nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒04‒19
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Taylor Rules, Long-Run Growth and Real Uncertainty By Barbara Annicchiarico; Lorenza Rossi
  2. Social Capital, Innovation and Economic Growth By Maria Thompson
  3. Global Competitiveness and Economic Growth: A One-Way or Two-Way Relationship? By Aleksandra Kordalska; Magdalena Olczyk
  4. Wealth, incomes and debt: the blocked channels By De Koning, Kees

  1. By: Barbara Annicchiarico (Department of Economics, University of Rome Tor Vergata.); Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: We study the effects of real uncertainty on long-run growth under different Taylor-type rules. We fi…nd a non-negligible relationship between real uncertainty and growth, which depends on the source of real uncertainty as well as the type of the Taylor rule considered. Importantly, when uncertainty is due to investment speci…fic shocks, it is highly detrimental for growth, unless the Central Bank follows a strong inflation targeting rule. Furthermore, we fi…nd that in the presence of real uncertainty, there is a positive correlation between average growth and average inflation under pure inflation targeting regimes and negative otherwise.
    Keywords: Taylor rules, Endogenous Growth, Real Uncertainty.
    JEL: E32 E52 O42
    Date: 2015–04
  2. By: Maria Thompson (Universidade do Minho, NIPE)
    Abstract: Multidisciplinary innovation is the engine of growth of an increasing number of economies. Innovation output depends increasingly on information sharing and cooperation between creative agents. Sharing and cooperation requires the existence of generalised trust. Social capital consists of trust and trust-based networks. Our main goal is to illustrate theoretically the importance of social capital to the growth of an innovation economy.
    Keywords: Innovation, Social Capital, Economic Growth
    JEL: O00 O31 O41
    Date: 2015
  3. By: Aleksandra Kordalska (Gdansk University of Technology, Faculty of Management and Economics); Magdalena Olczyk (Gdansk University of Technology, Faculty of Management and Economics)
    Abstract: The Global Competitiveness Index is treated as a standard to measure the competitiveness of countries. Leaders look at it to make policy and resource allocation decisions because global competitiveness is expected to be related to economic growth. However, studies which analyze the empirical relationship between these two economic categories are very rare. It is still an open question in the literature whether economic growth can be used to predict future global competitiveness or the other way round. This paper empirically tests the relationship between the GCI and the economic growth rate by using a panel Granger causality analysis based on annual data for 114 countries divided into five groups by income criteria and covering the period 2006-2014. We confirm a strong unidirectional causality among the countries analyzed, i.e. GDP growth causes global competitiveness. Additionally, we find that the GCI is not successful in predicting economic growth for the majority of the 114 counties, with the exception of few large economies such as China, India, the United States and Russia.
    Keywords: Global Competitiveness Index; economic growth; panel Granger causality test
    JEL: O40 O57 C23 F43
    Date: 2015–04
  4. By: De Koning, Kees
    Abstract: Economic growth data does not show how such growth was achieved. Was it based on income growth and consumption spending levels or was it based on borrowings to extend the income levels? The question is vital for deciding which economic tools work best for correcting imbalances. The main imbalances are based on the developments of two key variables: the level of income growth and the level of debt incurred to buy homes, consumer goods and education. The U.S. Balance Sheet of Households and Nonprofit Organizations sums up, very succinctly, the wealth position of households through various asset and liability classes. What a single balance sheet cannot show is how assets, liabilities, incomes and net worth interact. Making use of historical balance sheets provide a better insight. For instance in 1997, the combined liabilities of home mortgages and consumer credits as a percentage of disposable personal income stood at 82.9%. By the end of 2006 this percentage had increased to 123.7%. Per end of 2010 this percentage had dropped to 111.6%, only to drop even further to 96.4% per end of 2014. Student loans have not been included in these figures. If debts grow faster than income levels, one may define such a period as one of overfunding and, when debts grow slower than incomes, underfunding occurs. Overfunding took place in the U.S. from 1998-2007 and underfunding from 2008-2014. Relative positions are important, but the absolute level of incomes growth is essential. During the overfunding period average income levels had a tendency to grow slightly faster than the CPI level, while during the underfunding period average income growth lagged behind the CPI inflation levels. Finally, the spread of income levels around the average is important. Do the lower income groups benefit less from economic growth than the better off? This paper aims to set out why some new economic tools are needed to correct imbalances. They are: (i) the Economic Growth Incentive method (EGIM); (ii) the use of some pension fund savings and (iii) the use of home equity, which is the most illiquid of all savings. All three tools are for temporary use only. In the U.S. at 2014 year-end, pension entitlements stood at $20.8 trillion while owners’ equity in household real estate was valued at $11.25 trillion. In the U.S. such locked up equity positions have not been used as an economic policy tool to speed up or slow down the conversion process from equity to income when economic circumstances require such actions. Neither have future government cash flows been used as an economic policy tool.
    Keywords: business cycle, overfunding and underfunding, economic growth, debt-to-income levels and debt-to-asset values, pension savings, home equity, Economic Growth incentive method, Quantitative Easing, Keynesian cash injections, interest rates, money supply and money supplied.
    JEL: E2 E21 E32 E5 E58 E6 E62
    Date: 2015–04–05

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