nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒09‒26
nine papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Types of banking institutions and economic growth: An endogenous growth model By Elmawazini, Khaled; Khiyar, Khiyar Abdalla; Al Galfy, Ahmad; Aydilek, Asiye
  2. Long-Run Growth Uncertainty By Pei Kuang; Kaushik Mitra
  3. Is Government Debt a Vamp? Public Finance in a Transylvanian Growth Model By Maxime Menuet; Patrick Villieu
  4. Deficit Rules and Monetization in a Growth Model with Multiplicity and Indeterminacy By Maxime Menuet; Alexandru Minea; Patrick Villieu
  5. Exploring the Channels and Impact of Debt on Economic Growth in South Asia By Riffat, Nisma; Munir, Kashif
  6. Creşterea economică a României între 1980 şi 2013 By Stefanescu, Răzvan; Dumitriu, Ramona
  7. The bank lending channel: An empirical analysis of EU accession countries from 2004-2013 By Khosravi, Taha
  8. Is There a Debt-threshold Effect on Output Growth? By Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi
  9. Building a Better Union: Incentivizing Structural Reforms in the Euro Area By Angana Banerji; Bergljot Barkbu; James John; Tidiane Kinda; Sergejs Saksonovs; Hanni Schoelermann; Tao Wu

  1. By: Elmawazini, Khaled; Khiyar, Khiyar Abdalla; Al Galfy, Ahmad; Aydilek, Asiye
    Abstract: There is mixed support for the hypothesis that the banking sector is a channel for economic growth. While most studies on economic growth in Gulf Cooperation Council (GCC) countries have not distinguished between conventional banks and Islamic banks, this study contributes to the empirical literature by comparing the respective impacts of Islamic banks and commercial banks on economic growth among GCC countries during the period 2001-2009, bringing out policy implications. The main result of panel data regressions is that both conventional and Islamic banks have fuelled economic growth, with the latter having a more significant impact. These results contradict the findings of some single-country studies that have examined the impact of Islamic banking on economic growth.
    Keywords: Finance,Economic growth,Dynamic panel data models,GCC countries
    JEL: C2 G21 O53
    Date: 2015
  2. By: Pei Kuang; Kaushik Mitra
    Abstract: A model of business cycles in which households do not have knowledge of the long-run growth of endogenous variables and continually learn about this growth is presented. The model features comovement and mutual reinforcement of households' growth expectations and market outcomes and suggests a critical role for shifting long-run growth expectations in business cycle fluctuations. There are important implications for estimating the output gap and the derived cyclically-adjusted fiscal budget balance computed by policy making institutions.
    Keywords: Trend, Expectations, Business Cycle, Output Gap, Cyclically-Adjusted Budget Balance
    JEL: E32 E62 D84
    Date: 2015–06
  3. By: Maxime Menuet (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans); Patrick Villieu (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans)
    Abstract: The vampire metaphor has been used in numerous papers describing biological interactions between two populations. Such a metaphor translates well to a standard endogenous growth model with public debt. Public debt can be assimilated to a Vamp, whose blood-sucking behavior corresponds to the harmful effect of the debt burden on productive public expenditures. However, the complete destruction of public debt in the long-run is shown to be socially undesirable, because this would imply too much distortionary taxation, with damaging effects on the balanced growth path. By identifying ecological or biological processes with usual national account relationships, this analysis is one step further in the integration of macroeconomics and environmental economics.
    Keywords: public debt,vampire,ecological process
    Date: 2015–09–17
  4. By: Maxime Menuet (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans); Alexandru Minea (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Patrick Villieu (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans)
    Abstract: In response to the Great Recession, Central Banks around the world adopted " unconven-tional " monetary policies. In particular, the Fed, and more recently the ECB, launched massive debt monetization programs. In this paper, we develop a formal analysis of the short-and long-run consequences of deficit and debt monetization, through an endoge-nous growth model in which economic growth interacts with productive public expenditure. This interaction can generate two positive balanced growth paths (BGP) in the long-run: a high BGP and a low BGP, and further, depending on the form of the CIA constraint, possible multiplicity and indeterminacy. Thus, monetizing deficits is found to be remarkably powerful. First, a large dose of monetization might allow avoiding, whenever present, BGP indeterminacy. Second, monetization always allows increasing growth and welfare along the (high) BGP, by weakening the debt burden in the long-run. Third, with a CIA on consumption only, monetization provides a rationale for deficits in the long-run: for high degrees of monetization, the impact of deficits and debts on economic growth and welfare becomes positive in the steady-state.
