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on Financial Development and Growth |
| By: | Deniz Baglan; Emre Yoldas |
| Abstract: | This paper explores the empirical relationship between government debt and future macroeconomic activity using data on twenty advanced economies throughout the post-war era. We use robust inference techniques to deal with the bias arising from the persistent nature of debt to GDP ratio as an endogenous predictor of GDP growth. Our results show that statistical significance of the coefficient on the debt ratio in predictive regressions changes considerably with the use of robust inference techniques. For countries with relatively low average debt ratios we find a negative threshold effect as their debt ratios increase toward moderate levels. For countries with chronically high debt ratios, GDP growth slows as relative government debt increases, but we find no significant threshold effect. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-05&r=fdg |
| By: | Pengfei Wang; Yi Wen |
| Abstract: | Countries with more developed financial markets (as measured by the private debt- to-GDP ratio) tend to have significantly lower aggregate volatility. This relationship is also highly non-linear starting from a low level of financial development the reduction in aggregate volatility by financial deepening is far more significant than it is when the financial market is more developed. We build a fully-edged neoclassical growth model with an endogenous financial market of credit arrangements and private debt to rationalize these stylized facts. We show how financial development that promotes better credit allocations under more relaxed borrowing constraints can reduce the impact of non-financial shocks (such as TFP shocks, government spending shocks, preference shocks) on aggregate out- put and investment, and why this volatility-reducing effect diminishes with continuing financial development. Our simple model also sheds light on a number of other important issues, such as the "Great Moderation" and the simultaneously rising trends of dispersions in sales growth and stock returns for publicly traded firms. |
| Keywords: | Financial markets |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2013-003&r=fdg |
| By: | Erauskin, Iñaki |
| Abstract: | This paper studies the impact of financial openness on the size of government, and other key economic variables, such as the consumption-wealth ratio, the growth rate of wealth, and welfare, in a two-country world, based on a portfolio approach, assuming that public spending is utility-enhancing. The model suggests that the size of government, the consumption-wealth ratio, and welfare should be higher in an open economy due to a higher productivity and/or less volatility through risk sharing. The theoretical results for the growth rate depend on differences on productivities and consumption-wealth ratios. The empirical evidence based on a sample of 50 countries for the period 1970-2009 broadly supports the main theoretical results of the model, even though the inclusion of Singapore distorts sometimes the broad picture. -- |
| Keywords: | Financial openness,productivity,volatility,consumption-wealth ratio,growth,welfare,size of government |
| JEL: | F41 F43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20137&r=fdg |