nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒03‒09
eight papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Growth Effects of Education in Australia. By Antonio Paradiso; Saten Kumar; B. Bhaskara Rao
  2. Rent Seeking Opportunities and Economic Growth in Transitional Economies By Nasir Iqbal; Vince Daly
  3. Consumption Growth, the Interest Rate, and Financial Literacy By Tullio Jappelli; Mario Padula
  4. The long term negative relation between public deficit and structural unemployment: An empirical study of OECD countries (1980-2009) By Silvia Fedeli; Francesco Forte; Ottavio Ricchi
  5. Are Natural Disasters Good for Economic Growth? By Ahlerup, Pelle
  6. What Do We Learn From Schumpeterian Growth Theory? By Aghion, Philippe; Akcigit, Ufuk; Howitt, Peter
  7. On the Optimal Control of the Vintage Capital Growth Model with Endogenous Labour Supply By Raouf Boucekkine; Natali Hritonenko; Yuri Yatsenko
  8. What Europe Needs to Be European By Paolo Pini

  1. By: Antonio Paradiso (Department of Economics, University of Rome La Sapienza, Rome, Italy); Saten Kumar (Department of Economics, Auckland University of Technology, Auckland, New Zealand.); B. Bhaskara Rao (School of Economics and Finance, University of Western Sydney, Sydney, Australia.)
    Abstract: In this paper we estimate the growth effects of human capital with country-specific time series data for Australia. Previous empirical studies, based on international data, have been inconclusive, in terms of the extent of the contribution of human capital to growth. We extend the Solow (1956) growth model by using educational attainment as a measure of human capital, as developed by Barro and Lee (2010). The extended Solow (1956) model performs well after allowing for the presence of structural changes. Our results, based on alternative time series methods, show that educational attainment has a small and significant permanent effect on the growth rate of per worker output in Australia. Alternative measures of human capital are also utilized to ensure robustness of results.
    Keywords: Steady State Growth Rates, Economic Growth, Education, Australia
    JEL: C22 O56 O40
    Date: 2011–12
  2. By: Nasir Iqbal (Pakistan Institute of Development Economics, Islamabad); Vince Daly (Department of Economics Kingston University, UK)
    Abstract: This study empirically explores the growth effects of rent seeking activity (RSA) for a group of 52 developing/transitional countries, using a dynamic panel data approach. The modelling framework is a Mankiw-Romer-Weil (MRW) conditional convergence model augmented by measures of the opportunities for RSA, namely indices for the extent of democracy and corruption control. We find that health is more relevant than educational participation as a measure of human capital development in the MRW model. The overall empirical analysis shows that RSA retards economic growth, in that democratic institutions, which are inimical to RSA, are growth enhancing. We also find that reduction in the extent of corruption is only growth-enhancing if supported by well-developed democratic institutions.
    Keywords: Rent-seeking, Economic Growth, Panel Data
    JEL: E13 O43 O47
    Date: 2013
  3. By: Tullio Jappelli (University of Naples Federico II, CSEF and CEPR); Mario Padula (University “Ca’ Foscari” of Venice and CSEF)
    Abstract: We study a model in which financial sophistication improves portfolio returns and therefore the incentive to substitute consumption intertemporally. The model delivers an Euler equation in which consumption growth is positively correlated with financial sophistication. We test the model's prediction using panel data on consumption and financial literacy from the Italian Survey of Household Income and Wealth (SHIW), and an appropriate instrumental variable procedure. We find that consumption growth is positively correlated with financial literacy. Under plausible assumptions, we provide estimates of the intertemporal elasticity of substitution that are in line with previous literature (between 0.2 and 0.4). We complement our results with direct evidence on the link between financial literacy and the return to saving.
