nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒12‒28
five papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Immigration, Human Capital Formation and Endogenous Economic Growth By Isaac Ehrlich; Jinyoung Kim
  2. Public debt and economic growth: Economic systems matter By Ahlborn, Markus; Schweickert, Rainer
  3. Financial Integration and Growth in a Risky World By Nicolas Coeurdacier; Hélène Rey; Pablo Winant
  4. The vanishing effect of finance on growth By Gründler, Klaus
  5. The Tale of Two Great Crises By Michele Fratianni; Federico Giri

  1. By: Isaac Ehrlich; Jinyoung Kim
    Abstract: Census data from international sources covering 77% of the world’s migrant population indicate that the skill composition of migrants in major destination countries, including the US, has been rising over the last 4 decades. Moreover, the population share of skilled migrants has been approaching or exceeding that of skilled natives. We offer theoretical propositions and empirical tests consistent with these trends via a general-equilibrium model of endogenous growth where human capital, population, income growth and distribution, and migration trends are endogenous. We derive new insights about the impact of migration on long-term income growth and distribution, and the net benefits to natives in both destination and source countries.
    JEL: F22 F43 O15 O4
    Date: 2015–11
  2. By: Ahlborn, Markus; Schweickert, Rainer
    Abstract: Most studies on the relationship between public debt and economic growth implicity assume homegenous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinacian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of hetergeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, whil for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.
    Keywords: Public Debt,Economic Growth,Economic Systems,Fiscal Policy,Welfare State
    JEL: E62 P10 P51 H10
    Date: 2015
  3. By: Nicolas Coeurdacier; Hélène Rey; Pablo Winant
    Abstract: We revisit the debate on the benefits of financial integration in a two-country neoclassical growth model with aggregate uncertainty. Our framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing—together with their interaction. In our general equilibrium model, risk sharing brought by financial integration has an effect on the steady-state itself, altering convergence gains from capital accumulation. Because we use global numerical methods, we are able to do meaningful welfare comparisons along the transition paths. Allowing for country asymmetries in terms of risk, capital scarcity and size, we find important differences in the effect of financial integration on output, direction of capital flows, consumption and welfare over time and across countries. This opens the door to a richer set of empirical implications than previously considered in the literature.
    JEL: F21 F3 F43
    Date: 2015–12
  4. By: Gründler, Klaus
    Abstract: This paper investigates the causes of the "vanishing effect of finance" detected in recent studies. The results highlight that the negative effect of the financial system on growth is mainly driven by advanced economies, whereas finance is still beneficial for income increases in developing countries. The reason is that finance and growth are associated via a nonlinear relationship, which is due to a fundamental change in the transmission mechanism of finance across different levels of economic and financial development. In early stages of development, finance fosters entrepreneurship, education, and investment in physical capital. As the economies develop, this positive influence vanishes. The negative effect of finance is stronger in countries with sophisticated public education systems, low levels of income inequality, as well as low fertility rates, and in times with low factor productivity growth.
    Keywords: Economic Growth,Financial Sector,Panel Data
    JEL: F40 O16 O47
    Date: 2015
  5. By: Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR); Federico Giri (Universit… Politecnica delle Marche, Dipartimento di Scienze economiche e sociali)
    Abstract: The great depression of 1929 and the great financial crisis of 2008 have been the two big events of the last 75 years. Not only have they produced serious economic consequences but they also changed our view of economics and policymaking. The aim of this work is to compare these two great crises and highlight similarities as well as differences. Monetary policy, the exchange rate system and the role of the banks are our fields of investigation. Our findings are that two big events have more similarities than dissimilarities.
    Keywords: Eurozone, Great Depression, Great Financial Crisis, gold standard, money multiplier, shadow banking
    JEL: E31 E42 E5 G21
    Date: 2015–12

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