nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒11‒22
seven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Do the FDI, Economic growth and Trade affect each other for India: An ARDL Approach By Singh, Anshul
  2. Growth Effects of Remittances:Is there a U-Shaped Relationship? By Gazi Mainul Hassan; Mohammed S. Bhuyan
  3. Factor income taxation, growth, and investment specific technological change By Monisankar Bishnu; Chetan Ghate; Pawan Gopalakrishnan
  4. The Political intergenerational welfare state: A Unified framework By Monisankar Bishnu; Min Wang
  5. Growth, geography, and the iron law: Understanding divergence across Indian districts By Samarjit Das; Chetan Ghate; Peter E. Robertson
  6. Impact of money supply on stock bubbles By Sirucek, Martin
  7. Model uncertainty in matrix exponential spatial growth regression models By Manfred M. Fischer; Philipp Piribauer

  1. By: Singh, Anshul
    Abstract: This paper examines the dynamic causal relationships between foreign direct investment (FDI), trade and economic growth in India by applying the bounds testing (ARDL) approach to cointegration for the period from 1970 to 2012. The bounds tests suggest that the variables of interest are bound together in the long-run when GDP per capita is the dependent variable. The empirical findings confirm that there is bi-directional Granger causality between FDI and trade, unidirectional Granger causality running from FDI to economic growth and from economic growth to capital investment but there is no Granger causality from economic growth to FDI and capital investment to per capita GDP.
    Keywords: FDI, trade openness, economic growth, ARDL cointegration, ECM, India
    JEL: C22 F13 F21
    Date: 2013–11–10
  2. By: Gazi Mainul Hassan (University of Waikato); Mohammed S. Bhuyan (University of Wollongong)
    Abstract: This paper shows that the effect of remittances on economic growth entails a U-shaped pattern where it is negative in the beginning but becomes positive later on. The analysis is based on the argument that recipient household savings out of remittances income is negligible or even negative in the initial periods but turns positive in the later part. Using time series data from Bangladesh and single-equation cointegration methods, we find that remittances’ effect on long-run growth is negative and falling until remittances-to-GDP ratio is roughly 9 percent and it starts to become positive when the ratio exceeds 17 percent.
    Keywords: remittances and growth; remittances utilisation; total factor productivity (TFP); cointegration; Bangladesh
    JEL: O10 O15 F22 F24
    Date: 2013–11–15
  3. By: Monisankar Bishnu (Indian Statistical Institute, New Delhi); Chetan Ghate (Indian Statistical Institute, New Delhi); Pawan Gopalakrishnan (Indian Statistical Institute, New Delhi)
    Abstract: We construct a tractable endogenous growth model with production externalities in which the public capital stock augments investment speci?c technological change. We characterize the ?rst best ?scal policy and show that there exist several labor and capital tax-subsidy combinations that decentralize the planner?s growth rate. The optimal factor income tax mix is therefore indeterminate which gives the planner the flexibility to choose policy rules from a large set. Our model explains why many advanced economies experiencing similar growth rates have widely varying factor income tax rates.
    Keywords: Investment Specific Technological Change, Endogenous Growth, Factor Income Taxation, Welfare, First best fiscal policy, Indeterminacy
    JEL: E2 E6 H2 O4
    Date: 2013–01
  4. By: Monisankar Bishnu (Indian Statistical Institute, New Delhi); Min Wang (Peking University)
    Abstract: We provide a complete characterization of intergenerational welfare state with education and pension under probabilistic voting where voters internalize the general equilibrium effects materializing in their life-span. We show that as public education is introduced in the economy through the political process of voting, it always increases (reduces) the accumulation of human capital (physical capital), but strikingly, has no effect on the political equilibrium of PAYG social security tax. On the other hand, the introduction of a politically determined PAYG social security most defnitely reduces physical capital accumulation, however it will reduce the human capital accumulation if only if the public education is already present in the economy. Otherwise, it may lead to an increase in the human capital accumulation. We also demonstrate that the general equilibrium effects are crucial to sustain the social security program, and explain why the presence of PAYG social security may not provide su› cient incentive for public investment in education. Finally, we show that the simultaneous arrangement of public education and pension can increase the long-run growth if and only if the relative political weight of the old is small so that the pension program is thin, which makes the result of Boldrin and Montes (2005) study conditional on the intergenerational distribution of voting power in our political economy setup.
    Keywords: Education, Social security, Probabilistic voting, Markov Perfect Equilibrium, Endogenous growth
    JEL: E6 H3 H52 H55 D90
    Date: 2013–05
  5. By: Samarjit Das (Indian Statistical Institute, New Delhi); Chetan Ghate (Indian Statistical Institute, New Delhi); Peter E. Robertson (University of Western Australia)
    Abstract: The existing literature on Indian growth finds no evidence of B convergence across states. This represents a puzzle given the relatively free flows of capital, labour and commodities across state borders. We use a new data set to estimate convergence rates across 575 Indian districts and find that the pattern of absolute B- divergence remains. To explain this we develop a model of conditional convergence that includes a gravity indicator of trade and migration costs - specifically the distance from a major metropolitan center - as a conditioning variable. We find strong evidence of conditional convergence with an elasticity close to Barro's "iron law". We also find that geography and public infrastructure variables are important conditioning variables.
    Keywords: Convergence, Divergence, Indian Economic Growth, Gravity Models
    JEL: O4 O5
    Date: 2013–05
  6. By: Sirucek, Martin
    Abstract: This article is focus on the effect and implications of changes in money supply in US on stock bubble rise on the US capital market, which is represented by the Dow Jones Industrial Average index. This market was chosen according to the market capitalization. The attention of paper is focused on problems, if according to the results of empirical analysis is the money supply significant factor which cause the bubbles and if during the time growth the significancy and impact of this macroeconomic factor on stock index.
    Keywords: money supply, stock market, stock bubbles, granger causality, Dickey-Fuller test
    JEL: E52 G15
    Date: 2013–10–07
  7. By: Manfred M. Fischer (Department of Socioeconomics, Vienna University of Economics and Business); Philipp Piribauer (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper considers the problem of model uncertainty associated with variable selection and specification of the spatial weight matrix in spatial growth regression models in general and growth regression models based on the matrix exponential spatial specification in particular. A natural solution, supported by formal probabilistic reasoning, is the use of Bayesian model averaging which assigns probabilities on the model space and deals with model uncertainty by mixing over models, using the posterior model probabilities as weights. This paper proposes to adopt Bayesian information criterion model weights since they have computational advantages over fully Bayesian model weights. The approach is illustrated for both identifying model covariates and unveiling spatial structures present in pan-European growth data.
    Keywords: model comparison, model uncertainty, spatial Durbin matrix exponential growth models, spatial weight structures, European regions
    JEL: C11 C21 C52 O47 O52 R11
    Date: 2013–10

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