nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒04‒06
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Immigration, unemployment and GDP in the host country: Bootstrap panel Granger causality analysis on OECD countries By Ekrame Boubtane; Dramane Coulibaly; Christophe Rault
  2. Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth By Jean-Bernard Chatelain; Kirsten Ralf
  3. Income polarization and economic growth By Michal Brzezinski
  4. Does Gender Matter for Economic Convergence? The OECD Evidence By Dilara Kýlýnç; Ý. Hakan Yetkiner
  5. Saving Rate Dynamics in the Neoclassical Growth Model — Hyperbolic Discounting and Observational Equivalence By Y. Hossein Farzin; Ronald Wendner
  6. A Survey of Fiscal Sustainability and Economic Growth (Japanese) By KOBAYASHI Keiichiro
  7. Military Expenditure, Endogeneity and Economic Growth By d'Agostino, Giorgio; Dunne, John Paul; Pieroni, Luca
  8. Decomposing immigrant wage assimilation - the role of workplaces and occupations By Eliasson, Tove
  9. Global Supply Chains at Work in Central and Eastern European Countries:Impact of FDI on export restructuring and productivity growth By Jože Damijan; Črt Kostevc; Matija Rojec
  10. Factor decomposition of income inequality change : Japan's regional income disparity from 1955 to 1998 By Higashikata, Takayuki

  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 the causality relationship between immigration, unemployment and economic growth of the host country. We employ the panel Granger causality testing approach of Kónya (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
    Date: 2013–02
  2. By: Jean-Bernard Chatelain (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE)
    Abstract: Explanatory variables with simple correlation coefficients with the dependent variable below 0.1 in absolute value (such as aid with economic growth) may have very large and statistically significant estimated parameters in multiple regressions, which are unifortunately "outliers driven" or spurious. This is obtained by including another regressor which is highly correlated with the initial regressor, such as a lag, a square or interaction terms of this regressor. The analysis is applied on the "Botswana outliers driven" Burnside and Dollar [2000] article which found that aid had an effect on growth only for countries achieving "good" macroeconomic policies.
    Keywords: Near-Multicollinearity; student t-statistic; spurious regressions; Ceteris paribus; classical suppressor; parameter inflation factor; growth, foreign aid
    Date: 2012–11
  3. By: Michal Brzezinski (University of Warsaw, Faculty of Economic Sciences)
    Abstract: This study examines empirically the impact of income polarization on economic growth in an unbalanced panel of more than 70 countries during the 1960–2005 period. We calculate various polarization indices using existing micro-level datasets, as well as datasets reconstructed from grouped data on income distribution taken from the World Income Inequality Database. The results garnered for our preferred sample of countries suggest that income polarization has a negative impact on growth in the short term, while the impact of income inequality on growth is statistically insignificant. Our results are fairly robust to various model specifications and estimation techniques.
    Keywords: economic growth, polarization, inequality, income distribution
    JEL: O11 O15 O4 D31
    Date: 2013
  4. By: Dilara Kýlýnç (Department of Economics, Izmir University of Economics); Ý. Hakan Yetkiner (Department of Economics, Izmir University of Economics)
    Abstract: This work studies the role of gender on economic convergence in a standard convergence model expanded by gender shares of labor force. The theoretical part of the paper shows the positive role of gender on economic growth. Next, the paper presents 5-year span panel data tests of the contribution of the female share in employment on economic growth for 34 OECD countries in the period 1951-2010. We find that an increase in the share of women has a positive contribution to economic convergence across OECD countries. In addition to this, we also show that there is a U-shaped curvilinear relationship between gender equality and economic growth for OECD countries in the period 1951-2010. We conjecture that this result coincides with the ‘S-shaped’ Kuznets Curve of Gender hypothesis.
    Keywords: Gender, Income Convergence, Economic Growth, Kuznets Curve of Gender
    JEL: J16 O47 O50 C23
    Date: 2013–03
  5. By: Y. Hossein Farzin (University of California at Davis); Ronald Wendner (Karl-Franzens University of Graz)
    Abstract: The standard neoclassical growth model with Cobb-Douglas production predicts a mono- tonically declining saving rate, when reasonably calibrated. Ample empirical evidence, however, shows that the transition path of a countrys 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 observation- ally 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
  6. By: KOBAYASHI Keiichiro
    Abstract: Japan's public debt is increasing exponentially, and it is a primary policy objective to restore its sustainability. In this paper, I survey the existing research on the sustainability of the public debt in Japan and find that it might be necessary either to increase the consumption tax rate by 30% or implement a systematic fiscal consolidation plan lasting more than 100 years. Furthermore, I survey the research on the "public debt overhang," which shows that the economic growth rate decreases by about 1% if the public debt exceeds 90% of the gross domestic product (GDP). I also examine theoretical explanations of the public debt overhang. These findings indicate that restoring the sustainability of the public debt can enhance long-term economic growth.
