nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒07‒15
nine papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Effects of Male and Female Education on Economic Growth: Some Evidence from Asia Using the Extreme Bounds Analysis By Gazi Mainul Hassan; Arusha Cooray
  2. A Theory of Disasters and Long-run Growth By AKAO Ken-Ichi; SAKAMOTO Hiroaki
  3. Robust Determinants of Growth in Asian Developing Economies: A Bayesian Panel Data Model Averaging Approach By Roberto Leon-Gonzalez; Thanabalasingam Vinayagathasan
  4. The Weight of Economic Growth and Urbanization on Electricity Demand in UAE By Sbia, Rashid; Shahbaz, Muhammad
  5. Monetary Policy, R&D and Economic Growth in an Open Economy By Chu, Angus C.; Cozzi, Guido; Lai, Ching-Chong; Liao, Chih-Hsing
  6. Lending for Growth? An Analysis of State-Owned Banks in China By Andersson, Fredrik N. G.; Burzynska, Katarzyna; Opper, Sonja
  7. The Role of Natural Gas Consumption and Trade in Tunisia’s Output By Farhani, Sahbi; Shahbaz, Muhammad
  8. The Environmental cost of Skiing in the Desert? Evidence from Cointegration with unknown Structural breaks in UAE By Shahbaz, Muhammad; Sbia, Rashid; Hamdi, Helmi
  9. The Effect of Globalization in a Semi Endogenous Growth Model with Firm Heterogeneity, Endogenous International Spillover, and Trade By Katsufumi Fukuda

  1. By: Gazi Mainul Hassan (University of Waikato); Arusha Cooray (University of Wollongong)
    Abstract: This paper uses the Extreme Bounds Analysis (EBA) to examine the comparative growth effects of gender disaggregated and level-specific enrolment ratios in a panel of Asian economies. To test our hypotheses, at first we employ an endogenous growth type framework where education has externality effects and then we compare the results with those obtained from an alternative neoclassical exogenous growth type model where education’s effect is transmitted only via total factor productivity (TFP). It is found that the externality effects of education are positive and robust for both male and female and that these are relatively large and significant at the primary, secondary as well as tertiary level. Furthermore, in the endogenous type framework, a gender gap is observed wherein the male growth effect of education is consistently larger than that of female at all levels. Compared to these, in the neoclassical type model we find that only the male and female primary and secondary enrolment ratios have robust growth effects. In contrast to the externality effects, these growth effects are small.
    Keywords: education and growth; endogenous growth; Solow growth model; extreme bounds analysis; total factor productivity.
    JEL: O11 O15
    Date: 2013–07–08
  2. By: AKAO Ken-Ichi; SAKAMOTO Hiroaki
    Abstract: We examine the long-term consequences to economic growth of disasters using a discrete-time endogenous growth model. We consider two types of hypothetical disasters: historical disasters, which follow a Bernoulli process, and periodic disasters, which are taken as a regular event by assuming that one period is a sufficient time period. We show that the effects of historical disasters on the steady state growth rate depend on the intertemporal elasticity of substitution for consumption. Specifically, when it is less than one, more destructive disasters or more frequent occurrence of historical disasters foster investment in human capital, which results in a higher economic growth rate. This conditionally supports the empirical finding: disasters may positively affect long-run economic growth. We also show the effects of historical and periodic disasters on resource allocation and industrial composition at the steady state and on the convergence speed.
    Date: 2013–07
  3. By: Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies); Thanabalasingam Vinayagathasan (National Graduate Institute for Policy Studies)
    Abstract: This paper investigates the determinants of growth in the Asian developing economies. We use Bayesian model averaging (BMA) in the context of a dynamic panel data growth regression to overcome the uncertainty over the choice of control variables. In addition, we use a Bayesian algorithm to analyze a large number of competing models. Among the explanatory variables, we include a non-linear function of inflation that allows for threshold effects. We use an unbalanced panel data set of 27 Asian developing countries over the period 1980–2009. Our empirical evidence on the determinants of growth suggests that an economy’s investment ratio and trade openness are positively correlated to growth, whereas government consumption expenditure is negatively correlated. Further, our empirical results indicate a substantial probability that inflation impedes economic growth when it exceeds 5.43%. We also find no evidence of conditional convergence or divergence.
    Date: 2013–07
  4. By: Sbia, Rashid; Shahbaz, Muhammad
    Abstract: This study aims to explore the relationship between economic growth, urbanization, financial development and electricity consumption in case of United Arab Emirates. The study covers the time period of 1975-2011. We have applied the ARDL bounds testing to examine long run relationship between the variables in the presence of structural breaks. The VECM Granger causality is applied to investigate the direction of causal relationship between the variables. Our empirical exercise found cointegration between the series in case of United Arab Emirates. Further, results reveal that inverted U-shaped relationship is found between economic growth and electricity consumption i.e. economic growth raises electricity consumption initially and declines it after a threshold level of income per capita. Financial development adds in electricity consumption. The relationship between urbanization and electricity consumption is also inverted U-shaped. This implies that urbanization increases electricity consumption initially and after a threshold level of urbanization, electricity demand falls. The causality analysis finds feedback hypothesis between economic growth and electricity consumption i.e. economic growth and electricity consumption are interdependent. The bidirectional causality is found between financial development and electricity consumption. Economic growth and urbanization Granger cause each other. The feedback hypothesis is also found between urbanization and financial development, financial development and economic growth and same is true for electricity consumption and urbanization.
