date: 2012–09–11
  3. By: Xavier Raurich (Universitat de Barcelona); Valeri Sorolla (Universitat Autonoma de Barcelona) (Universitat de Barcelona)
    Abstract: The purpose of this paper is to introduce a noncompetitive labor market and unemployment into the growth models with exogenous saving rates found in economic growth textbooks (SalaiMartin, 2000; Barro and SalaiMartin, 2003; Romer, 2006). We first derive a general framework with a neoclassical production function to analyze the relationship between growth and employment. We use this framework to study the joint dynamics of growth and employment when different wage setting rules are considered
    Keywords: wage inertia., growth, unemployment
    JEL: E24 O41
    Date: 2012
  4. By: Balázs Égert
    Abstract: The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. In addition, we also show that nonlinear effects can kick in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth.
    Keywords: Public debt, economic growth, nonlinearity, threshold effects
    JEL: E6 F3 F4 N4
    Date: 2012
  5. By: Youyou Baende Bofota, Raouf Boucekkine and Alain Pholo Bala
    Abstract: We propose a multisector endogenous growth model incorporating social capital. Social capital only serves as an 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 effects 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
  6. By: Peter Skott (University of Massachusetts, Amherst); Soon Ryoo (Adelphi University)
    Abstract: This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and maintain full employment (if investment and saving decisions are taken separately), (iii) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence', and (iv) the debt ratio is inversely related to both the growth rate and government consumption. JEL Categories: E62, E22
    Keywords: Public debt, Keynesian OLG model, dynamic efficiency, confidence, sustainability
  7. By: Caspari, Volker; Eschenhof-Kammer, Sabine; Pertz, Klaus
    Abstract: We use the two-sector specific factors model, which is known from the theory of international trade, in a growth context to describe major trends of long-run economic development. The endogenous technical progress functions establish the link between the agricultural and the manufacturing sector through the ratio of agricultural to total employment, which is determined by the savings propensities of wage-earners, landlords and capitalists, and by the investment ratio in manufacturing. Without reference to more complicated micro-based models of human capital accumulation highlighting changes in preferences of households and/ or shifts in attitudes of firms towards education, the calibrated two-sector specific factors model can replicate major historical trends and structural turnarounds.
    Keywords: Economic growth, technical change, distribution of income, Industrial Revolution
    Date: 2012–11–01

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