nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒03‒23
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Immigration, growth and unemployment: Panel VAR evidence from OECD countries By Ekrame Boubtane; Dramane Coulibaly; Christophe Rault
  2. Immigration and economic growth in the OECD countries 1986-2006: A panel data analysis By Ekrame Boubtane; Jean-Christophe Dumont
  3. Accounting for Heterogeneity in Growth Incidence in Cameroon Using Recentered Influence Function Regression By B. Essama-Nssah; Paul Saumik; Léandre Bassolé
  4. The Role of Macroeconomic Fundamentals in Malaysian Post Recession Growth By Lee, Chin
  5. Urban-to-Rural Population Growth Linkages: Evidence from OECD TL3 Regions By Paolo Veneri; Vicente Ruiz
  6. Institutions and growth accelerations By Andersen, Thomas Barnebeck; Jensen, Peter Sandholt
  7. Direct & Indirect Effects of Aid Volatility on Growth: Do Stronger Institutions Play a Role? By Kathavate, Jay
  8. China's economic growth and rebalancing By Ettore Dorrucci; Gabor Pula; Daniel Santabárbara
  9. Common stochastic trends and the Ricardian Equivalence in the OECD By Gogas, Periklis; Papadimitriou, Theophilos; Plakandaras, Vasilios; Kostikidou, Despoina
  10. Currency Devaluation, External Finance and Economic Growth: A Note on the Greek Case By Mariolis, Theodore
  11. Do economies stall? The international evidence By Wai-Yip Alex Ho; James Yetman
  12. The global impact of Chinese growth By Ippei Fujiwara

  1. By: Ekrame Boubtane (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Dramane Coulibaly (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Christophe Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
    Abstract: This paper examines empirically the interaction between immigration and host country economic conditions. We employ a 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: Immigration; growth; unemployment; panel VAR
    Date: 2013–02
  2. By: Ekrame Boubtane (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Jean-Christophe Dumont (OECD - Organisation for Economic Cooperation and Development)
    Abstract: This paper presents a reappraisal of the impact of migration on economic growth for 22 OECD countries between 1986 and 2006. It is based on a unique dataset that enables to distinguish net migration of the native-born and foreign-born by skill level. Migration is introduced in an augmented Solow-Swan model and the results are obtained using a GMM estimation, in order to deal with the potential endogeneity of the migration variables. In this framework, we identify a positive impact of the human capital brought by migrants on economic growth. The contribution of immigrants to the human capital accumulation tends to dominate the mechanical dilution effect, but the net effect is fairly small, including in countries which have highly selective migration policies.
    Keywords: International migration; human capital; economic growth; generalized methods of moments
    Date: 2013–02
  3. By: B. Essama-Nssah (Independent Consultant (Former World Bank Senior Economist)); Paul Saumik (Osaka University); Léandre Bassolé (African Development Bank)
    Abstract: This paper frames growth incidence analysis within the logic of social impact evaluation understood as an assessment of variations in individual and social outcomes attributable to shocks and policies. It uses recentered influence function (RIF) regression to link the growth incidence curve (GIC) to household characteristics and perform counterfactual decomposition à la Oaxaca-Blinder to identify sources of variation in the distribution of consumption expenditure in Cameroon in 2001-2007. We find that the structural effect is driven mostly by the sector of employment and geography and is the main driver of the observed pattern of growth. The composition effect accounts for the lion’s share of the observed variation in the social impact of growth. In particular, that effect tends to reduce poverty while the structural effect tends to increase it. This conclusion is robust with respect to the choice of poverty measures and RIF regression models.
