nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒08‒23
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Research Policy and U.S. Economic Growth By Richard M. H. Suen
  2. Fiscal composition and long-term growth By Afonso, António; Jalles, João Tovar
  3. Public debt, economic growth and nonlinear effects: Myth or reality? By Balázs Égert
  4. Financial Development and Economic Growth: A Meta-Analysis By Petra Valickova; Tomas Havranek; Roman Horvath
  5. Revisiting the link between growth and federalism: A Bayesian model averaging approach By Asatryan, Zareh; Feld, Lars P.
  6. Looking Inward for Transformative Growth in China By Rod Tyers

  1. By: Richard M. H. Suen (University of Connecticut)
    Abstract: This paper examines quantitatively the effects of R&D subsidy and government-financed basic research on U.S. economic growth and consumer welfare. To achieve this, we develop an endogenous growth model which takes into account both public and private research investment, and the differences between basic and non-basic research. A calibrated version of the model is able to replicate some important features of the U.S. economy over the period 1953-2009. Our model suggests that government spending on basic research is an effective policy instrument to promote economic growth. Subsidizing private R&D, on the other hand, has no effect on economic growth.
    Keywords: Research Policy, Basic and Applied Research, R&D Spending, Endogenous Growth
    JEL: O31 O38 O41
    Date: 2013–08
  2. By: Afonso, António; Jalles, João Tovar
    Abstract: We assess the fiscal composition-growth nexus, using a large country panel, accounting for the usually encountered econometric pitfalls. Our results show that revenues have no significant impact on growth whereas expenditures have negative effects. The same is true for the OECD with the addition that government revenue has a negative impact on growth. From our results, taxes on income are not growth enhancing, as well as public wages, interest payments, subsidies and government consumption. Spending on education and health boosts growth; and there is weak evidence supporting causality running from expenditures and revenues to output. JEL Classification: C23, E62, H50
    Keywords: budget decomposition, budget deficit, panel analysis, panel causality
    Date: 2013–03
  3. By: Balázs Égert
    Abstract: This paper puts the Reinhart-Rogoff dataset to a formal econometric testing to see whether public debt has a negative nonlinear effect on growth if public debt exceeds 90% of GDP. Using nonlinear threshold models, we show that the negative nonlinear relationship between debt and growth is very sensitive to modelling choices. We also show that when nonlinearity is detected, the negative nonlinear effect kicks in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are confirmed on a shorter dataset (1960-2010) using a multivariate growth framework.
    Keywords: public debt; economic growth; nonlinearity; threshold effects
    JEL: E6 F3 F4 N4
    Date: 2013–02–15
  4. By: Petra Valickova (Charles University, Prague); Tomas Havranek; Roman Horvath
    Abstract: We analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth. Taken together, the studies imply a positive and statistically significant effect, but individual estimates vary a lot. We find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results. Studies that do not address endogeneity tend to overstate the effect of finance on growth. While the effect seems to be weaker in poor countries, the effect decreases worldwide after the 1980s. Our results suggest that stock markets support faster economic growth than other financial intermediaries. We find no evidence of publication bias in the literature.
    Keywords: finance, development, growth, meta-analysis
    JEL: C83 G10 O40
    Date: 2013–07
  5. By: Asatryan, Zareh; Feld, Lars P.
    Abstract: Following the ambiguous results in the literature aimed at understanding the empirical link between fiscal federalism and economic growth, this paper revisits the question using a Bayesian Model Averaging approach. The analysis suggests that the failure to appropriately account for model uncertainty may have previously led to biased estimates. The results from a sample of 23 OECD countries over 1975-2000 indicate that after controlling for unobserved country heterogeneity, there is no robust link, neither positive, nor negative, between output growth and fiscal federalism (measured as sub-national governments' share of own source tax revenue). --
    Keywords: Fiscal Federalism,Economic Growth,Bayesian Model Averaging
    JEL: C11 H70 O43
    Date: 2013
  6. By: Rod Tyers
    Abstract: Export led growth has been very effective in modernising China’s economy and establishing a large high-saving middle class. Notwithstanding political opposition from trading partners, this growth strategy has also offered the rest of the world improved terms of trade in both product and financial markets, in the form of cheaper light manufactures and cheaper credit. Yet slowing demand in export destinations has forced a transition to inward-sourced growth. This paper uses a numerical model of the Chinese economy with oligopoly behaviour to examine the available “inward†sources of transformative growth along with the policies needed to exploit them. The potential for considerable further “transformative†growth is shown to be considerable though it will require accelerated skilled labour supply growth and the politically difficult extension of industry policy reform to heavy manufacturing and services.
    Keywords: China, growth, fiscal policy, oligopoly, price caps, privatisation
    JEL: D43 D58 E62 L13 L43
    Date: 2013–08

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