nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒03‒29
thirteen papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Causality between credit depth and economic growth: Evidence from 24 OECD countries By Stolbov, Mikhail
  2. Public expenditure in time of crisis: are Italian policymakers choosing the right mix? By Maria Jennifer Grisorio; Francesco Prota
  3. Public debt and economic growth: Economic systems matter By Ahlborn, Markus; Schweickert, Rainer
  4. Balanced Growth Despite Uzawa By Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  5. Learning or leaning : persistent and transitory growth spillovers from FDI By Davies,Ronald B.; Lamla,Michael Josef; Schiffbauer,Marc Tobias
  6. Asset Bubbles, Endogenous Growth, and Financial Frictions By Hirano, Tomohiro; Yanagawa, Noriyuki
  7. Sources of Canadian Economic Growth By Samira Hasanzadeh; Hashmat U. Khan
  8. Growth agglomeration effects in spatially interdependent Latin American regions By Carolina Guevara
  9. Non-Linear Effects of Fiscal Policy on Economic Growth: Moroccan Case By Abdenour, Redouan; Tounsi, Said
  10. Mathematical analysis of the historical income per capita distributions By Ron W Nielsen
  11. What explains the recent growth performance in Sub-Saharan Africa? Results from a Bayesian Averaging of Classical Estimates (BACE) Approach By Beatrice D. Simo-Kengne
  12. Effects of EU Regional Policy: 1989-2013 By O. Becker , Sascha
  13. Complex dynamics in an OLG model of growth with inherited tastes By Luciano, Fanti; Luca, Gori; Cristiana, Mammana; Elisabetta, Michetti

  1. By: Stolbov, Mikhail
    Abstract: Causality between the ratio of domestic private credit to GDP and growth in real GDP per capita is investigated in a country-by-country time-series framework for 24 OECD economies over the period 1980-–2013. The proposed threefold methodology to test for causal linkages integrates (i) lag-augmented VAR Granger causality tests, (ii) Breitung-Candelon causality tests in the frequency domain, and (iii) testing for causal inference based on a fully modified OLS (FMOLS) approach. For 12 of 24 countries in the sample, the three tests yield uniform results in terms of causality presence (absence) and direction. Causality running from credit depth to economic growth is found for the UK, Australia, Switzerland, and Greece. The findings lend no support to the view that financial development shifts from a supply-leading to demand-following pattern as economic development proceeds. The aggregate results mesh well with the current discussion on “too much finance” and disintermediation effects. However, idiosyncratic country determinants also appear significant.
    Keywords: causality, economic growth, financial development, FMOLS, frequency domain
    JEL: C22 E44 G21 O16
    Date: 2015–04–30
  2. By: Maria Jennifer Grisorio; Francesco Prota
    Abstract: In the “austerity debate” a crucial issue is the composition of fiscal adjustment. This article provides empirical evidence on the relationship between economic crisis episodes and composition of public expenditure by examining the impact of economic crises on the share of different types of public spending in total public expenditure in the Italian regions. Our results suggest that fiscal consolidation strategies have not had growth-friendly composition.
    Keywords: Economic crisis, composition of government expenditure, panel data.
    JEL: C23 H12 H72
    Date: 2016–03
  3. By: Ahlborn, Markus; Schweickert, Rainer
    Abstract: Most studies on the relationship between public debt and economic growth implicitly assume homogeneous 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 (Scandinavian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of heterogeneity 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, while 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: 2016
  4. By: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
    Abstract: The evidence for the United States points to balanced growth despite falling investment-good prices and an elasticity of substitution between capital and labor less than one. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that the introduction of human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if schooling is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for a variety of neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose the duration of their education matches key features of the U.S. economic record.
    JEL: E25 J24 O40
    Date: 2016–01
  5. By: Davies,Ronald B.; Lamla,Michael Josef; Schiffbauer,Marc Tobias
    Abstract: Using firm-level data for Jordan, the paper estimates the extent to which growth spillovers from foreign direct investment (FDI) to local firms stem from persistent learning externalities (i.e., they endure even after foreign investment leaves as knowledge has been transferred to local firms) or from transitory effects (e.g., demand increases that evaporate following disinvestment). The paper find that spillovers have a significant transitory nature, with employment and capital growth declining when FDI falls, particularly in downstream industries supplied by locals. This suggests that if FDI-attracting policies are intended to promote sustainable growth, it may be more effective to attract and retain FDI via long-term structural policies, for instance, through low corporate tax rates rather than temporary tax holidays or through policies that strengthen the domestic absorptive capacity and linkages between foreign and local firms.
