nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒08‒25
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Non-linearity in the Inflation-Growth Relationship in Developing Economies: Evidence from a Semiparametric Panel Model By Baglan, Deniz; Yoldas, Emre
  2. Nonlinearities in the Relationship Between Financial Integration and Economic Growth By Yolcu Karadam, Duygu; Öcal, Nadir
  3. Finance, Instability, Debt and Growth: The Turkish Case, 1980-2010 By Mustafa İsmihan; Burcu Dinçergök; Seyit Mümin Cilasun
  4. Public Spending for Long-Run Growth : A Practitioners' View By Norman Gemmell; Florian Misch; Blanca Moreno-Dodson
  5. Identification of Financial Factors in Economic Fluctuations By Samad Sarferaz; Francesco Furlanetto; Francesco Furlanetto
  6. Unhappy families are all alike: Minskyan cycles, Kaldorian growth, and the Eurozone peripheral crises By Alberto Bagnai

  1. By: Baglan, Deniz (Howard University); Yoldas, Emre (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Using data on developing economies, we estimate a flexible semiparametric panel data model that incorporates potentially nonlinear effects of inflation on economic growth. We find that inflation is associated with significantly lower growth only after it reaches about 12 percent, which is notably lower than the comparable estimate obtained from a threshold model. Our results also suggest that models with restrictive functional form assumptions tend to underestimate marginal effects of inflation on economic growth. We also document significant variation in the effect of inflation on growth across countries and over time.
    Keywords: Inflation; economic growth; semiparametric panel data model; series estimation; bootstrap
    JEL: C23 O40
    Date: 2014–07–16
  2. By: Yolcu Karadam, Duygu (Department of Economics, METU, Ankara, Turkey); Öcal, Nadir (Department of Economics, METU, Ankara, Turkey)
    Abstract: In the literature there is a great debate on the growth effects of international financial integration. It is argued that the direction and the magnitude of the effect of financial integration on growth depend on some structural and economic characteristics of the economies. This implies that financial globalization can have asymmetric effects on economic growth due to some other factors. In this study we examine the effect of financial integration on growth mainly focusing on the threshold effects suggested by economic theory and empirical evidence. To this end, we employ Panel Smooth Transition Regression Models in order to investigate the asymmetric effects in the financial integration-growth relationship for a large number of countries for the period of 1970-2009. Besides estimating the threshold effects for all countries in the sample, we also examine whether these threshold effects differ for different country groups such as emerging economies, other developing countries and advanced countries. Our empirical results showed that international financial integration has asymmetric effects on growth due to financial development, institutional quality, trade openness and some macroeconomic variables of the economies. We also find that the signs and the magnitudes of these effects can differ for emerging, advanced and other developing countries.
    Keywords: International financial integration, Economic growth, Panel smooth transition regression model
    JEL: F36 F41 F43 O40
    Date: 2013
  3. By: Mustafa İsmihan (Atilim University); Burcu Dinçergök (Atilim University); Seyit Mümin Cilasun (Atilim University)
    Abstract: Empirical results on the link between financial development and economic growth is mixed in Turkey. However, existing studies did not take into account the fact that Turkey has experienced endemic political and economic instabilities over extended periods. As a consequence of such instabilities, Turkish economy has shown frequent growth accelerations and collapses. Moreover, Turkish banking sector preferred to finance public borrowing rather than lending to the private sector due to the prevalence of high real interest rates on government bonds particularly during the 1990s. This study, therefore, aims to analyze the role of overall macroeconomic instability and public borrowing on finance-growth nexus in Turkey by using time series econometric techniques over the 1980-2010 period. After taking into account the effects of overall instability and public borrowing, we found a significant finance-growth link.
    Keywords: Financial Development, Public Debt, Macroeconomic Instability, Growth, Turkey
    JEL: E10 E44 E20 O40
    Date: 2013
  4. By: Norman Gemmell; Florian Misch; Blanca Moreno-Dodson
    Keywords: Public Sector Economics Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Expenditure Policy Macroeconomics and Economic Growth - Economic Stabilization Poverty Reduction - Achieving Shared Growth Public Sector Development
    Date: 2012–12
  5. By: Samad Sarferaz (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Francesco Furlanetto (Norges Bank, Norway); Francesco Furlanetto (Norges Bank, Norway)
    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: 2014–08
  6. By: Alberto Bagnai (Department of Economics, Gabriele d'Annunzio University)
    Abstract: It is frequently claimed that the economic and financial crises in the Eurozone peripheral countries depend on different, country-specific causes. In one case the crisis would depend on a real estate bubble (Ireland, Spain), in another on deceitful government manipulating the national accounts (Greece), in still another on corrupted government postponing essential reforms (Italy). While these claims can always be supported by anecdotal evidence, one may wonder whether a unified framework exists that provides a more consistent explanation of the most massive failure in macroeconomic management since 1929. In this paper we try to interpret the Eurozone peripheral crises in the light of the Minskyan cycle theory, and in particular of its recent applications to developing countries crises. A closer look at the pattern of the macroeconomic fundamentals shows that the different Eurozone crises are actually consistent with this unified framework, thereby providing some important lessons to European policy makers.
    Keywords: Eurozone, Financial crisis, Exchange rate regimes, Post-Keynesian economics.
    JEL: E12 F36 G01
    Date: 2013–07

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