nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒06‒05
ten papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. On the bi-directional causal relationship between public debt and economic growth in EMU countries By Marta Gómez-Puig; Simón Sosvilla-Rivero
  2. Does fiscal austerity affect public opinion? By Kalbhenn, Anna; Stracca, Livio
  3. Economic Development: Is Social Capital Persistent? By Rakesh N R Gupta
  4. Economic Growth, Financial Development, and Trade Openness in Emerging Markets: Panel Approach By Uslu, Çağrı Levent; Aydoğan, Ebru Tomris; Ketenci, Natalya
  5. The impact of financial sector development on economic growth: analysis of the financial development gap between Cameroon and South Africa By Mandiefe, Piabuo Serge
  6. Crowdsourcing of Economic Forecast – Combination of Forecasts Using Bayesian Model Averaging By Dongkoo Kim; Tae-hwan Rhee; Keunkwan Ryu; Changmock Shin
  7. Monitoring the world business cycle By Camacho, Maximo; Martinez-Martin, Jaime
  8. Governments' payment discipline: the macroeconomic impact of public payment delays and arrears By Checherita-Westphal, Cristina; Klemm, Alexander; Viefers, Paul
  9. Endogenous labor share cycles: theory and evidence By Growiec, Jakub; McAdam, Peter; Muck, Jakub
  10. Tribalism and Financial Development By Simplice Asongu; Oasis Kodila-Tedika

  1. By: Marta Gómez-Puig (Department of Economic Theory - Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: New evidence is presented on the possible existence of bi-directional causal relationships between public debt and economic growth in both central and peripheral countries of the European Economic and Monetary Union. We test for heterogeneity in the bi-directional Granger-causality across both time and space during the period between 1980 and 2013. The results suggest evidence of a “diabolic loop” between low economic growth and high public debt levels in Spain after 2009. For Belgium, Greece, Italy and the Netherlands debt has a negative effect over growth from an endogenously determined breakpoint and above a debt threshold ranging from 56% to 103% depending on the country.
    Keywords: Public debt, economic growth, Granger-causality, euro area, peripheral EMU countries, central EMU countries
    JEL: C22 F33 H63 O40 O52
    Date: 2015–06
  2. By: Kalbhenn, Anna; Stracca, Livio
    Abstract: In this paper we explore the impact of fiscal austerity on three different dimensions of public opinion (overall life satisfaction and confidence, attitude towards national authorities, and European institutions). Based on a panel of 26 EU countries, we find that, overall, fiscal consolidation episodes tend to have little and inconsistent impact on our measures of public opinion once we include macro controls (real GDP growth, inflation, unemployment, and whether a country is in a EU/IMF program). Some of the circumstances under which consolidation is undertaken are significant in explaining the effect on public opinion, but also these effects are neither strong nor consistent throughout. We conclude that the effect of fiscal consolidation measures on public opinion mainly operates through their effect on the macroeconomy. JEL Classification: H2, H3, H5, H6
    Keywords: euroscepticism, fiscal consolidation, primary balance, public opinion, trust
    Date: 2015–04
  3. By: Rakesh N R Gupta (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, Essec Business School)
    Abstract: This paper, on the one hand, goes a step closer to demonstrate the causality of social capital on economic performance. On the other hand, we confirm a continued role of social capital effects on economic performance in this paper by using a much larger sample, spanning three decades and increasing the scope of countries. This paper is unique in the sense that it contributes to revisiting questions of economic performance, social capital and institutions with a clearly better and updated dataset from the last 28 years building upon existing empirical evidence. We employ a longitudinal analysis (pooled unbalanced multiple cross-section datasets) with fixed effects in this study. Our sample includes both the World Values Survey and European Values Study dating back to the 1980s. Our results are twofold: Firstly, to confirm that trust has a significant positive effect on growth. And more importantly, they have a significant effect on growth for at least 5 years (for growth at 5, 7 and 10 years following a period of trust measure). Secondly, associational activities – another measure in the overarching definitions of social capital, along with institutions, inequality, and education are consistently significant determinants of trust.
    Date: 2015–01
  4. By: Uslu, Çağrı Levent; Aydoğan, Ebru Tomris; Ketenci, Natalya
    Abstract: This paper examines the long-run relationships of the growth model in 21 emerging countries and their alteration when countries in the considered panel vary. Panel estimations using quarterly data for the period 1995-2013 are made for different groups of emerging countries, such as the Full, F-10, Advanced, and Secondary. Additionally, the paper analyzes the changes in the relationships between growth, financial development, and trade openness in groups of emerging countries by taking the presence of structural shifts into account where they exist. Recent panel techniques are employed in this study. The empirical findings reveal that economic growth is highly related to financial development and trade openness only in emerging countries which are not exposed to structural shifts. However, the estimation results illustrated that economic growth is not related to financial development and trade openness in countries exposed to structural shifts. Division of the sample into more narrow groups does not change the estimation results for unstable countries.
    Keywords: Economic growth, financial development, trade openness, emerging markets, cointegration test, structural shifts.
