nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒02‒16
eight papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Nonlinear Dynamic Panels By Christian R. Proaño; Christian Schoder; Willi Semmler
  2. Taxes and Economic Growth in Developing Countries : A Dynamic Panel Approach By NANTOB, N'Yilimon
  3. Growth, Growth Accelerations and the Poor: Lessons from Indonesia By Sambit Bhattacharyya; Budy P. Resosudarmo
  4. Hyperbolical Discounting and Endogenous Growth By Strulik, Holger
  5. Religions, Fertility and Growth in South-East Asia By David de la Croix; Clara Delavallade
  6. Fiscal Decentralization and Economic Growth: Evidence from Regional-Level Panel Data for Colombia By Luis Ignacio Lozano-Espitia; Juan Manuel Julio-Román
  7. The Early Consequences of the Crisis on Fiscal Convergence in the EU By Roberto Censolo; Caterina Colombo

  1. By: Christian R. Proaño (Department of Economics, New School for Social Research); Christian Schoder (Macroeconomic Policy Institute (IMK)); Willi Semmler (Department of Economics, New School for Social Research)
    Abstract: We analyze how the impact of a change in the sovereign debt-to-GDP ratio on economic growth depends on the state of the financial market. A dynamic growth model is put forward demonstrating that debt affects macroeconomic activity in a non-linear manner due to amplifi- cations from the financial sector. For thirteen industrialized economies we study empirically the relationship between the GDP-growth rate, the debt-GDP ratio, and the financial stress index for the period 1980-2010 using quarterly data and dynamic single-country and dynamic panel threshold regression methods. We find that the debt-to-GDP ratio has impaired economic growth primarily during times of high financial stress and only for countries of the European Monetary Union and not for the stand-alone countries in our sample. A high debt-to-GDP ratio by itself does not seem to necessarily negatively affect growth if financial markets are calm.
    Keywords: financial stress, sovereign debt, non-linear econometrics, threshold regression, thresh- old panel regression
    JEL: E20 G15 H63
    Date: 2013–10
  2. By: NANTOB, N'Yilimon
    Abstract: This paper looks at the effects of taxes increase on economic growth of 47 developing countries. In developing countries, there is no magic tax strategy to encourage economic growth. Some countries with high tax burdens have high growth rates and some countries with low tax burdens have low growth rates. Despite much theoretical and empirical inquiry as well as political and policy controversy, no simple answer exists concerning the relationship of taxes on economic growth in developing countries. The research takes an empirical approach to analyze the effects of four types of taxes namely taxes revenue, taxes on goods and services, taxes on income, profits, and capital gains and taxes on international trade on economic growth. Mobilizing a dynamic panel data over the period 2000–2012 and using the system GMM estimator to address endogeneity issues, the econometric results yield that (i) there is a non-linear relationship between taxes revenue and economic growth, specifically, these taxes increase economic growth at short run and this effect then increases over time as these taxes increase, and (ii) there is a non-linear (U-shaped) relationship between taxes on income, profits and capital gains, taxes on international trade and economic growth, specifically, these taxes lower economic growth at short run and these effects then diminish over time as these taxes increase.
    Keywords: Taxes, Economic growth, Developing counties, Dynamic panel data
    JEL: C33 H20 H21 H27 O40
    Date: 2014–10–22
  3. By: Sambit Bhattacharyya; Budy P. Resosudarmo
    Abstract: We study the impact of growth and growth accelerations on poverty and inequality in Indonesia using a new panel dataset covering 26 provinces over the period 1977-2010.  This new dataset allows us to distinguish between mining and non-mining sectors of the economy.  We find that growth in non-mining significantly reduces poverty and inequality.  In contrast, overall growth and growth in mining appears to have no effect on poverty and inequality.  We also identify growth acceleration episodes defined by at least four consecutive years of positive growth in GDP per capita.  Growth acceleration in non-mining reduces poverty and inequality whereas growth acceleration in mining increases poverty.  We expect that the degree of forward and backward linkages of mining and non-mining sectors explain the asymmetric result.  Our results are robust to state and year fixed effects, state specific trends, and instrumental variable estimation with rainfall and humidity as instruments.
