nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒08‒02
five papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Entry, Exit and Economic Growth: US Regional Evidence By Miguel Casares; Hashmat U. Khan
  2. Do balanced-budget rules increase growth? By Stone, Joe
  3. Spillover effects of infrastructure spending By Nanda, Anupam; Yeh, Jia-Huey
  4. Guns, Economic Growth and Education during the second half of the Twentieth Century: Was Spain different? By José Jurado-Sánchez; Juan-Ángel Jiménez-Martín
  5. Identification of financial factors in economic fluctuations By Francesco Furlanetto; Francesco Ravazzolo; Samad Sarferaz

  1. By: Miguel Casares (Universidad Pública de Navarra University); Hashmat U. Khan (Department of Economics, Carleton University)
    Abstract: Entry rates have a negative long-run effect on US regional growth, which contradicts innovation-based growth models. This puzzle is resolved when a model-consistent specification is estimated using per capita entry growth. Evidence supports the Schumpeterian hypothesis of a positive relationship between exit and economic growth.
    Keywords: Entry-exit rates; Per capita entry-exit growth; Economic growth
    JEL: O30 O40 O51
    Date: 2014–07–15
  2. By: Stone, Joe
    Abstract: This study tests the hypothesis that balanced-budget rules (BBRs) that restrict public borrowing to investments in public infrastructure increase growth by increasing the productivity of debt, either because investments in public infrastructure are more productive than other uses for which states borrow funds or because BBRs lower borrowing costs. Results are based on data at 5-year intervals for 49 US states over the period 1957-2007. The tests strongly support the hypothesis that BBRs increase growth by increasing the productivity of debt and withstand a variety of robustness checks, including alternative lags, exogeneity tests, GMM estimation, a placebo test, and the influence of outliers.
    Keywords: balanced budget rule, infrastructure, fiscal policy, regional growth
    JEL: A1 E6 H2 R1
    Date: 2014–07–20
  3. By: Nanda, Anupam; Yeh, Jia-Huey
    Abstract: This paper examines the impact of local public expenditure on the built environment. The empirical framework is designed to address the endogenous feedback effects. Various types of expenditures are considered across 29 local areas in Taipei. Using panel data modelling that controls for unobserved heterogeneity, we find some significant effects of infrastructure investment on land values across many areas and, also, some evidence of a social expenditure effect. The local area differences are further explored to examine spillover effects. Spillover effect is not significant when rest of the region is taken into account. However, considerable spillover effects emerge when we focus on neighbouring areas. Also, results show interesting distinctions among various types of public expenditure. Overall, the results are reasonably robust across several model specifications and samples. The results do indicate that public expenditure have some impact and show interesting spatial patterns. These findings highlight important implications for local government policy, spatial planning and the role of public expenditure in local area economic development.
    Date: 2014
  4. By: José Jurado-Sánchez (Department of Economic History and Institutions I, Complutense University of Madrid); Juan-Ángel Jiménez-Martín (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid)
    Abstract: In the past decades, numerous studies have been conducted on the trade-off between guns and butter, namely defense versus social sector expenditure. The aim of this research is identifying whether indeed defense spending crowded out investment and other social expenditures as health and education. Previous research does not yield strong and unambiguous evidence of neither positive nor negative effects of military expenditure on social spending. It is striking that the guns versus butter dilemma has not been extensively studied for Spain. Using Mintz and Huang (1991) strategy applied to the US, we test if the government expenditure in defense in Spain during the last part of the Franco’s dictatorship and the first years of the transition and democracy, contributed positively or negatively to education spending. Results show a negative trade-off for the Franco’s regimen and an ambiguous effect for the last part of the sample.
    Keywords: Guns versus butter dilemma.
    JEL: H51 H52 H53 H56 N40 N44
    Date: 2014–06
  5. By: Francesco Furlanetto (Norges Bank (Central Bank of Norway)); Francesco Ravazzolo (Norges Bank (Central Bank of Norway) and BI Norwegian Business School); Samad Sarferaz (ETH Zürich)
    Abstract: We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but have a limited effect on inflation. In a second step we disentangle shocks originating in the housing sector, shocks originating in credit markets and uncertainty shocks. In the extended set-up financial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output.
    Keywords: VAR, Sign restrictions, Financial shocks, External finance premium, Housing, Uncertainty
    JEL: C11 C32 E32
    Date: 2014–07–18

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