nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒01‒12
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Electricity Consumption and Economic Growth in Kazakhstan: Fresh Evidence from a Multivariate Framework Analysis By Saleheen, Khan; Farooq Ahmed , Jam; Muhammad, Shahbaz
  2. Public education, technological change and economic prosperity: semi-endogenous growth revisited By Prettner, Klaus
  3. Growth and welfare effects of health care in knowledge based economies By Kuhn, Michael; Prettner, Klaus
  4. Welfare effects of patent protection and productive public services: why do developing countries prefer weaker patent protection? By Tatsuro Iwaisako
  5. Is Urban Economic Growth Inclusive in India? By Tripathi, Sabyasachi
  6. Regional human capital in Republican and New China: Its spread, quality and effects on economic growth By Van Leeuwen, Bas; van Leeuwen-Li, Jieli; Foldvari, Peter
  7. Sustainable Economic Growth: Structural Transformation with Consumption Flexibility By Ramón López; Sang Won Yoon
  8. Fiscal Austerity Measures: Spending Cuts vs. Tax Increases By Gerhard Glomm; Juergen Jung; Chung Tran
  9. Unproductive Education in a Model of Corruption and Growth By M. Emranul Haque; Babar Hussain
  10. Nowcasting Turkish GDP Growth By Huseyin Cagri Akkoyun; Mahmut Gunay
  11. A Growth Model with Corruption in Public Procurement: Equilibria and Policy Implications By Serena Brianzoni; Raffaella Coppier; Elisabetta Michetti

  1. By: Saleheen, Khan; Farooq Ahmed , Jam; Muhammad, Shahbaz
    Abstract: This paper visits the relationship between electricity consumption and economic growth by incorporating trade openness, capital and labour in production function using annual data of Kazakhstan. We have applied the ARDL bounds testing and the VECM Granger causality approach to examine long run and causality relationship between the variables. Our results confirm the existence of long run relationship among the series. The empirical evidence reveals that electricity consumption adds in economic growth. Trade openness stimulates economic growth. Capital and labour promote economic growth. The causality analysis finds electricity consumption Granger causes economic growth. The feedback effect exists between Trade and economic growth. This study opens new insights for policy makers to articulate comprehensive economic, trade and energy policy to sustain long run economic growth.
    Keywords: Electricity; Growth; Kazakhstan
    JEL: Q4
    Date: 2012–12–07
  2. By: Prettner, Klaus
    Abstract: We introduce publicly funded education into R&D based economic growth theory. Our framework allows us to i) explicitly describe a realistic process of human capital accumulation within these types of growth models, ii) reconcile semi-endogenous growth theory with the empirical evidence on the relationship between economic development and population growth, iii) revise the policy invariance result of semi-endogenous growth frameworks. In particular, we show that the model supports a negative (positive) association between economic growth and population growth if the education sector is well (badly) developed and that changes of public investments into education crucially affect the long-run balanced growth path. --
    JEL: J24 O11 O41
    Date: 2012
  3. By: Kuhn, Michael; Prettner, Klaus
    Abstract: We study the effects of a labor-intensive health care sector within an R&D-driven growth model with overlapping generations. Health care increases longevity and labor participation/productivity. We examine under which conditions expanding health care enhances growth and welfare. Even if the provision of health care diverts labor from productive activities, it may still fuel R&D and economic growth if the additional wealth that comes with expanding longevity translates into a more capital/machine- intensive final goods production and, thereby, raises the return to developing new machines. We establish mild conditions under which an expansion of health care beyond the growth-maximizing level is Pareto-improving. --
    Keywords: endogenous growth,mortality,(Blanchard) overlapping generations,health care,research and development,sectoral composition
    JEL: I15 I18 O11 O41 O43
    Date: 2012
  4. By: Tatsuro Iwaisako (Graduate School of Economics, Osaka University)
    Abstract: This paper examines the welfare-maximizing degree of patent protection in a growth model where the engines of economic growth are R&D and public services. We find that an increase in public services enhances the positive and negative effects of strengthening patent protection on R&D and the volume of production, respectively. However, if public services are relatively small, the negative welfare effect associated with the decrease in production volume tends to outweigh the positive welfare effect from the increase in the growth rate, and so the welfare-maximizing degree of patent protection tends to be lower. This result provides one possible explanation for why developing countries tend to prefer weaker patent protection.
