nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒08‒31
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Role of Natural Gas Consumption and Trade in Tunisia’s Output By Farhani, Sahbi; Shahbaz, Muhammad; Arouri, Mohammed
  2. The Causal Nexus between Financial Development and Economic Growth in Kenya By Uddin, Gazi Salah; Sjö, Bo; Shahbaz, Muhammad
  3. Growth effect of FDI in developing economies: The role of institutional quality By JUDE, Cristina; LEVIEUGE, Gregory
  4. How status concerns can make us rich and happy By Strulik, Holger
  5. Investment in a Growth Model of Non-Excludable Aggregate Capital By Eric Fesselmeyer; Leonard J. Mirman; Marc Santugini

  1. By: Farhani, Sahbi; Shahbaz, Muhammad; Arouri, Mohammed
    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: C1
    Date: 2013–08–18
  2. By: Uddin, Gazi Salah; Sjö, Bo; Shahbaz, Muhammad
    Abstract: This paper aims to reexamine the relationship between financial development and economic growth in Kenya over the period of 1971-2011. Since, financial sector plays a vital role in mobilizing and allocating savings into productive ventures, the core issue of this investigation remains important for developing economics. The examination is based on a Cobb-Douglas production augmented by incorporating financial development. A simulation based ARDL bounds testing and Gregory and Hansen’s structural break cointegration approaches are being utilized in this study. Cointegration is being found between the series in the presence of a structural break in 1992. It is also being established that, in the long run, development of financial sector has positive impact on economic growth. Here remains an important policy implication for the concerned individuals of Kenya, that is, they may emphasize on financial development to ignite economic growth.
    Keywords: Economic Growth, Financial Development, Kenya
    JEL: C1
    Date: 2013–08–03
  3. By: JUDE, Cristina; LEVIEUGE, Gregory
    Abstract: This paper investigates the effect of FDI on economic growth conditional on the institutional quality of host countries. We consider institutional heterogeneity to be an explanation for the mixed results of previous empirical studies and we develop several arguments to show that institutional quality modulates the intensity of FDI impact on growth. Using a comprehensive data set for institutional quality, we test this hypothesis on a sample of 94 developing countries over the period 1984-2009. The use of Panel Smooth Transition Regression (PSTR) allows us to identify both the heterogeneity and the threshold of institutional quality that influence the FDI growth effect. These results have significant implications for policy sequencing in developing countries. In order to benefit from FDI-led growth, the improvement of the institutional framework should precede FDI attraction policies. While some features of institutional quality have an immediate effect on fostering FDI-led growth, others need a consistent accumulation of efforts, therefore challenging the effectiveness of institutional reforms in developing countries.
    Keywords: FDI, growth, heterogeneity, institutional quality, PSTR, Developing economies
    JEL: C34 F21 F43 O16
    Date: 2013–08–26
  4. By: Strulik, Holger
    Abstract: This paper considers an overlapping generations model of economic growth populated by two types of individuals. Competitive types compare future consumption (i.e. wealth) with the mean. Self-sufficient types derive utility simply from their own consumption and do not compare themselves with others. I derive a condition under which the utility (happiness) of both types increases when the economy is populated by a larger share of competitive types. In the long-run the condition is always fulfilled when the economy is capable of economic growth. The reason for this phenomenon is that competitive types generate higher savings and thus higher aggregate capital stock and income per capita, which raises utility of both types. I show that the result is robust to the consideration of endogenous work effort and that a sufficiently high share of competitive types in a society can be inevitable for long-run economic growth to exist. --
    Keywords: status preferences,happiness,economic growth
    JEL: D90 E21 O40
    Date: 2013
  5. By: Eric Fesselmeyer; Leonard J. Mirman; Marc Santugini
    Abstract: We study the effect of investment on the dynamics of aggregate capital when different sectors of the economy compete strategically for the utilization of non-excludable capital to produce both consumption and investment goods. We consider two types of investment goods: complements and substitutes. For each case, we derive the equilibrium and provide the corresponding stationary distribution. We then compare the equilibrium with the social planner’s optimal solution.
    Keywords: Capital accumulation, dynamic game, growth, investment, non-excludable capital
    JEL: C72 C73 D81 D92 O40
    Date: 2013

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