nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒06‒28
ten papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Electricity consumption and economic growth: exploring panel-specific differences By Fatih Karanfil; Yuanjing Li
  2. Culture Matters: A Test of Rationality on Economic Growth By Forson, Joseph Ato; Janrattanagul, Jakkaphong; Carsamer, Emmanuel Carsamer
  3. Foreign direct investment drivers and growth in Central and Eastern Europe in the aftermath of the 2007 global financial crisis By R. Jimborean; A. Kelber
  4. Productivity and Potential Output Before, During, and After the Great Recession By John Fernald
  5. Inequality of Opportunity and Economic Growth: A Cross-Country Analysis By Ferreira, Francisco H. G.; Lakner, Christoph; Lugo, Maria Ana; Özler, Berk
  6. Disentangling economic recessions and depressions By Bertrand Candelon; Norbert Metiu; Stefan Straetmans
  7. Forecasting Short-Term Real GDP Growth in the Euro Area and Japan Using Unrestricted MIDAS Regressions By Maxime Leboeuf; Louis Morel
  8. A note on the long-run neutrality of monetary policy: new empirics By Asongu, Simplice
  9. The resurgence of cultural borders in international finance during the financial crisis: Evidence from Eurozone cross-border depositing By Kleimeier S.; Sander H.; Heuchemer S.
  10. A small open economy in the Great Depression: the case of Switzerland By Peter Rosenkranz; Tobias Straumann; Ulrich Woitek

  1. By: Fatih Karanfil; Yuanjing Li
    Abstract: In this paper, we examine the long-­- and short-­-run dynamics between
    Keywords: Electricity consumption; economic growth; electricity dependence; urbanization.
    JEL: C23 O57 Q43
    Date: 2014–06–16
  2. By: Forson, Joseph Ato; Janrattanagul, Jakkaphong; Carsamer, Emmanuel Carsamer
    Abstract: There are widespread debates as to whether cultural values have a bearing on economic growth. Scholarly articles have actually had conflicting results with proponents arguing there is whiles opponents have thought otherwise. The aim of this paper is to verify the assertions made by these two schools of thought from the perspective of culture as a rationality component using an input-output growth model. We basically employed an approach that sought to define and aggregate cultural values under rationality indices: instrumental, affective, value and traditional rationality from 29 countries with data from world value survey (1981-2009). We systematically had them tested in an endogenous growth model alongside traditional economic variables. We conclude that when these cultural variables are combined with the so-called economic variables, there is an improvement in the model explanation than before. In addition, two of these cultural indices indicated a statistically positive effect on economic growth (instrumental and affective rationality). However, traditional rationality index was also robust but with a negative coefficient. Value rationality showed a somewhat weaker link to economic growth and was statistically insignificant. The policy implications of these findings are also discussed.
    Keywords: Economic growth, Rationality, Cultural traits
    JEL: O1 O11 O5
    Date: 2013–07–06
  3. By: R. Jimborean; A. Kelber
    Abstract: In the context of the recent deceleration of growth in emerging Europe, we reassess empirically the effect of foreign direct investment (FDI) inflows on economic growth in Central and Eastern European countries (CEECs) through an analysis carried out over the period 1993-2013. In a first step, we show that the main domestic determinants of FDI inflows are the market size, risk premia, unit labour costs, the openness, as well as progress in structural reforms (mainly related to privatisation process and banking sector) and institutional reforms (namely the lack of trade barriers, the ability for individuals to accumulate private property and progress in fighting corruption) in the host economy. Moreover, the macroeconomic conditions in the euro area also play an important role in explaining FDI flows to the region. In a second step, we analyse the impact of FDI inflows on economic growth. Our findings add to the strand of literature pointing out a positive effect of FDI inflows on growth. We consider the occurrence of the 2007 and 2011 crises and show their negative impact on the FDI - economic growth link, both crises reducing the positive impact of FDI on economic growth.
    Keywords: foreign direct investment; Central and Eastern Europe.
    JEL: F21 O52 P33
    Date: 2014
  4. By: John Fernald
    Abstract: U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about ¾ of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.
    JEL: E23 E32 O41 O47
    Date: 2014–06
  5. By: Ferreira, Francisco H. G. (World Bank); Lakner, Christoph (World Bank); Lugo, Maria Ana (World Bank); Özler, Berk (University of Otago)
    Abstract: Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. We construct two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity – driven by circumstances at birth – has a negative effect on subsequent growth. Results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component we attribute to unequal opportunities. In the DHS sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of our preferred specifications, but the results are not robust to relatively minor changes. On balance, although our results are suggestive of a negative association between inequality and growth, the data at our disposal does not permit robust conclusions as to whether inequality of opportunity is bad for growth.
