nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒03‒30
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The long-run Relationship between Human Capital and Economic Growth in Sweden By Awel, Ahmed Mohammed
  2. Immigration, unemployment and GDP in the host country: Bootstrap panel Granger causality analysis on OECD countries By Ekrame BOUBTANE; Dramane COULIBALY; C. RAULT
  3. On the Earliest Economic Growth and Income Inequality; or Modified Old Philosophical, Forgotten or Ignored, Study Reconsidered and Developed By Atayev, Atabek
  4. Linkages between Income Inequality, International Remittances and Economic Growth in Pakistan By Shahbaz, Muhammad; Ur Rehman, Ijaz; Ahmad Mahdzan, Nurul Shahnaz
  5. Do Good Institutions Lower the Benefit of Democratization? By Andreas Assiotis; Kevin Sylwester
  6. The Resource Curse Exorcised: Evidence from a Panel of Countries By Brock Smith
  7. Saving Rate Dynamics in the Neoclassical Growth Model – Hyperbolic Discounting and Observational Equivalence By Farzin, Y. Hossein; Wendner, Ronald

  1. By: Awel, Ahmed Mohammed
    Abstract: The relationship between education and economic growth has been one of the fundamental themes of economic analysis. Despite the growing interest in the relationship between growth and education, and despite the strong theoretical foundations for a key role of education/human capital in economic growth, the empirical evidences, particularly those using causality analyses, are fragile at best. By utilizing the recently developed series of human capital, this paper examined the causal relationship between human capital and economic growth for Sweden over the period 1870-2000. The result from the Granger causality test shows that there is bidirectional causality running from human capital to output per worker and vice versa. Moreover, using vector error correction model, the paper shows that human capital has a significant positive impact on economic growth in Sweden.
    Keywords: education, human capital, economic growth
    JEL: I21 I25 O15 O41
    Date: 2013–03
  2. By: Ekrame BOUBTANE; Dramane COULIBALY; C. RAULT
    Abstract: This paper examines the causality relationship between immigration, unemployment and economic growth of the host country. We employ the panel Granger causality testing approach of Konya (2006) that is based on SUR systems and Wald tests with country specific bootstrap critical values. This approach allows to test for Granger-causality on each individual panel member separately by taking into account the contemporaneous correlation across countries. Using annual data over the 1980-2005 period for 22 OECD countries, we find that, only in Portugal, unemployment negatively causes immigration, while in any country, immigration does not cause unemployment. On the other hand, our results show that, in four countries (France, Iceland, Norway and the United Kingdom), growth positively causes immigration, whereas in any country, immigration does not cause growth.
    Keywords: immigration, growth, Unemployment, Granger causality
    JEL: J61 F22 E20
    Date: 2013
  3. By: Atayev, Atabek
    Abstract: Existing economic literature provides contradictory or insufficient explanations of relation between income inequality and economic growth. I propose that the reason is that the authors fail to consider fundamental forces which have given occasion to the variables and historical background of the issue. My analysis is focused on studying causes of the earliest income inequality and economic growth accompanied by inequality. I find that external power exercised by slave owners is force which has given occasion to inequality and growth. This finding provides fundamentally different understanding of the issue.
    Keywords: Division of Labor, Economic Growth, Freedom, Income Inequality
    JEL: D03
    Date: 2013–03–28
  4. By: Shahbaz, Muhammad; Ur Rehman, Ijaz; Ahmad Mahdzan, Nurul Shahnaz
    Abstract: This paper explores the dynamic linkages between income inequality, international remittances and economic growth using time series data over the period of 1976-2006 in case of Pakistan. The cointegration analysis based on the bounds test confirms the existence of a long-run relationship between income inequality, international remittances and economic growth. Our results reveal that income inequality and international remittances enhance economic growth. The causality analysis based on innovative accounting approach shows bidirectional causality between income inequality and economic growth and same is true for international remittances and income inequality. International remittances are cause of economic growth but not vice versa. Although we find support for Kuznets hypothesis but Pakistan is yet to benefit, in terms of reducing the gaps of income inequality, from the international flow of remittances and economic growth. The paper argues that, from a policy perspective, there is an urgent need for policy makers in Pakistan to reduce the widening gap of income inequality by focusing on income redistribution policies and to go beyond the traditional factors in balancing income inequality.
    Keywords: Income Inequality, International Remittances, Economic Growth
    JEL: F1
    Date: 2013–03–03
  5. By: Andreas Assiotis; Kevin Sylwester
    Abstract: Recent studies have reported positive associations between democratization and economic growth. They have also explored how these associations could differ across regions or income levels. However, might the effects of democratization upon growth also depend upon other factors such as institutions promoting law and order (or the lack thereof)? Using a panel specification, we employ a democratization-law and order interactive term to examine if the effects of democratization upon economic growth depend upon these other institutions. We find that the coefficient on the interaction term is negative. The positive effects of democratization diminish in countries where other institutions are strong. In fact, we find that democratization could even lower growth where the rule of law already prevails.
    Keywords: Democratization, Economic Growth, Institutions
    Date: 2013–03
  6. By: Brock Smith (Department of Economics, University of California Davis)
    Abstract: This paper evaluates the impact of major natural resource discoveries since 1950 on GDP per capita and other economic and social indicators. Using panel fixed-effects estimation ad resource discoveries in countries that were not previously resource-rich, I find a positive effect on GDP per capita following extraction that persists in the long term, in contrast with much of the resource curse literature that uses cross-sectional designs. I also find positive effects on education levels, reductions in infant mortality, and negative effects on democratic institutions. I further test these outcomes with synthetic control analysis, yielding results consistent the fixed-effects model.
    Keywords: Resource Curse, Oil, Economic Growth
    JEL: O44 Q32
    Date: 2013–03–18
  7. By: Farzin, Y. Hossein; Wendner, Ronald
    Abstract: The standard neoclassical growth model with Cobb-Douglas production predicts a monotonically declining saving rate, when reasonably calibrated. Ample empirical evidence, however, shows that the transition path of a country’s saving rate exhibits a rising or non- monotonic pattern. In important cases, hyperbolic discounting, which is empirically strongly supported, implies transitional dynamics of the saving rate that accords well with empirical evidence. This holds true even in a growth model with Cobb-Douglas production technology. We also identify those cases in which hyperbolic discounting is observationally equivalent to exponential discounting. In those cases, hyperbolic discounting does not affect the saving rate dynamics. Numerical simulations employing a generalized class of hyperbolic discounting functions that we term regular discounting functions support the results.
    Keywords: Saving rate, non-monotonic transition path, hyperbolic discounting, regular discounting, commitment, short planning horizon, neoclassical growth model
    JEL: D91 E21 O40
    Date: 2013–03–25

This nep-fdg issue is ©2013 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.