nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒07‒20
eight papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Export-Output Relationship in South Africa: An Empirical Investigation By Paul Cipamba Wa Cipamba
  2. A Total Factor Productivity-Capital Accumulation Hypothesis of India’s Growth Transitions By Kevin S. Nell
  3. Long-Run Risk and Hidden Growth Persistence By Pakos, Michal
  4. Estimating New Zealand’s Output Gap Using a Small Macro Model By Kam Leong Szeto
  5. Empirical Evidence on Growth Spillovers from China to New Zealand By Denise R Osborn; Tugrul Vehbi
  6. Spatial Analysis of Income Growth in the Philippines: Evidence from Intra-Country Data (1988 to 2009) By Mapa, Dennis; Albis, Manuel Leonard; Comandante, Dorcas Mae; Cura, Josephine; Ladao, Ma. Maureen
  7. Quality of Government and the Returns of Investment: Examining the Impact of Cohesion Expenditure in European Regions By Andrés Rodriguez-Pose; Enrique Garcilazo
  8. Panel data evidence on effects of fiscal impulses in the EU New Member States By Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej

  1. By: Paul Cipamba Wa Cipamba
    Abstract: This study re-investigates the empirical relationship between exports and economic growth in South Africa using econometric techniques of co-integration and Granger causality over the period 1970Q1-2012Q4. The Johansen approach of co-integration shows that exports and GDP evolved together overtime, though deviations from the steady state might happen in the short-run. Furthermore, Granger causality based on a Vector Error Correction model (VECM) reveals the existence of short and long run bi-directional causality between export and GDP growth. Similarly, Granger causality based on an augmented vector auto-regression (VAR) model confirms that export Granger causes GDP and vice versa. Overall, the empirical findings of this study support the validity of export-led growth and growth –driven export hypothesizes in the case of South Africa. The main policy implication of these results is that a speedy and sound execution of government’s plans aimed at stimulating and diversifying production for export will contribute to the improvement of growth and employment prospects.
    Keywords: Export-led growth, Granger causality, South Africa
    Date: 2013
  2. By: Kevin S. Nell (Center for Economics and Finance, Faculty of Economics, University of Porto)
    Abstract: This paper re-examines the role of physical capital accumulation in the Indian economy over the period 1953-2010. As an alternative to the orthodox total factor productivity (TFP) view, the paper develops a combined TFP-capital accumulation hypothesis of growth transitions. The results show that the first phase of India’s faster-growing regime during 1980-2002 was mainly TFP driven. However, the large increase in uninvested profits accumulated during the first phase together with evidence of a sharp rise in the productivity of capital and an exogenous saving/investment rate implies that India had a significant amount of untapped long-run growth potential. Consistent with the prediction of the model, the growth surge experienced during 2003-2007 reflects the capital accumulation-driven part of the growth transition. Despite the turbulent years of the global financial crisis since 2008, the analysis suggests that physical capital accumulation will continue to be a driving force of India’s future growth performance.
    Keywords: physical capital accumulation, total factor productivity, Solow model, learning by doing model, growth, India, technical progress function
    JEL: C22 O4 O5 O41 O53
    Date: 2013–07
  3. By: Pakos, Michal
    Abstract: An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of asset prices because it tightly intertwines the cyclical and long-run frequencies. Hidden persistence magnifies endogenous changes in the forecast variance of the long-run dividend growth rate despite homoscedastic consumption innovations. Not only does changing forecast variance make discrimination between protracted spells of anemic growth and brief business recessions difficult, it also endogenously induces additional variation in asset price discounts due to the preference for early uncertainty resolution.
    Keywords: Asset Pricing, Learning, Hidden Persistence, Forecast Variance, Economic Uncertainty, Business Cycles, Long-Run Risk, Peso Problem, Timing Premium
    JEL: E13 E21 E27 E32 E37 E44 G12 G14
    Date: 2013–04–17
  4. By: Kam Leong Szeto (The Treasury)
    Abstract: The Treasury has been testing the assumptions on the potential growth rate of the New Zealand economy. In this paper, we estimate a small macro model using Bayesian techniques, which allows us to assess the level of uncertainty of the estimates of the output gap. The model is based on the work of Benes et al. (2010) with some modifications reflecting New Zealand economic conditions. Although this new technique does not reduce the uncertainty in measures of potential output as indicated by large confidence bands for the estimates, it provides us a useful tool with an economic framework for measuring potential output.
