nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒05‒17
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial Stress and the Impact of Public Debt on UK Growth in High versus Low-Growth Regimes: 1850-2013 By Costas Milas
  2. Do Real Exchange Rate Appreciations Matter for Growth? By Matthieu Bussière; Claude Lopez; Cédric Tille
  3. The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia By Moricz, Sara; Sjöholm, Fredrik
  4. R&D Policy and Schumpeterian Growth: Theory and Evidence By A. Minniti; F. Venturini
  5. Economic Growth and Development By Mark Setterfield
  6. The impact of democracy on economic growth in sub-Saharan Africa, 1982-2012 By Masaki, Takaaki; van de Walle, Nicolas
  7. Short- and Long-Run Relationships between Natural Gas Consumption and Economic Growth: Evidence from Pakistan By Muhammad Shahbaz; Mohamed Arouri; Frédéric Teulon
  8. Macroeconomic Dynamics, Finance, and Growth, Part I By Heng-fu Zou
  9. Macroeconomic Dynamics, Finance, and Growth, Part II By Heng-fu Zou
  10. Macroeconomic Dynamics, Finance, and Growth, Part III By Heng-fu Zou
  11. Factori de creştere a sustenabilităţii datoriei publice By Georgescu, George

  1. By: Costas Milas (University of Liverpool, UK; Rimini Centre of Economic Analysis, Italy)
    Abstract: Using a long historical dataset, we estimate a Threshold Vector Autoregression (T-VAR) model for the UK based on a financial stress measure, the debt-to-GDP ratio, borrowing costs and real GDP growth. Our model allows for the impact of debt/GDP to vary between periods of high and low economic growth. We find that financial stress depresses growth much more in the low as opposed to the high-growth regime. We also find that positive shocks to debt/GDP depress economic growth and raise borrowing costs; again, the impact is much stronger when growth is low. This is an important finding as economists and policy-makers are currently debating whether it makes sense to proceed swiftly with fiscal consolidation when economic conditions remain weak.
    Keywords: Debt, financial stress, GDP growth regimes
    JEL: C2 H3 H6
    Date: 2014–04
  2. By: Matthieu Bussière; Claude Lopez; Cédric Tille (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: While the impact of exchange rate changes on economic growth has long been an issue of key importance in international macroeconomics, it has received renewed attention in recent years, owing to weaker growth rates and the debate on “currency wars”. However, in spite of its prevalence in the policy debate, the connection between real exchange rates and growth remains an unsettled question in the academic literature. We fill this gap by providing an empirical assessment based on a broad sample of emerging and advanced economies. We assess the impact of appreciations, productivity booms and capital flow surges using a propensity-score matching approach to address causality issues. We show that appreciations associated with higher productivity have a larger impact on growth than appreciations associated with capital inflows. Furthermore, the appreciation per se tends to have a negative impact on growth. We provide a simple theoretical model that delivers the contrasted growth-appreciation pattern depending on the underlying shock. The model also implies adverse effects of shocks to international capital flows, so concerns about an appreciation are not inconsistent with concerns about a depreciation. The presence of an externality through firms’ destruction leads to inefficient allocations. Nonetheless, addressing them does not require a dampening of exchange rate movements.
    Keywords: exchange rate, currency crises, endaka, international trade, international capital flows, lending booms, small open economy macroeconomics
    JEL: F10 F30 F41
    Date: 2014–04–03
  3. By: Moricz, Sara (Lund University); Sjöholm, Fredrik (Lund University)
    Abstract: Does democracy increase economic growth? Previous literature tends to find a positive effect but does also suffer from possible endogeneity problems: democratization is typically not random and might be affected by factors that also have an impact on economic growth. This paper narrows down the question to empirically estimating the causal effect of local elections on local economic growth in Indonesia by using a quasi-experimental research method. The first direct elections of district leaders in Indonesia were performed in a staggered manner, and decided such that the year of election is exogenous. Thus, growth in districts that have had their first elections of district heads can be compared with growth in districts that have not had a direct election, which more specifically is performed by using a difference-in-difference approach. Our estimations show no general effect of local elections on economic growth. The result is robust to various robustness tests and is supported by data that show small effects of elections on governance.