    Keywords: endogenous growth, patent protection, public services, welfare analysis
    JEL: O34 O38 O40
    Date: 2012–12
  5. By: Tripathi, Sabyasachi
    Abstract: This paper measures the overall inclusive growth of a city by considering changing trends in the key economic variables based on ‘Borda ranking’ and establishes a relationship between city economic growth and overall city inclusive growth. By using data of 52 large cities in India, this paper finds that higher urban economic growth is associated with an increase in urban inequality, a reduction in urban poverty, and a lower level of overall inclusive growth of a city.
    Keywords: Economic Growth; Poverty; Inequality; Inclusive Growth; Urban India
    JEL: D63 O15 R11
    Date: 2013–01
  6. By: Van Leeuwen, Bas; van Leeuwen-Li, Jieli; Foldvari, Peter
    Abstract: In recent decades there has been increasing attention for Chinese economic development. There has been a big debate though if its growth is caused by capital accumulation (perspiration factors) or driven by Total Factor Productivity (TFP) growth (inspiration factors). The difference between both stances is quite substantial since, if the perspiration theory is correct, one expects the growth of the Chinese economy to slow down over time as the capital accumulation grows increasingly less efficient. However, so far this question is difficult to analyse for China since we lack information on one of the factors of production, human capital. To analyse this question, in this paper we develop a new dataset on human capital for the provinces of China between 1922 and 2010. Using our new dataset, together with physical capital and per capita GDP, allows us to do a TFP analysis for sub periods. We find a continuously negative TFP growth suggesting that reduction in productivity was a structural feature of the Chinese economy. If true, this was to lend support to the perspiration theory and would suggest a slowdown of the Chinese economy in the future. However, standard growth accounting allocates both technical efficiency of the factors of production and the general technical development to TFP. Subtracting technical efficiency from TFP growth, we find that general technological development turns increasingly positive in the 1990s and 2000s. This suggests that, whereas until the reform period China was largely driven by capital accumulation, afterwards general technical development got an increasingly prominent place giving hope for continued economic development in the future.
    Keywords: education; human capital; China; history; growth; inequality; regional development
    JEL: H7 P3 N15 H52 O4
    Date: 2011–04–11
  7. By: Ramón López; Sang Won Yoon
    Abstract: The standard theoretical literature has shown that environmental sustainability and positive economic growth are not incompatible as long as environmental policies are optimal. However, in showing this result earlier studies have relied on strong assumptions that may appear to charge the dice in favor of such result. Here we show that once the role of the consumption composition effect is recognized, environmentally sustainable economic growth may exist even if some of the most questionable assumptions used by the canonical models are relaxed. In particular, we show that sustainable growth is possible even if environmental and man-made factors of production are complement rather than highly substitutable as has been invariably assumed by the literature and even if technological change is entirely pollution-augmenting.
    Date: 2013–01
  8. By: Gerhard Glomm (Department of Economics, Towson University); Juergen Jung (Department of Economics, Towson University); Chung Tran (Research School of Economics, The Australian National University)
    Abstract: We study the macroeconomic and welfare effects of decumulating government debt in an overlapping generations model with skill heterogeneity and productive and non-productive government programs. Our results are: First, in the small open economy model calibrated to Greece, the spending-based austerity reform dominates the tax-based reform with respect to income effects but not with respect to the welfare effect. A mixed reform combining the tax-based and spending-based measures results in the largest welfare effects of up to 1.8 percent of pre-reform consumption. Second, the welfare effects vary significantly along the transition to the post reform steady state, depending not only on fiscal austerity measures, but also on skill types, working sectors and generations. When consumption taxes adjust the aggregate welfare effects are positive but the current old and middle age generations experience welfare losses while current young workers and future generations are beneficiaries. Third, interactions between fiscal distortions and the risk premium as well as accessibility to international capital markets strongly influence the effects of fiscal austerity. Larger growth and welfare effects are observed when the risk premium is larger than zero and when access to international capital markets is restricted.