    Keywords: Economic growth, urbanization, electricity consumption
    JEL: C5
    Date: 2013–07–01
  5. By: Chu, Angus C.; Cozzi, Guido; Lai, Ching-Chong; Liao, Chih-Hsing
    Abstract: This study analyzes the growth and welfare effects of monetary policy in a two-country Schumpeterian growth model with cash-in-advance constraints on consumption and R&D investment. We find that an increase in the domestic nominal interest rate decreases domestic R&D investment and the growth rate of domestic technology. Given that economic growth in a country depends on both domestic and foreign technologies, an increase in the foreign nominal interest rate also decreases economic growth in the domestic economy. When each government conducts its monetary policy unilaterally to maximize the welfare of only domestic households, the Nash-equilibrium nominal interest rates are generally higher than the optimal nominal interest rates chosen by cooperative governments who maximize the welfare of both domestic and foreign households. This difference is caused by a cross-country spillover effect of monetary policy arising from trade in intermediate goods. Under the CIA constraint on consumption (R&D investment), a larger market power of firms decreases (increases) the wedge between the Nash-equilibrium and optimal nominal interest rates. We also calibrate the two-country model to data in the Euro Area and the UK and find that the cross-country welfare effects of monetary policy are quantitatively significant.
    Keywords: Monetary policy, economic growth, R&D, trade in intermediate goods
    JEL: O30 O40 E41 F43
    Date: 2013–06
  6. By: Andersson, Fredrik N. G. (Department of Economics, Lund University); Burzynska, Katarzyna (Department of Economics, Lund University); Opper, Sonja (Department of Economics, Lund University)
    Abstract: This paper provides the first comparative analysis of different types of publicly owned banks operating in China between 1997 and 2008. Using principal component analysis and Granger-causality tests, this study shows that China’s state-owned commercial banks and rural credit cooperatives did not promote GDP growth during the observation period. State-owned commercial banks even had a negative effect on growth in the manufacturing sector. By contrast, state policy banks and joint stock commercial banks did promote domestic growth. China’s experience presents a more nuanced picture of state banking that goes beyond the role of ownership to consider functional and institutional differences.
    Keywords: China; Banking sector; Economic growth
    JEL: G21 O16 P30
    Date: 2013–06–17
  7. By: Farhani, Sahbi; Shahbaz, Muhammad
    Abstract: This paper examines the impact of natural gas consumption, real gross fixed capital formation and trade on the real GDP in case of Tunisia over the period of 1980-2010. We used Auto-Regressive Distributed Lag (ARDL) bounds testing approach to test the existence of long run relationship between the variables. The Vector Error Correction Method (VECM) Granger approach is applied to test the direction of causal relation between the series. Our findings indicate the existence of long-run relationship among the variables. Natural gas consumption, real gross fixed capital formation and trade add in economic growth. Natural gas consumption, real gross fixed capital formation and real trade Granger cause real GDP. These findings open up new insights for policy makers to formulate a comprehensive energy policy to sustain economic growth for long run.
    Keywords: Natural gas consumption, Economic growth, Tunisia, ARDL approach
    JEL: C5
    Date: 2013–06–27
  8. By: Shahbaz, Muhammad; Sbia, Rashid; Hamdi, Helmi
    Abstract: The present study explores the relationship between economic growth, electricity consumption, urbanization and environmental degradation in case of United Arab Emirates. The study covers the quarter frequency data over the period of 1975-2011. We have applied the ARDL bounds testing approach to examine the long run relationship between the variables in the presence of structural breaks. The VECM Granger causality is applied to investigate the direction of causal relationship between the variables. Our empirical exercise reported the existence of cointegration among the series in case of United Arab Emirates. Further, we found an inverted U-shaped relationship between economic growth and CO2 emissions i.e. economic growth raises energy emissions initially and declines it after a threshold point of income per capita (EKC exists). Electricity consumption declines CO2 emissions. The relationship between urbanization and CO2 emissions is positive. Exports seem to improve the environmental quality by lowering CO2 emissions in case of UAE. The causality analysis validates the feedback effect between CO2 emissions and electricity consumption. Economic growth and urbanization Granger cause CO2 emissions.
    Keywords: Electricity, Growth, CO2 emissions
    JEL: C5
    Date: 2013–06–22
  9. By: Katsufumi Fukuda (Visiting Researcher and Research Assistant, Graduate School of Economics, Faculty of Economics, Kobe University, JAPAN)
    Abstract: We construct a semi endogenous growth model with firm heterogeneity, endogenous international spillover, and international trade and investigate the effects of further exposure to trade on R&D difficulty and welfare. Further exposure has ambiguous effects on R&D difficulty, increases when the sunk cost for foreign market is strictly greater than for domestic market and intertemporal spillover is sufficiently large, and decreases when the sunk costs for both markets are the same or the intertemporal spillover is small. We find unambiguously positive effect on welfare because the positive effects of the rises in the weighted average of productivity and the reduction in R&D costs through international spillovers strictly dominates the negative effects of increases in R&D costs through greater competition.
    Date: 2013–06

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