    Keywords: Democracy; Elections; Growth; Indonesia; Natural experiment
    JEL: H11 O10 O43
    Date: 2014–05–08
  4. By: A. Minniti; F. Venturini
    Abstract: In recent years, a large body of empirical research has investigated whether the predictions of secondgeneration growth models are consistent with actual data. This strand of literature has focused on the longrun properties of these models by using productivity and innovation data but has not directly assessed the effectiveness of R&D policy in promoting innovation and economic growth. In the present paper, we fill this gap in the literature by providing a unified growth setting that is empirically tested with US manufacturing industry data. Our analysis shows that R&D policy has a persistent, if not permanent, impact on the rate of economic growth and that the economy rapidly adjusts to policy changes. The impact of R&D tax credits on economic growth appears to be long lasting and statistically robust. Conversely, more generous R&D subsidies are associated with an increase in the rate of economic growth in the short run only, indicating that, at best, this policy instrument has only temporary effects. Overall, the evidence regarding the effectiveness of R&D policy provides more support for fully endogenous growth theory than for semi-endogenous growth theory.
    JEL: O3 O38 O4
    Date: 2014–05
  5. By: Mark Setterfield
    Abstract: The historical growth record is reviewed and growth is shown to have resulted in divergence between the incomes of fast growing rich economies and slower growing poorer economies. Supply-led, neoclassical growth is then contrasted with demand-led, Keynesian growth. Three Keynesian growth theories (Harrodian, Kaleckian, and Kaldorian) are outlined and shown to differ according to whether investment spending or export demand is the key “driver” of demand formation and growth. The properties of Keynesian growth are then identified and discussed. These include the relationship between saving behaviour and growth, the effects of income redistribution on growth, the relationship between technical progress and growth, and the interaction of supply and demand in the growth process.
    Keywords: Economic growth, divergence, demand-led growth, Keynesian growth theory
    JEL: O41 O47 O57
    Date: 2014–04
  6. By: Masaki, Takaaki; van de Walle, Nicolas
    Abstract: Does democracy promote economic growth? There is still an ongoing debate over the economic implications of democracy, and this question has gained critical importance particularly in the African context, where a wave of democratization in the early 1990s
    Keywords: economic growth, democracy, democratization
    Date: 2014
  7. By: Muhammad Shahbaz; Mohamed Arouri; Frédéric Teulon
    Abstract: This paper examines the dynamic relationship between natural gas consumption and economic growth in Pakistan using a multivariate model by including capital and labor as control variables for the period between 1972QI and 2011QIV. The results of the ARDL bounds testing indicate the presence of cointegration among the variables. The estimated long-run impact of gas consumption on economic growth is greater than other factor inputs suggesting that energy is a critical driver of production and growth in Pakistan. Furthermore, the results of causality test suggest that natural gas consumption and economic growth are complements. Given that natural gas constitutes to the primary source of energy in Pakistan, the implication of this study is that natural gas conservation policies could harm growth and, therefore, requires the policy makers to improve the energy supply efficiency as well as formulate appropriate policies to attract investment and establish public-private partnership initiatives.
    Keywords: Gas Consumption, Economic Growth, Cointegration.
    JEL: C22 R41
    Date: 2014–05–15
  8. By: Heng-fu Zou (CEMA, Central University of Finance and Economics)
    Date: 2014–04
  9. By: Heng-fu Zou (CEMA, Central University of Finance and Economics)
    Date: 2014–04
  10. By: Heng-fu Zou (CEMA, Central University of Finance and Economics)
    Date: 2014–04
  11. By: Georgescu, George
    Abstract: In the case of Romania, a sharp deterioration of the fiscal framework strength has been observed during post-crisis period, the public debt-to-GDP ratio currently reaching around 40%, thus doubling as compared to 2008. The structural analysis of government debt portfolio highlighted the main drivers of excessive public indebtedness and the increase in refinancing (rollover) risk on short term, which is supposed to overlap with the exchange rate and interest rate risks on medium and long term. Several indicators of Romania’s debt sustainability are already on the warning levels edge which requires appropriate policies focusing on economic growth recovery, fiscal consolidation ongoing, increasing capacity of generating budgetary revenues, public debt management improvement.
    Keywords: public debt; debt sustainability; sovereign risk; sustainable development; financial stability
    JEL: E62 F34 G01 H63
    Date: 2014–01

This nep-fdg issue is ©2014 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.