    Keywords: Potential output, Potential growth rate, Output gap, Unemployment, NAIRU, Inflation and Capacity
    JEL: C32 C53 E31 E32
    Date: 2013–07
  5. By: Denise R Osborn; Tugrul Vehbi (The Treasury)
    Abstract: This paper provides a quantitative analysis of the impact on New Zealand of economic growth in China through the framework of an econometric model. The analysis compares the roles of China and the US both for growth in New Zealand and also for world commodity prices, the latter being important for New Zealand as an exporter of primary products. Finally, in the light of the increasing role of China in the world economy over the last two to three decades, the paper also investigates whether spillover effects from China to New Zealand have changed over this period. Using models estimated from the mid- 1980s to 2011, we find that growth spillovers from China are important for New Zealand, with estimates of the accumulated increase in domestic GDP from a one percent increase in output growth in China being in the range of around 0.2 to 0.4 percent. It is striking that growth spillovers are substantially greater from the US than from China, despite the latter's increasing importance in the world economy. Both domestic and foreign shocks have been important drivers of real exchange rate fluctuations, while the contribution of the latter has been relatively more important. The time-varying estimates provide some evidence of time-variation, with the greatest impact from China applying for about a decade from the mid-1990s, but also being relatively large in the latter part of our sample period.
    Keywords: C32, E32, F43, F44
    Date: 2013–07
  6. By: Mapa, Dennis; Albis, Manuel Leonard; Comandante, Dorcas Mae; Cura, Josephine; Ladao, Ma. Maureen
    Abstract: This paper looks at the spatial relationship of the average per capita income growth using intra-country or provincial data from 1988 to 2009. The results from the study provide insights on the geographical dimensions of provincial income growth and showed evidence on the role of spatial effects in the formal econometric analysis of intra-country income growth models. Despite the data limitations, the study provides a strong empirical evidence of the presence of positive spatial dependence or degree of similarity in the average per capita income growth of the provinces, albeit the degree of positive spatial dependence weakens in the latter periods. This positive spatial correlation suggests the provinces may be converging in terms of their income growth and they do so in movements similar to their neighbors. Moreover, the study shows that spatial dependence weakened in the latter periods (1994-2000 and 2000-2009). The weakening of spatial dependence may provide insights on the uneven provincial/regional income growth experienced in the country. One possible explanation of the weak spatial dependence is that two or more groups of neighboring provinces are growing at similar rates within the group, but at different rates across groups. This opens the possibility of having different convergence clubs (of provinces) within the country.
    Keywords: Spatial Dependence, Moran’s Index, Intra-Country Growth Model
    JEL: O1 O4
    Date: 2013–06
  7. By: Andrés Rodriguez-Pose; Enrique Garcilazo
    Abstract: This paper sets out to examine the impact of the quality of local and regional governments on the returns of investment, focusing on the returns of EU structural and cohesion funds. Despite the widespread belief that the quality of government affects the returns of public investments, whether this is effectively the case has seldom been proved. Using primary data on quality of government collected by the Quality of Government Institute, combined with World Bank Global Governance Indicators data, we conduct a two-way fixed effect panel regression model for a total of 169 in European regions during the period 1996 to 2007. The results of the analysis underline the importance of the quality of government both as a direct determinant of economic growth, as well as a moderator of the efficiency of structural and cohesion funds expenditure. Our analysis finds that both EU investments targeting regions and quality of government make a difference for regional economic growth, but that above a significant threshold level of expenditure, the quality of government is the key factor determining the returns of public investment. In many of the regions receiving the bulk of structural funds, greater levels of cohesion expenditure would, in the best case scenario, only lead to a marginal improvement in economic growth, unless the quality of government is significantly enhanced.
    Keywords: investment, European Union, regions, quality of government, regional development and growth
    JEL: O43 R11
    Date: 2013–07–02
  8. By: Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej
    Abstract: We identify fiscal impulses in the EU New Member States using four different methods and apply econometric panel data techniques to determine what is the response of output and its components to those impulses. We also directly test the effects of fiscal impulses on labor costs and households’ expectations. The results confirm that the composition of impulses matters for output and its components response. Notably we find evidence that investment and export growth accelerates after fiscal adjustment and decelerates after fiscal stimulus when the impulses are expenditure based. In turn, private consumption seems not to respond to fiscal impulses regardless of their size. The analysis confirms that expenditure based fiscal adjustments enhance wage moderation and thereby competitiveness of domestic enterprises, while expenditure-based fiscal stimuli weaken it. By contrast, we do not find evidence that fiscal impulses have an effect on households’ confidence.
    Keywords: expansionary fiscal adjustment, contractionary fiscal stimulus, New Member States, panel data
    JEL: C22 D22 E24 E62 H30
    Date: 2013–06

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.