nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒02‒12
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Dimensions of the welfare state and economic performance: a comparative analysis By João A. S. Andrade; Adelaide P. S. Duarte; Marta C. N. Simões
  2. Public Debt, Economic Growth and the Real Interest Rate:A Panel VAR Approach to EU and OECD Countries By Kazuo Ogawa; Elmer Sterken; Ichiro Tokutsu
  3. Balanced Growth Despite Uzawa By Grossman, Gene; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
  4. Growth and innovation in the presence of knowledge and R&D accumulation dynamics By Verba, M.
  5. Finance and Synchronization By Cesa-Bianchi, Ambrogio; Imbs, Jean; Saleheen, Jumana
  6. Fiscal Consolidation by Austerity and EU Surveillance Policies By Iancu, Aurel; Olteanu, Dan

  1. By: João A. S. Andrade (Faculty of Economics and GEMF, University of Coimbra, Portugal); Adelaide P. S. Duarte (Faculty of Economics and GEMF, University of Coimbra, Portugal); Marta C. N. Simões (Faculty of Economics and GEMF, University of Coimbra, Portugal)
    Abstract: In recent years the desirability of an extensive Welfare State has been increasingly questioned on the grounds that economies with less social intervention by the Government are more competitive and productive. But even if countries do not increase public expenditure, changing the composition of the Welfare State might foster growth by rescaling their intervention in domains that are productivity enhancing. Education and health are the most striking examples given their role as sources of human capital, a fundamental ingredient in many growth models. It is thus important to empirically assess the impact of public expenditures on education and health on educational attainment and health status indicators, and real income. We do this for three groups of countries: a group of high income OECD economies, the EU before the enlargement and the EU enlargement group. We identitfy long-run relationships across the main variables using the DOLS estimator corrected for cross-sectional dependence and we estimate short-run relationships that include an ECM term from the associated long-run equation by applying Fixed-Effects and Pooled Mean Group estimators for the period 1960-2012. The results of the estimation of the long-run equilibrium relationships point to a positive, direct or indirect, influence of (public) education expenditures and (public, private or total) health expenditures on output for the three groups of countries. Causality relationships exhibit mixed results concerning policy variables, within and between country groups, with the results for the high-income OECD (non EU) group supporting the use of social policy variables to foster economic growth.
    Keywords: education, health, public expenditures, economic growth, OECD
    Date: 2016–02
  2. By: Kazuo Ogawa; Elmer Sterken; Ichiro Tokutsu
    Abstract: We investigate the causal relationship between the public debt to GDP ratio and economic growth for 31 EU and OECD countries from 1995 to 2013. A number of studies have tackled this problem, but very few make the transmission mechanism explicit in their analysis. We estimate a panel VAR model that incorporates the long-term real interest rate on government bonds as a vehicle to transmit shocks in both the public debt to GDP ratio and economic growth. We find no causal link from the public debt to GDP ratio to the GDP growth rate, irrespective of the levels of public debt. Rather, we find a causal relation from the GDP growth rate to the public debt to GDP ratio. In high-debt countries, the direct negative impact of economic growth on public debt is enhanced by a rise in the long-term real interest rate, which in turn decreases interest-sensitive demand and leads to a further increase in the public debt to GDP ratio.
    Date: 2016–01
  3. By: Grossman, Gene; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
    Abstract: Evidence for the United States suggests balanced growth despite falling investment-good prices and less than unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that introducing human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for several neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose their time in school matches key features of the U.S. record.
    Keywords: balanced growth; capital-skill complementarity; neoclassical growth; technological progress
    JEL: E1 J2 O1 O4
    Date: 2016–01
  4. By: Verba, M. (UNU-MERIT)
    Abstract: This article develops a model of growth and innovation in which accumulation dynamics of knowledge and R&D are explicitly considered. The model is based on a more general knowledge production process than commonly used in Endogenous Growth Theory and R&D productivity literatures, reconciling as special cases of a broader framework disparate analytical approaches. The model of knowledge dynamics highlights the role of human capital, physical capital, and accumulation in the creation of innovations and establishes the theoretical possibility of long-run idea-driven growth without the razor-edge assumption of Romer (1990) and in the absence of growth in R&D employment stipulated by Jones (1995). This analysis also predicts the structure of estimation biases that can result from omission of relevant factors and failure to take into account the accumulation dynamics of knowledge and R&D. Empirical estimation supports these predictions. Findings provide recommendations for future empirical studies aiming to explain innovation.
    Keywords: Growth theory, innovation, R&D, productivity, knowledge, production function, accumulation
    JEL: O30 O31 O32 O40
    Date: 2015–12–04
  5. By: Cesa-Bianchi, Ambrogio; Imbs, Jean; Saleheen, Jumana
    Abstract: It is well known that the bulk of international financial flows across countries are driven by common shocks. In response to these common shocks, we find that capital tends to flow systematically between the same types of countries, while the discrepancy between GDP growth rates widens. Thus, in the data synchronization falls when financial linkages rise, but only so in response to common shocks. In contrast, financial linkages tend to increase the synchronization of business cycles in response to purely country-specific shocks.
    Keywords: Business Cycle Synchronization; Common Shocks; Contagion; Financial Linkages; Idiosyncratic Shocks
    JEL: E32 F15 F36 G21 G28
    Date: 2016–01
  6. By: Iancu, Aurel (National Institute of Economic Research, Romanian Academy); Olteanu, Dan (National Institute of Economic Research, Romanian Academy)
    Abstract: After a brief introduction dealing with critical opinions of some economists on the European austerity policy, the authors point out that austerity as a means of achieving fiscal consolidation and financial stability is applied when the fiscal domain is weak. After analyzing the effects of the 2009 crisis on some indicators and austerity measures taken by almost all EU countries, the study presents the content and the role of the EU fiscal compact and methodology used to support the fiscal consolidation measures. Most of the study consists in the analysis of the outcome of this methodology (through indicators, key-equations, graphs) revealing the relationships between indicators: effective GDP and potential GDP, production variation, effective, cyclical and structural deficits as well as the deficit in the balance of payments. The paper reveals some shortcomings of the new mechanism which affect the development of some major segments of the real economy, such as public investments, and further the economic potential growth on medium and long terms.
    Keywords: fiscal policy, budget deficits, structural deficits, austerity, fiscal consolidation, the golden rule of public finance, economic growth
    JEL: E62 F02 H2 H5 H6 H7
    Date: 2015–12

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