    Keywords: inequality, inequality of opportunity, economic growth
    JEL: D31 D63 O40
    Date: 2014–06
  6. By: Bertrand Candelon; Norbert Metiu; Stefan Straetmans
    Abstract: We propose a novel nonparametric method to distinguish between recessions vs. depressions and expansions vs. booms in aggregate economic activity. Four depression and
    Keywords: Business cycles, Depression, Multinomial logistic regression, Outlier
    JEL: C14 C35 E32
    Date: 2014–06–16
  7. By: Maxime Leboeuf; Louis Morel
    Abstract: In this paper, the authors develop a new tool to improve the short-term forecasting of real GDP growth in the euro area and Japan. This new tool, which uses unrestricted mixed-data sampling (U-MIDAS) regressions, allows an evaluation of the usefulness of a wide range of indicators in predicting short-term real GDP growth. In line with previous Bank studies, the results suggest that the purchasing managers’ index (PMI) is among the best-performing indicators to forecast real GDP growth in the euro area, while consumption indicators and business surveys (the PMI and the Economy Watchers Survey) have the most predictive power for Japan. Moreover, the results indicate that combining the predictions from a number of indicators improves forecast accuracy and can be an effective way to mitigate the volatility associated with monthly indicators. Overall, our preferred U-MIDAS model specification performs well relative to various benchmark models and forecasters.
    Keywords: Econometric and statistical methods, International topics
    JEL: C C5 C50 C53 E E3 E37 E4 E47
    Date: 2014
  8. By: Asongu, Simplice
    Abstract: Economic theory traditionally suggests that monetary policy can influence the business cycle, but not the long-run potential output. Despite well documented theoretical and empirical consensus on money neutrality in the literature, the role of money as an informational variable for monetary policy decision has remained opened to debate with empirical works providing mixed outcomes. This paper addresses two substantial challenges to this debate: the neglect of developing countries in the literature and the use of new financial dynamic fundamentals that broadly reflect monetary policy. The empirics are based on annual data from 34 African countries for the period 1980 to 2010. Using a battery of tests for integration and long-run equilibrium properties, results offer overall support for the traditional economic theory.
    Keywords: Monetary policy; Credit; Empirics; Africa
    JEL: E51 E52 E58 E59 O55
    Date: 2013–09–15
  9. By: Kleimeier S.; Sander H.; Heuchemer S. (GSBE)
    Abstract: In this paper, we demonstrate that cultural borders in international finance resurge during financial crises. To investigate the role of cultural borders during both tranquil and crisis periods, we employ a unique data set that focuses on Eurozone cross-border depositing in a gravity-model framework. We provide evidence that cultural distance limits international financial integration. However, cultural borders lost influence during a Europhoria phase after the introduction of the Euro notes in 2002, indicating that confidence in the new currency helps to overcome cultural borders. In contrast, cultural borders have severely limiting effects during crisis periods.
    Keywords: Single Equation Models; Single Variables: Models with Panel Data; Longitudinal Data; Spatial Time Series; Financial Aspects of Economic Integration; International Financial Markets; Banks; Depository Institutions; Micro Finance Institutions; Mortgages; Cultural Economics; Economic Sociology; Economic Anthropology: General;
    JEL: C23 F36 G15 G21 Z10
    Date: 2014
  10. By: Peter Rosenkranz; Tobias Straumann; Ulrich Woitek
    Abstract: In historical accounts of the world economic crisis of the 1930s, Switzerland is known for its staunch defense of the gold standard and the rise of corporatist policies. Yet, so far, the literature has not discussed the implications of these two features. This paper tries to show how the combination of hard-currency policy and nominal rigidities introduced by corporatist policies proved to be fatal for growth. Estimating a New Keynesian small open economy model for the period 1926-1938, we show that the decision to participate in the Gold Bloc after 1933 at an overvalued currency can be identified as the main reason for the unusual long lasting recession and that price rigidities from 1931 to 1936 significantly slowed down the adjustment process.
    Keywords: Great Depression, Switzerland, New Keynesian Business Cycle Model
    JEL: E12 E32 N14
    Date: 2014–06

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.