nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒09‒13
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Military Expenditure, Economic Growth and Heterogeneity By J Paul Dunne; Nan Tian
  2. Five growth strategies for Myanmar : re-engagement with the global economy By Kudo, Toshihiro; Kumagai, Satoru; Umezaki, So
  3. Size of the Government, Quality of Institutions and Growth in SAARC Countries By anwar, saba; munir, kashif
  4. Sovereign defaults, business cycles and economic growth in Latin America, 1870-2012 By Boonman, Tjeerd M.
  5. A Growth Perspective on Foreign Reserve Accumulation. By Cheng, G.
  6. The contribution of intangible assets to sectoral productivity growth in the EU By Niebel, Thomas; O'Mahony, Mary; Saam, Marianne
  7. Industry structure dynamics and productivity growth By Lech Kalina

  1. By: J Paul Dunne (SALDRU, School of Economics, University of Cape Town); Nan Tian (DPRU, School of Economics, University of Cape Town)
    Abstract: This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 106 countries over the period 1988-2010. A major focus of the paper is to consider the possibility group heterogeneity and non-linearity. Having estimated the model for all of the countries in the panel and finding that military burden has a negative effect on growth in the short and long run, the panel is broken down into various groupings based upon a range of potentially relevant factors and the robustness of the results is evaluated. The factors considered are different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for the different groups are remarkably consistent with those for the whole panel, providing strong support for the argument that military spending has adverse effects on growth. There are, however, some intriguing results that suggest that for certain types of countries military spending has no significant effect on growth.
    Keywords: Military expenditure; economic growth; conflict; development
    JEL: O11 H56
    Date: 2013
  2. By: Kudo, Toshihiro; Kumagai, Satoru; Umezaki, So
    Abstract: After decades of isolation, Myanmar is now actively re-engaging with the global economy. For successful re-engagement, Myanmar needs to implement comprehensive economic reforms based on a shared vision for long-term economic development that is characterized by human-centered, high, sustainable, pro-poor, inclusive, and balanced economic growth. In this paper, we propose five growth strategies: "Agriculture Plus Plus," an export-oriented strategy, a foreign direct investment-driven strategy, a two-polar growth strategy, and a strategy to develop domestic economic corridors. These strategies are used as guides to translate these development agendas into a set of implementable policies, programs, and projects.
    Keywords: Myanmar, Economic development, Development policy, Economic policy, Myanmar (Burma), Growth strategy, Economic reforms, Re-engagement with global economy
    JEL: O10 O20 O53
    Date: 2013–08
  3. By: anwar, saba; munir, kashif
    Abstract: One elusive question still attracts the attention of the researchers and policy makers whether government has a positive or negative role in the growth of a country. Washington consensus depressed the role of the government as an anchor of growth, while the post Washington consensus again focuses on the role of the government as the major player to revive growth. Theoretically, the linkages have been well established between the government spending and growth. However, the extensive use of cross country growth regressions in 1980s and 1990s highlighted the controversies in the empirical testing of these schools of thought using data for different countries and different techniques to prove their hypothesis. Most of these studies concentrated on the developed countries, while few try to explore the structure in developing countries. The question still remains, whether public sector promotes or retards growth.
    Keywords: Size of the Government, Quality of Institutions, Growth, SAARC Countries
    JEL: H50
    Date: 2013–08–30
  4. By: Boonman, Tjeerd M. (Groningen University)
    Abstract: Sovereign debt crises have regained attention since the recent crises in several European countries. This paper focuses on a particular aspect of the debt crisis literature: the impact of sovereign default on economic growth. Previous research agrees on the negative impact, but not on size and duration. We are particularly interested in the heterogeneity of crisis impacts: Why are some crises deeper and longer than others? And what is the role of business cycles? We analyze four Latin American countries (Argentina, Brazil, Chile and Mexico) for the period 1870-2012, covering 14 sovereign debt defaults. We find that most sovereign defaults start in recessions, and in unfavorable international circumstances. Economic growth is heavily affected in the year of the default and the year after. Then economic growth picks up, but recovery is far from smooth, including periods of recurrent negative growth. We observe strong heterogeneity in the impact, which we attribute to commodity price changes, economic growth and government expenditure in the run-up to the crisis.
    Date: 2013
  5. By: Cheng, G.
    Abstract: Based on a dynamic open-economy macroeconomic model, this paper aims at understanding the contribution of domestic financial underdevelopment to foreign reserve accumulation in some emerging market economies, especially in China. It is argued that foreign reserve accumulation is part and parcel of a growth strategy based on strong capital investment in a financially constrained economy. It is further proved using a Ramsey problem that purchasing international reserves is a welfare-improving policy in terms of production efficiency gains if it is jointly used with capital controls. In fact, when domestic firms are occasionally credit-constrained and they do not have a direct access to international financial market, they need domestic saving instruments to increase their retained earnings so that they can sufficiently invest in capital. The central bank plays the role of financial intermediary and provides domestic firms with liquid public bonds, thus relaxing domestic financial constraints. The proceeds of domestic public bonds are invested abroad due to the limited scope of domestic financial market and a depressed domestic interest rate, leading to foreign reserve stockpiling. The speed of foreign reserve accumulation would slow down once the economic growth rate decelerates and the domestic financial market develops.
    Keywords: Foreign reserves, capital controls, credit constraints, domestic savings, capital investment, economic growth, Chinese economy.
    JEL: E22 F31 F41 F43
    Date: 2013
  6. By: Niebel, Thomas; O'Mahony, Mary; Saam, Marianne
    Abstract: In this paper we report on new data on intangible investment at the level of 1-digit NACE industries of 10 EU countries. The data are constructed as a sectoral breakdown of the INTANInvest database, which contains measures of intangible investment at the level of the aggregate business sector. With the sectoral data we assess the contribution of intangibles to productivity growth based on growth accounting and econometric estimation of production functions. The growth accounting contribution of intangibles to labor productivity growth is generally highest in manufacturing and finance. The estimated output elasticity of intangibles lies between 0.1 and 0.2, considerably below values found in previous research using aggregate data. --
    Keywords: Intangible Assets,Labor Productivity,Growth Accounting,Panel Regressions
    JEL: E22 J24 O47
    Date: 2013
  7. By: Lech Kalina (Warsaw School of Economics)
    Abstract: Economic theory typically predicts that productivity should increase when a firm’s market is expanding since the benefits of reducing costs are higher when spread across a larger market. On the other hand there is a strong line of research stressing the positive impact of increasing competition and claiming that productivity should jump when a firm’s market is being squeezed by new compe titors. This paper investigates the effects of industry structure dynamics on productivity growth on panel data from industries of ten European countries. The econometric results provide empirical support for p ositive impact of less fragmented market stru ctures on productivity, however results also point out the important role which dynamics of firms turnover play in industry performance.
    JEL: D4 L1
    Date: 2013–09–04

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