    Keywords: Fiscal consolidation, welfare, distributional effects, overlapping generations, dynamic general equilibrium.
    JEL: E21 E63 H55 J26 J45
    Date: 2013–01
  9. By: M. Emranul Haque; Babar Hussain
    Abstract: This paper provides an explanation for recent empirical evidence on the heterogeneous effects of human capital on economic growth in developing countries. In a two-period overlapping generations economy with physical and capital accumulation, state-appointed bureaucrats are responsible for procuring productive public goods. Corruption arises because of an opportunity for bureaucrats to misappropriate public funds. The decision of the corruptible bureaucrat affects public finances and hence the capital accumulation in the economy. Alongside the positive productivity enhancing effect, human capital is assumed to increase the efficiency of corrupt bureaucrats in embezzlement. If the latter dominates the former, the incentive for bureaucrats to acquire education rises. The net effect may result in an insignificant (or even negative) effect of human capital on growth. Our main results are as follows: (1) corruption is always bad for economic development, but its effect is worse in the economy with (more) human capital; (2) the incidence of corruption may, itself, be affected by both the development and human capital level of the economy; (3) education is good for development when accompanied by good governance, but may be bad for development when governance is bad; and (4) corruption and poverty may co-exist as permanent, rather than just transitory, fixtures of an economy.
    Date: 2013
  10. By: Huseyin Cagri Akkoyun; Mahmut Gunay
    Abstract: In this paper we present backcasts and nowcasts for quarter on quarter Gross Domestic Product (GDP) growth for Turkish economy. GDP growth is one of the most important economic indicators since GDP figures provide comprehensive information regarding the economic activity. GDP data are published with considerable delay, so early estimates of GDP growth may be valuable. For this aim, we use an extended version of the Stock and Watson coincident indicator model that can deal with mixed frequency (such as quarterly and monthly variables), ragged ends (some indicators are published before others), and missing data (data may not be available at the beginning of the sample for some variables). As soft data we use PMI, and as hard data we use industrial production, import and export quantity indices. We perform simulated out of sample forecasting exercise by taking the ?ow of data releases for 2008Q1-2012Q2 into account. Results show that nowcasts obtained with a model including a soft indicator tracks the GDP growth relatively successfully. Also, the model outperforms benchmark AR model.
    Keywords: Time Series, Forecasting, Output Growth
    JEL: C22 C53 E37
    Date: 2012
  11. By: Serena Brianzoni (Universita' Politecnica delle Marche); Raffaella Coppier (Universita' di Macerata); Elisabetta Michetti (Universita' di Macerata)
    Abstract: We study the relationship between corruption in public procurement and economic growth, within the Solow framework in discrete time, while assuming that the public good is an input in the productive process and that the State fixes a monitoring level on corruption depending on the tax revenues. The resulting model is a two-dimensional, continuous and piecewise smooth map describing the evolution of the capital per capita and that of the corruption level. We study model from the analytical point of view: we determine its fixed points, we study their local stability and, finally, we find conditions on parameters such that multiple equilibria co-exist. We also present numerical simulations useful to explain the role of parameters in the long{run path of the model and to analyze the structure of the basins of attraction when multiple equilibria emerge. Our study aims at demonstrating that stable equilibria with positive corruption may exist (according to empirical evidence), even though the State may reduce corruption by increasing the wage of the bureaucrat or by increasing the amount of tax revenues used to monitor corruption.
    Date: 2012–11

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