nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒10‒18
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Inflation, Unemployment and Economic Growth in a Schumpeterian Economy By Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi
  2. Natural Gas Consumption and Economic Growth Nexus: The Role of Exports, Capital and Labor in France By Shahbaz, Muhammad; Farhani, Sahbi; Rahman, Mohammad Mafizur
  3. Cash-In-Advance Constraint on R&D in a Schumpeterian Growth Model with an Endogenous Market Structure By Chien-Yu Huang; Juin-Jen Chang; Lei Ji
  4. Endogenous Growth with a Ceiling on the Stock of Pollution By Kollenbach, Gilbert
  5. Econometric Testing of the Displacement Effect: the Saudi Experience By Ageli, Mohammed
  6. Technological spillovers and industrial growth in Chinese regions By Wang, Lili; Meijers, Huub; Szirmai, Eddy
  7. Growth beyond imbalances. Sustainable growth rates and output gap reassessment By Enrique Alberola; Ángel Estrada; Daniel Santabárbara

  1. By: Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi
    Abstract: This study analyzes the effects of inflation on the long-run nexus between unemployment and economic growth. We introduce money demand via a cash-in-advance (CIA) constraint on R&D investment into a scale-invariant Schumpeterian growth model with matching frictions in the labor market. Given the CIA constraint on R&D, a higher inflation that raises the opportunity cost of cash holdings leads to a decrease in innovation and economic growth, which in turn decreases labor-market tightness and increases unemployment. In summary, the model predicts a positive relationship between inflation and unemployment, a negative relationship between inflation and R&D, and a negative relationship between inflation and economic growth. These theoretical predictions are consistent with recent empirical evidence. Therefore, when inflation is a fundamental variable that affects the economy, unemployment and economic growth exhibit a negative relationship.
    Keywords: inflation; unemployment; innovation; economic growth.
    JEL: E24 E41 O3 O4
    Date: 2013–10
  2. By: Shahbaz, Muhammad; Farhani, Sahbi; Rahman, Mohammad Mafizur
    Abstract: The present study investigates the relationship between natural gas consumption and economic growth using Cobb-Douglas production function by incorporating exports, capital and labor as additional factors of production. We applied the ARDL bounds testing approach to test the existence of long run relationship between the series. The VECM Granger approach is implemented to detect the direction of causal relation between the variables. Our results show that variables are cointegrated for long run relationship. The results indicate that natural gas consumption, exports, capital and labor are contributing factors to domestic production and hence economic growth in case of France. The causality analysis indicates that feedback hypothesis is validated between gas consumption and economic growth which implies that adoption of energy conservation policies should be discouraged. The bidirectional causality is also found between exports and economic growth, gas consumption and exports, capital and energy consumption, exports and capital. This study opens up new direction for policy makers to formulate a comprehensive energy policy to sustain economic growth for long span of time in case of France.
    Keywords: Exports, Gas Consumption, Growth, France
    JEL: C4
    Date: 2013–10–10
  3. By: Chien-Yu Huang (School of Economics, Southwest University of Finance and Economics, China); Juin-Jen Chang (Institute of Economics, Academia Sinica, Taipei, Taiwan); Lei Ji (School of Economics, Shanghai School of Economics and Finance, China)
    Abstract: In this paper we explore the effects of monetary policy on the number of firms, firm market size, ination and growth in a Schumpeterian growth model with endogenous market structure and cash-in-advance (CIA) constraints on two distinct types of R&D investment - in-house R&D and entry investment. This allows us to match empirical evidence and provides novel implications to the literature. We show that if in-house R&D (quality improvement-type R&D) is subject to the CIA constraint, raising the nominal interest rate increases the the number of rms and ination, but decreases the rm size and economic growth. By contrast, if entry investment (variety expansion-type R&D) is subject to the CIA constraint, these variables adversely respond to such a monetary policy. Besides, our model generates rich transitional dynamics in response to a change in monetary policy, when R&D/entry is restricted by a cash constraint.