    Keywords: public debt, indeterminacy, monetization, economic growth
    Date: 2015–09–17
  5. By: Riffat, Nisma; Munir, Kashif
    Abstract: This study investigates the existence of non-linear relationship between debt and economic growth in South Asia and explored the channels through which debt has its nonlinear impact on the growth of economy. Panel data on four South Asian countries over the period of 1991 to 2013 utilized and fixed effect model employed for estimation. The results suggest that there is nonlinear relationship between debt and economic growth in South Asian countries and the channels through which debt transmits impact into the economy are private investment, public investment and total factor productivity. The government should stimulate the revenue generation and reduce its huge current expenditures. Reducing debt accumulation alone will not rectify the problem unless the supplementary macroeconomic policies are made sound. By removing political constraints, macroeconomic imbalances, improving governance, reducing dependency on foreign aids and eliminating structural distortions, the problem of debt can be resisted.
    Keywords: Debt, Economic Growth, Investment, Total Factor Productivity, South Asia
    JEL: C23 H6 O47
    Date: 2015–09–21
  6. By: Stefanescu, Răzvan; Dumitriu, Ramona
    Abstract: This paper explores the economic growth of Romania in three periods: the last decade of the communist regime (1980-1989), the transition from a centrally planned economy to a market economy (1990-2006) and the seven years that followed the adhesion to European Union (2007 – 2013). We approach several aspects of the economic growth: GDP evolution, the social impact and the relations with the other macroeconomic objectives. We find, for each period, some circumstances that influenced this process: the dramatic efforts to pay back all the foreign debt, for the period 1980-1989, the political and institutional instability during the transition period and, finally, the challenges of the European markets combined with the effects of the global crisis.
    Keywords: Economic Growth, Economic Development, Poverty, Macroeconomic Policy.
    JEL: N10 O40 O49
    Date: 2015–01–25
  7. By: Khosravi, Taha
    Abstract: In this paper a methodical empirical analysis of the bank lending channel of monetary transmission in the European Union’s 10 new member states is conducted. We specifically investigate the influence of monetary policy changes on bank lending activity and if this potential influence is contingent on bank characteristics, such as banks’ size, capital, liquidity and risk factor. Panel data compiled from a large number of banks from 2004 to 2013, and dynamic panel estimation methods are used. The results indicate the existence of a bank lending channel through bank liquidity; however, while liquidity and GDP growth maintain a beneficial and substantial impact on bank loan growth, the other bank characteristics are not considered to be important factors. Additionally, there is an indication of the effect of bank risk and liquidity from 2008 to 2010. Nevertheless, the lending channel has been weakened, serving as an additional refutation of bank-specific traits in allowing banks to maintain lending activity and growth during a financial crisis.
    Keywords: Bank lending channel, EU-10 countries, Monetary policy transmission, Panel data.
    JEL: C23 E51 E52 G21
    Date: 2015–09–19
  8. By: Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi
    Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965- 2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers in the long run.
    Date: 2015–09–08
  9. By: Angana Banerji; Bergljot Barkbu; James John; Tidiane Kinda; Sergejs Saksonovs; Hanni Schoelermann; Tao Wu
    Abstract: The momentum for structural reforms is waning in the euro area at a time when even faster progress is needed to boost productivity and growth, achieve real economic convergence, and improve the resilience of the monetary union. What can the European Union (EU) institutions do to bridge this divide? This paper argues for greater simplicity, transparency and accountability in the EU governance framework for structural reforms. Our three interrelated proposals—“outcome-based†benchmarking; better use of existing EU processes to strengthen oversight and reduce discretion; and improved financial incentives—could help advance reforms. Ex post monitoring by an independent EU-level “structural council†and ex ante policy innovation by national productivity councils could strengthen accountability and ownership. Deeper governance reforms should be considered in the medium-term with a view toward a greater EU role in promoting convergence.
    Keywords: Fiscal reforms;Euro Area;European Economic and Monetary Union;Institutional framework;Structural reform, European economic governance, European Union
    Date: 2015–09–11

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