nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒05‒30
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Taxation and fiscal expenditure in a growth model with endogenous fertility By Sedgley, Norman; Elmslie, Bruce
  2. Financial Liberalization, Banking Crisis and Economic Growth in MENA Region: Do Institutions Matter? By RACHDI, Houssem; Hakimi, Abdelaziz; Hamdi, Helmi
  3. The Macroeconomic Effects of Fiscal Consolidation in Dynamic General Equilibrium By Schwarzmüller, Tim; Wolters, Maik H.
  4. The Causal Relation between Savings and Economic Growth: An Empirical Analysis By Bassam AbuAl-Foul
  5. Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization By SBIA, Rashid; Al Rousan, Sahel
  6. Commodity Price Booms and Populist Cycles. An Explanation of Argentina’s Decline in the 20th Century By Emilio Ocampo

  1. By: Sedgley, Norman; Elmslie, Bruce
    Abstract: Most growth theorists agree that understanding the economics of innovation and technological change is central to understanding why some countries are richer and/or grow faster than other countries. The driving force behind recent developments in endogenous innovation models of growth is a desire to eliminate population scale effects. In the semi endogenous growth model growth becomes proportional to the exogenous population growth rate but invariant to policy. This paper makes population growth endogenous by modeling fertility along the lines of Barro and Becker (Fertility Choice in a Model of Economic Growth, 1989) and models an array of government policies to demonstrate how some policies can impact levels and growth rates in a scale free endogenous growth model. In the model government policies are categorized according to whether they have level effects only, level and growth effects, or no impact on levels and/or growth.
    Keywords: policy effects on growth,endogenous population,public finance
    JEL: H2 H0 O3
    Date: 2015
  2. By: RACHDI, Houssem; Hakimi, Abdelaziz; Hamdi, Helmi
    Abstract: The main purpose of this study is to investigate the interaction between financial liberalization, banking crisis and economic growth by taking into consideration the role of institutions. Our sample covers ten Middle East and North African (MENA henceforth) observed during the period 1990-2013. Using a dynamic panel data framework, our findings reveal that financial liberalization increases the likelihood of systemic banking crisis at the initial stages of financial reform, but there is a threshold level after which financial liberalization can have a positive impact on economic growth by reducing the probability of crisis. The results also suggest that all indicators of institutions play a less significant role in economic growth.
    Keywords: Economic growth, financial liberalization, institutions and MENA countries
    JEL: E44 F36 G21 G28
    Date: 2015–05–23
  3. By: Schwarzmüller, Tim; Wolters, Maik H.
    Abstract: We provide a systematic analysis of the transmission mechanisms of fiscal consolidation via various fiscal instruments in a medium-scale dynamic general equilibrium model. Our analysis shows that the following three aspects have a large impact on the quantitative macroeconomic effects of fiscal consolidation. First, the effects on output depend crucially on the interaction of the specific fiscal consolidation instrument with the production factors labor, private and public capital. Increases in the labor and capital tax rates and cuts in government investment lead to large declines in one of these production factors, respectively. This is followed by a decrease in the private or public capital stock which in turn yields a persistent output contraction. By contrast, for consolidations via government consumption, transfers or the consumption tax rate the capital stock does not shrink and output recovers much faster. Second, the presence of credit-constrained households amplifies the consumption and output dynamics caused by fiscal consolidation. This has large distributional consequences and opposing welfare implications for credit-constrained and fully optimizing households. Finally, when the zero lower bound on the nominal interest rate binds the short-run output costs of fiscal consolidation increase substantially in particular for expenditure based consolidations.
    Keywords: fiscal consolidation, policy transmission, government debt, distortionary taxes, zero lower bound, welfare, monetary-fiscal policy interaction
    JEL: E32 E62 E63 H61 H62 H63
    Date: 2015–05
  4. By: Bassam AbuAl-Foul
    Abstract: This paper examines the causal relation between savings and economic growth for Morocco and Tunisia using Autoregressive Distributed Lag (ARDL) approach to cointegration. The results support bidirectional causality between economic growth and savings growth for Morocco. However, for Tunisia, the results suggest a unidirectional causality from saving growth to economic growth.
    Keywords: Cointegration, ARDL approach, Savings and Economic Growth, Causality, MENA region.
    JEL: C50 C51 E20 O40
  5. By: SBIA, Rashid; Al Rousan, Sahel
    Abstract: This paper investigates the relationship between financial development and economic growth in case of UAE over the period of 1975Q1-2012Q4. The issue of unit root properties of the variables is solved by employing structural break unit root test. We have employed Bayer-Hanck combined cointegration to test the long run relationship between the variables. Our analysis revealed the existence of cointegration between financial development and economic growth. Financial development induces economic growth. Foreign direct investment stimulates economic growth. Capitalization also increases economic growth. This paper suggests using foreign direct investment appropriately redesigning financial policy for sustainable economic growth in long span of time.
    Keywords: Financial Development, FDI, Capital Investment, Economic Growth, UAE, GCC, MENA.
    JEL: C32 E22 E62 F43 G18 G28
    Date: 2015
  6. By: Emilio Ocampo
    Abstract: Argentina’s economic and institutional decline has long posed a conundrum to economists and social scientists. In particular, it challenges theories that seek to explain cross-country growth differences over time. Those theories that claim that institutions have a first-order effect on growth cannot explain the persistent economic decadence of a country that in 1930 was among the most institutionally advanced in Latin America. Theories that claim that that education and growth precede inclusive institutions face a similar problem, since Argentina was one of the most educationally advanced countries in Latin America. The same can be said of theories that claim that social capital is the determinant factor that explains long-term growth. This paper emphasizes the key role played by recurrent cycles of populism in pushing the country into secular decadence and posits that, in Argentina, rising commodity prices have driven the cycles of populism.
    Keywords: Populism, commodity cycles, Argentina, inequality, institutions, social capital, economic growth, economic decline.
    Date: 2015–05

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