nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒10‒25
twelve papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Growth, Growth Accelerations and the Poor: Lessons from Indonesia By Sambit Bhattacharyya; Budy R. Resosudarmo
  2. Does economic prosperity bring about a happier society? Empirical remarks on the Easterlin Paradox debate sans Happiness Adaptation By Beja Jr., Edsel
  3. Optimal growth under a climate constraint By Amigues, Jean-Pierre; Moreaux, Michel
  4. Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing By Markus Eberhardt
  5. Growth Accounting Analysis in China 1978-2009 By Kang, Lili; Peng, Fei
  6. Theoretical Arguments for Industrialisation-Driven Growth and Economic Development By Tommaso Ciarli; Michele Di Maio
  7. Economic Reform and Productivity Convergence in China By Kang, Lili; Peng, Fei
  8. Detecting the economic and financial determinants of geographic diversification By Giovanni Battista Dagnino; Claudio Giachetti; Maurizio La Rocca; Pasquale Massimo Picone
  9. The Rise of Life Expectancy and Economic Growth in the 20th Century By Hansen, Casper Worm; Lønstrup, Lars
  10. Medium and Long Run Prospects for UK Growth in the Aftermath of the Financial Crisis By Nicholas Oulton
  11. Should developing countries undervalue their currencies? By Marcel Schröder
  12. Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting By Eugenia Vella; Evangelos Dioikitopoulos; Sarantis Kalyvitis

  1. By: Sambit Bhattacharyya; Budy R. Resosudarmo
    Abstract: We study the impact of growth and growth accelerations on poverty and inequality in Indonesia using a new panel dataset covering 26 provinces over the period 1977-2010. This dataset allows us to distinguish between mining and non-mining sectors of the economy. We find that growth in non-mining significantly reduces poverty and inequality. In contrast, overall growth and growth in mining appears to have no effect on poverty and inequality. We also identify growth acceleration episodes defined by at least four consecutive years of positive growth in GDP per capita. Growth acceleration in non-mining reduces poverty and inequality whereas growth acceleration in mining increases poverty. We expect that the degree of forward and backward linkages of mining and non-mining sectors explain the asymmetric result. Our results are robust to state and year fixed effects, state specific trends, and instrumental variable estimation with rainfall and humidity as instruments.
    Keywords: Indonesia, growth; growth accelerations; mining, poverty; inequality
    JEL: I32 N15 O11 O13 O49
    Date: 2013
  2. 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
  3. By: Amigues, Jean-Pierre; Moreaux, Michel
    Abstract: Inside a standard growth model with exhaustible resources, we study the optimal growth policy of an economy submitted to a climate constraint, taking the form of a ceiling over admissible atmospheric carbon concentrations. The optimal scenario is a three phases path: a rise of carbon concentrations until the carbon cap is attained followed by a time phase constrained by the ceiling on possible emissions and a last unconstrained phase of resource depletion. Depending upon the primitives of the model we show that the optimal path may be of two main kinds: paths characterized by a positive growth of the economy and paths corresponding to a complex structural adjustment process involving negative growth during some time interval.
    Keywords: Carbon pollution; economic growth; exhaustible resources
    JEL: Q00 Q32 Q43 Q54
    Date: 2013–01
  4. By: Markus Eberhardt
    Abstract: This paper employs novel time series methods to investigate the presence of nonlinearities in the long-run relationship between public debt and growth, analysing annual series for the United States, Great Britain, Japan and Sweden from the 1800s to 2008. We find only limited evidence for a nonlinear long-run relationship in these countries and further cannot support the notion that the equilibrium debt-growth relationship is identical across countries. Both results weaken the case for a common 90% or indeed any common debt/GDP threshold recently popularised by the work of Reinhart and Rogoff (2010) and others.
    Keywords: economic growth; public debt; nonlinearity; summability, balance and co-summability
  5. By: Kang, Lili; Peng, Fei
    Abstract: This paper applies the growth accounting model to Chinese economy at region and province levels from 1978 to 2009. We measure the components in the growth accounting model such as capital services, labour inputs and Total Factor Productivity (TFP) using various data sources. The economic growth has been decomposed into the contribution of physical capital, labour inputs, labour composition index (LCI) and TFP. We find that Chinese economic growth was mainly pushed by the growth of physical capital, especially in the fastest growing Coastal region. Labour inputs and TFP growth contribute more in the Interior and West regions. Moreover, the contribution shares of physical capital in labour productivity have been declining for the Coastal region, as the TFP contributions have been increasing over the same period. Our results show that the human capital formation from technological and institutional shifts is becoming more and more important in the Coastal region.
