nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒07‒13
eleven papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Does corruption impede economic growth in Pakistan ? By Abdul Farooq; Muhammad Shahbaz; Mohamed Arouri; Frédéric Teulon
  2. Growth Strategy with Social Capital and Physical Capital- Theory and Evidence: the Case of Vietnam. By Cuong Le Van; Anh-Ngoc Nguyen; Ngoc-Minh Nguyen
  3. Economic Growth and Government Spending in Saudi Arabia: an Empirical Investigation By Saad A. Alshahrani; Ali J. Alsadiq
  4. Culture values and economic growth By Jellal, Mohamed
  5. The Natural Rate of Interest with Endogenous Growth, Financial Frictions and Trend Inflation By Olmos, Lorena; Sanso Frago, Marcos
  6. Austerity, fiscal volatility, and economic growth By Curatola, Giuliano; Donadelli, Michael; Gioffré, Alessandro; Grüning, Patrick
  7. Financial Flows, External Capital Structure, Institutions and Economic Growth in Asian Developing Economies By Madiha Bashir; Attiya Yasmin Javid
  8. Debt and Growth: Is There a Magic Threshold? By Andrea Pescatori; Damiano Sandri; John Simon
  9. Public Investment, Public Finance, and Growth: The Impact of Distortionary Taxation, Recurrent Costs, and Incomplete Appropriability By Christopher Adam; David Bevan
  10. Redistribution, Inequality, and Growth By Jonathan David Ostry; Andrew Berg; Charalambos G. Tsangarides
  11. The Network Origins of Economic Growth By Dürnecker, Georg; Meyer, Moritz; Vega-Redondo, Fernando

  1. By: Abdul Farooq; Muhammad Shahbaz; Mohamed Arouri; Frédéric Teulon
    Abstract: The present study reinvestigates the impact of corruption on economic growth by incorporating financial development and trade openness in growth model in case of Pakistan.We have used time series data over the period of 1987–2009. We have applied s
    Keywords: Corruption, Growth, Pakistan.
    Date: 2014–06–23
  2. By: Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG and VCREME); Anh-Ngoc Nguyen (Development and Policies Research Center (DEPOCEN) - Vietnam); Ngoc-Minh Nguyen (Development and Policies Research Center (DEPOCEN) - Vietnam)
    Abstract: We study the impact of social capital in both simple theoretical and empirical model with the main assumption is the price of physical capital is a decreasing function of social capital. In our theoretical model, there exists a critical value such that firm will not invest in social capital if its saving is lower than the critical value and otherwise. Moreover, the output depends positively and non-linearly on the social capital. Our empirical model that captures the impact of physical capital, human capital, and social capital using the database from Survey of Small and Medium Scale Manufacturing Enterprises (SMEs) in Vietnam 2011, confirms the conclusions of the theoretical model.
    Keywords: Social Capital, Optimal Growth.
    JEL: Z1 E2 O00
    Date: 2014–02
  3. By: Saad A. Alshahrani; Ali J. Alsadiq
    Abstract: This paper empirically examines the effects of different types of government expenditures, on economic growth in Saudi Arabia. We use different econometric techniques to estimate the short- and long-run effects of these expenditures on growth and employ annual data over the period 1969-2010. Our findings indicate that while private domestic and public investments, as well as healthcare expenditure, stimulate growth in the long-run, openness to trade and spending in the housing sector can also boost short-run production. These findings draw some policy implications for Saudi policymakers on maximizing the returns of the government spending on economic growth.
    Keywords: Economic growth;Saudi Arabia;Government expenditures;Fiscal policy;Time series;Economic models;Government Spending, Oil Exporting Economy, total expenditures, capital expenditures, defense expenditures, health expenditures, education expenditures, public expenditures, expenditure growth, expenditure categories, consumption expenditure, composition of government spending, medium-term expenditure, medium-term expenditure framework, fiscal affairs, taxation, capital expenditure growth, public spending, government consumption expenditure, fiscal affairs department
    Date: 2014–01–13
  4. By: Jellal, Mohamed
    Abstract: We integrate a general social norm function which associates status to accumulation of capital and consumption into a very simple model of endogenous growth. We show that societies which place a greater cultural weight on capital as opposed to consumption preferences will experience fast growth. Our results are consistent with those obtained by Baumol(1990) in the context of entrepreneurship and by Fershtman and Weiss (1991).
    Keywords: Cultural incentives, social status, endogenous growth
    JEL: A13 O1 O43 Z13
    Date: 2014–07–04
  5. By: Olmos, Lorena; Sanso Frago, Marcos
    Abstract: Given the unobservable quality of the natural rate of interest, the consequences of central banks using an incorrect value in the monetary policy rule are analyzed in a New Keynesian DSGE model with endogenous growth, financial frictions and trend inflation. Our results confirm the financial structure plays a key role in the determination of the natural rate of interest and show that the mismeasurements affect the long-run growth rate by modifying the actual inflation rate trend, which is different from the target. Finally, we develop a mechanism to monitor the accuracy of the natural rate estimate.
