nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒10‒17
nine papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Natural Gas Consumption and Economic Growth: The Role of Foreign Direct Investment, Capital Formation and Trade Openness in Malaysia By Solarin, Sakiru Adebola; Shahbaz, Muhammad
  2. Remittances, finance and growth: does financial development foster remittances and their impact on economic growth By Izabela Sobiech
  3. Indeterminacy in a Matching Model of Money with Productive Government Expenditure By Chu, Angus C.; Liao, Chih-Hsing; Liu, Xiangbo; Zhang, Mengbo
  4. "Secular Stagnation or Stagnation Policy? Steindl after Summers" By Eckhard Hein
  5. Revisiting the Lucas model By Skritek, Bernhard; Crespo Cuaresma, Jesús; Kryazhimskii, Arkadii V.; Prettner, Klaus; Prskawetz, Alexia; Rovenskaya, Elena
  6. Immigration and Economic Growth in the OECD Countries 1986-2006 By Ekrame BOUBTANE; Jean-Christophe DUMONT; Christophe RAULT
  7. Economic Growth and Evolution of Gender Equality By Tatiana Damjanovic; Geethanjali Selvaretnam
  8. Revisiting the New Normal Hypothesis By Bertrand Candelon; Alina Carare; Keith Miao
  9. A note on the characterization of optimal allocations in OLG mdels with multiple goods By Jean-Marc Bonnisseau; Lalaina Rakotonindrainy

  1. By: Solarin, Sakiru Adebola; Shahbaz, Muhammad
    Abstract: The objective of this paper is to reinvestigate the relationship between natural gas consumption and economic growth by including foreign direct investment, capital and trade openness in Malaysia for the period of 1971-2012. The structural break unit root test is employed to investigate the stationary properties of the series. We have applied combined cointegration test to examine the relationship between the variables in the long run. For robustness sake, the ARDL bounds testing method is also employed to test for possible of long run relationship in the presence of structural breaks. We note the validity of cointegration between the variables. Natural gas consumption, foreign direct investment, capital formation and trade openness have positive influence on economic growth in Malaysia. The results support the presence of feedback hypothesis between natural gas consumption and economic growth, foreign direct investment and economic growth, and natural gas consumption and foreign direct investment. The policy implications of these results are provided.
    Keywords: Natural gas consumption, Economic growth, Causality
    JEL: C1
    Date: 2015–10–11
  2. By: Izabela Sobiech
    Abstract: In this paper, I measure the importance of remittances and financial development for developing countries. I estimate an index of overall financial conditions and use it to determine the relevance of the financial sector as a transmission channel for remittances to affect economic growth. The index brings together information from existing measures, reflecting size, depth and efficiency of the financial sector. It is created by means of an unobserved components model. I show that the more financial development in a country, the smaller becomes the impact of remittances on economic growth and it can even turn negative. For countries with weaker financial markets there is a positive effect, but significant only at the earliest stages of financial development. The effect becomes negative in the third quartile of financial development. These results hold irrespective of the measure of financial development included, but are most profound in case of the created index. This means that estimates based on proxies might be slightly biased. I also show that countries with both low levels of remittances and financial development should first focus on developing the latter, while migrants' transfers become important for growth if the country has a moderate level of financial development.
    Keywords: remittances, economic growth, financial development, unobserved components model, dynamic panel data analysis
    JEL: F24 O11 O15 O16
    Date: 2015–10
  3. By: Chu, Angus C.; Liao, Chih-Hsing; Liu, Xiangbo; Zhang, Mengbo
    Abstract: This study explores the effects of inflation on economic growth in a monetary search-and-matching model with productive government expenditure. Our results can be summarized as follows. When labor intensity in the production function is below a threshold value, the economy features a unique balanced growth equilibrium in which inflation reduces economic growth. When labor intensity in the production function is above a threshold value, the economy may feature multiple balanced growth paths. Multiple equilibria (i.e., global indeterminacy) arise when the matching probability in the decentralized market is sufficiently large. In this case, the high-growth equilibrium features a negative effect of inflation on economic growth whereas the low-growth equilibrium features a U-shaped effect of inflation on growth. Furthermore, under a sufficiently large matching probability in the decentralized market, both equilibria are locally determinate, and hence, either equilibrium may emerge in the economy.