    Keywords: Cameroon, counterfactual analysis, economic growth, growth incidence curve, inequality, Oaxaca-Blinder decomposition, poverty, recentered influence function (RIF) regression, quantile regression, social evaluation
    JEL: C14 C31 D31 I32 O55 R11
    Date: 2013–02
  4. By: Lee, Chin
    Abstract: This study aims to find out the role of macroeconomic fundamentals in Malaysian post recession growth. The selected macroeconomic variables are exports, imports, price level, money supply, interest rate, exchange rate and government expenditure. The technique of cointegration was employed to assess the long run equilibrium relationships among the variables. Then, this study performs the Granger causality tests based on VECM to establish the short run causality among the variables. The long-run cointegrating relationship shown that an increase in exports, government expenditure or depreciation of exchange rate will promote long-term economic growth while increase in inflation, interest rate and imports will tamper the Malaysian economic growth. The results of short-run Granger-causality indicated that price level and government spending Granger-caused economic growth in the short-run. In conclusion, based on the results of long-run and short run analysis, the fiscal policy is probably the most appropriate tool in promoting economic growth in Malaysia during the post recession period.
    Keywords: Malaysia post recession growth
    JEL: E3 E32 E52 F1 F31 H5
    Date: 2013
  5. By: Paolo Veneri; Vicente Ruiz
    Abstract: The objective of this paper is to better understand how the population growth rates of rural regions are affected by their closeness to urban regions and by the economic performance of the latter. By means of a cross-sectional analysis of OECD TL3 regions, it identifies the growth spillover effects from the net effect of distance to non-rural places. Distance-based measures are used to approximate the extent to which urban and rural areas are integrated in relational terms. Results shows that positive growth spillovers exist, suggesting that spread effects overcome backwash effects and thus that rural regions benefit from the growth process taking place in urban and intermediate regions. After having controlled for these growth spillovers, the distance from urban and intermediate regions has a negative effect on the population growth rate of rural regions. Nevertheless, both the strength of this effect and the growth spillovers decay with distance. Results further suggest that proximity to urban areas has higher positive influence than to intermediate areas.
    Keywords: growth, linkages, spillovers, urban, rural
    JEL: R11 R12 R58
    Date: 2013–03–13
  6. By: Andersen, Thomas Barnebeck (Department of Business and Economics); Jensen, Peter Sandholt (Department of Business and Economics)
    Abstract: This paper estimates the effect of institutions on economic growth in Sub-Saharan Africa over the period 1995-2007. We follow Henderson, Storeygard, and Weil (American Economic Review 102(2): 994-1028, 2012) in combining Penn World Tables GDP data with satellite-based data on nightlights in order to arrive at a more accurate measure of economic growth. We find that countries with good institutions grew faster than countries with poor institutions. Using external instruments, 2SLS regressions point to a causal impact. Our findings are consistent with the view that institutions are a root cause of economic development.
    Keywords: Institutions; economic growth; 2SLS; Africa
    JEL: O11 O43 O47
    Date: 2013–03–12
  7. By: Kathavate, Jay
    Abstract: This paper develops a political economy model to analyze the direct and indirect effects of aid volatility on growth and the outcome of higher institutional quality on the effect of aid volatility on growth. Using time-series cross section data for 77 countries from 1984-2007, the effects of aid volatility on growth are empirically tested. It is concluded that the relationship between growth aid volatility is significantly negative and dependent on the level of institutional quality. The results are robust to additional covariates, alternate sub-samples, non-linearities, different period averages and various computations of aid volatility.
