nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒06‒30
sixteen papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Economic growth and combustible renewables and waste consumption nexus in MENA countries By Ben Jebli, Mehdi; Ben Youssef, Slim
  2. Combustible renewables and waste consumption, exports and economic growth: Evidence from panel for selected MENA countries By Ben Jebli, Mehdi; Ben Youssef, Slim
  3. Economic growth, combustible renewables and waste consumption and emissions in North Africa By Ben Jebli, Mehdi; Ben Youssef, Slim
  4. Income polarization and economic growth By Michal Brzezinski
  5. The relationship between an electricity supply ceiling and economic growth: An application of disequilibrium modeling to Taiwan By Mototsugu Fukushige; Hiroshige Yamawaki
  6. Export variety, technological content and economic performance: The case of Portugal By Francisco Rebelo; Ester Gomes da Silva
  7. The Impact of Structural and Macroeconomic Factors on Regional Growth By Sabine D’Costa; Enrique Garcilazo; Joaquim Oliveira Martins
  8. The Struggle to Survive in the R&D Sector: Implications for Innovation and Growth By Furukawa, Yuichi
  9. Long-Run Fiscal Multiplier for Autonomous Prefectures in China By Yingxin Shi; Mototsugu Fukushige
  10. Culture, Entrepreneurship, and Growth By Doepke, Matthias; Zilibotti, Fabrizio
  11. Market potential and city growth: Spain 1860-1960 By Rafael González-Val; Daniel A. Tirado-Fabregat; Elisabet Viladecans-Marsal
  12. Reexamining the Conditional Effect of Foreign Direct Investment By Bruno, Randolph Luca; Campos, Nauro F
  13. Road Traffic Accidents in Saudi Arabia: An ADRL Approach and Multivariate Granger Causality By Ageli, Mohammed Moosa
  14. Financial Frictions, Capital Misallocation, and Structural Change By Naohisa Hirakata; Takeki Sunakawa
  15. The ‘Knowledge Economy’-finance nexus in SSA and MENA countries By Asongu , Simplice A
  16. Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality By Inessa Love; Rima Turk Ariss

  1. By: Ben Jebli, Mehdi; Ben Youssef, Slim
    Abstract: This paper is an attempt to investigate the causal relationship between economic growth and combustible renewables and waste consumption for 12 countries of the Middle East and North Africa (MENA) region during the period of 1975-2008 using panel cointegration techniques and panel causality tests. Granger causality test shows that there is evidence of no causality among variables in the short-run, while in the long-run the panel error correction model results reveal bidirectional causality between combustible renewables and waste consumption and economic growth. The results from OLS, FMOLS and DOLS panel estimates suggest that: i) The coefficient of combustible renewables and waste is positive and statistically significant. ii) The impact of economic growth on combustible renewables and waste is positive and statistically significant. In the long-run, a 1% increase in combustible renewables and waste increases real GDP in MENA countries by approximately 0.08%, and a 1% increase in economic growth increase combustible renewables and waste by approximately 0.43%. These results reveal that there is no strong relationship between variables given that the impact of each one on the other is quite small.
    Keywords: Combustible renewables and waste consumption; Economic growth; Panel cointegration.
    JEL: C33 Q43
    Date: 2013–06–22
  2. By: Ben Jebli, Mehdi; Ben Youssef, Slim
    Abstract: This paper examines the causal relationship between combustible renewables and waste consumption, exports and economic growth for a panel of eleven Middle East and North Africa (MENA) countries for the period 1975-2008. We use the Granger causality and the vector error correction model (VECM) to investigate both the short-run and the long-run dynamic relationship between these variables. The results from the panel Granger causality test indicate that in the short-run economic growth has a positive and statically significant impact on exports. However, there is no causal link between economic growth and combustible renewables and waste consumption, and between exports and combustible renewables and waste consumption. In the long-run, the results from the panel error correction model indicate that there is evidence of long-run causality from economic growth and exports to combustible renewables and waste consumption and from economic growth and combustible renewables and waste consumption to real exports. The policy implication of this finding is that combustible renewables and waste is not sufficiently used in private or public industrial sectors in emerging economies, and the consumption policy reserved for production encourages households to use fossil fuels or renewable energy.
    Keywords: Combustible renewables and waste; exports; MENA countries; panel cointegration techniques; Granger-causality.