    Date: 2013–03
  7. By: d'Agostino, Giorgio; Dunne, John Paul; Pieroni, Luca
    Abstract: The debate over the economic effects of military spending continues to develop, with no consensus, but a deepening understanding of the issues and limitations of previous work. A recent survey has suggested that the inclusion of post Cold War data has tended to make finding a negative effect more common, but issues remain (Dunne and Tian, 2013). One particularly important issue that has not been adequately dealt with, is the possible endogeneity of military spending in the growth equation, mainly because of the difficulty of finding any variables that would make adequate instruments. This paper considers the likely importance of endogeneity, using conflict onset as an instrument for military spending in an endogenous growth model for a panel of African countries 1989-2010. Following a brief review of the literature the theoretical and empirical models are outlined and the use of conflict onset as an instrumental variable for military spending in the panel estimates is justified. The empirical analysis suggests that endogeneity is likely to be an important issue and using IV estimation provides a larger significant negative effect for military spending on growth than OLS. It also identifies a further potential bias in the same direction in studies not including non-military spending in the growth equation. These results imply that the damaging effects of military spending on growth in Africa are being underestimated in most studies. While it is clear that conflict onset is a suitable and successful instrument in this analysis, the results are not directly generalisable. Conflict onset is unlikely to be applicable to a larger and more diverse panel of countries. What is of general concern is the finding that endogeneity is important and is likely to be influencing the results of studies of military spending and growth. It is important that future research tries to deal with endogeneity and the search for reasonable instruments is one that needs to engage researchers.
    Keywords: Military expenditure; economic growth; development; instrumental variables
    JEL: C26 H56 N17 O11
    Date: 2013–03–28
  8. By: Eliasson, Tove (Department of Economics, Uppsala University)
    Abstract: This article uses a matched employer-employee panel data of the Swedish labor market to study immigrant wage assimilation, decomposing the wage catch-up into parts which can be attributed to relative wage growth within and between workplaces and occupations. This study shows that failing to control for selection into employment when studying wage assimilation of immigrants is very likely to under-estimate wage catch-up. The results further show that both poorly and highly educated immigrants catch up through relative wage growth within workplaces and occupations, suggesting that employer-specic learning plays an important role for the wage catch-up. The highly educated suffers from not benefiting from occupational mobility as much as the natives do. This could be interpreted as a lack of access to the full range of occupations, possibly explained by difficulties in signaling specific skills.
    Keywords: Firm sorting; occupational mobility; wage assimilation; host country specific human capital; employer learning
    JEL: D22 D31 J01 J31 J71
    Date: 2013–03–14
  9. By: Jože Damijan; Črt Kostevc; Matija Rojec
    Abstract: This paper empirically accounts for the importance of the 'global supply chains' concept for export restructuring and productivity growth in Central and Eastern European Countries (CEECs) in the period 1995-2007. Using industry-level data and accounting for technology intensity, we show that FDI has significantly contributed to export restructuring in the CEECs. The effects of FDI are, however, heterogenous across countries. While more advanced core CEECs succeeded in boosting exports in higher-end technology industries, non-core CEECs stuck with export specialization in lower-end technology industries. This suggests that where FDI flows have been directed is of key importance. Our results show that export restructuring and economic specialization brought about by FDI during the last two decades in the CEECs might matter a lot for their potential for long-run productivity growth. Industries of higher-end technology intensity have experienced substantially higher productivity growth and so have countries more successful in attracting FDI to these industries.
    Date: 2013
  10. By: Higashikata, Takayuki
    Abstract: We propose a method for the decomposition of inequality changes based on panel data regression. The method is an efficient way to quantify the contributions of variables to changes of the Theil T index while satisfying the property of uniform addition. We illustrate the method using prefectural data from Japan for the period 1955 to 1998. Japan experienced a diminishing of regional income disparity during the years of high economic growth from 1955 to 1973. After estimating production functions using panel data for prefectures in Japan, we apply the new decomposition approach to identify each production factor’s contributions to the changes of per capita income inequality among prefectures. The decomposition results show that total factor productivity (residual) growth, population change (migration), and public capital stock growth contributed to the diminishing of per capita income disparity.
    Keywords: Japan, Income distribution, Income inequality, Factor decomposition, Regional disparity
    JEL: C63 O15 R12
    Date: 2013–03

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