    Keywords: CIA constraints on R&D, endogenous market structure, monetary policy, economic growth
    JEL: O30 O40 E41
    Date: 2013–09
  4. By: Kollenbach, Gilbert
    Abstract: The effects of an agreement such as the Kyoto Protocol, which implicitly imposes a ceiling on the stock of pollution, have recently been studied in Hotelling models. We add pollution and a ceiling to the endogenous growth model of \cite{tsur2005scarcity} to study the effects of the ceiling on capital accumulation and research investments. The ceiling increases the scarcity of the exhaustible resource in the short run, which boosts backstop utilization. This implies that R\&D becomes more beneficial compared with capital accumulation. How the short run development path of an economy is affected depends on its capital endowment or richness, respectively. Only economies which are neither too rich nor too poor may invest more into research. In the long run an economy with a ceiling follows basically the same long run development path as an economy without the ceiling.
    Keywords: Endogenous growth, Environmental agreements, Fossil fuels, Nonrenewable resources, Research and Development
    JEL: O44 Q32 Q54 Q55 Q56
    Date: 2013–10–14
  5. By: Ageli, Mohammed
    Abstract: In this paper we have to explore the Displacement Effect in Saudi Arabia during the period (1970-2012) for real oil GDP and Non Oil GDP. We used a method as a time series econometrics techniques to examine how far the Displacement Effect validity can be applied in Saudi economy, by Using time series annual data for the periods during (1970 to 2012), (1970 to 1990) and (1991 to 2012). Three distinct time series techniques have been applied. The results obtained from the analyses find that the Peacock and Wiseman Version of Wagnerian proposition can explain the growth of government in Saudi Arabia, which holds for both the oil and non-oil income cases, and we have a structural break in the data. The findings also note that the existence of strong causality for Peacock and Wiseman Version of Wagner‟s law in the long run.
    Keywords: Displacement Effect, Co-integration, Error Correction Model, Augmented Dickey Fuller, Government Expenditure, Economic Growth, Saudi Arabia
    JEL: H50 O11 O53
    Date: 2013–07–13
  6. By: Wang, Lili (UNU-MERIT/MGSoG); Meijers, Huub (School of Business and Economics, Maastricht University); Szirmai, Eddy (UNU-MERIT/MGSoG)
    Abstract: This paper focuses on the role of interregional technology spillovers in the process of industrial growth in Chinese regions in the period 1990-2005. Inflows of FDI increased rapidly from 1990 till 1998, slowing down thereafter. Domestic R&D investment accelerated after 1998. Regional industrial growth benefits from both interregional R&D spillovers and after 1998 from international FDI spillovers. However, in contrast to R&D spillovers, FDI spillovers contribute conditionally, mainly in areas where local R&D stocks are high enough. Interestingly, indirect interregional FDI spillover effects are negative. Foreign investment in one region attracts resources from regions with less FDI, thus having a negative influence on growth of industrial output in neighbouring regions.
    Keywords: Technological spillovers, Interregional spillovers, R&D, Foreign direct investment, Industrial growth, Regional growth, Chinese industry
    JEL: F43 O14 O33 R11 R12
    Date: 2013
  7. By: Enrique Alberola (Banco de España); Ángel Estrada (Banco de España); Daniel Santabárbara (Banco de España)
    Abstract: ‘The Great Recession’ was preceded by a prolonged period of high growth accompanied by low and stable inflation, the so called ‘Great Moderation’. During that period, potential growth estimates were trending upwards and output gaps remained small. However, other imbalances were progressively accumulating, eventually bringing about the worst crisis in decades. Standard potential growth estimates, which consider inflation as the only indicator of macroeconomic imbalances, along with the stability of inflation in that period, therefore provided misleading signals to policymakers. This paper introduces a methodology to obtain sustainable growth rates, as an alternative measure to potential growth. Sustainable growth is defined as the output growth that does not generate or widen macroeconomic imbalances, identified through a wide set of domestic and external indicators. This allow us to reassess the behavior of output gaps in the US, the UK, Spain, Germany and China both in ‘the Great Moderation’ period and during ‘the Great Recession’. In countries with large imbalances, sustainable growth rates are more stable than potential growth resulting in output gaps that were substantially larger in the period prior to the crisis.
    Keywords: sustainable growth, macroeconomic imbalances, output gaps, potential growth
    JEL: E32 F44 G01
    Date: 2013–10

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