    JEL: C33 F43 Q43
    Date: 2013–06–12
  3. By: Ben Jebli, Mehdi; Ben Youssef, Slim
    Abstract: This paper examines the causal relationship between economic growth, combustible renewables and waste consumption, and CO2 emissions for a balanced panel of five North Africa countries during the period 1971-2008. The panel cointegration test results indicate that in the short-run there is a unidirectional causality running from real GDP per capita to per capita CO2 emissions. However, there is evidence of no causality between combustible renewables and waste consumption and real GDP and between combustible renewables and waste consumption and CO2 emissions. In the long-run, we find that there is evidence of a unidirectional causality running from CO2 emissions and combustible renewables and waste consumption to real GDP. The results from panel FMOLS and DOLS estimates show that emissions is the most significant variable in explaining economic growth in the region which is followed by the consumption of combustible renewables and waste. In the long-run, increases in combustible renewables and waste consumption and emissions lead to increase economic growth. The finding of this paper is that North Africa region can use combustible renewables and waste as a substitutable energy to the fossil one and avoid the disaster on atmosphere by reducing emissions without impeding economic growth in the long-run.
    Keywords: Combustible renewables and waste consumption; panel cointegration; North Africa.
    JEL: C33 Q43
    Date: 2013–06–11
  4. By: Michal Brzezinski (University of Warsaw)
    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: 2013–05
  5. By: Mototsugu Fukushige (Graduate School of Economics, Osaka University); Hiroshige Yamawaki (Graduate School of Economics, Osaka University)
    Abstract: Using a disequilibrium model, we investigate the relationship between the supply constraint of electricity generation capacity and electricity demand in Taiwan. We find that electricity consumption faced supply constraints in Taiwan between 1959 and 1972, but that after 1973 generation capacity grew rapidly, such that economic growth came to be the major determinant of electricity consumption. Our experience in fitting this disequilibrium model suggests that simple causality tests are not a proper means to understand the relationship between electricity consumption and economic growth. Our results also suggest, at least for developing countries, that an electricity supply constraint sometimes plays an important role when investigating the relationship between energy consumption and economic growth.
    Keywords: Electricity Supply; Economic Growth; Disequilibrium Model; Taiwan
    JEL: Q43 C34 O11
    Date: 2013–06
  6. By: Francisco Rebelo; Ester Gomes da Silva
    Abstract: Although the analysis of the relationship between international trade and economic growth has an important tradition in the economic literature, the specific focus on a related matter, the link between export variety and economic growth, remains a relatively unexplored field of research. Recently, a few studies have approached this issue, adopting a neo-Schumpeterian framework. In line with this general frame of analysis, in this paper we investigate the impact of export variety on economic growth, cross-relating the variety dimension with technological upgrading. Cointegration econometric results based on the Portuguese experience over the past four decades (1967-2010) show that increased related variety has led to a significant growth bonus, but only in the case of technology advanced sectors. The impact of export variety on economic performance seems, therefore, to be conditioned by the technological intensity of the products involved.
    Keywords: Trade, variety, economic growth, technical change, Portugal
    JEL: F10 O11 O30 O52
    Date: 2013–06
  7. By: Sabine D’Costa; Enrique Garcilazo; Joaquim Oliveira Martins
    Abstract: This papers aims to understand the impact of nation-wide structural policies such as product market regulation in six upstream sectors and employment protection legislation and that of macroeconomic factors on the productivity growth of OECD regions. In particular we explore how this effect varies with the productivity gap of regions with their country’s frontier region. We use a policy-augmented growth model that allows us to simultaneously estimate the effects of macroeconomic and structural policies on regional productivity growth controlling for region-specific determinants of growth. We estimate our model with an unbalanced panel dataset consisting of 217 regions from 22 OECD countries covering the period 1995 to 2007. We find a strong statistical negative effect of product market regulation on regional productivity growth in five of the six upstream sectors considered and the effects are differentiated with respect to the productivity gap. Our estimates also reveal that dispersion of policies hurts regional productivity growth suggesting that policy complementarity can boost productivity growth. The effects of employment protection legislation are negative overall and are especially detrimental to productivity growth in lagging regions. The three macroeconomic factors we consider also influence regional performance: inflation has a negative effect on regional growth and government debt has a positive effect on average. When differentiating the effects by the distance to the frontier, trade-openness is more beneficial to lagging regions and the negative effects of inflation are less negative in lagging regions. These results reveal a strong link between nation-wide policies and the productivity of regions, which carries important policy implications, mainly that these effects should be taken into account in the policy design.
