nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒09‒28
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Can a Government Enhance Long-Run Growth by Changing the Composition of Public Expenditure? By Santiago Acosta Ormaechea; Atsuyoshi Morozumi
  2. Financial development and Economic Growth: The Case of Cape Verde By Ogunyiola, Ayorinde
  3. China's Savings Multiplier By Mehlum, Halvor; Torsvik, Ragnar; Valente, Simone

  1. By: Santiago Acosta Ormaechea; Atsuyoshi Morozumi
    Abstract: This paper studies the effects of public expenditure reallocations on long-run growth. To do this, we assemble a new dataset based on the IMF’s GFS yearbook for the period 1970-2010 and 56 countries (14 low-, 16 medium-, and 26 high-income countries). Using dynamic panel GMM estimators, we find that a reallocation involving a rise in education spending has a positive and statistically robust effect on growth, when the compensating factor remains unspecified or when this is associated with an offsetting reduction in social protection spending. We also find that public capital spending relative to current spending appears to be associated with higher growth, yet results are non-robust in this latter case.
    Keywords: Fiscal policy;Government expenditures;Economic growth;Economic models;Expenditure composition; panel-data analysis; economic growth.
    Date: 2013–07–08
  2. By: Ogunyiola, Ayorinde
    Abstract: This study empirically investigates the long-run relationship and short-run dynamics between financial development and economic growth in Cape Verde for the period 1980 - 2011. The study employs the Johansen and Juselius approach to cointegration, pairwise granger causality test for causality and the VECM approach was also explored. The analysis was carried out using three indicators to measure financial development which are the money supply as a percentage of GDP(M2), ratio of credit provided by commercial banks as a percentage of GDP(DCPB) and the ratio of domestic credit to the private sector as a percentage of GDP (DCTP). Control variables such as interest rate and population growth rate were included in the analysis. The empirical result indicates the existence of a long run relationship between economic growth and financial development variables in Cape Verde. However, no short run relationship exists between economic growth and financial development variables but between the control variables and economic growth. The study also found a unidirectional relationship running from financial development to economic growth when money supply( M2) is used as well as a bidirectional causality running from financial development to economic growth and vice versa, when domestic credit provided by commercial bank (DCPB) is used. The study found a unidirectional causality from economic growth to domestic credit to private sector (DCTP).
    Keywords: Financial Development, Economic Growth, Endogenous Growth, Cape Verde, VECM
    JEL: E52 G1 O4 O42
    Date: 2013–09–01
  3. By: Mehlum, Halvor (Dept. of Economics, University of Oslo); Torsvik, Ragnar (Norwegian University of Science and Technology); Valente, Simone (Norwegian University of Science and Technology)
    Abstract: China's growth is characterized by massive capital accumulation, made possible by high and increasing domestic savings. In this paper we develop a model with the aim of explaining why savings rates have been high and increasing, and we investigate the general equilibrium effects on capital accumulation and growth. We show that increased savings and capital accumulation stimulates further savings and capital accumulation, through an intergenerational distribution effect and an old-age requirement effect. We introduce what we term the savings multiplier, and we discuss why and how the one-child policy, and the dismantling of the cradle-to-grave social benefits provided through the state owned enterprises, have stimulated savings and capital accumulation.
    Keywords: China; One-child policy; Overlapping generations; Growth; Savings
    JEL: D91 E21 O11
    Date: 2013–07–04

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