nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2013‒12‒06
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test By Polat, Ali; Shahbaz, Muhammad; Ur Rehman, Ijaz; Satti, Saqlain Latif
  2. Do Technological Developments and Financial Development Promote Economic Growth: Fresh Evidence from Romania By Ur Rehman, Ijaz; Shahbaz, Muhammad; Kyophilavong, Phouphet
  3. Measuring Economic Growth from Outer Space: A Comment By Berliant, Marcus; Weiss, Adam
  4. An Empirical Analysis of Inflation-Growth Nexus in Developing Countries: The Case of Sri Lanka By Nawalage S. Cooray
  5. On the Causality between Domestic Credit Aggregates and Economic Growth in a Multivariate VAR Framework: Evidence from Nigeria By Evans, Olaniyi
  6. Institutional interactions and economic growth: The joint effects of property rights, veto players and democratic capital By Justesen, Mogens K.; Kurrild-Klitgaard, Peter
  7. South-North convergence from a new perspective By Hübler, Michael
  8. Panel data evidence on the effects of fiscal impulses in the EU New Member States By Paweł Borys; Piotr Ciżkowicz; Andrzej Rzońca
  9. Which Types of Relatedness Matter in Regional Growth? - Industry, occupation and education. By Wixe, Sofia; Andersson, Martin
  10. Does Competition Improve Industrial Productivity? An analysis of Japanese industries on the basis of the industry-level panel data By AMBASHI Masahito

  1. By: Polat, Ali; Shahbaz, Muhammad; Ur Rehman, Ijaz; Satti, Saqlain Latif
    Abstract: This study revisits the impact of financial development on economic growth in South Africa by incorporating trade openness in the production function. The paper covers the period of 1970-2011. We apply the Bayer-Hanck combined cointegration approach to examine the long run relationship between the variables. Our results indicate that financial development stimulates economic growth. Capital use adds in economic growth but trade openness impedes economic growth. The demand-side hypothesis is validated in South Africa. This paper suggests that government should redirect trade policies to reap optimal fruits of financial development for long run economic growth.
    Keywords: financial development, trade openness, economic growth, South Africa
    JEL: C5
    Date: 2013–11–20
  2. By: Ur Rehman, Ijaz; Shahbaz, Muhammad; Kyophilavong, Phouphet
    Abstract: We study the relationship between financial development, technological development and economic growth in Romania. We construct aggregate indices of financial development and technological development using principal component analysis. The ARDL bounds testing approach shows the presence of cointegration between financial development, technological development and economic growth. Financial development and technological development contribute to economic growth. Moreover, financial development leads technological development which Granger causes economic growth. Our empirical evidence suggest that economic growth is driven by financial development via technological development and that, in Romania,a stable financial system and capital market can facilitate technological innovations.
    Keywords: Financial development, technological development, economic growth, Romania
    JEL: E00
    Date: 2013–11–21
  3. By: Berliant, Marcus; Weiss, Adam
    Abstract: We examine econometric and elementary economic theory issues arising from the model specification in Henderson, Storeygard and Weil (2012), that uses night light data to proxy for missing or unreliable GDP growth data. An alternative approach based on the expenditure function is outlined. It can accommodate prices as well as quantity information from other commodity markets.
    Keywords: GDP; Night light data; Omitted variable; Expenditure function; Spatial autocorrelation
    JEL: D11 D61 O47 O57
    Date: 2013–11–25
  4. By: Nawalage S. Cooray (International University of University)
    Abstract: The maintenance of price stability is regarded as a key economic policy goal, as inflation is costly and hinders economic growth. There is a vast literature on the relationship between inflation and growth across time, regions, and inflation ranges. The conventional neoclassical view postulates a linear negative relationship between inflation and economic growth. The Keynesian and Neo]Keynesian frameworks, however, have established a linear positive relationship between inflation and growth in the short]run. Some researchers maintain that neither positive nor negative associations exist between inflation and growth. Although there seems to be an obvious positive relationship between inflation and growth in Sri Lanka in the long]run, it is difficult to establish a clear link between the two without a thorough investigation. Moreover, the high and volatile inflation rates have sparked a confusing debate within policy circles over the nexus of growth and inflation in the country. Given this background, this paper develops an econometric model to identify the real nature of the growth]inflation link in Sri Lanka and to determine the optimum or threshold rate of inflation that would minimise the economic cost of inflation in terms of economic growth. To the best of the authorfs knowledge, there has been no attempt previously to find such a threshold level of inflation for Sri Lanka. The proposed model uses long time series data to establish the plausible link between growth and inflation and also to estimate the inflation threshold.The current study finds a non]linear relationship between inflation and growth in Sri Lanka, contradicting the general belief about the linear relationship between inflation and growth. Growth increases with inflation, showing a positive relationship between the two variables up to 11 per cent of inflation, and then, growth becomes negative if inflation increases beyond that level. This finding implies that in Sri Lanka, there is a significant structural break of inflation at the 12 per cent level. The paper also finds that GDP growth and per capita GDP maximising inflation rate for the country falls between 7.4]9.6 per cent.
