nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒01‒03
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. On the Causal Relationship between Public Debt and GDP Growth Rates in Panel Data Models By Josip Tica; Vladimir Arčabić; Junsoo Lee; Robert J. Sonora
  2. Temporal causal relationship between stock market capitalization, trade openness and real GDP: evidence from Thailand By Jiranyakul, Komain
  3. Economic Growth, Financial and Trade Globalization in the Philippines: A Vector Autoregressive Analysis By Deluna, Roperto Jr; Chelly, Antiquisa
  4. Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data By Valerie A. Ramey; Sarah Zubairy

  1. By: Josip Tica (Faculty of Economics and Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb); Junsoo Lee (Department of Economics, Finance & Legal Studies, University of Alabama); Robert J. Sonora (Department of Economics, Fort Lewis College)
    Abstract: The influential and controversial paper by Reinhart and Rogoff (2010) triggered a debate on the effects of public debt on economic growth. Subsequent papers provide more convincing results. However, one of the key assumptions implied in these studies is that lower economic growth is spurred by high debt. If the reverse causality holds, the usual estimation of the model can yield biased estimators because of a feedback effect. We formally examine the causal relationship between public debt and economic growth in the panel VAR model using Granger causality test. Results show that the inter-temporal causal relationship is bi-directional. These findings provide a warning regarding the estimation results in many previous studies that might have ignored the role of the feedback effect.
    Keywords: Public debt; Feedback Effect, Reverse Causality, Panel VAR models
    JEL: O13 C22
    Date: 2014–12–18
  2. By: Jiranyakul, Komain
    Abstract: This study examines both short-run and long-run causal relationship between stock market capitalization, trade openness and economic growth in Thailand. Quarterly data over the period from the first quarter of 1993 to the fourth quarter of 2013 are used in the analysis. The results from this study show that there exists a unidirectional long-run causality running from stock market capitalization and trade openness to real GDP. In the short run, stock market capitalization does not causes economic growth while trade openness negatively cause it. Furthermore, there exist short-run bidirectional negative causations between economic growth and trade openness. However, the short-run phenomena are temporary. The long-run relationship shows that both market capitalization and trade openness are important determinants of real GDP. Based upon the results from this study, policymakers should pay attention to measures that are able to enhance stock market capitalization and trade openness if the long-run target is to achieve high economic growth rate.
    Keywords: Economic growth, market capitalization, trade openness, cointegration, causality
    JEL: C22 F41 O11
    Date: 2014–11
  3. By: Deluna, Roperto Jr; Chelly, Antiquisa
    Abstract: This study was conducted to examine the relationship among Economic Growth, Financial and trade Globalization in the Philippines from 1980 to 2011. The study used the Vector Autoregressive VAR (1) model and Granger Causality test. It was found out that the current value of GDP is positively affected by the previous value of itself and trade openness. The estimation results suggested that growth in trade volumes accelerate economic growth. However, financial openness has no significant effect on the current value of GDP. This implies that the level of openness of the Philippine economy is not sufficient to obtain the potential benefits of financial globalization in enhancing economic growth.
    Keywords: VAR, Globalization, Economic Growth, Development
    JEL: C32 O1 O11 O4
    Date: 2014–08
  4. By: Valerie A. Ramey; Sarah Zubairy
    Abstract: This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.
    JEL: E52 E62 N12
    Date: 2014–11

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