nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒01‒03
five papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. The Impact of Financial Factors on the Output Gap and Estimates of Potential Output Growth By Felipe, Jesus; Sotocinal, Noli; Bayudan-Dacuycuy, Connie
  2. Financial Integration and Growth in a Risky World By Coeurdacier, Nicolas; Rey, Hélène; Winant, Pablo
  3. The Political Economy of Growth, Inequality, the Size and Composition of Government Spending By Klaus Schmidt-Hebbel; José Carlos Tello
  4. Autonomous demand and economic growth:some empirical evidence By Daniele Girardi; Riccarco Pariboni
  5. Destructive intergenerational altruism By Asheim, Geir B.; Nesje, Frikk

  1. By: Felipe, Jesus (Asian Development Bank); Sotocinal, Noli (Asian Development Bank); Bayudan-Dacuycuy, Connie (Ateneo de Manila University)
    Abstract: The literature on the finance–growth nexus highlights the importance of the financial cycle for the estimation of potential output of an economy. We estimate potential output growth for the G-5 countries, as well as for 10 high- and middle-income Asian economies, using a multivariate model that includes financial factors. We find that the latter have a positive and statistically significant effect on the output gap of the G-5 and high-income Asian economies, but not on that of the middle-income Asian economies. We also find that average potential growth of the economies included in the study is lower in 2008–2014 than in 2000–2007.
    Keywords: economic growth; financial factors; output gaps; potential output growth
    JEL: E32 G00 O11 O16 O47
    Date: 2015–10–07
  2. By: Coeurdacier, Nicolas; Rey, Hélène; Winant, Pablo
    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.
    Keywords: Growth; International capital flows; Risk sharing
    JEL: F21 F3 F43
    Date: 2015–12
  3. By: Klaus Schmidt-Hebbel; José Carlos Tello
    Abstract: This paper develops a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers (valued by households), as well as productive government services (complementing private capital in an endogenous-growth technology). Inequality is reflected by a discrete distribution of infinitely-lived agents that differ by their initial capital holdings. In contrast to the previous literature that derives monotonic (typically negative) relations between inequality and growth in one-dimensional voting environments, this paper establishes conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained. This more general result – that inequality and growth could be negatively or positively related – could be consistent with the ambiguous or inconclusive results documented in the empirical literature on the inequality-growth nexus. The paper also shows that the political-economy equilibrium obtained under multi-dimensional voting for the initial period is time-consistent.
    JEL: D72 E62 H11 H31
    Date: 2014
  4. By: Daniele Girardi; Riccarco Pariboni
    Abstract: According to the Sraffian supermultiplier model, economic growth is driven by the autonomous components of aggregate demand (exports, public spending and autonomous consumption). This paper tests empirically some major implications of the model. For this purpose, we calculate time-series of the autonomous components of aggregate demand and of the supermultiplier for the US, France, Germany, Italy and Spain and describe their patterns in recent decades. We observe that changes in output and in autonomous demand are tightly correlated, both in the long and in the short-run. The supermultiplier is substantially higher and more stable in the US, while in the European countries it is lower and strongly decreasing. Consistently with theory, we find that where the supermultiplier is reasonably stable - i.e., in the US since the 1960s - autonomous demand and output share a common long-run trend (i.e, they are cointegrated). The estimation of a Vector Error-Correction model (VECM) on US data suggests that autonomous demand exerts a long-run effect on GDP, but also that there is simultaneous causality between the two variables. We propose an explanation based on the idea that autonomous demand is socially and historically determined. We then estimate the multiplier of autonomous spending through a panel instrumental-variables approach, finding that a one dollar increase in autonomous demand raises output by 1.6 dollars over four years. A further implication of the model that we test against empirical evidence is that increases in autonomous demand growth tend to be followed by increases in the investment share. Through Granger-causality tests and instrumental variables analysis, we find that this is the case in all five countries. An additional 1% increase in autonomous demand raises the investment share by 0.57 percentage points of GDP in the long-run
    Keywords: Growth, Effective Demand, Supermultiplier
    JEL: E11 E12 B51 O41
    Date: 2015–08
  5. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Nesje, Frikk (Dept. of Economics, University of Oslo)
    Abstract: Are the probable future negative effects of climate change an argument for decreasing the discount rate to promote the interests of future generations? The analysis of the present paper suggests that such stronger intergenerational altruism might undermine future wellbeing if not complemented by collective climate action. In the standard one-sector model of economic growth normatively attractive outcomes will be implemented if each generation has sufficient altruism for its descendants. This conclusion is radically changed in a two-sector model where one form of capital is more productive than the other, but leads to negative atmospheric externalities. In fact, the model shows that, if each dynasty is trying to get ahead in a world threatened by climate change by increasing its intergenerational altruism, then long-term wellbeing will be seriously undermined.
    Keywords: Intergenerational altruism; climate change.
    JEL: D63 D64 D71 Q01 Q54
    Date: 2015–12–17

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