nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒07‒21
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Modeling Economic Growth and Energy Consumption in Arab Countries: Cointegration and Causality Analysis By Shahateet, Mohammed
  2. Economic growth and funded pension systems By Michiel Bijlsma; Ferry Haaijen; Casper van Ewijk
  3. The effect of the financial crisis on TFP growth: a general equilibrium approach By Millard, Stephen; Nicolae, Anamaria
  4. Meeting our D€STINY. A Disaggregated €uro area Short Term INdicator model to forecast GDP (Y) growth By Pablo Burriel; María Isabel García-Belmonte
  5. Global Finance Brief: Monetary Policy Shocks from the EU and US: Implications for Sub-Sharan Africa By Jeremy Kronick
  6. Public Finances, Business Cycles and Structural Fiscal Balances By Kai Liu

  1. By: Shahateet, Mohammed
    Abstract: ABSTRACT: This paper examines the relationship between energy consumption and real economic growth in 17 Arab countries: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates and Yemen. It uses an Auto Regressive Distributed Lag (ARDL) model to determine this econometric relationship using data during 1980-2011. After testing for unit root and cointegration, it identifies Granger causality between energy consumption and real economic growth. The analysis allowed for the verification of the four hypotheses that have been discussed widely in economic literature: Neutrality, Conservation, Growth, and Feedback hypotheses. Empirical findings support neutrality hypothesis in 16 out of 17 Arab countries. These findings, of no causality from economic growth to energy consumption and the other way round, imply that energy conservation will not have a significant impact on economic growth and economic growth will have insignificant effect on changes in energy consumption. They also suggest including other more important variables in the determination of economic growth, such as labor and capital.
    Keywords: economic growth; energy consumption; ARDL model; Granger causality; Arab countries
    JEL: C33 O13 O47 Q43
    Date: 2014–07
  2. By: Michiel Bijlsma; Ferry Haaijen; Casper van Ewijk
    Abstract: Growing pension savings lead to deeper capital markets. This can have a positive effect on economic growth by allowing firms that are more dependent on external finance to grow faster. We study this effect using data on 69 industrial sectors in 34 OECD countries for the period 2001-2010 through a difference-in-differences approach that interacts financial development with industry dependence on external finance. We take into account unobserved heterogeneity by including country-time, industry-time and industry-country fixed effects. We find a significant impact of higher level of pension savings on growth in sectors that are more dependent on external financing. The financial crisis does not significantly affect this relation.
    JEL: C23 J26 O43
    Date: 2014–07
  3. By: Millard, Stephen (Bank of England); Nicolae, Anamaria (Durham University Business School)
    Abstract: In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate. Since firms have to borrow to finance their research and development (R&D) spending, such a rise in the spread leads to a fall in R&D spending, which affects innovation and, hence, reduces TFP growth. In turn, this leads to permanent falls in the levels of output and labour productivity.
    Keywords: Endogenous growth; Research and development; Innovation
    JEL: O40
    Date: 2014–06–27
  4. By: Pablo Burriel (Banco de España); María Isabel García-Belmonte (Banco de España)
    Abstract: In this paper we propose a new real-time forecasting model for euro area GDP growth, D€STINY, which attempts to bridge the existing gap in the literature between large- and small-scale dynamic factor models. By adopting a disaggregated modelling approach, D€STINY uses most of the information available for the euro area and the member countries (around 100 economic indicators), but without incurring in the nite sample problems of the large-scale methods, since all the estimated models are of a small scale. An empirical pseudo-real time application for the period 2004-2013 shows that D€STINY´s forecasting performance is clearly better than the standard alternative models and than the publicly available forecasts of other institutions. This is especially true for the period since the beginning of the crisis, which suggests that our approach may be more robust to periods of highly volatile data and to the possible presence of structural breaks in the sample.
    Keywords: business cycles, output growth, time series, Euro-STING model, large-scale model
    JEL: E32 C22 E27
    Date: 2013–12
  5. By: Jeremy Kronick (International Business School, Brandeis University)
    Abstract: Monetary policy transmission from the developed to the developing world.
    Keywords: monetary policy, development, real economic growth
    JEL: O23
    Date: 2014
  6. By: Kai Liu
    Abstract: This paper proposes a new framework to analyze and estimate structural fiscal balances. Stochastic trends are properly incorporated, and the numerical solution of the DSGE model serves as part of the Kalman smoother to extract structural fiscal balances. For the UK, a setting of an integrated random walk for the underlying stochastic trends fits the date best. The response of nominal fiscal revenue to the technology shock is small. The shocks to foreign demand and to foreign goods price both have positive effects on fiscal revenue. An expansionary monetary policy shock has a great positive short-run impact on fiscal revenue, but the influence is not persistent because of the open-economy characteristic of the UK. An expansion in government spending can also increase fiscal revenue, but the effect is not persistent as well due to the domestic and external crowd-out effects. A contractionary fiscal policy (cutting government expenditure or increasing the lump-sum tax temporarily), rather than an expasionary one, will benefit economic recovery and also improve fiscal stance. Compared to a temporary increase of the lump-sum tax, cutting government spending is relatively more effective and it alleviates the two kinds of crowd-out effects.
    Keywords: business cycles, structural fiscal balances, DSGE model, Kalman filter and smoother
    JEL: C54 E32 E62 H62
    Date: 2014–06–04

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