nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒09‒06
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. A Note on Commodity Taxation and Economic Growth By Kunihiko Konishi
  3. Exchange Rate and Economic Growth in Pakistan (1975-2011) By Ahmad, Arslan; Ahmad, Najid; Ali, Sharafat
  4. Does economic prosperity bring about a happier society? Empirical remarks on the Easterlin Paradox debate By Beja Jr., Edsel
  5. The evolution of economic convergence in the European Union By Borsi, Mihály Tamás; Metiu, Norbert

  1. By: Kunihiko Konishi (Graduate School of Economics, Osaka University)
    Abstract: This note reexamines the growth effects of commodity taxation and a manufacturing subsidy. By incorporating endogenous labor supply into a variety expansion model following Grossman and Helpman (1991), we derive new results. First, if households consider leisure to be important, an increase in the commodity tax rate can decrease the growth rate in the short run. Second, a small elasticity of substitution and a small manufacturing subsidy halt economic growth. Third, when the elasticity of substitution is small and sustained growth is possible, a decrease in the subsidy raises the short-run growth rate and decreases the long-run growth rate.
    Keywords: Commodity taxation, Subsidy, Labor supply, Endogenous growth
    JEL: E62 O41
    Date: 2013–09
  2. By: Burkhard Heer (University of Augsburg); Andreas Irmen (CREA, Université de Luxembourg)
    Abstract: We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy and obtain the following results. First, the effect of a decline in population growth on labor productivity growth is positive and quantitatively significant. In our benchmark, it is predicted to increase from an average annual growth rate of 1.74% over 1990-2000 to 2.41% in 2100. Second, institutional characteristics of the pension system matter both for the growth performance and for individual welfare. Third, the assessment of pension reform proposals may depend on whether economic growth is endogenous or exogenous.
    Keywords: Growth, Demographic Transition, Capital Accumulation, Pension Reform
    JEL: O41 C68 O11 D91
  3. By: Ahmad, Arslan; Ahmad, Najid; Ali, Sharafat
    Abstract: This paper investigates the impact of inflation, nominal exchange rate, FDI and capital stock on economic growth of Pakistan by using time series data for the period of 1975-2011. Augmented Dickey Fuller (ADF) test is applied to check the stationary of variables. All variables found stationary at level. So Ordinary Least Squares method is applied to check the relation between dependent variable (GDP) and independent variables (Exchange rate, FDI, capital stock). The results of OLS show that inflation and exchange rate has negative and significant affect economic growth of Pakistan. One percent increase in inflation will decrease GDP by 0.29 percent. Exchange rate coefficient is -0.5504 that means one percent increase in exchange rate will reduce GDP by 0.55 percent. Capital stock (GFCF) does not significantly affect economic growth. Foreign direct investment has positive and significant effect on economic growth of Pakistan. The results show that one percent increase in FDI will raise GDP by 0.37%. Our model is free from hetroskedasticity and autocorrelation with satisfactory functional form that suggests the stability of the model. The CUSUM and CUSUMSQ are showing that the model is structurally stable within the 5% of critical bounds. Government should take significant steps to increase the standard of exporting goods to make smooth balance of trade.
    Keywords: Economic Growth, FDI, Inflation, Pakistan
    JEL: O1 O11 O4
    Date: 2013–06
  4. By: Beja Jr., Edsel
    Abstract: Empirical analysis confirms the Easterlin Paradox: there is indeed a statistically significant and positive, albeit very small, relationship between economic growth and happiness. Notwithstanding a conclusion based on statistical significance, economic analysis of the results, on the other hand, still affirms the Easterlin Paradox: there is little economic significance in a very small estimate of the relationship between economic growth and happiness. An argument can also be forwarded that the increase in happiness is not an automatic outcome of economic growth because happiness is more than about income.
    Keywords: Easterlin Paradox; economic growth; happiness; time
    JEL: A2 C4 I3 O4
    Date: 2013–09–02
  5. By: Borsi, Mihály Tamás; Metiu, Norbert
    Abstract: This paper investigates economic convergence in real income per capita between 27 European Union countries. We employ a non-linear latent factor framework to study transitional behavior among economies between 1970 and 2010. Our results offer important insights on the economic catch-up exhibited by the new EU members in light of the institutional changes and macroeconomic adjustment processes undertaken over the last 40 years. Our main findings suggest no overall real income per capita convergence in the EU, however, we identify subgroups that converge to different steady states using an iterative testing procedure. Regional linkages play a significant role in determining the formation of convergence clubs. The empirical evidence suggests a clear separation between the new and old EU member states in the long run. --
    Keywords: Club convergence,Dynamic factor model,Economic integration,Growth,New member states
    JEL: C33 O47
    Date: 2013

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.