    Keywords: Inflation, Sri Lanka, Nexus of inflation and growth, Threshold level of inflation
    JEL: E31 E32 C01 C22 O40
    Date: 2013–11
  5. By: Evans, Olaniyi
    Abstract: The major objective of this paper is to empirically investigate the relationship between domestic credit and economic growth in Nigeria, using annual time series data from 1970 to 2012. In order to do this, the study employs KPSS unit root test, Johansen cointegration test, VAR modeling, impulse response function, variance decomposition and granger causality. Firstly, the findings reveal that there is a bi-directional causality and positive relationship between domestic credit and the economic growth in Nigeria. That is, domestic credit does not only contribute positively to economic growth in Nigeria, but the impact is strong and statistically significant. The findings have a strong implication on financial policy in Nigeria. The major implication is that an efficient financial system is one of the foundations for building sustained economic growth. Considering regulations, institutional constraints and other macro-economic factors militating against domestic credit in the economy, government should make the environment conducive and supportive so that performance is enhanced and good lending behaviour guaranteed.
    Keywords: Domestic Credit, Economic growth, Johansen cointegration test, VAR modeling, impulse response function, variance decomposition and granger causality, financial system and Nigeria
    JEL: E5 E51 G21 O1 O42
    Date: 2013–11
  6. By: Justesen, Mogens K.; Kurrild-Klitgaard, Peter
    Abstract: We investigate the possible interaction effects that the extent of property rights protection and separation of powers in a political system have on economic growth. Using analysis of panel data from more than countries over the period 1970-2010 we find that the growth effects of property rights increase when political power is divided among more veto players. When distinguishing between institutional veto players (political institutions) and partisan veto players (fractionalization among political parties), we further find that the growth effects of property rights are driven mainly by checks on the chief executive (in bicameral systems) and primarily found in countries with large stocks of democratic capital.
    Keywords: Economic growth; institutions; property rights; veto players; democracy.
    JEL: D72 E02 O17 O43 P14 P16 P17 P48
    Date: 2013–11
  7. By: Hübler, Michael
    Abstract: This North-South model of Schumpeterian endogenous growth combines a market, productivity and knowledge effect. A set of various convergent and divergent growth paths is derived that is much richer than in the literature so far. South-North convergence based on North-South technology diffusion through intermediate goods trade is guaranteed if the knowledge effect dominates the productivity effect. Moreover, a larger Southern market expands the area of convergence and can prevent divergence. Not only a larger Southern market size, but also a higher Southern steady state growth rate benefit the North so that convergence is desirable for both, the South and the North. --
    Keywords: Schumpeter,endogenous growth,technology diffusion,convergence,poverty trap
    JEL: F18 O11 O33 O41
    Date: 2013
  8. By: Paweł Borys (Warsaw School of Economics); Piotr Ciżkowicz (Warsaw School of Economics); Andrzej Rzońca (Warsaw School of Economics and Monetary Policy Council in Narodowy Bank Polski)
    Abstract: We identify fiscal impulses in the EU New Member States using four different methods and apply econometric panel data techniques to determine what is the response of the output and its components to those impulses. We also directly test the effects of fiscal impulses on labour costs and housholds’ expectations. The results confirm that the composition of impulses matters for output and its components’ response. Notably, we find evidence that investment and export growth accelerates after fiscal adjustment and decelerates after fiscal stimulus when the impulses are expenditure-based. In turn, private consumption seems not to respond to fiscal impulses regardless of their size. The analysis confirms that expenditure-based fiscal adjustments enhance wage moderation and thereby competitiveness of domestic enterprises, while expenditure-based fiscal stimuli weaken it. By contrast, we do not find evidence that fiscal impulses have an effect on households’ confidence.
    Keywords: fiscal consolidation, non-Keynesian effects, New Member States, panel data
    JEL: C23 D22 D81 E23 E32 E44 E62
    Date: 2013
  9. By: Wixe, Sofia (Centre for Entrepreneurship and Spatial Economics (CEnSE), Jönköping International Business School); Andersson, Martin (Centre for Innovation, Research and Competence in the Learning Economy (CIRCLE), Lund University)
    Abstract: This paper provides a conceptual discussion of relatedness, which suggests a focus on individuals as a complement to firms and industries. The empirical relevance of the main arguments are tested by estimating the effects of related and unrelated variety in education and occupation among employees, as well as in industries, on regional growth. We show that for regional productivity growth, occupational and educational related variety matter over and above industry relatedness. This supports the conceptual discussion put forward. The potential of productive interactions between employees in a region is greater when there is related variety in their ‘knowledge base’. We also find that related variety in industries is positive for employment growth but negative for productivity growth.
    Keywords: Relatedness; variety; occupation; education; regional growth
    JEL: J24 R12 R23
    Date: 2013–11–28
  10. By: AMBASHI Masahito
    Abstract: This study mainly investigates the causal relation between the degree of competition, which is measured by the Lerner index, and the total factor productivity (TFP) growth rate on the basis of the Japanese industry-level panel data (Japan Industrial Productivity (JIP) Database) from 1980 to 2008. The central finding indicates that, although a positive effect of competition on the TFP growth rate is clearly observable in the manufacturing industries throughout the sample period, such effect in the non-manufacturing industries may be slightly negative in the latter half of the sample period (1995-2008). This finding of a negative competition effect may lend support to the claim that the Schumpeterian hypothesis can be applied in the case of the non-manufacturing industries. Furthermore, a weak inverted-U shape relation between the competition measure and TFP growth proposed by Aghion et al. (2005) can be seen limitedly almost exclusively in all industries.
    Date: 2013–11

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