nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒06‒04
eight 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. Top Marginal Taxation and Economic growth By Santo Milasi
  3. Optimal Growth under Flow-Based Collaterals By Daria Onori
  4. Stock Market Development and Economic Growth. Some Evidence for Argentina By Luis Lanteri
  5. The Role of Knowledge on Economic Growth: The Case of Turkey, 1963-2010 By Fatma M. Utku-İsmihan
  6. The Impact of Trade Liberalisation on Export Growth and Import Growth in Sub-Saharan Africa By Lanre Kassim
  7. The effect of donors' policy coherence on growth. By Aurore Gary; Mathilde Maurel
  8. Population Dynamics, Economic Growth and Energy Consumption in Kenya By Michieka, Nyakundi; Fletcher, Jerald

  1. By: Ekrame Boubtane; Dramane Coulibaly; Christophe 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 K´onya (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, causality
    JEL: E20 F22 J61
    Date: 2013
  2. By: Santo Milasi (University of Rome "Tor Vergata")
    Abstract: The paper explores the relationship between statutory top marginal tax rates on personal income and long-run economic growth. While theoretical models of endogenous growth explicitly allow for nonlinear effects of taxation on economic growth, the majority of existing empirical studies assume a linear association. By contrast, this paper investigates both a linear and a non-monotonic relationship between top tax rates and GDP growth. Using a panel of 18 OECD countries over the period 1960-2009, this paper finds support in favor of a quadratic top tax-growth relationship. Results are robust to different model specifications and estimation techniques. The point estimates of the regressions suggest that the marginal effect of higher top tax rates becomes negative above a growth maximizing tax rate on the order of 70 percent. The quadratic relationship found for the whole sample period does not hold over the period 1975-2009. Instead, the link between top tax rates and GDP growth after 1975 is well summarized by a linear and positive top tax-growth relationship. Since top marginal tax rates after 1975 are well below the estimated growth maximizing level, such a result suggest that the top tax-growth relationship after 1975 might be placed on the upward-sloping side of the “growth-hill”. There is an even stronger positive top tax-growth relationship after 1985, when average top tax rates across OECD are lower than 50%.
    Date: 2013–05–21
  3. By: Daria Onori (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS; Université catholique de Louvain, IRES; University of Rome “La Sapienza”, Departement of Economics and Law, Faculty of Economics.)
    Abstract: Some recent evidence on government finance statistics of European countries suggests that countries with public debt issues also show a low tax revenue-GDP ratio. In this paper we develop a small open economy model of endogenous growth in which the engine of growth is public spending. We assume that government can finance public expenditures by borrowing on imperfect international financial markets where her borrowing capacity is limited. In contrast to the existing literature, where debt is constrained by the stock of capital, the collaterals are based on GDP. The balanced growth path and the transitional dynamics are studied. First, we show that the economy may converge in a finite time to the regime with binding collateral constraint. Second, in such regime the steady state public expenditures-GDP ratio is greater than that of the models without collateral constraints and of the stock-based collaterals literature. Third, the model predictions are consistent with recent empirical literature: there exists a certain threshold of financial and institutional development and economic features that an economy needs to attain in order to benefit from financial liberalization. Finally, if the degree of financial markets imperfections is weak, technologically developed countries experience a higher long-run growth rate than that of the stock-based collaterals literature, otherwise the world interest rate need to be high enough.
    Keywords: open economy; two-stage growth; public debt; flow collaterals; imperfect financial markets; multi-stage optimal control.
    JEL: C61 F34 F43 H63 O4 O16
    Date: 2013–05–21
  4. By: Luis Lanteri (Central Bank of Argentina)
    Abstract: This paper examines the relationship between stock market development and economic growth in case of Argentina's economy. I apply Granger causality and exogeneity tests based on VEC (vector error correction) models with monthly data covering the period 1993:1-2010:8. The results show that the major stock indices of Buenos Aires Stock Exchange Market (MERVAL25 and BURCAP) Granger cause to the estimator of economic activity (EMAE). In turn, both indices could be considered exogenous variables (weak and strong). Both stock indexes may predict future movements of the monthly indicator of economic activity. The results are in line with the theory that states that the development of financial markets impact on economic growth.
    Keywords: economic growth, exogeneity, Granger causality, stock market development, VEC models
    JEL: C1 G1 O4
    Date: 2013–01
  5. By: Fatma M. Utku-İsmihan (TEKPOL, Science and Technology Policy Studies, Middle East Technical University)
    Abstract: The importance of knowledge for long-run economic growth has long been an important research area for economists and policy makers. This paper attempts to analyze the impact of knowledge on economic growth in Turkey over the 1963-2010 period, by using a production function approach. In contrast to early studies, which have analyzed the impact of a single dimension of knowledge on economic growth, a knowledge index is constructed to see the impact of various dimensions of knowledge with a single and comprehensive measure of the “level” of knowledge in the economy. Moreover, time series methods -such as cointegration and impulse response analysis- are used to analyze the role of knowledge on economic growth in Turkey. The empirical results indicate that higher level of knowledge had a positive impact on the growth rate of Turkish economy over the sample period. It is, therefore, necessary to create an economic environment that is conducive to enhance the level of knowledge and hence economic growth in Turkey.
    Keywords: Knowledge, Economic Growth, Turkey
    Date: 2012–09
  6. By: Lanre Kassim
    Abstract: This paper adopts panel data methodologies to investigate the impact of trade liberalisation on export growth and import growth across 28 Sub-Saharan African countries from 1981 to 2010. We find that trade liberalisation increases the growth of exports, however, imports grow faster by approximately two percentage points which gives a prima facie evidence that the trade balance in the region deteriorated in the post-liberalisation era. We also find that trade liberalisation significantly raises the price elasticity of demand for exports and imports, however, it does not significantly affect income elasticity of demand.
    Keywords: Trade liberalisation; Export growth; Import growth; Price and Income elasticities of demand; Sub-Saharan Africa
    JEL: C23 F13 F14 O55
    Date: 2013–05
  7. By: Aurore Gary (Centre d'Economie de la Sorbonne); Mathilde Maurel (Centre d'Economie de la Sorbonne)
    Abstract: The literature has shown that aid and trade or aid and migration are not independent from each other: aid can be provided for relaxing migration pressures or donors can tie aid in order to increase their exports to developing countries. This finding can be generalized to other donors' policies: investment, technology, environment, security policies and it must be incorporated in the way aid effectiveness is assessed. The effect of aid can be dampened of enhanced, depending on whether aid is a substitute or a complement for other policies. In other words, donors should be consistent to be efficient. Taking advantage of CGD indices, this paper estimate growth equations by controlling for consistency. We estimate a robust and significant positive effect of donors' policy coherence from 22 DAC donors on the economic growth in developing countries. A one standard deviation increase in consistency changes results in an increase in economic growth in developing countries of 14%.
    Keywords: Development aid, complementarity, economic growth.
    JEL: F35 O19 O40
    Date: 2013–05
  8. By: Michieka, Nyakundi; Fletcher, Jerald
    Abstract: Kenya is a small open economy that depends on energy for growth. Since independence in 1963, it has experienced tremendous urban and rural population growth, placing an increasing strain on energy resources and economic development. Therefore, in this paper the relationship between urban and rural populations, economic development, and energy use is studied. The empirical analysis uses a vector autoregression framework. The Granger Causality test results suggest unidirectional causality running from urban population to GDP. The vector error decomposition results imply that urban growth will continue to play a major role in energy consumption in Kenya.
    Keywords: Population, growth, energy, Kenya, Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2013

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