nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒11‒07
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Why Foreign Aid Failed In Sub-Saharan Africa By Abdow Bashir Ismail
  2. Fiscal policy and economic growth: Empirical evidence from the European Union. By Dimitrios Paparas; Christian Richter
  3. Public Debt and Growth: An Empirical Investigation By Duygu Canbek
  4. Do debt and growth dance together? A DSGE model of a small open economy with sovereign debt By Zixi Liu
  5. Political Economy of Debt and Growth By Marco Battaglini; Levon Barseghyan
  6. International intellectual property rights protection and economic growth with costly transfer By Kazuyoshi Ohki

  1. By: Abdow Bashir Ismail (Gazi University, Economic Development and Growth)
    Abstract: In economic terms, foreign aid is viewed as a catalyst of an upward growth of Gross Domestic Product (GDP) of the recipient nation as it complements the domestic sources of finance to increase the amount of investment and capital stock. Over the years, many Sub-Saharan African countries have been receiving huge amounts of foreign aid to enhance economic growth and reduce poverty. However, the poverty reduction rates have been disappointing to raise doubts on the effectiveness of foreign resulting in a chain of debates among experts. It’s believed that, most ineffectiveness of foreign aid is as a result of poor governance, poor institutions setup, and lack of political goodwill as well as poor aid delivery process. This paper attempt to shed light on how domestic government practices and foreign aid delivery processes have became a hindrance to achieve progress in the war against poverty reduction in Sub-Saharan African Countries.
    Keywords: Aid, Economic Development, Sub-Saharan Africa, Developing Countries
    JEL: F35 O19 E23 H54
    Date: 2015
  2. By: Dimitrios Paparas (Harper Adams University, UK); Christian Richter (German University in Cairo, Egypt)
    Abstract: The role of Fiscal policy in the long run growth process has been crucial in macroeconomics since the appearance of endogenous growth models. Additionally, a significant debate among economists involves whether several types of spending or taxation enhance economic growth. The main objective of this paper is to highlight the relationship between fiscal policy and economic growth in the EU-15, and to make an attempt to determine which of the fiscal policy instruments enhance economic growth.  We deployed panel data techniques and included both sides of budget, spending and taxation, in our regressions and used the most recent dataset data for fiscal variables from Eurostat. We made a new classification of public expenditures into homogeneous groups in order to reduce the explanatory variables and increase the efficiency of our model and results since we have data for only 14 years. In our empirical analysis we included OLS, fixed effects models, random effects models and GMM estimators, the Arellano and Bond (1991) and the Arellano and Bover (1995) - Blundell and Bond (1998) estimators. On the first round of our regressions we find a negative impact of spending on human capital accumulation on economic growth. Our empirical results also indicate that an increase in government spending on infrastructure has a significant positive impact on the economic growth of a country. Additionally, in our regressions the variable government spending on property rights protections include spending on defence and spending on public order safety. Our empirical results from the first round of regressions imply a strongly negative relationship between t hese two variables. However, on the second round of our regressions we aggregate defence spending from spending on property right protection and we did not find any relationship between economic growth and defence spending. Moreover, we found a non-significant relationship between government spending on social protection and economic growth. On the second round of regressions, when we allow for non-linear growth effects we find a positive relationship with deficits and economic growth, which is in contrast with Ricardian Equivalence. We also included the employment growth and business investment in our model because labour and capital are very important factors of production in growth models. In our empirical results we do not find a significant impact of employment on economic growth, but when we allow for non-linear growth effects we find a strongly positive impact. However, we found that gross fixed capital formation of the private sector as a percentage of GDP in both rounds of our regressions, has no significant impact on economic growth. Finally, our empirical results do not support any evidence of a relationship between openness and economic growth.
    Keywords: Panel Data. Fiscal Policy. Taxation. Government Expenditures.
