nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒03‒17
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Human Capital, Public Debt, and Economic Growth: A Political Economy Analysis By Tetsuo Ono; Yuki Uchida
  2. Capital, Economic Growth and Relative Income Differences in Latin America* By Osvaldo Lagares
  3. Analyzing economic growth: what role for public investment? By Oukhallou, Youssef
  4. The Economics of State Fragmentation - Assessing the Economic Impact of Secession By Reynaerts, Jo; Vanschoonbeek, Jakob

  1. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study considers public education policy and its impact on growth and wel- fare across generations. In particular, the study compares two fiscal perspectives| tax finance and debt finance|and shows that in a competitive equilibrium context, the growth and utility in the debt-finance case could be higher than those in the tax-finance case in the long run. However, the result is reversed when the policy is shaped by politics. Voters choose debt finance, despite its worse performance, in each period because a current generation can pass the cost of debt repayment to future generations.
    Keywords: Economic growth, Human capital, Public debt, Political equilib- rium
    JEL: D70 E24 H63
    Date: 2016–01
  2. By: Osvaldo Lagares
    Abstract: This paper examines the growth effects of imported and domestic capital in thirty two Latin America economies from 1960 to 2010. Disaggregated data on imported and domestic physical capital is compiled for each economy during the time horizon along with measures of human capital and other economic aggregates. Alternative growth econometric methods and instrumental variables procedures are then applied to control for economic policy, trade distortions and endowments effects. We find significant evidence that the acquisition of capital imports enhances economic growth and lessens relative income differences, particularly at lower income levels. We also find that relative income grows faster in countries that invest more on domestic capital. Our evidence show that countries which experienced a slowdown in economic growth were relatively richer in 1970, and acquired relatively less capital imports and domestic capital. Our findings indicate the existence of a positive correlation between higher productivity growth and the acquisition of capital imports in these countries. Capital accumulation is found to be a key driver of growth and development in Latin America.
    Keywords: Latin America, Capital accumulation, Economic growth, Relative income differences
    JEL: F43 O11 O40
  3. By: Oukhallou, Youssef
    Abstract: This paper discusses the role of public investment in the determination of output growth from different theoretical and empirical points of view. The light is shed on the factors that allegedly explain the success and/or the failure of public investment policies in enhancing productivity and supporting GDP, based on a review of empirical evidence in advanced and developing economies. The downstream objective is to provide decision makers with a set of general rules-of-thumb that are likely to help them improve the macroeconomic returns of public investment. The latter are found to be significantly influenced by efficiency and profitability-based selectivity of investment projects. Countries with a relatively low capital-labor ratio usually have higher public and private capital profitability, while the public-private investment substitutability increases the likelihood of crowding out effects. The paper also gives hints on the possible existence of an optimal growth-maximizing level of public investment.
    Keywords: GDP growth, Public Investment, Productivity, Private Investment, Development
    JEL: E62 H54 O40
    Date: 2016–02–13
  4. By: Reynaerts, Jo; Vanschoonbeek, Jakob
    Abstract: This paper provides empirical evidence that declaring independence significantly lowers per capita GDP based on a large panel of countries covering the period 1950-2013. To do so, we rely on a semi-parametric identification strategy that controls for the confounding effects of past GDP dynamics, anticipation effects, unobserved heterogeneity, model uncertainty and effect heterogeneity. Our baseline results indicate that declaring independence reduces per capita GDP by around 20\% in the long run. We subsequently propose a novel triple-difference procedure to demonstrate the stability of these results. Another methodological novelty consists of the development of a two-step estimator to shed some light on the primary channels driving our results. We find robust evidence that the adverse effects of independence increase in the extent of surface area loss, pointing to the presence of economies of scale, but that they are mitigated when newly independent states liberalize their trade regime or use their new-found political autonomy to democratize.
    Keywords: Independence dividend; panel data; dynamic model; synthetic control method; difference-in-difference; triple-difference; two-step approach
    JEL: C14 C32 H77 O47
    Date: 2016–02–22

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