    Keywords: Economic Theory&Research,Labor Policies,Emerging Markets,Foreign Direct Investment,Investment and Investment Climate
    Date: 2016–03–02
  6. By: Hirano, Tomohiro; Yanagawa, Noriyuki
    Abstract: This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the financial market might increase the potential for asset bubbles. Moreover, when the degree of pledgeability is relatively low, bubbles boost long-run growth; when it is relatively high, bubbles lower growth. Furthermore, we examine the effects of a bubble burst, and show that the effects depend on the degree of pledgeability, i.e., the quality of the financial system. Finally, we conduct a full welfare analysis of asset bubbles.
    Keywords: Asset Bubbles, Endogenous Growth, Financial Frictions
    Date: 2016–02
  7. By: Samira Hasanzadeh (Department of Economics, Carleton University); Hashmat U. Khan (Department of Economics, Carleton University)
    Abstract: We apply modern growth accounting based on the semi-endogenous growth theory of Jones (2002) to determine the sources of Canadian economic growth between 1981- 2013. This framework allows us to distinguish between transition dynamics and steady- state growth, and quantify their respective contributions. We find that over 80% of the total average growth rate of output per worker of 1.24 percentage points has been due to transitional factors. Among these, the bulk of the contribution is attributed to domestic human capital growth driven by educational attainment, and global research and development (R&D) intensity. These two factors have been the primary sources of Canadian economic growth. The growth in capital-output ratio contributed a small share of 0.14 percentage points suggesting a limited role of capital accumulation. The steady-state growth over is attributed to population growth indicating modest scale effects of about 16% of the total average growth. Our results highlight that the future of Canadian productivity growth and the standard of living are closely tied to sustained growth in both domestic human capital and global R&D intensity.
    Keywords: Modern Growth Accounting, Economic Growth
    JEL: O47 O51
    Date: 2016–03
  8. By: Carolina Guevara (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We investigate the effect of agglomeration on regional growth in Latin America, using panel data and spatial panel data techniques. By exploringthe role of development in the agglomeration-growth relationship, we find evidence of the Williamson's hypothesis: agglomeration growth effects are magnified in less-developed regions. Moreover, we measure the spatial effects of agglomeration. They have a large geographical scope. International connections of Latin American regions are beneficial to obtain positive spatial effects of agglomeration. Nevertheless, spatial effects are stronger within countries. This finding points out the strong border effects in Latin America. Abstract We investigate the effect of agglomeration on regional growth in Latin America, using panel data and spatial panel data techniques. By exploring the role of development in the agglomeration-growth relationship, we find evidence of the Williamson's hypothesis: agglomeration growth effects are magnified in less-developed regions. Moreover, we measure the spatial effects of agglomeration. They have a large geographical scope. International connections of Latin American regions are beneficial to obtain positive spatial effects of agglomeration. Nevertheless, spatial effects are stronger within countries. This finding points out the strong border effects in Latin America.
    Keywords: spatial interdepen-dence,Latin America,urbanization,growth,regional data,agglomeration economies
    Date: 2016
  9. By: Abdenour, Redouan; Tounsi, Said
    Abstract: In the economic theory, many arguments were advanced to justify the efficiency of the fiscal policy with a view to stabilization. For some, expansionist fiscal policies can have favorable effects on the economic growth, while for others, the economy is always in a global balanced situation, and thus the fiscal policy will have no effect and can be even harmful for the economy. However, these two effects can coexist in the economy, therefore putting forward the nonlinear character of fiscal policy in the economy growth. This study has the objective of appreciating the nature of the relation between fiscal policy and the economic growth in a 36 developing country sample of, taking into account the existence of possible nonlinear effects of the fiscal policy. Due to the use of the methodology of endogenous thresholds, the iterative procedure for the determination of endogenous thresholds developed by Hansen (1996, 1999, 2000) has allowed us to identify an optimal budget deficit threshold of 5,1%, which makes the relation between budget deficit and growth become non-linear. In other words, below this threshold expansionist policies have favorable effects on the economic growth, while above these policies it becomes non-favorable.