    Keywords: regional productivity growth, regional impact of structural policies, spatial impact of national policies
    JEL: E66 R12
    Date: 2013–06–13
  8. By: Furukawa, Yuichi
    Abstract: By allowing for investment activities by research and development (R&D) firms to prevent product obsolescence, we show that if legal patent protection is too strong, a higher R&D subsidy rate delivers insufficient investments for survival in the R&D sector, depressing innovation and growth in the long run.
    Keywords: Firm survival, R&D subsidy, patent breadth, endogenous growth
    JEL: O31 O34 O41
    Date: 2013–05
  9. By: Yingxin Shi (Department of Economics & Management, Dalian Nationalities University); Mototsugu Fukushige (Graduate School of Economics, Osaka University)
    Abstract: We overcome the problems of data availability and investigate the fiscal multipliers in autonomous prefectures in China. We first estimate the long-run elasticity of gross regional production with respect to fiscal expenditure in autonomous prefectures, using autoregressive distributed lag models. The estimated long-run elasticity is much less than unity, however, and the estimated fiscal multipliers for prefectures are between 0.61 and 4.93, with an average of 1.93. These results indicate that additional fiscal expenditure is still effective in increasing local income and promoting economic growth for most of the autonomous prefectures.
    Keywords: Fiscal Multiplier; Autonomous Prefecture; China; autoregressive distributed lag model
    JEL: O11 E62 H72
    Date: 2013–06
  10. By: Doepke, Matthias (Northwestern University); Zilibotti, Fabrizio (University of Zurich)
    Abstract: We discuss the two-way link between culture and economic growth. We present a model of endogenous technical change where growth is driven by the innovative activity of entrepreneurs. Entrepreneurship is risky and requires investments that affect the steepness of the lifetime consumption profile. As a consequence, the occupational choice of entrepreneurship hinges on risk tolerance and patience. Parents expecting their children to become entrepreneurs have an incentive to instill these two values in their children. Cultural transmission is Beckerian, i.e., parents are driven by the desire to maximize their children's happiness. We also consider, in an extension, a paternalistic motive for preference transmission. The growth rate of the economy depends on the fraction of the population choosing an entrepreneurial career. How many entrepreneurs there are in a society hinges, in turn, on parental investments in children's patience and risk tolerance. There can be multiple balanced-growth paths, where in faster-growing countries more people exhibit an "entrepreneurial spirit." We discuss applications of models of endogenous preferences to the analysis of socio-economic transformations, such as the British Industrial Revolution. We also discuss empirical studies documenting the importance of culture and preference heterogeneity for economic growth.
    Keywords: culture, entrepreneurship, innovation, economic growth, endogenous preferences, intergenerational preference transmission
    JEL: J20 O10 O40
    Date: 2013–06
  11. By: Rafael González-Val (Universidad de Zaragoza & IEB); Daniel A. Tirado-Fabregat (Universitat de València); Elisabet Viladecans-Marsal (Universitat de Barcelona & IEB)
    Abstract: A few attempts have been made to analyse whether market potential might also have an impact on urban structures. In this paper we employ parametric and non-parametric techniques to analyse the effect of market potential on the growth of Spanish cities during the period 1860-1960. This period is especially interesting because it is characterized by the advance in the economic integration of the national market together with an intense process of industrialization. Our results show a clear positive influence of market potential on city growth.
    Keywords: Market potential, urban structure, city growth, economic history
    JEL: R0 N9 O18 N64 F14
    Date: 2013
  12. By: Bruno, Randolph Luca (University College London); Campos, Nauro F (Brunel University)
    Abstract: The prevailing consensus is that foreign direct investment (FDI) effects are conditional. At the macro level, they depend upon minimum levels of human capital or financial development, while at the micro level, they depend on type of linkage (forwards, backwards, or horizontal). This paper presents new evidence showing that these effects are substantially less "conditional". We use a meta-analysis on two data sets covering 549 micro and 553 macro estimates of the effects of FDI on performance. We find these effects tend to be larger in macro than in micro studies, and greater in low- than in high-income countries.
