nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒05‒02
seven papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Fiscal discretion, growth and output volatility in new EU member countries By Stanova, Nadja
  2. Financial development and economic growth: Evidence of non-linearity By Doumbia, Djeneba
  3. Drivers of Growth in Fast Emerging Economies: A Dynamic Instrumental Quantile Approach By Simplice Asongu
  4. Time-Frequency Relationship between U.S. Output with Commodity and Asset Prices By Aviral K. Tiwari; Claudiu T. Albulescu; Rangan Gupta
  5. An analysis on optimal taxation and on policy changes in an endogenous growth model with public expenditure By Thomas Renstrom; Luca Spataro
  6. Corruption, FDI and Growth: All the truths of a corrupted regime before and after the social upsurge in Tunisia By Hamdi, Helmi; Hakimi, Abdelaziz
  7. The U.S. monetary policy outlook and its global implications By Dudley, William

  1. By: Stanova, Nadja
    Abstract: This paper analyses the link between discretionary fiscal policy and output growth in ten CEE countries. Three aspects are considered: cyclical pattern in the fiscal discretion, contributions to GDP growth, and the link between policy aggressiveness and output volatility. Fiscal discretion is estimated from quarterly data over 2000q1 to 2014q1 using a SVAR model in GDP, net taxes and spending. Decomposition of the GDP suggests that fiscal discretion induced rather small contributions to economic growth. Correlation between fiscal policy aggressiveness and output volatility is weak to moderate positive, notwithstanding whether spending or balance is used as the underlying indicator. The cyclical pattern has identified a mix of pro- and counter-cyclical episodes in the years before the crisis, implying that governments might not have consistently used the good times to create buffers. Overall, this evidence supports the view that policy makers in the CEE countries should mainly rely on rule-based fiscal policy rather than (aggressive) fiscal discretion.
    Keywords: discretionary fiscal policy, cyclicality of fiscal policy, fiscal policy aggressiveness, GDP growth, output volatility, SVAR model
    JEL: C32 E32 E61 E62
    Date: 2015–04
  2. By: Doumbia, Djeneba
    Abstract: This paper explores the non-linear relationship between financial development and economic growth. It mainly relies on the Panel Smooth Transition Regression (PSTR) model of Gonzalés et al. (2005) and three metrics of financial development to endogenously assess the impact of financial development on growth. Using a sample of 43 advanced and developing economies over the period 1975–2009, the paper highlights that financial development supports economic growth in low-income and lower middle income countries by enhancing saving and investment behaviour. However, in more developed economies, the impact of financial development is nil or negative, reflecting that further credit provisioning in these economies tend to exacerbate financial vulnerabilities, which is detrimental to growth.
    Keywords: Financial Development; Economic Growth; Non-linearity; System GMM; PSTR
    JEL: C33 O11 O16 O47
    Date: 2015–01–31
  3. By: Simplice Asongu (Yaoundé/Cameroun)
    Abstract: This study complements the scarce literature on growth determinants in fast emerging economies of the BRICS and MINT by assessing the determinants throughout the conditional distributions of the growth rate and real GDP output for the period 2001-2011. An instrumenal variable (IV) quantile regression approach is complemented with Two-Stage-Least Squares and IV Least Absolute Deviations. The instrumentation process is dynamic. The following findings are established. First, while Gross FDI has a negative effect on economic growth, the impact of Net FDI is positive, with a higher magnitude in top quantiles of the distributions. Second, the positive effect of natural resources is more apparent in countries with low initial growth levels. Third, the impact of telecommunications infrastructure is not very significant. Fourth, whereas the incidence of bank credit is positive for GDP growth, it is negative for real GDP output. Fifth, while trade openness is positive in bottom quantiles of GDP growth, but for the highest quantile in real GDP output, it is consistently negative on real GDP output. Sixth, while the incidence of political stability is negative on GDP growth, it is positive on real GDP output, with the negative (positive) effect apparent only in top (bottom) quantiles of GDP growth (real GDP output). Policy implications are discussed.
    Keywords: Economic Growth; Emerging countries; Quantile regression
    JEL: C52 F21 F23 O40 O50
    Date: 2015–04
  4. By: Aviral K. Tiwari (; Claudiu T. Albulescu (; Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: Commodity and asset prices have a well-documented effect on economic growth, manifested through various channels. At the same time, the business cycle influences the commodity and asset prices. Whereas empirical evidence on the effect of commodity and asset prices on the long-run economic growth is ambiguous, most of the previous researches highlight a positive correlation in the short-run. The aim of this paper is to disentangle the short- and long-run co-movements between U.S. historical business cycles and commodity and asset prices, over the period 1859-2013. For this purpose we use a time-frequency approach and we test the historical influence of oil, gold, housing and stock prices, over the output growth. Different from other studies, we control for the effect of other prices and monetary conditions, using the wavelet partial coherency. In line with the previous works, we discover that co-movements between economic growth and commodity and assets prices manifest especially in the short-run. We also find that stock returns and housing prices have a more powerful effect on the U.S. economic growth rate than the oil and gold prices. The long-run co-movements are documented especially around the World War II. Finally, when controlling for the influence of the interest rate, inflation and other commodity and asset prices, co-movements become weaker in the short-run. In general the oil and housing prices lead the GDP growth, the U.S. output lead the gold prices, while there is no clear causality direction between business cycle and stock prices.
    Keywords: Commodity and asset prices, economic growth, U.S. business cycle, historical co-movements, wavelets
    JEL: E32 C22 N11 N12
    Date: 2015–04
  5. By: Thomas Renstrom (University of Durham (UK)); Luca Spataro (Dipartimento di Economia e Management, University of Pisa (Italy))
    Abstract: In this work we analyse the issue of optimal taxation and of policy changes in an endogenous growth model driven by public expenditure, in the presence of endogenous fertility and labour supply. While normative analysis confirms the Chamley-Judd result of zero capital income tax, positive analysis reveals that the presence of endogenous fertility produces different results as for the effects of taxes on total employment.
    Keywords: Taxation, endogenous fertility, critical level utilitarianism, population
    JEL: D63 E21 H21 J13 O4
    Date: 2015–04
  6. By: Hamdi, Helmi; Hakimi, Abdelaziz
    Abstract: The aim of this paper is to investigate the dynamic relationship between corruption, investment and economic growth in Tunisia within a multivariate framework. In the empirical section we use data span from 1976 to 2013 and we perform a vector error correction model and cointegartion technique to detect causality between corruption, investment, economic growth, credit to the private sector and foreign direct investment. The main findings of this paper show that corruption hampered Tunisia economic growth in the short-run and the long run as well. Corruption could be the main reason of the slowdown of investment activities and the low inflow of capital. Another important conclusion was revealed in this paper is that corruption get worsened in the period that follows the social upsurge of December 2010. Therefore, the main goals of the so called “revolution” are from being achieved yet. Hence, more works are needed to fight corruption in Tunisia.
    Keywords: Corruption, investment, Growth, Tunisia
    JEL: G2 G28 O11 O43
    Date: 2015–04–19
  7. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Bloomberg Americas Monetary Summit, New York City.
    Keywords: emerging market economies (EMEs); economic growth; taper tantrum; personal consumption expenditures (PCE) deflator; interest on excess reserves (IOER); normalization
    JEL: E52
    Date: 2015–04–20

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