nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒01‒19
eight papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. The Effect of Military Expenditure on Growth: An Empirical Synthesis By Sefa Awaworyi; Siew Ling Yew
  2. Government Transfers and Growth: Is there Evidence of Genuine Effect? By Sefa Awaworyi; Siew Ling Yew
  3. Optimal Financial Repression By Olga A. Norkina; Sergey E. Pekarski
  4. Post-Crisis Slow Recovery and Monetary Policy By Daisuke Ikeda; Takushi Kurozumi
  5. Efficiency, Policy Selection, And Growth In Democracy And Autocracy: A Formal Dynamical Model By Andrei S. Akhremenko; Alexander Petrov
  6. Specific and General Human Capital in an Endogenous Growth Model By Evangelia Vourvachaki; Vahagn Jerbashian; : Sergey Slobodyan
  7. The Direct and Indirect Effects of Small Business Administration Lending on Growth: Evidence from U.S. County-Level Data By Andrew T. Young; Matthew J. Higgins; Donald J. Lacombe; Briana Sell
  8. The Gravity of Institutions in Resource-Rich Country By Zeynalov, Ayaz

  1. By: Sefa Awaworyi; Siew Ling Yew
    Abstract: Using a sample of 243 meta-observations drawn from 42 primary studies, this paper conducts a metaanalysis of the empirical literature that examines the impact of military expenditure on economic growth. We find that existing studies indicate growth-retarding effects of military expenditure. The results from the meta-regression analysis suggest that the effect size estimate is strongly influenced by study variations. Specifically, we find that underlying theoretical models, econometric specifications, and data type as well as data period are relevant factors that explain the heterogeneity in the military expenditure-growth literature. Results also show that positive effects of military expenditure on growth are more pronounced for developed countries than less developed countries.
    Date: 2014–09
  2. By: Sefa Awaworyi; Siew Ling Yew
    Abstract: This paper investigates how government transfers affect economic growth. Using meta-analysis techniques, we systematically review 24 primary studies with 164 estimates that examine the effect of government transfers on economic growth. After addressing heterogeneity and issues of publication bias in the existing literature, we find a negative association between government transfers and growth. This negative growth impact of government transfers also holds for developed countries. Meta-regression results also reveal that the effect size of reported estimates largely depends on individual study characteristics. In particular, data time period, measure of government transfers, econometric specification and underlying theoretical models are important factors that explain the variations in the empirical results.
    Keywords: Transfers; Welfare policy; Social security; Taxes; Economic growth
    JEL: I38 H53 H55 O47 E62
    Date: 2014–09
  3. By: Olga A. Norkina (National Research University Higher School of Economics); Sergey E. Pekarski (National Research University Higher School of Economics)
    Abstract: Modern financial repression in advanced economies does not rely on increasing seigniorage revenue, but mostly rests upon regulatory measures to enlarge the demand for public debt that delivers extremely low or negative real interest rate. In this paper we propose the extension of the overlapping generations model to question the optimality of financial repression in the form of non-market placement of the public debt in the captive pension fund. We show that financial repression and capital income taxation are not perfect substitutes. The optimal degree of financial repression depends on the growth rate of population. Moreover, the benevolent government makes a decision to confiscate some part of the pension wealth
    Keywords: financial repression; fully-funded pension system; public debt; overlapping generations.
    JEL: E62 G28 H21 H55 H63
    Date: 2014
  4. By: Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Takushi Kurozumi (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: In the aftermath of the recent financial crisis and subsequent recession, slow recoveries have been observed and slowdowns in total factor productivity (TFP) growth have been measured in many economies. This paper develops a model that can describe a slow recovery resulting from an adverse financial shock in the presence of an endogenous mechanism of TFP growth, and examines how monetary policy should react to the financial shock in terms of social welfare. It is shown that in the face of the financial shocks, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much more substantial than in the model where TFP growth is exogenously given. Moreover, compared with the welfare-maximizing rule, a strict inflation or price-level targeting rule induces a sizable welfare loss because it has no response to output, whereas a nominal GDP growth or level targeting rule performs well, although it causes high interest-rate volatility. In the presence of the endogenous TFP growth mechanism, it is crucial to take into account a welfare loss from a permanent decline in consumption caused by a slowdown in TFP growth.
