nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒11‒29
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Debt, Inflation and Growth: Robust Estimation of Long-Run Effects in Dynamic Panel Data Models By Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi
  2. Impact of Financial Development and Globalization on Inflation: The Role of Remittance and Economic Growth in Bangladesh By Satti, Saqlain Latif; Shahbaz, Muhammad; Mujahid, Nooreen; Ali, Amjad
  3. Growth, Deficits and Uncertainty: Theoretical Aspects and Empirical Evidence By Eleftherios Goulas; Athina Zervoyianni
  4. Unified Growth Theory: The theory of nothing By Ron W Nielsen
  5. Hyperbolical discounting and endogenous growth By Strulik, Holger

  1. By: Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi
    Abstract: This paper investigates the long-run effects of public debt and inflation on economic growth. Our contribution is both theoretical and empirical. On the theoretical side, we develop a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in dynamic heterogeneous panel data models with cross-sectionally dependent errors. The relative merits of the CS-DL approach and other existing approaches in the literature are discussed and illustrated with small sample evidence obtained by means of Monte Carlo simulations. On the empirical side, using data on a sample of 40 countries over the 1965-2010 period, we find significant negative long-run effects of public debt and inflation on growth. Our results indicate that, if the debt to GDP ratio is raised and this increase turns out to be permanent, then it will have negative effects on economic growth in the long run. But if the increase is temporary, then there are no long-run growth effects so long as debt to GDP is brought back to its normal level. We do not find a universally applicable threshold effect in the relationship between public debt and growth. We only find statistically significant threshold effects in the case of countries with rising debt to GDP ratios.
    Keywords: Long-run relationships, estimation and inference, large dynamic heterogeneous panels, cross-section dependence, debt, inflation and growth, debt overhang.
    JEL: C23 E62 F34 H6
    Date: 2013–11–21
  2. By: Satti, Saqlain Latif; Shahbaz, Muhammad; Mujahid, Nooreen; Ali, Amjad
    Abstract: The present study investigates the impact of financial development and globalization on inflation by incorporating foreign remittances and economic growth in inflation function in case of Bangladesh. The study covers the period of 1976Q1-2012Q4. We have applied structural break unit root test to examine integrating properties of the variables. The long run relationship between the variables is examined by applying newly developed cointegration approach by Bayer and Hanck, (2013) accommodating structural breaks in the series. Our results confirm the presence of cointegration between the variables in the presence of structural breaks. We find that financial development increases inflation. Globalization stimulates inflation. Economic growth declines inflation but foreign remittances raises it. The causality analysis reveals the bidirectional causality between financial development and inflation. The feedback effect exists between economic growth and inflation and, same is true for financial development and economic growth. Foreign remittances Granger cause inflation and inflation Granger cause foreign remittances.
    Keywords: Financial Development, Globalization, Inflation, Bangladesh
    JEL: E1
    Date: 2013–11–13
  3. By: Eleftherios Goulas (Department of Economics, University of Patras, Greece); Athina Zervoyianni (Department of Economics, University of Patras, Greece; The Rimini Centre for Economic Analysis (RCEA), Italy)
    Abstract: We examine the relationship between fiscal deficits and per-capita income growth in a panel of 27 European countries, allowing for perceived risks, in terms of fiscal sustainability, associated with additional government spending. Such risks are proxied by the conditional variability of manufacturing production and stock market returns and by the unconditional variability of two survey-based economic sentiment indicators. To help clarifying how fiscal variables impact on growth and to provide a point of reference for the interpretation of the empirical results a structural growth model is first identified. We find evidence of an asymmetric relationship, in that fiscal deficits give rise to adverse growth effects if they coincide with high uncertainty regarding the prospects of the economy and no significant negative growth effects in the low-uncertainty case.
    Keywords: growth, fiscal policy, government budget constraint, uncertainty
    JEL: O40 E60 H60 D80
    Date: 2013–06
  4. By: Ron W Nielsen
    Abstract: The fundamental concepts of the Unified Growth Theory, the three stages of growth (Malthusian Regime, Post-Malthusian Regime and Modern Growth Regime) are contradicted by data. The three stages of growth did not exist and the Industrial Revolution had no effect on the world economic growth and on the growth of human population. Whatever the Unified Growth Theory is describing it is not describing the economic growth and the growth of human population.
    Date: 2013–11
  5. By: Strulik, Holger
    Abstract: This paper provides the exact analytical solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased preferences. In fact, an equivalence result holds. If hyperbolical discounting provides the same present value of a constant infinite income stream as standard exponential discounting, then the equilibrium rate of economic growth is also the same under both discounting methods. In this sense present-bias and the entailed time-inconsistency of savings plans are harmless for economic growth. The result is robust to the introduction of non-homothetic utility and a variable elasticity of intertemporal substitution in consumption. --
    Keywords: hyperbolic discounting,time-inconsistency,endogenous growth,adjustment dynamics
    JEL: D91 E21 O40
    Date: 2013

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