    Keywords: natural rate of interest, New Keynesian DSGE models, endogenous growth, �financial frictions, trend inflation
    JEL: E43 E44 E58 O40
    Date: 2014
  6. By: Curatola, Giuliano; Donadelli, Michael; Gioffré, Alessandro; Grüning, Patrick
    Abstract: This paper contributes to the ongoing debate on the relationship between austerity measures and economic growth. We propose a general equilibrium model where (i) agents have recursive preferences; (ii ) economic growth is endogenously driven by investments in R&D; (iii) the government is committed to a zero-deficit policy and finances public expenditures by means of a combination of labor taxes and R&D taxes. We find that austerity measures that rely on reducing resources available to the R&D sector depress economic growth both in the short- and long-run. High debt EU members are currently implementing austerity measures based on higher taxes and/or lower investments in the R&D sector. This casts some doubts on the real ability of these countries to grow over the next years. --
    Keywords: Austerity Measures,Fiscal Policy,Endogenous Growth,R&D
    JEL: G12 G15
    Date: 2014
  7. By: Madiha Bashir (Pakistan Institute of Development Economics, Islamabad); Attiya Yasmin Javid (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Present study is conducted to measure the impact of financial integration on economic growth in Asian developing economies using panel data of twelve Asian countries from 1984-2012. In first part of analysis, study finds for the direction of causality between financial development and economic growth and based on empirical finding suggests that it is financial development that follows growth. In second part of analysis, study examined the growth effect of four different kind of financial integration variables. The effect of financial integration differed considerably depending on the type of financial integration variable employed. Foreign direct investment and equity assets and Foreign direct investment and equity liabilities negatively affects growth while debt assets and debt liabilities positively affects growth in developing Asia. Moreover, the impact of two dimensions of public institutions i.e. corruption and financial development on composition of external liability structure is also examined. Study arrives at conclusion that financial integration does not contribute in growth of developing Asia as much as it is expected. Moreover, countries should develop and strengthen its financial system and reduce corruption to attract FDI in order to enjoy more growth episodes and to avoid currency crisis as well.
    Keywords: Financial Integration, Economic Growth, Financial Development, Composition of External Liability Structure, Corruption, Currency Crisis
    Date: 2014
  8. By: Andrea Pescatori; Damiano Sandri; John Simon
    Abstract: Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.
    Keywords: Public debt;Economic growth;Economic models;Sovereign debt, growth
    Date: 2014–02–13
  9. By: Christopher Adam; David Bevan
    Abstract: Effective public investment requires governments to address the "recurrent cost problem" to ensure operations and maintenance (O&M) expenditures are sufficient to sustain the flow of productive public capital services to private factors of production. Building on the model of Buffie et al (2012), this paper explores the macroeconomic implications of this recurrent cost problem and its resolution in a context that recognizes that taxation is distortionary. The model is also used to examine stylized fiscal reforms including the replacement of a distortionary output tax with a uniform consumption tax and budgetary reforms that restore O&M expenditures to their efficient levels. These experiments are stylized but clearly demonstrate the material consequences of the tax and public expenditure structures for growth and debt sustainability in low-income countries.
    Keywords: Public investment;Government expenditures;Budgetary reforms;Taxation;Consumption taxes;Public finance;Economic growth;Low-income developing countries;economic growth; public investment; tax reform; recurrent costs; operations and maintenance
    Date: 2014–05–01
  10. By: Jonathan David Ostry; Andrew Berg; Charalambos G. Tsangarides
    Abstract: The Fund has recognized in recent years that one cannot separate issues of economic growth and stability on one hand and equality on the other. Indeed, there is a strong case for considering inequality and an inability to sustain economic growth as two sides of the same coin. Central to the Fund’s mandate is providing advice that will enable members’ economies to grow on a sustained basis. But the Fund has rightly been cautious about recommending the use of redistributive policies given that such policies may themselves undercut economic efficiency and the prospects for sustained growth (the so-called “leaky bucket†hypothesis written about by the famous Yale economist Arthur Okun in the 1970s). This SDN follows up the previous SDN on inequality and growth by focusing on the role of redistribution. It finds that, from the perspective of the best available macroeconomic data, there is not a lot of evidence that redistribution has in fact undercut economic growth (except in extreme cases). One should be careful not to assume therefore—as Okun and others have—that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support such a conclusion.
    Keywords: Income distribution;Economic growth;Government expenditures;Political economy;Redistribution, Inequality, and Growth
    Date: 2014–02–17
  11. By: Dürnecker, Georg; Meyer, Moritz; Vega-Redondo, Fernando
    Abstract: In this paper, we propose a new approach to represent a country's outward orientation. Prior work mostly uses indicators of aggregate trade intensity, trade policy or trade restrictiveness. Our approach offers a broader perspective as it measures a country's level of integration not only by its set of direct trade connections with the rest of the world but also through the full architecture of its second, third, and all other higher-order connections. We apply our methodology to a sample of 167 countries spanning the period from 1962 to 2009 and perform a Bayesian modelaveraging analysis on the determinants of growth. We find a prominent positive effect of integration on a country's level of per capita income, while the aforementioned traditional measures of outward orientation display only a secondary, largely insignificant, weight. This, we argue, highlights the network basis of economic growth and adds a novel perspective to the notion of economic openness. We also perform several sensitivity checks and conclude that our baseline findings are extremely robust to different data input and alternative assumptions about the computation of country integration.
    Keywords: Globalization , Trade Integration , Economic Growth , Network Analysis , Dynamic Panel Model , Bayesian Model Averaging
    JEL: C11 D85 F15 O40
    Date: 2014

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