nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒05‒22
nine papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. The relationship between Economic Growth, Exports and Government Expenditure: The case of Turkey By Fatih OKUR; Özgür Bayram SOYLU
  2. Social Interactions, the Evolution of Trust, and Economic Growth By Dimitrios Varvarigos; Guangyi Xin
  3. Measuring the Impact of Financial Taxation on Capital By Correa, Juan; Lorca, Miguel; Parro, Francisco
  4. International tourism and economic growth in New Zealand By Mohammad Jaforullah
  5. Growth Cycles in a Two-country Model of Innovation By Kunihiko Konishi
  6. Cycles and chaos in the one-sector growth model with elastic labor supply By Gerhard Sorger
  7. Causality between credit depth and economic growth: Evidence from 24 OECD countries By Stolbov , Mikhail
  8. Brazil 1950-1980: Three Decades of Growth-oriented Economic Policies By Pedro Malan; Regis Bonelli
  9. Targeting Debt and Deficits in India: A Structural Macroeconometric Approach. By Bhanumurthy, N.R.; Bose, Sukanya; Adhikari, Parma Devi

  1. By: Fatih OKUR (Social Sciences); Özgür Bayram SOYLU (Social Sciences)
    Abstract: The aim of this study, to analyze the relationship between economic growth, exports and government expenditures in the period of 1980-2013; to test If export-led growth hypothesis holds in Turkey. In this analyze, ADF unit root, Johansen Co-integration and Granger Causality tests are used. According to ADF unit root test, all the variables are stationary in their first levels. Johansen Co-integration results show that there is a long-run relationship between economic growth, exports and government expenditure. Because there is co-integration between the variables, VECM is used to test causality. Empirical results show that there is a unidirectional causality which runs from export to economic growth in the short-run period. In the long-run period, While it is found that the causality runs as bidirectional between economic growth and government expenditure, there is a unidirectional causality which runs from export to economic growth and government expenditure.
    Keywords: Economic Growth, Export, Government Expenditure, VECM, Causality
  2. By: Dimitrios Varvarigos; Guangyi Xin
    Abstract: We present a model where the dynamics of trust and the process of capital accumulation are jointly determined. Trust evolves intergenerationally, as the process of social interactions with people from different backgrounds creates experiences and forms opinions that are bequeathed to the next generation, thus shaping their level of trust. The provision of public goods and services is also a supporting factor towards the formation of trust. A key result is the possibility of social segregation if the level of trust is below a critical threshold. As a result, long-run equilibria are path-dependent. Both the current level of trust and the current stock of capital are important in determining the economy’s long-term prospects.
    Keywords: Trust, Cultural Externalities, Economic Growth
    JEL: O41 Z13
    Date: 2015–05
  3. By: Correa, Juan; Lorca, Miguel; Parro, Francisco
    Abstract: Using panel data from Chilean manufacturing plants, we present an empirical model to measure the impact of a financial transaction tax on capital stock. Our results show a statistically significant negative effect of the tax on the stock of capital. We also find that the impact on plants is heterogeneous, depending on the intensity of different types of capital held by plants. Indeed, plants with a higher percentage of infrastructure assets, such as land and buildings, are affected relatively less by the tax.
    Keywords: financial transaction tax, stock of capital, manufacturing industry
    JEL: H20 L60
    Date: 2015–04
  4. By: Mohammad Jaforullah (Department of Economics, University of Otago, New Zealand)
    Abstract: This paper examines whether the tourism-led growth hypothesis holds for the New Zealand economy. Using unit root tests, cointegration tests and vector error correction models, and annual data over the period 1972-2012 on international tourism expenditure, real gross domestic product (GDP) and the exchange rate for New Zealand, it finds that the tourism-led growth hypothesis holds for New Zealand. The long-run elasticity of real GDP with respect to international tourism expenditure is estimated to be 0.4, meaning that a 1% growth in tourism will result in a 0.4% growth of the NZ economy. This finding implies that the New Zealand Government’s policy to promote New Zealand as a preferred tourism destination in the key international tourism markets may boost economic growth.