    JEL: F43
    Date: 2015–06–01
  5. By: Mandiefe, Piabuo Serge
    Abstract: African countries are developing better economic and monetary reforms so as to gain the status of an emergent country over a certain period of time, Cameroon is not left behind, she wants to be emergent by 2035. This study seeks to verify the short-run and long-run impact of financial sector development on economic growth and also to verify the gap of financial development that separates Cameroon and an emergent country like South Africa. The vector error correction model was used, in Cameroon a long-run relationship between economic growth and financial development was noticed while for South Africa there is a short-run relationship between bank deposits and economic growth, there is also a long-run relationship between economic growth and financial development. The South African economy moves towards its long-run equilibrium faster after economic shocks thanks to its good financial developed economy. We also notice that there is a gap of 0.26, this means that for the economy of Cameroon to be emergent, the speed of long-run adjustment should increase by 0.26.
    Keywords: Economic growth, financial development, vector error correction model, Cameoon, South Africa
    JEL: E6 E63 G3
    Date: 2015–05–15
  6. By: Dongkoo Kim; Tae-hwan Rhee; Keunkwan Ryu; Changmock Shin
    Abstract: Economic forecasts are quite essential in our daily lives, which is why many research institutions periodically make and publish forecasts of main economic indicators. We ask (1) whether we can consistently have a better prediction when we combine multiple forecasts of the same variable and (2) if we can, what will be the optimal method of combination. We linearly combine multiple linear combinations of existing forecasts to form a new forecast (“combination of combinations”), and the weights are given by Bayesian model averaging. In the case of forecasts on Germany’s real GDP growth rate, this new forecast dominates any single forecast in terms of root-mean-square prediction errors.
    Keywords: Combination of forecasts; Bayesian model averaging
    JEL: E32 E37
    Date: 2015–03
  7. By: Camacho, Maximo (University of Murcia and BBVA Research); Martinez-Martin, Jaime (Bank of Spain)
    Abstract: We propose a Markov-switching dynamic factor model to construct an index of global business cycle conditions, to perform short-term forecasts of world GDP quarterly growth in real time and to compute real-time business cycle probabilities. To overcome the real-time forecasting challenges, the model accounts for mixed frequencies, for asynchronous data publication and for leading indicators. Our pseudo real-time results show that this approach provides reliable and timely inferences of the world quarterly growth and of the world state of the business cycle on a monthly basis.
    JEL: C22 E27 E32
    Date: 2015–02–01
  8. By: Checherita-Westphal, Cristina; Klemm, Alexander; Viefers, Paul
    Abstract: This paper considers the impact of changes in governments' payment discipline on the private sector. We argue that increased delays in public payments can affect private sector liquidity and profits and hence ultimately economic growth. We test this prediction empirically for European Union countries using two complementary approaches. First, we use annual panel data, including a newly constructed proxy for government arrears. Using panel data techniques, including methods that allow for endogeneity, we find that payment delays and to some extent estimated arrears lead to a higher likelihood of bankruptcy, lower profits, and lower economic growth. While this approach allows a broad set of variables to be included, it restricts the number of time periods. We therefore complement it with a Bayesian VAR approach on quarterly data for selected countries faced with significant payment delays. With this second approach, we also find that the likelihood of bankruptcies rises when the governments increase the average payment period. JEL Classification: E6, H6, H8
    Keywords: accounts payable, government arrears, government spending, public payment delays
    Date: 2015–03
  9. By: Growiec, Jakub; McAdam, Peter; Muck, Jakub
    Abstract: Based on long US time series we document a range of empirical properties of the labor’s share of GDP, including its substantial medium-run swings. We explore the extent to which these empirical regularities can be explained by a calibrated micro-founded long-run economic growth model with normalized CES technology and endogenous labor- and capital-augmenting technical change driven by purposeful directed R&D investments. It is found that dynamic macroeconomic trade-offs created by arrivals of both types of new technologies may lead to prolonged swings in the labor share due to oscillatory convergence to the balanced growth path as well as stable limit cycles via Hopf bifurcations. Both predictions are broadly in line with the empirical evidence. JEL Classification: E25, E32, O33, O41
    Keywords: CES, endogenous cycles, factor-augmenting endogenous technical change, labor income share, normalization, R&D, technology menu
    Date: 2015–03
  10. By: Simplice Asongu (Yaoundé/Cameroun); Oasis Kodila-Tedika (Kinshasa, Democratic Republic of Congo)
    Abstract: We assess the correlations between tribalism and financial development in 123 countries using data averages from 2000-2010. The tribalism index is used to measure tribalism whereas financial development is measured from perspectives of financial intermediary and stock market developments. The long-term variable is stock market capitalisation while short-run indicators include: private and domestic credits. We find that tribalism is negatively correlated with financial development and the magnitude of negativity is higher for financial intermediary development relative to stock market development. The findings are particularly relevant to African and Middle Eastern countries where the scourge is most pronounced.
    Keywords: Tribalism; Financial Development
    JEL: E62 H11 H20 G20 O43
    Date: 2015–05

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