    Keywords: economic growth, Keynesian regime, Threshold effects, Fiscal policy.
    JEL: E6 E62 H6
    Date: 2015
  10. By: Ron W Nielsen
    Abstract: Data describing historical growth of income per capita [Gross Domestic Product per capita (GDP/cap)] for the world economic growth and for the growth in Western Europe, Eastern Europe, Asia, former USSR, Africa and Latin America are analyzed. They follow closely the linearly-modulated hyperbolic distributions represented by the ratios of hyperbolic distributions obtained by fitting the GDP and population data. Results of this analysis demonstrate that within the range of mathematically-analyzable data, epoch of Malthusian stagnation did not exist and the dramatic escapes from the Malthusian trap never happened because there was no trap. Unified Growth Theory is fundamentally incorrect because its central postulates are contradicted repeatedly by data, which were used but never analyzed during the formulation of this theory. Data of Maddison open new avenues for the economic and demographic research.
    Date: 2016–03
  11. By: Beatrice D. Simo-Kengne
    Abstract: This paper empirically identifies the main driving forces behind the recent development in economic growth across Sub-Saharan Africa based on a two-step procedure. Given the role of convergence in explaining the level of economic development, the first step employs the new extension of the sigma convergence developed by Phillip and Sul (2007) to test and endogenously identify the formation of different steady state paths across a sample of 34 countries selected based on available data over the period 1996-2010. Empirical results vindicate the existence of three main convergence clubs and a divergent group of 8 countries; suggesting that Sub-Sahara African countries do not form a homogenous club. The second step implements a Bayesian Averaging of Classical Estimates (BACE) method on the only convergent groups in order to explicitly account for the assumed conditional convergence in cross-sectional growth regressions. Estimation results prove support that 8 out of 18 selected explanatory variables documented in the literature are significantly and strongly associated with the long term economic growth. Particularly, investment and the relative price of exports are found to be favourable to the recent regional economic performance while public consumption and remittances appear to be of less contribution. Other important variables include scientific research, trade taxes, land availability and population growth which are unexpectedly found to be negatively associated with economic growth. Although their sign certainty probabilities are reportedly insignificant, these results raise a number of policy challenges including poor quality of institutions, the exposure to world shocks given the dependence to international trade taxes, the poor quality of human capital and more importantly a threat of skilled labour immigration.
    Keywords: economic growth, BACE, Convergence club, Sub Saharan Africa
    JEL: E20 E60 N17
    Date: 2016
  12. By: O. Becker , Sascha (Department of Economics, University of Warwick)
    Abstract: We analyze EU Regional Policy during four programming periods: 1989-1993, 1994-1999, 2000-2006, 2007-2013. When looking at all periods, we focus on the growth, employment and investment effects of Objective 1 treatment status. For the two later periods, we additionally look at the effects of the volume of EU transfers, overall and in sub-categories, on various outcomes. We also analyze whether the concentration of payments across spending categories affects the effectiveness if EU transfers. Finally, we pay attention to the role of EU funding for UK regions given the current debate in the UK.
    Keywords: Regional transfers, Heterogeneous local average treatment effects
    JEL: C21 O40 H54 R11
    Date: 2016
  13. By: Luciano, Fanti; Luca, Gori; Cristiana, Mammana; Elisabetta, Michetti
    Abstract: The aim of this article is to study the local and global dynamics of a general equilibrium closed economy with overlapping generations and inherited tastes (aspirations). It shows that the interaction between the intensity of aspirations and the elasticity of substitution of effective consumption, affects the qualitative and quantitative long-term dynamics of the model. In addition, periodic cycles and complex features emerge. It remarkably extends the literature on endogenous fluctuations showing that: 1) in an OLG model with aspirations there exists a super-critical Neimark-Sacker bifurcation, 2) endogenous fluctuations occur even when the elasticity of substitution of effective consumption is smaller than one, thus reconciling the existence of economic cycles with empirical estimates, and 3) the interaction between aspirations and inter-temporal preferences affects the steady-state equilibrium and dynamic outcomes.
    Keywords: Aspirations; Nonlinear dynamics; Overlapping generations; Bifurcations; Business cycles
    JEL: C61 C62 C68 E32 J22 O41
    Date: 2016–03–08

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