    Keywords: foreign direct investment, economic growth, firm performance, meta-regression-analysis
    JEL: C83 F23 O12
    Date: 2013–06
  13. By: Ageli, Mohammed Moosa
    Abstract: The present paper examine the nexus between road traffic accident (RTA) and some relevant variables in Saudi Arabia over the period 1971- 2012, using the autoregressive distributed lag ADRL model (Pesaran and Shin, 1999) for co-integration in Saudi Arabia, with the co-integration test. Results show that the variables are co-integrated in Saudi Arabia, moreover, the overall Granger causality results present that road traffic accidents, population and GDP, road mails, registered vehicles, and the number of driver license are Granger-causes each other in Saudi Arabia. With these findings, we affirm that there is a strong relationship and effect between road traffic accidents and its population, GDP, road mails, registered vehicles, and the number of driver license. The findings suggest that the ECTt-1 coefficients are negative signed and statistically significant in all VECMs, implying that there is bi-directional causality between the variables of interest in the long run.
    Keywords: Road Traffic Accident, Granger Causality, (ADRL) Model, Co-integration Test, Saudi Arabia
    JEL: O11 R4
    Date: 2013–04–24
  14. By: Naohisa Hirakata (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail:; Takeki Sunakawa (Deputy Director and Economist, Institute for Monetary and Economic Studies (currently, International Department), Bank of Japan (E-mail:
    Abstract: We develop a two-sector growth model with financial frictions to examine the effects of a decline in the working population ratio and change in the structure of household demand on sectoral TFP and structural change. Our findings are twofold. First, with financial frictions, a decline in labor input reduces the real interest rate and increases excess demand for borrowing, tightening collateral constraints at a given credit-to-value ratio and generating capital misallocation and lower sectoral TFP. Second, compared to the case with no financial frictions, such changes in sectoral TFP impede structural changes driven by the change in the structure of household demand.
    Keywords: Financial frictions, heterogeneous firms, capital misallocation, total factor productivity, structural change
    JEL: E23 E44 O41 O47
    Date: 2013–06
  15. By: Asongu , Simplice A
    Abstract: Abstract Purpose – This paper assesses dynamics of the knowledge economy (KE)-finance nexus using the four variables identified under the World Bank’s knowledge economy index (KEI) and seven financial intermediary dynamics of depth, efficiency, activity and size. Design/methodology/approach – Principal Component Analysis is used to reduce the dimensions of KE components before dynamic panel GMM estimation techniques are employed to examine the nexuses. Findings – Four main findings are established. (1) Education improves financial depth and financial efficiency but mitigates financial size. (2) But for a thin exception (trade’s incidence on money supply), economic incentives (credit facilities and trade) are not consistently favorable to financial development. (3) ICT improves only financial size and has a negative effect on other financial dynamics. (4) Proxies for innovation (journals and FDI) have a positive effect on financial activity; journals (FDI) have (has) a negative (positive) effect on liquid liabilities and; journals and FDI both have negative incidences on money supply and banking system efficiency respectively. Practical Implications – As a policy implication, the KE-finance nexus is a complex and multidimensional relationship. Hence, blind and blanket policy formulation to achieve positive linkages may not be successful unless policy-making strategy is contingent on the prevailing ‘KE specific component’ trends and dynamics of financial development. Policy makers should improve the economic incentive dimension of KE that overwhelmingly and consistently deters financial development, owing to surplus liquidity issues. Originality/value – As far as we have reviewed, this is the first paper to examine the KE-finance nexus with the plethora of KE dimensions defined by the World Bank’s KEI and all the dynamics identified by the Financial Development and Structure Database (FDSD).
    Keywords: Financial development; Knowledge Economy
    JEL: G21 O10 O34 P00 P48
    Date: 2013–01–02
  16. By: Inessa Love (University of Hawaii at Manoa Economic Research Organization); Rima Turk Ariss (Lebanese American University)
    Abstract: This paper investigates macro-financial linkages in Egypt using two complementary methods, assessing the interaction between different macroeconomic aggregates and loan portfolio quality in a multivariate framework as well as through a panel vector autoregressive method that controls for bank-level characteristics. Using a panel of banks over 1993-2010, the authors find that a positive shock to capital inflows and growth in gross domestic product improves banks’ loan portfolio quality, and that the effect is fairly similar in magnitude using the multivariate and panel vector autoregressive frameworks. In contrast, higher lending rates may lead to adverse selection problems and hence to a drop in portfolio quality. The paper also reports that a larger market share of foreign banks in the industry improves loan quality.
    Keywords: Macroeconomic Shocks; Banks; Loan Quality; Panel Vector Autoregression
    JEL: C63 E44 G21 G28
    Date: 2013–06

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