    Keywords: Foreign aid volatility, Institutional quality, Indirect effects of aid volatility, political economy of aid volatility
    JEL: F35 O43 O47
    Date: 2013–03–18
  8. By: Ettore Dorrucci (European Central Bank); Gabor Pula (European Central Bank); Daniel Santabárbara (Banco de España)
    Abstract: In this paper we provide an overview of the growth model in China and its prospects, taking a medium-run to long-run perspective. Our main conclusions are as follows. First, the still prevailing producer-biased model of managed capitalism in China tends to engender, as an inherent byproduct, serious imbalances which cannot be unwound without a fundamental overhaul of the model itself. Second, given the lack of a critical mass of economic reforms thus far, imbalances may (re-)escalate once global and domestic economic conditions normalise. Third, the fundamental factors underpinning growth in China are likely to remain supportive, at least over the medium run. Although this could help mitigate the economic costs of imbalances for some time to come, it could also reduce the incentives for policy-makers to enact much needed reforms. Fourth, delayed policy action and the persistence of the model of growth cum imbalances would increase the risk of China getting caught in the middle-income trap in the long run. Greater political will to redirect China’s growth model towards a more sustainable path is therefore needed. JEL Classification: E21, E22, E25, F14, F43, O11, O53
    Keywords: economic growth, rebalancing, China, imbalances, middle-income trap
    Date: 2013–02
  9. By: Gogas, Periklis (Democritus University of Thrace, Department of International Economic Relations and Development); Papadimitriou, Theophilos (Democritus University of Thrace, Department of International Economic Relations and Development); Plakandaras, Vasilios (Democritus University of Thrace, Department of International Economic Relations and Development); Kostikidou, Despoina (Democritus University of Thrace, Department of International Economic Relations and Development)
    Abstract: A common topic of research amid the financial crisis is the ability of households to respond to the increased taxes and intense fiscal austerity. This ongoing dilemma about the right path to growth revived the interest about Ricardian Equivalence. The theorem states that with given government consumption, the consumption of households should be stable to compensate for future debt and taxes. In this way, the need for liquidity resulting from financial instability would be compensated by household savings. The paper attempts to investigate the long-run relationship between public debt and private consumption. The dataset under examination consists of fifteen OECD countries. Using a multivariate Johansen VECM approach with annual data for the period 1980 – 2010 we find evidence in support of the Ricardian equivalence proposition (the existence of a positive relationship between debt and consumption) for only four countries: Australia, Canada, Iceland and the U.S. For the rest of the countries the Ricardian equivalence is rejected.
    Keywords: Ricardian Equivalence; Consumption; Debt; VAR models; VEC models; Response function; Variance decomposition
    JEL: E21
    Date: 2013–03–19
  10. By: Mariolis, Theodore
    Abstract: This paper combines dynamic input-output price models with Thirlwall’s extended model of balance of payments constrained growth to estimate the effect of a switch to drachma on domestic income. The findings suggest that a return to national currency would not necessarily deepen the recession, although a rather large nominal devaluation, i.e. in excess of 57%-60%, is necessary for the recovery.
    Keywords: Drachma Devaluation; Greek Economy; Dynamic Input-Output Price Models; Thirlwall’s Model
    JEL: C67 D57 E11 E12 F41
    Date: 2013–03
  11. By: Wai-Yip Alex Ho; James Yetman
    Abstract: A "stalling" economy has been defined as one that experiences a discrete deterioration in economic performance following a decline in its growth rate to below some threshold level. Previous efforts to identify stalls have focused primarily on the US economy, with the threshold level being chosen endogenously, and have suggested that the concept of a stall may be useful for macroeconomic forecasting. We examine the international evidence for stalling in a panel of 51 economies using two different definitions of a stall threshold (time-invariant and related to lagged average growth rates) and two complementary empirical approaches (insample statistical significance and out-of-sample forecast performance). We find that the evidence for stalling based on time-invariant thresholds is limited: only 12 of the 51 economies in our sample experience statistically significant stalls, and including a stall threshold generally results in only modest improvements to out-ofsample forecast performance. When we instead model the stall threshold as varying with average growth rates, the number of economies with statistically-significant stalls actually declines (to nine), but in 71% of the cases we examine, including a stall threshold results in an improvement in out-of-sample forecast performance.
    Keywords: business cycles, stall speed, Markov switching
    Date: 2013–03
  12. By: Ippei Fujiwara
    Abstract: Three decades have passed since China was dramatically ‘opened up’ to the global market and rapidly began to catch up with leading economies. In this paper we discuss the effects of China’s opening-up and its rapid growth on the welfare of both China and the rest of the world (ROW). We find that the opening-up per se is welfare improving for China but has had little impact on the ROW; that the opening-up of China could be beneficial to the ROW if it led to significant productivity growth in China; and that China’s balanced trade policy after the opening-up has helped the ROW rather than China. We conclude that from an ROW perspective and according to a simple neoclassical model with complete markets, a gradual trade liberalisation in China is preferable.
    JEL: E13 F41 O47
    Date: 2013

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