    JEL: C23 C33 E62 H2 H5
    Date: 2015
  3. By: Duygu Canbek (Atilim University)
    Abstract: In this research, the relationship between public debt and growth for a panel sample of 128 countries including 26 advanced, 40 emerging and 62 developing economies for a period of 1960-2011 is investigated. To this end, not only the conventional fixed effects procedure but also the recently developed cross sectionally augmented distributed lag (CS-DL) mean group (MG) procedure is considered. Also, it is investigated whether the relationship is robust to different country groupings such as advanced, emerging and developing economies and to different debt levels such as suggested. In the study, bivariate equations for debt and growth and conventional growth equations augmented with debt threshold variables are estimated. The results suggest that the negative impact of the public debt on growth appears to be more severe in emerging market countries than both advanced and developing countries. The results also lend a support to the view that the growth is invariant to different public debt levels in advanced countries. Moreover, according to the results, not only the debt growth but also the acceleration of the debt negatively affects economic growth. Emerging economies suffer most from the debt whilst the advanced economies suffer the least. Also a rising debt structure lead to a remarkable slowdown the growth for emerging and developing economies rather than the advanced ones.
    Keywords: Public Debt, Growth, Threshold Value, Panel Data, Emerging Economies, Cross-Section dependence
    JEL: Q5 C23 O57
    Date: 2015
  4. By: Zixi Liu (Goethe University Frankfurt)
    Abstract: Regarding the financial crisis since 2008, one heated debate lies in the relationships between public debt and economic growth. The present paper develops a theoretical model in a small open economy with sovereign risk based on Galí  and Monacelli (2005, 2008). A country- specific sovereign risk parameter is inserted into the sovereign interest rate equation to analyze its influence to the links between debt and growth. This paper shows that there is no single threshold and additionally, the relationship between debt and growth is country-specific and it varies depending on the degree of sovereign risk. Three scenarios are considered conditional on one set of randomly drawn simulated exogenous shocks. In a country with a high sovereign risk, there is a negative relationship between debt and growth whereby debt- GDP ratio is above 90%. With an extremely high sovereign risk, the relationship turns out to be rather negative and the turning point is quite low. In some countries that sovereign risk is not that high, fiscal stimulus could be effective to improve the economic growth. Moreover, the relationships between debt and growth under the three scenarios are all hump-shaped.
    Keywords: Growth, Sovereign Debt, DSGE, Fiscal Policy.
    JEL: E62 F41 H30 H60
    Date: 2015
  5. By: Marco Battaglini; Levon Barseghyan
    Abstract: We present a theory of endogenous fiscal policy and growth. Fiscal policy — debt, income tax, spending on local public goods and public investment — is determined through legislative bargaining. Economic growth depends directly on public investment, private investment in human capital and, via learning-by-doing, labor supply. The model predicts that the economy converges to a balanced growth path in which consumption, private investment, public investment, public goods provision, public debt and productivity grow at the same constant rate. The transition to the balanced growth path is characterized by what we call the shrinking government effect: public debt grows faster than GDP, provisions of public goods and infrastructure grow slower than GDP and the tax rate declines. We use the model to study the impact of austerity programs which impose a ceiling on the amount of public debt a country can issue.
    JEL: D72 E6 E62 H6 H72
    Date: 2015–10
  6. By: Kazuyoshi Ohki (Graduate school of economics, Osaka University)
    Abstract: This paper develops a product-cycle model with costly technology transfer, which requires re- sources from both the North and the South. In the basic model , we show that strengthening IPR protection induces a large technology transfer and narrows the North-South wage gap. However, we obtain an ambiguous result regarding the effect on economic growth, which depends crucially on the size of the transfer cost. Although strengthening IPR protection induces a high growth rate when the transfer cost is small, it can induce a low growth rate when the transfer cost is large. In the extended model, in order to examine what factors determine the transfer cost, we consider the situation where the Southern firms may misbehave and the Northern firms incur a cost to monitor them. We show that the degree of investor protection and the degree of morality in developing countries influence the size of the transfer cost, which affects economic growth.
    Keywords: R&D, product-cycle model, technology transfer, IPR protection
    JEL: F12 F23 F43 O31 O34
    Date: 2015–10

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