nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒11‒17
seven papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Tax Revenue and Economic Growth in Ghana: A Cointegration Approach By Takumah, Wisdom
  2. The Impact of Debt on Economic Growth: A Case Study of Indonesia By Swastika, Purti; Dewandaru, Ginanjar; Masih, Mansur
  3. Assessing the Impact of the Welfare State on Economic Growth: A Survey of Recent Developments By Marta Simões; Adelaide Duarte; João Sousa Andrade
  4. Financial Harmonization and Industrial Growth: Evidence from Europe By Ozkok, Zeynep
  5. Fiscal Policy and Growth in Developing Asia By Abdon, Arnelyn May; Estrada, Gemma Esther; Lee, Minsoo; Park, Donghyun
  6. Individual Experience of Positive and Negative Growth is Asymmetric: Evidence from Subjective Well-being Data By Femke De Keulenaer; Jan-Emmanuel De Neve; Georgios Kavetsos; Michael I. Norton; Bert Van Landeghem; George W. Ward
  7. Institutions and Economic Performance in Mexican States By Sonora, Robert

  1. By: Takumah, Wisdom
    Abstract: This study examines the effect of tax revenue on economic growth in Ghana using quarterly data for the period 1986 to 2010 within the VAR framework. The study found that there exist both short run and long run relationship between economic growth and tax revenue. The result indicated a unidirectional causality between tax revenue and economic growth and it flows from tax revenue to economic growth. The result suggests that tax revenue exerted a positive and statistically significant effect on economic growth both in the long-run and short-run implying that tax revenue enhances economic growth in Ghana. The study recommended that the tax base need to be widened and the tax rates reduced in order to generate more revenue. It was recommended that the government should improve tax collection measures in order to generate more revenue so as to increase economic growth in Ghana.
    Keywords: Tax revenue, Economic Growth, Cointegration, Causality, Ghana
    JEL: C3 E6 H2
    Date: 2014–09–12
  2. By: Swastika, Purti; Dewandaru, Ginanjar; Masih, Mansur
    Abstract: The paper is the first attempt to analyse the impact of debt on economic growth in the context of Indonesia by combining the application of wavelet and non-linear techniques. Our results tend to indicate that there are complex lead-lag dynamic interactions between external debt-to-GDP ratio and GDP growth. Debt is shown to be inversely related with economic growth in a shorter scale, while it is not in the longer scale. Nonetheless, positive contribution of debt on economic growth is very restricted as it only occurs as the country stops borrowing more debt. Perhaps, this result confirms that Indonesia is one of the examples of "debt intolerance" countries. Therefore, our recommendation to the policy makers would be for a shift to risk-sharing system which shields the economy from any adversity resulting from interest-bearing system and hence spurs the economic growth
    Keywords: Debt Intolerance, Economic Growth, Indonesia, Wavelet Coherence, Maximal Overlap Discrete Wavelet Transform, Non-Linear Hansen Threshold. _____________________________________
    JEL: C22 C58 E44 G12
    Date: 2013–08–20
  3. By: Marta Simões (Faculty of Economics, University of Coimbra and GEMF, Portugal); Adelaide Duarte (Faculty of Economics, University of Coimbra and GEMF, Portugal); João Sousa Andrade (Faculty of Economics, University of Coimbra and GEMF, Portugal)
    Abstract: From the mid-1980s to the late-1990s a considerable number of empirical studies investigated the impact of the Welfare State (WS) on economic growth with no definite conclusions on the sign, transmission mechanisms and direction of causality of the relationship. More recently, globalization, population ageing and the public fiscal sustainability crisis experienced by many European countries brought the WS to the forefront of the debate on Government retrenchment. Some authors argue that the WS makes economies less productive and competitive, and thus hampers economic growth since its funding consumes scarce resources and introduces distortions in economic activity through disincentives embedded in the structure of the WS. Yet other authors call our attention to the fact that WS interventions have the potential to generate economic externalities that can outweigh their (potential) distortions. The opposing arguments on the impact of the WS on economic growth thus seem to claim for more empirical research on the subject. This paper provides a survey of the recent progress in the applied literature on the relationship between the WS and economic growth. The survey highlights that most empirical studies focus on testing the impact of social expenditures on the level or the growth rate of output ignoring the institutional features of Welfare State interventions. In turn, this leads to econometric specifications that make it difficult to interpret the observed aggregate relationships and derive meaningful and useful policy implications. The unresolved key issues that remain concerning conceptual, measurement and methodological issues call for more work on comparative analysis of WS size and composition and the respective impact on economic growth before a consensus can be reached.