    Keywords: Financial shock, Endogenous TFP growth, Slow recovery, Monetary policy, Welfare cost of business cycle
    JEL: E52 O33
    Date: 2014–12
  5. By: Andrei S. Akhremenko (National Research University Higher School of Economics); Alexander Petrov (National Research University Higher School of Economics)
    Abstract: The main focus of this paper is the impact of efficiency losses, related to public capital stock, on the prospects of economic growth in democratic and autocratic political environments. We introduce a distinction between two types of efficiency loss: along with the loss of public capital during its accumulation, we take into account the process of capital stock depreciation. We demonstrate that the decrease in efficiency of any type makes the probability of long-run growth higher for autocracies; however, in the presence of high efficiency, democracies tend to perform better. The results were obtained by formal analysis and computational experiments, realized on the basis of an original dynamical model.
    Keywords: dynamical formal model, policy space, democracy, autocracy, economic growth, efficiency, public capital
    JEL: C02 P16 Z18
    Date: 2014
  6. By: Evangelia Vourvachaki; Vahagn Jerbashian; : Sergey Slobodyan
    Abstract: In this paper, we define specific (general) human capital in terms of the occupations whose use is spread in a limited (wide) set of industries. We analyze the growth impact of an economy's composition of specific and general human capital, in a model where education and R&D are costly and complementary activities. The model suggests that a declining share of specific human capital, as observed in the Czech Republic, can be associated with a lower rate of long run growth. We also discuss optimal educational policies in the presence of market frictions.
    Keywords: human capital types; economic growth; education policy
    JEL: O52 O40 O49 I20
    Date: 2014–12
  7. By: Andrew T. Young (West Virginia University, College of Business and Economics); Matthew J. Higgins (Georgia Institute of Technology & NBER); Donald J. Lacombe (West Virginia University, College of Business and Economics); Briana Sell (Georgia Institute of Technology)
    Abstract: Conventional wisdom suggests that small businesses are innovative engines of Schumpetarian growth. However, as small businesses, they are likely to face credit rationing in financial markets. If true then policies that promote lending to small businesses may yield substantial economy-wide returns. We examine the relationship between Small Business Administration (SBA) lending and local economic growth using a spatial econometric framework and a sample of 3,035 U.S. counties for the years 1980 to 2009. We find evidence that a county’s SBA lending per capita is associated with direct negative effects on its income growth. We also find evidence of indirect negative effects on the growth rates of neighboring counties. Overall, a 10% increase in SBA loans per capita is associated with a cumulative decrease in income growth rates of about 2%.
    Keywords: Small Business Administration, guaranteed loans, economic growth, income growth, entrepreneurship, US counties, spatial econometrics, spillovers
    JEL: O47 E65 R11 H25 C23
    Date: 2014–12
  8. By: Zeynalov, Ayaz
    Abstract: This research will analyze the effects of the similarities in economic size and institutional level on bilateral trade. It is interested whether similarities at the country size and institutional level encourage international trade between countries. Using panel data of the bilateral trade of Azerbaijan with 50 different countries from 1995 to 2012 estimating by the Poisson Pseudo-Maximum Likelihood (PPML) method, it is expecting that similarity at the income size is not necessary for increasing bilateral trade across countries, on the contrary, country has interest to trade with dissimilar economic-size countries. Institutional similarity is expecting plays pivot role in international relationships and it has positive impact on bilateral trade.
    Keywords: international trade, gravity model, economic growth, institutions
    JEL: F14 P33 P48
    Date: 2014

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