nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒07‒28
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Is Stock Market Sensitive to Foreign Capital Inflows and Economic Growth? Evidence from Pakistan By Raza, Syed Ali; Jawaid, Syed Tehseen; Afshan, Sahar
  2. Migration and dynamics: How a leakage of human capital lubricates the engine of economic growth By Sorger, Gerhard; Stark, Oded; Wang, Yong
  3. Tax evasion, social norms and economic growth By Bethencourt, Carlos; Kunze, Lars
  4. The natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies By Fidel Perez-Sebastian; Ohad Raveh
  5. Further investigation of natural resources and economic growth: Do natural resources depress economic growth? By Lkhagva Gerelmaa; Koji Kotani
  6. What is Inclusive Growth? An Alternative Perspective By M. H. Suryanarayana
  7. Credit and growth after financial crises By Elod Takáts; Christian Upper

  1. By: Raza, Syed Ali; Jawaid, Syed Tehseen; Afshan, Sahar
    Abstract: This study investigates the impact of foreign capital inflows and economic growth on stock market capitalization in Pakistan by using the annual time series data from the period of 1976 to 2011. The ARDL bound testing cointegration approach confirms the valid long run relationship between considered variables. Results indicate that foreign direct investment, workers’ remittances and economic growth have significant positive relationship with the stock market capitalization in long run as well as in short run. Results of dynamic ordinary least square (DOLS) and fully modified ordinary least square (FMOLS) suggest that the initial results of long run coefficients are robust. Results of variance decomposition test show the bidirectional causal relationship of foreign direct investment and economic growth with stock market capitalization. However, unidirectional causal relationship is found in between workers’ remittances and stock market capitalization. It is suggested that in Pakistan, investor can make their investment decisions through keep an eye on the direction of the considered foreign capital inflows and economic growth.
    Keywords: Remittances, Foreign Direct Investment, Economic Growth, Market Capitalization
    JEL: F21 F24 F43 G20
    Date: 2013–04–05
  2. By: Sorger, Gerhard; Stark, Oded; Wang, Yong
    Abstract: This paper studies the growth dynamics of a developing country under migration. Assuming that human capital formation is subject to a strong enough, positive intertemporal externality, the prospect of migration will increase growth in the home country in the long run. If the external effect is less strong, there exists at least a level effect on the stock of human capital in the home country. In either case, the home country experiences a welfare gain, provided that migration is sufficiently restrictive. These results, obtained in a dynamic general equilibrium setting, extend and strengthen the results of Stark and Wang (2002) obtained in the context of a static model. --
    Keywords: Overlapping-generations growth model,Intertemporal human capital externalities,Long-run growth effect of the prospect of migration
    JEL: F22 I30 J24 J61 O15 O40
    Date: 2013
  3. By: Bethencourt, Carlos; Kunze, Lars
    Abstract: This paper proposes a theoretical model to account for the most relevant micro- and macroeconomic empirical facts in the tax evasion literature. To do so, we integrate tax morale into a dynamic overlapping generations model of capital income tax evasion. Tax morale is modeled as a social norm for tax compliance. It is shown that accounting for such nonpecuniary costs of evasion may not only explain (i) why some taxpayers never evade even if the gamble is profitable, and (ii) how a higher tax rate can increase evasion, but also that (iii) the share of evaded taxes over GDP decreases with the stage of economic development and (iv) that tax morale is positively correlated with the level of GDP per capita as suggested by recent empirical evidence. Finally, a higher tax rate increases aggregate evasion as well as the number of evaders in the economy when taxpayers decisions are interdependent.
    Keywords: tax evasion, social norms, overlapping generations, economic growth
    JEL: D91 H26 Z13
    Date: 2013–07–18
  4. By: Fidel Perez-Sebastian; Ohad Raveh
    Abstract: Natural resource abundance is a blessing for some countries, but a curse for othes. We show that differences across countries in the degree of fiscal decentralisation can contribute to this divergent outcome. First, the paper presents a unified theory that combines political and market mechanisms to illustrate why natural resource booms can create negative effects in fiscally decentralized nations. Thereafter, we employ Sachs and Warner's cross-sectional data, and also construct a new panel-data sample to test the hypothesis. Results support the joint effect of the two variables.
    Keywords: Natural resources, economic growth, fiscal decentralization, agglomeration economies, tax competition
    JEL: O13 O18 O40 Q32
    Date: 2013
  5. By: Lkhagva Gerelmaa (International University of University); Koji Kotani (International University of University)
    Abstract: One of the surprising findings in the economic development literature is that natural resource-rich countries tend to have slower economic growth than resource-poor countries, i.e., the natural resource curse and Dutch disease. In this paper, we revisit these issues by applying quantile regression and using the most updated data. The results demonstrate that resource-intensive countries in 1970 suffered from slower economic growth than resource-poor countries over the next 20 years, consistent with Sachs and Warner (1995, 1997, 2001). However, contrary to initial expectation, we find that natural resource abundance in 1990 had positive impacts on economic growth between 1990 and 2010. We further test the Dutch disease theory, and the result contradicts the hypothesis. Overall, our analysis suggests that in the period from 1970 to 1990, the hypotheses of a resource curse and Dutch disease hold. However, in the period from 1990 to 2010, these hypotheses no longer hold because manufacturing sectors have grown suffciently even in resource-rich countries.
    Keywords: Natural resources, economic growth, resource curse, Dutch disease
    Date: 2013–07
  6. By: M. H. Suryanarayana (International Poverty Centre)
    Abstract: Ever since UNDP started advocating for ?inclusive growth?, developing countries have set it as an avowed goal of their long-term strategies. However, there is no universally accepted definition of the concept or how to measure it, which are important considerations for policy formulation as well as evaluation. (?)
    Keywords: What is Inclusive Growth? An Alternative Perspective
    Date: 2013–06
  7. By: Elod Takáts; Christian Upper
    Abstract: We find that declining bank credit to the private sector will not necessarily constrain the economic recovery after output has bottomed out following a financial crisis. To obtain this result, we examine data from 39 financial crises, which - as the current one - were preceded by credit booms. In these crises the change in bank credit, either in real terms or relative to GDP, consistently did not correlate with growth during the first two years of the recovery. In the third and fourth year, the correlation becomes statistically significant but remains small in economic terms. The lack of association between deleveraging and the speed of recovery does not seem to arise due to limited data. In fact, our data shows that increasing competitiveness, via exchange rate depreciations, is statistically and economically significantly associated with faster recoveries. Our results contradict the current consensus that private sector deleveraging is necessarily harmful for growth.
    Keywords: creditless recovery, financial crises, deleveraging, household debt, corporate debt
    Date: 2013–07

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