nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒04‒11
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. What Should Central Banks Target? Evidence on the Impact of Monetary Policy Regimes on Economic Growth By Chong, Terence Tai Leung; Wong, Kin Ming
  2. Economic Growth and Property Rights on Natural Resources By Kirill Borissov; Mikhail Pakhnin
  3. Why Growth in Emerging Economies Is Likely to Fall By Anders Aslund
  4. Should we be Austere? A Normative look at Public Debt By Jafri, Juvaria
  5. 'Threshold Effects of Inequality on the Process of Economic Growth' By Arshad Ali Bhatti; M. Emranul Haque; Denise R. Osborn
  6. Is Islamic Banking Good for Growth? By Patrick IMAM; Kangni KPODAR

  1. By: Chong, Terence Tai Leung; Wong, Kin Ming
    Abstract: Economists and policy-makers have long sought the ideal framework for monetary policy as it is arguably one of the most important tools for government to influence the economy. Exchange rate and inflation are believed to be the most appealing anchors for providing guidance to the conduct of monetary policy and are thus widely used in the real world. Most existing studies on the effect of exchange-rate arrangements and inflation targeting on economic growth suffer from the absence of a clear counterfactual, rendering it difficult to interpret their results. Based on a new classification scheme on monetary policy regimes, this paper helps to fill that gap by investigating the effect of monetary policy regimes on growth. Our results consistently support that an inflation targeting regime has a positive impact on economic growth when compared with an exchange-rate targeting regime.
    Keywords: Monetary Policy Regimes; Inflation Targeting; Exchange-rate Targeting; Economic Growth
    JEL: E42 E52 E58 F43
    Date: 2015–04–07
  2. By: Kirill Borissov; Mikhail Pakhnin
    Abstract: We consider two models of economic growth with exhaustible natural resources, exogenous technical progress and agents heterogeneous in their time preferences. In the first model we assume private ownership of natural resources. We show that every competitive equilibrium in this model converges to a balanced-growth equilibrium. The long-run extraction rate and the rate of growth are determined by the discount factor of the most patient agents. The second model assumes public ownership of natural resources. The resource revenue is equally distributed among agents, who choose the resource extraction rate by voting. We define an intertemporal voting equilibrium and show that it also converges to a balanced-growth equilibrium. The long-run voting equilibrium extraction rate and the rate of growth are determined by the median discount factor. Our results suggest that, other things being equal, the growth rate in the case of private ownership is higher than that of public ownership if the most patient agents do not constitute the majority in population; otherwise there is no difference in the growth rates between the two regimes. However, in the long run private ownership leads to a higher level of inequality than public ownership. If we take into account the detrimental effect of inequality on economic growth, then the public property regime will likely result in a higher long-run rate of growth compared to the private property regime.
    Keywords: economic growth, exhaustible resources, heterogeneous agents, voting
    JEL: Q32 E13 D91 O40
    Date: 2014–12–31
  3. By: Anders Aslund (Peterson Institute for International Economics)
    Abstract: Emerging-market growth from 2000 to 2012 was extraordinarily high. Aslund cites several factors to explain why emerging-economy growth is likely to be lower in the future. Having caught up with advanced economies in many respects, these countries face limitations on their future catch-up potential. The extraordinary credit and commodity booms are over, and many large emerging economies are financially fragile. They have governance problems and need to carry out structural reforms. The advanced economies, by contrast, have undertaken fiscal consolidation and structural reforms following the recent financial crisis and should experience higher growth rates.
    Keywords: growth, slowdown, middle income trap, energy, financial crisis
    JEL: G01 N00 O11 O43 Q33
    Date: 2013–11
  4. By: Jafri, Juvaria
    Abstract: Excessive debt accumulation is an important policy concern in both developing and advanced economies because it is associated with various issues, particularly low growth and high inflation. This is apparent from the deleveraging vs. deficit spending debate; in this, the focus has tended to be on two specific outcomes, that is, on economic growth, and inflation. So, this debate often overlooks the repercussions of debt on economic freedom. Economic freedom may be regarded not just as a means to macroeconomic growth and stability, but also as in end in itself. It tends to be inhibited when the full consequences of rising public debt, whether from external or domestic sources, are misunderstood, particularly when the underlying basis for debt accumulation is neither stimulus nor smoothing.
    Keywords: public debt, economic freedom, odious debt
    JEL: B5 B53 H3 H30 H5 H6 H62 H63
    Date: 2014–10–24
  5. By: Arshad Ali Bhatti; M. Emranul Haque; Denise R. Osborn
    Abstract: This paper explores the relationship between inequality and growth in the context of a unified empirical approach suggested by the theoretical model of Galor and Moav (2004). Based on the model’s prediction, we construct a measure of human capital-to-physical capital ratio in order to investigate the threshold effects of inequality on economic growth. Using data of 82 countries for the period 1965–2003, our results are twofold: first, there exist significant thresholds of human-to-physical capital ratio below which the effect of inequality on growth is positive, whereas it is negative above it; second, human capital drives growth only when the human-to-physical capital ratio is above its threshold level. Our results are generally robust to using different measures of human capital and different data on inequality. These results are consistent with the predictions of Galor and Moav (2004).
    Date: 2015
  6. By: Patrick IMAM (FERDI); Kangni KPODAR (Fonds Monétaire international)
    Abstract: The rapid growth of Islamic banking has attracted much attention lately in the economic literature. At the same time, a mature body of the literature has shown that financial development is broadly conducive to economic growth, which raises the question as to whether a similar conclusion holds for Islamic banking. Against this backdrop, this paper investigates the relationship between Islamic banking development and economic growth in a sample of low and middle income countries, using data over the period 1990-2010. The results show that, notwithstanding its relatively small size compared to the economy and the overall size of the financial system, Islamic banking is positively associated with economic growth even after controlling for various determinants, including the level of financial depth. The results are robust across across different specifications, sample composition and time periods.
    JEL: G0 G21 O10
    Date: 2015–04

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