    Keywords: growth, growth accelerations, mining, non-mining, poverty, inequality
    JEL: I32 N15 O11 O13 O49
    Date: 2013–10–02
  4. By: Strulik, Holger
    Abstract: This paper provides the exact analytical solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased preferences. In fact, an equivalence result holds. If hyperbolical discounting provides the same present value of a constant infinite income stream as standard exponential discounting, then the equilibrium rate of economic growth is also the same under both discounting methods. In this sense present-bias and the entailed time-inconsistency of savings plans are harmless for economic growth. The result is robust to the introduction of non-homothetic utility and a variable elasticity of intertemporal substitution in consumption.
    JEL: O40 D91 E21
    Date: 2014
  5. By: David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE)); Clara Delavallade (International Policy Research Institute (IFPRI))
    Abstract: Through indirect inference, we investigate the extent to which religions’supposed pronatalism is detrimental to growth via the fertility/education channel. Using censuses from South-East Asia, we first estimate an empirical model of fertility and show that having a religious affiliation significantly raises fertility. This effect is stronger for couples with intermediate to high education levels. We next use these estimates to identify the parameters of a structural model of fertility choice. On average, Catholicism is the most pro-child religion (increasing spending on children), followed by Buddhism, while Islam has a strong pro-birth component (redirecting spending from quality to quantity). We show that pro-child religions depress growth in the early stages by lowering saving, physical capital, and labor supply. These effects account for 10% to 50% of the actual growth gaps between countries over 1950-1980. At later stages of growth, pro-birth religions lower human capital accumulation, explaining between 10% and 20% of the gap between Muslim and Buddhist countries over 1980-2010.
    Keywords: Quality-quantity tradeoff, Catholicism, Buddhism, Islam, Education, Saving
    JEL: J13 Z13 O11
  6. By: Luis Ignacio Lozano-Espitia; Juan Manuel Julio-Román
    Abstract: This paper provides evidence on the positive role of fiscal decentralization on regional economic growth in Colombia since the promulgation of the Political Constitution of 1991. The empirical strategy involved the choice of a suitable estimator for the panel data approach, the Augmented Mean Group Estimator, which allows adding unobserved determinants suggested by literature to traditional long term explanatory factors. The strategy was complemented with exercises that helped us to support the results coming from (i) cross-section models for different periods and various control variables, (ii) test on the complementarity hypothesis between public goods provided by different jurisdictions (spillover effects), and (iii) an assessment of unconditional convergence in regional income differences.
    Keywords: Fiscal decentralization, Economic growth, Complementarity, Panel Data Models
    JEL: O40 H77 C33
    Date: 2015–02–03
  7. By: Roberto Censolo; Caterina Colombo
    Abstract: This article investigates the early signs of the impact of the 2008 crisis on fiscal convergence within the EU area. Over the 2004-2012 period we compare the convergence pattern before and after the crisis by considering the key fiscal aggregates and the main economic and functional components of total government expenditure. We show that the effects of the 2008 financial crisis have been transmitted differently on the fiscal frame in the EU area, signalling an overall tendency to diverge of the Periphery EU countries from the Core. In particular, it emerges a greater persistence among the Periphery countries of the backlash of the crisis on government budgets, causing a further divergence in the debt positions between Core and Periphery, and disarranging effects on government spending in the Peripheral countries, with crowding out of the productive components of public expenditure.
    Keywords: European Union; fiscal convergence; government spending composition; financial crisis
    JEL: E61 F02 H11
    Date: 2015–02–05
  8. By: Zorobabel Bicaba; Zuzana Brixiová; Mthuli Ncube
    Abstract: This paper examines capital account policy choices in an innovative model with adaptive learning under uncertainty. In the model, countries’ past experiences and IMF programs influence policymakers’ beliefs about impact of capital account liberalization on growth, taking into account constraints imposed by the ‘Mundell’s trilemma’. The model, calibrated to data for Africa, Latin America and developing Asia, is consistent with capital account policies during 1980 – 2010, including the delayed capital account liberalization in Africa. One of the implications of the model is that even countries with liberalized capital accounts could revert to the use of capital controls in the presence of particularly large output shocks.
    Keywords: Adaptive learning, dynamics of capital account policies, growth, IMF programs
    JEL: F43 O4 O43 O55
    Date: 2014–11–01

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