    Keywords: Economic growth; inflation; money; random matching ; indeterminacy
    JEL: E3 E4 O42
    Date: 2015–10
  4. By: Eckhard Hein
    Abstract: The current debate on secular stagnation is suffering from some vagueness and several shortcomings. The same is true for the economic policy implications. Therefore, we provide an alternative view on stagnation tendencies based on Josef Steindl's contributions. In particular, Steindl (1952) can be viewed as a pioneering work in the area of stagnation in modern capitalism. We hold that this work is not prone to the problems detected in the current debate on secular stagnation: It does not rely on the dubious notion of an equilibrium real interest rate as the equilibrating force of saving and investment at full employment levels, in principle, with the adjustment process currently blocked by the unfeasibility of a very low or even negative equilibrium rate. It is based on the notion that modern capitalist economies are facing aggregate demand constraints, and that saving adjusts to investment through income growth and changes in capacity utilization in the long run. It allows for potential growth to become endogenous to actual demand-driven growth. And it seriously considers the role of institutions and power relationships for long-run growth--and for stagnation.
    Keywords: Secular Stagnation; Stagnation Policy; Distribution and Growth; Steindl
    JEL: B22 E11 E12 E65 O11
    Date: 2015–10
  5. By: Skritek, Bernhard; Crespo Cuaresma, Jesús; Kryazhimskii, Arkadii V.; Prettner, Klaus; Prskawetz, Alexia; Rovenskaya, Elena
    Abstract: We revisit the influential economic growth model by Lucas (1988) ["On the mechanics of economic development." Journal of Monetary Economics, 22(1):3-42], assuming that households optimally allocate consumption and education over the life-cycle given an exogenous interest rate and exogenous wages. We show that in such a partial equilibrium setting, the original two-state (physical capital and human capital) optimization problem can be decomposed into two single-state optimal control models. This transformation allows us to rigorously prove the existence of a singular control describing the allocation of education time along a balanced growth path. We derive a constructive condition for a singular control to exist and show that under this condition infinitely many singular controls are optimal in the individual household problem. In contrast to the original general equilibrium framework in which an agent always chooses part-time education and part-time work, in our framework such an agent might find it optimal to allocate her whole available time to education at the beginning of her life and to focus on labor supply only when she is older.
    Keywords: optimal lifetime education,optimal control,singular control,economic growth,human capital
    JEL: C60 O41 I20
    Date: 2015
  6. By: Ekrame BOUBTANE; Jean-Christophe DUMONT; Christophe RAULT
    Date: 2015
  7. By: Tatiana Damjanovic; Geethanjali Selvaretnam
    Abstract: We put forward a theoretical growth model where the degree of gender equality evolves towards the value maximising social output. It follows that a womans bargaining power positively depends on her relative productivity. When an economy is less developed, physical strength is quite important for production and therefore the total output is bigger when the man has larger share of the reward. As society develops and accumulates physical and human capital, the woman becomes more productive, which drives social norms towards gender equality. By endogenising gender balance of power we can explain why it di¤ers across societies and how it evolves over the time.
    Keywords: gender inequality, economic growth, female bargaining power, human capital, natural resources
    JEL: C72 C73 D13 J16 O41 O43
    Date: 2015–10
  8. By: Bertrand Candelon; Alina Carare; Keith Miao
    Abstract: The paper estimates the impact of crises on output growth and augments Cerra and
    Keywords: New Normal Hypothesis; Financial crises; Banking crisis; Output growth.
    JEL: F30 F41
    Date: 2015–10–07
  9. By: Jean-Marc Bonnisseau (Centre d'Economie de la Sorbonne - Paris School of Economics); Lalaina Rakotonindrainy (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We consider a pure exchange overlapping generations economy with a varying number of commodities and consumers per period having possibly non-complete non transitive preferences. We provide a geometric and direct proof of the Balasko-Shell characterization of Pareto optimal allocation. As a by-product, we compute an explicit Pareto improving transfer when the criterion is not satisfied, which is minimal for some suitable distance
    Keywords: Overlapping generations model; non complete non transitive preferences; normal cone; equilibrium; Pareto optimality
    JEL: C62 D50 D62
    Date: 2015–01

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