    Keywords: Growth Accounting, Total Factor Productivity, Labour Cost
    JEL: D24 J30 O47
    Date: 2013–10–20
  6. By: Tommaso Ciarli (SPRU, University of Sussex, UK); Michele Di Maio (Univerity of Naples, Parthenope, Italy)
    Date: 2013–10–09
  7. By: Kang, Lili; Peng, Fei
    Abstract: This paper examines effects of the formation of physical and human capital on the growth of labour productivity, Total Factor Productivity (TFP) and wages in China, incorporating the market reform factors such as ownership shifts, population policy, openness and fiscal expenditures on education. We find that Chinese economic miracle is mainly pushed by the (physical) capital service rather than formation of human capital. The physical capital inputs contribute even more after 1994 as the returns to education decrease with the education expansion and increasing tuition fees. The traditional four economic regions of China show different growth patterns. The capital inputs mostly help the labour productivity growth in the West region and the wages growth in the Interior region, while human capital formation contributes to the TFP in all four regions. Moreover, provinces within each region present strong evidence of convergence of economic growth. The convergence is most prominent in the provinces within the Northeast and Coastal regions for labour productivity and TFP growth, suggesting fast technology spill-over within these regions.
    Keywords: labour productivity, convergence, regional inequality
    JEL: D24 D63 J24 O47
    Date: 2013–04–10
  8. By: Giovanni Battista Dagnino (University of Catania); Claudio Giachetti (Dept. of Management, Università Ca' Foscari Venice); Maurizio La Rocca (University of Calabria); Pasquale Massimo Picone (University of Calabria)
    Abstract: .
    Keywords: agency theory, international diversification, cash flow, debt, ownership concentration, growth opportunities
    Date: 2013–10
  9. By: Hansen, Casper Worm (Department of Economics and Business); Lønstrup, Lars (Department of Business and Economics)
    Abstract: This study documents that the growth in life expectancy over the 20th century decreased per capita GDP growth and increased population growth. By exploiting significant advances in medical technologies, starting to diffuse in the 1940s, the analysis establishes that countries with higher levels of infectious-disease mortality prior to the medical breakthrough experienced higher growth rates in life expectancy and population size, and lower growth rates in per capita GDP in the time after the medical breakthroughs. These findings are robust to the inclusion of initial life expectancy and initial GDP per capita. The evidence presented here therefore complements the conclusions inferred in the research by Acemoglu and Johnson (2007).
    Keywords: Life expectancy; health shock; long-run economic growth
    JEL: I10 J11 O40
    Date: 2013–10–16
  10. By: Nicholas Oulton
    Abstract: The productivity performance of the UK economy in the period 1990-2007 was excellent. Based entirely on pre-crisis data, and using a two-sector growth model, I project the future growth rate of GDP per hour in the market sector to be 2.61% p.a. But the financial crisis and the Great Recession which began in Spring 2008 have dealt this optimistic picture a devastating blow. Both GDP and GDP per hour have fallen and are still below the level reached at the peak of the boom. So I discuss a wide range of hypotheses which seek to explain the productivity collapse, including the impact of austerity. Most of the conclusions here are negative: the explanation in question doesn't work. I next turn to the long run impact of financial crises, particularly banking crises, on productivity, capital, TFP and employment. Based on a cross-country panel analysis of 61 countries over 1950-2010, I argue that banking crises generally have a long run impact on the level of productivity but not necessarily on its long run growth rate. I therefore predict that the UK will eventually return to the growth rate predicted prior to the crisis. This prediction is conditional on the UK continuing to follow good policies in other respects, in particular not allowing the government debt-GDP ratio to rise excessively. Nonetheless the permanent reduction in the level of GDP per worker resulting from the crisis could be substantial, about 5½%. The cross-country evidence also suggests that there are permanent effects on employment, implying a possibly even larger hit to the level of GDP per capita of about 9%.
    Keywords: productivity, potential output, growth, financial, banking crisis, recession
    JEL: J24 E32 O41 G01 H63
    Date: 2013–10
  11. By: Marcel Schröder
    Abstract: The Washington Consensus emphasizes the economic costs of real exchange rate distortions. However, a sizable recent empirical literature finds that undervalued real exchange rates help countries to achieve faster economic growth. This paper shows that recent findings are driven by inappropriate homogeneity assumptions on cross-country long-run real exchange rate behavior and/or growth regression misspecification. When these problems are redressed, the empirical results for a sample of 63 developing countries suggest that deviations of the real exchange rate in either direction from the value that is consistent with external and internal equilibrium reduces economic growth. Deviations from Balassa-Samuelson adjusted purchasing power parity on the other hand do not seem to matter for growth performance. The real exchange rate should thus be consistent with external and internal balance irrespective of implied purchasing power parity benchmarks.
    Keywords: Real exchange rate misalignment, Undervaluation, Economic growth
    JEL: F31 F41 F43 O11
    Date: 2013
  12. By: Eugenia Vella; Evangelos Dioikitopoulos (Brunel University); Sarantis Kalyvitis (DIEES, AUEB)
    Abstract: This paper studies optimal fiscal policy, in the form of taxation and the allocation of tax revenues between infrastructure and environmental investment, in a general-equilibrium growth model with endogenous subjective discounting. A green spending reform, defined as a reallocation of government expenditures towards the environment, can procure a double dividend by raising growth and improving environmental conditions, although the environment does not impact the production technology. Also, endogenous Ramsey fiscal policy eliminates the possibility of an `environmental and economic poverty trap'. Contrary to the case of exogenous discounting, green spending reforms are the optimal response of the Ramsey government to a rise in the agents' environmental concerns.
    Keywords: endogenous time preference, growth, environmental quality, second-best fiscal policy
    JEL: D90 E21 E62 H31

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