nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒07‒28
seven papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Endogenous Fluctuations in an Endogenous Growth Model with Infl ation Targeting By Rangan Gupta; Lardo Stander
  2. Public Debt, Economic Growth, and Inflation in African Economies By Lopes da Veiga, José; Ferreira-Lopes, Alexandra; Sequeira, Tiago
  3. Innovation and Financial Liberalization: The Case of India By James B. ANG
  4. Economic Science: From the Ideal Gas Law Economy to Piketty and Beyond By Song, Edward
  5. The modeling of the economic development on the basis of an extended Solow-Swan growth model with the inclusion of spatial aspect By Beata Bal-Domanska; Michal Bernard Pietrzak
  6. Growth: Now and Forever? By Giang Ho; Paolo Mauro
  7. Do Financial Flows raise or reduce Economic growth Volatility? Some Lessons from Moroccan case By Bouoiyour, Jamal; Miftah, Amal; Selmi, Refk

  1. By: Rangan Gupta (Department of Economics, University of Pretoria); Lardo Stander (Department of Economics, University of Pretoria)
    Abstract: This paper develops a monetary endogenous growth overlapping generations model characterized by production lags - specifically lagged capital inputs - and an infl ation targeting monetary authority, and analyses the growth dynamics that emerge from this framework. The growth process is endogenized by allowing productive government expenditure on infrastructure, complementing the lagged private capital input. Following the extant literature, money is introduced by imposing a cash reserve requirement on an otherwise competitive banking sector. Given this framework, we show that multiple equilibria emerge along different growth paths, with the low-growth (high-growth) equilibrium being unstable (stable) and locally determinate (locally indeterminate). In addition, we show that convergent or divergent endogenous fl uctuations and even topological chaos could emerge around the high-growth equilibrium in the growth path where the monetary authority follows a high infl ation targeting regime. Conversely, when the monetary authority follows a low infl ation targeting regime, oscillations do not occur around either the low-growth or high-growth equilibrium.
    Keywords: Endogenous fl uctuations, in flation targeting, chaos, production lags, indeterminacy
    JEL: C62 E32 O42
    Date: 2014–06
  2. By: Lopes da Veiga, José; Ferreira-Lopes, Alexandra; Sequeira, Tiago
    Abstract: We analyse the implications of public debt on economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt affect economic growth and exhibit negatively, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. The highest average rates of real and per capita growth are achieved when public debt reaches 60% of the real GDP and an average inflation rate of 8.2%. When this ratio falls between 60-90%, the average rate of economic growth drops by up to 1.32 p.p. and continues dropping by up to 1.64 p.p. when the ratio exceeds 90%. Briefly, the high levels of public debt are reflected in reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the GDP and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. Identical behaviour of the GDP growth rates and inflation also appears in Sub-Saharan countries until the third interval (60-90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30-60%). For SADC countries, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. The high level of public debt is reflected in reduced rates of economic Growth and increasing inflation rates.
    Keywords: Public Debt; Economic Growth; Inflation; African Countries
    JEL: E31 E62 H63 O40
    Date: 2014–07–17
  3. By: James B. ANG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: This paper attempts to shed some light on the role of financial sector policies in generating new knowledge, drawing on the experience of one of the fastest growing and largest developing countries. Using time series data for India over the period 1963-2005, the results indicate that interest rate restraints help generate ideas. Other financial repressionist policies, in the form of high reserve and liquidity requirements, as well as significant directed credit controls, appear to have a dampening effect on ideas production. These results lend some support to the argument that some form of financial sector reforms may help stimulate economic growth via increasing technological innovation.
    Keywords: financial liberalization; Schumpeterian growth
    JEL: O30 O40 O53
    Date: 2014–04
  4. By: Song, Edward
    Abstract: I start with income and wealth inequality data from the Congressional Budget Office (CBO) and Thomas Piketty, and propose approaches taken from science (for example, behavioral evolution theory,) that might be useful in explaining the data and forecasting future economic events. Using a modified production function developed by Robert Solow, I also explore redistributive effects of income when biological restrictions lead to minimum expenditure requirements and satiation conditions. I conclude that redistributing income from the wealthy to the poor can have counter-cyclical effects in recessions. Moreover, redistribution in the form of human capital can have particularly large positive economic growth effects. Finally, I explain how financial crisis may lead to large economic downturns by proposing a model where productive capital formation is dependent on debt financing.
    Keywords: Macroeconomics, Behavioral Macroeconomics, Econophysics.
    JEL: E21 E22 E23 E27 E3 E32 Y90
    Date: 2014–07–16
  5. By: Beata Bal-Domanska (Wroc³aw University of Economics, Poland); Michal Bernard Pietrzak (Nicolaus Copernicus University, Poland)
    Abstract: The objective of the article is to identify and evaluate spatial relations in terms of economic determinants for the regions of Central and Eastern European countries (in accordance with Eurostat methodology NUTS-2 stands for the corresponding level) having applied the construction of an augmented, neoclassical Mankiw-Romer-Weil growth model. The study covered the period of three years: 2000, 2005 and 2010. The obtained results confirmed the significance of spatial relations, in the evaluation of relations combining growth factors, for the level of economic growth. The statistically significant impact, however, was observed only in case of the factor illustrating human capital.
    Keywords: augmented Mankiw-Romer-Weil growth model, spatial econometrics, Central and Eastern European regions
    JEL: C21 O11 R11
    Date: 2014–03
  6. By: Giang Ho; Paolo Mauro
    Abstract: Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the baseline forecasts are more optimistic than warranted by past international growth experience. Further, by comparing the IMF’s World Economic Outlook forecasts with actual growth outcomes, we show that optimism bias is greater the longer the forecast horizon.
    Date: 2014–07–02
  7. By: Bouoiyour, Jamal; Miftah, Amal; Selmi, Refk
    Abstract: The purpose of the paper is twofold. Firstly, it attempts to analyze accurately the volatility of economic growth and financial flows (i.e. remittances and FDI) in the case of Morocco. Secondly, it tries to address the possible effects of these financial flows on the economic growth. We provide evidence that remittances are less volatile than FDI in terms of duration of persistence, intensity of shock and the “volatility clustering”. Furthermore, remittances can smooth the volatility of growth, while FDI flows sustain and aggravate it. Altruistic foundations, counter-cyclicality and concentration of remittances in Europe have been advanced as elements of explanation of these outcomes. Similarly, foreign investors seeking only profits have a pro-cyclical behavior and are greatly sensitive to economic conditions in the country of origin.
    Keywords: Economic growth volatility; Remittances; FDI; GARCH models.
    JEL: F0 F24 G0
    Date: 2014–07–11

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