    Keywords: Consumption Growth, Euler Equation, Financial Literacy
    JEL: E2 D8 G1 J24
    Date: 2013–02–22
  4. By: Silvia Fedeli; Francesco Forte; Ottavio Ricchi
    Abstract: With the new European fiscal compact, fiscal rules of budget balance over the cycle have been introduced to limit the growth of the debt ratio to GDP. The objection may arise that they would have an adverse effect, especially in the long run on employment and growth. We test the proposition about unemployment by investigating, with a panel of 22 OECD countries (1980-2009), the relationship between Non-Accelerating Inflation Rate of Unemployment, NAIRU, as dependent variable, the underlying net lending government as a percentage of potential GDP (UNLG/pot.GDP), and the general government total receipts as a percentage of GDP, controlling the results with additional variables which may be credited to impact on NAIRU also in the short term. We find that UNLG/pot.GDP and the increase in fiscal burden may be both relevant in increasing the NAIRU in the long run. Thus one can say that, in the long run, high deficits not only do not reduce unemployment but aggravate it, and high tax burdens needed to finance the service of the debt and other public expenditure, under an invariant UNLG/pot.GDP, further increase the NAIRU, even if the inverse relation may also be true. In the short term there is no significant effect of these variables. Results are robust to the presence of cross section correlation. These results suggest that the assert that the constitutional rule of balancing the budget may create unemployment does not find an empirical evidence. They also suggest that further analysis should be carried out to test whether exogenous cause of a high NAIRU may impact on the budgetary deficit, thus making harder to adopt this rule.
    Keywords: NAIRU, fiscal policies indicators, cointegration analysis
    JEL: C23 E24 E62 H62
    Date: 2013–02
  5. By: Ahlerup, Pelle (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Natural disasters plague the populations of many countries, and the international community often seeks to alleviate the human suffering by means of humanitarian aid. Do natural disasters also have negative effects on aggregate economic growth? This paper shows that natural disasters on average have a positive association with subsequent economic performance. This overall positive association is driven by the experience of democratic developing countries that receive humanitarian aid.<p>
    Keywords: natural disasters; economic growth; humanitarian aid.
    JEL: O11 Q54
    Date: 2013–02–20
  6. By: Aghion, Philippe (Harvard University, NBER, and CIFAR.); Akcigit, Ufuk (University of Pennsylvania and NBER.); Howitt, Peter (Brown University and NBER.)
    Abstract: Schumpeterian growth theory has “operationalized” Schumpeter’s notion of creative destruction by developing models based on this concept. These models shed light on several aspects of the growth process which could not be properly addressed by alternative theories. In this survey, we focus on four important aspects, namely: (i) the role of competition and market structure; (ii) firm dynamics; (iii) the relationship between growth and development with the notion of appropriate growth institutions; (iv) the emergence and impact of long-term technological waves. In each case Schumpeterian growth theory delivers predictions that distinguish it from other growth models and which can be tested using micro data.
    Keywords: Creative destruction; entry; exit; competition; firm dynamics; reallocation; R&D; industrial policy; technological frontier; Schumpeterian wave; general purpose technology
    JEL: O10 O11 O12 O30 O31 O33 O40 O43 O47
    Date: 2013–02–18
  7. By: Raouf Boucekkine (Aix-Marseille University (Aix-Marseille School of Economics, CNRS & EHESS, IRES and CORE, Université Catholique de Louvain.); Natali Hritonenko (Department of mathematics, Prairie View A&M University, USA.); Yuri Yatsenko (School of business, Houston Baptist University, USA)
    Abstract: We prove that the introduction of endogenous indivisible labor supply into the vintage capital growth model does not rule out the turnpike and optimal permanent regime properties, notably the non- monotonicity properties of optimal paths, inherent in this model.
    Keywords: Optimal control, integral equations with delays and advances, vintage capital, endogenous labor supply.
    Date: 2013–02–05
  8. By: Paolo Pini
    Abstract: The way forward for Italy, within a Europe that has to change. A Europe that is too economics-minded and not politically-minded enough, where growth and employment are stifled by tight budgets. Yet another path is possible, if we still keep the single currency but if we change regulations and economic policies. And introduce more democracy, also in the economy.
    Keywords: European crisis; Euro; Economic policy
    JEL: E6 O52 P16
    Date: 2013–02–01

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