    Keywords: Welfare State, economic growth, social spending, institutional features.
    JEL: H51 H52 H53 I38 O40 P1
    Date: 2014–10
  4. By: Ozkok, Zeynep
    Abstract: This paper analyzes the growth effects of the Financial Services Action Plan (FSAP) of the European Commission, a set of measures and directives that aim to harmonize European financial markets. Using a panel of 25 countries and 30 industries, we find that the standard specification predicts harmonization to lower growth, though the negative effect is mitigated for industries that depend more on external finance. We then show that this seemingly surprising result is due to omitted variable bias. We would expect early adopters to bear more of the costs and experience less of the benefits of harmonization. Once we control for the relative timing of adoption, harmonization is shown to have a positive effect on growth. This finding is robust to including further controls, splitting up the sample into different groups of countries, and extending the model to a dynamic setting.
    Keywords: Financial integration; Legal, regulatory harmonization; External finance dependence; European Union; FSAP
    JEL: F15 F36 F55 G15 G28 K4 O4
    Date: 2012–12–15
  5. By: Abdon, Arnelyn May; Estrada, Gemma Esther (Asian Development Bank); Lee, Minsoo (Asian Development Bank); Park, Donghyun (Asian Development Bank)
    Abstract: In this paper we empirically explore the relationship between fiscal policy and economic growth in developing Asia. The region’s overall level of taxes and government spending are substantially lower than those prevailing in advanced economies. Nevertheless, there are conceptual grounds why fiscal policy, including the composition of taxes and government spending, can have a significant effect on growth, as our empirical analysis shows. In line with economic theory, property taxes have a more benign impact on growth than direct taxes, and spending more on education has a sizable positive impact on growth.
    Keywords: fiscal policy; growth; taxation; government spending; Asia
    JEL: H20 H50
    Date: 2014–10–01
  6. By: Femke De Keulenaer; Jan-Emmanuel De Neve; Georgios Kavetsos; Michael I. Norton; Bert Van Landeghem; George W. Ward
    Abstract: Are individuals more sensitive to losses than gains in macroeconomic growth? Using subjective well-being measures across three large data sets, we observe an asymmetry in the way positive and negative economic growth are experienced, with losses having more than twice as much impact on individual happiness as compared to equivalent gains. We use Gallup World Poll data drawn from 151 countries, BRFSS data taken from a representative sample of 2.5 million US respondents, and Eurobarometer data that cover multiple business cycles over four decades. This research provides a new perspective on the welfare cost of business cycles with implications for growth policy and our understanding of the long-run relationship between GDP and subjective well-being.
    Keywords: Economic growth, business cycles, subjective well-being, loss aversion
    JEL: D03 O11 D69 I39
    Date: 2014–10
  7. By: Sonora, Robert
    Abstract: This paper investigates the relationship between institutional quality and economic performance the 32 Mexican states over the period 2003 -- 2010. Using dynamic panel GMM estimation and the Fraser Institutes index of economic freedom, I find that freedom has an ambiguous impact on economic growth and improvements undermines employment. These results are corroborated with dynamic OLS model and panel fixed and random effects models.
    Keywords: Institutions, Economic Performance \& Growth, Mexico, Dynamic Panel
    JEL: E02 O43 O54
    Date: 2014

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