    Keywords: Tourism; Economic growth; Cointegration; Granger causality; Vector error correction model; New Zealand
    JEL: C32 F14 L83
    Date: 2015–04
  5. By: Kunihiko Konishi (Graduate School of Economics, Osaka University)
    Abstract: This study examines growth cycles in a simple discrete-time two-country model of in- novation. In this setting, we find that there are two key driving forces that give rise to cycles. They are perfect international capital mobility and perfect international knowledge spillovers. In addition, this study shows that the opening of trade can create cycles in both countries, whereas pretrade equilibrium in each country initially jumps to the steady state. That is, our results are characteristic of an open-economy framework.
    Keywords: Two-country model, Cycles, Innovation
    JEL: E32 F44 O41
    Date: 2015–05
  6. By: Gerhard Sorger
    Abstract: It is shown that the discrete-time version of the neoclassical one-sector optimal growth model with endogenous labor supply and standard assumptions on technology and preferences admits periodic solutions of any period as well as chaotic solutions. Solutions with period 2 are possible for any time-preference factor between 0 and 1, whereas the existence of periodic solutions with other periods and the existence of chaotic solutions are only demon- strated by means of a specic example involving strong time-preference. The results are derived via constructive proofs that use Cobb-Douglas production functions.
    JEL: C61 O41
    Date: 2015–05
  7. By: Stolbov , Mikhail (BOFIT)
    Abstract: Causality between the ratio of domestic private credit to GDP and growth in real GDP per capita is investigated in a country-by-country time-series framework for 24 OECD economies over the period 1980–2013. The proposed threefold methodology to test for causal linkages integrates (i) lag-augmented VAR Granger causality tests, (ii) Breitung-Candelon causality tests in the frequency domain, and (iii) testing for causal inference based on a fully modified OLS (FMOLS) approach. For 12 of 24 countries in the sample, the three tests yield uniform results in terms of causality presence (absence) and direction. Causality running from credit depth to economic growth is found for the UK, Australia, Switzerland, and Greece. The findings lend no support to the view that financial development shifts from a supply-leading to demand-following pattern as economic development proceeds. The aggregate results mesh well with the current discussion on “too much finance” and disintermediation effects. However, idiosyncratic country determinants also appear significant.
    Keywords: causality; economic growth; financial development; FMOLS; frequency domain
    JEL: C22 E44 G21 O16
    Date: 2015–04–30
  8. By: Pedro Malan; Regis Bonelli
    Date: 2015–01
  9. By: Bhanumurthy, N.R. (National Institute of Public Finance and Policy); Bose, Sukanya (National Institute of Public Finance and Policy); Adhikari, Parma Devi (National institute of Public Finance and Policy)
    Abstract: This study attempts to construct a consistent macroeconomic framework for India to review the macro-fiscal linkages over the 14th Finance Commission period of 2015-19. The existing NIPFP model has been reworked to add a full-fledged real sector block comprising of agriculture, industry, services and infrastructure, with the overall economy comprising of real sector block, external block, monetary block, fiscal block and macroeconomic block. The estimated model was used for policy simulations that are relevant for the 14th Finance Commission. The various scenarios include (a) shock due to 7th Pay Commission award, (b) targeting deficit and debt and (c) targeting higher growth. The results suggest that while Pay Commission award would result in slightly higher growth compared to the base case, this also results in higher inflation, fiscal-revenue deficits, current account deficit as well as higher government liability. Further simulation results suggest that expenditure switching policy, which is the core of expansionary fiscal consolidation mechanism, of increasing higher government capital expenditure and reducing the government transfers could result in higher growth with a manageable fiscal deficit of 5.3 per cent that also brings down the government (centre plus states) liability to around 60 per cent by 2019-20.
    Keywords: Fiscal consolidation ; Government debt ; Fiscal deficit ; Macroeconometric modeling ; India
    JEL: C32 E10 E17 E60 H60
    Date: 2015–05

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