nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒04‒04
seven papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Economic Growth, the High-Tech Sector, and the High Skilled: Theory and Quantitative Implications By Pedro Mazeda Gil; Oscar Afonso; Paulo Brito
  2. On the Empirics of Institutions and Quality of Growth: Evidence for Developing Countries By Asongu, Simplice A.; Kodila-Tedika, Oasis
  3. Growth and the role of economic policies By Harker, Patrick T.
  4. Sectoral FDI and Economic Growth — Evidence from Egyptian Governorates By Shima'a Hanafy
  5. China’s slowdown and global financial market volatility: is world growth losing out? By Cashin, Paul; Mohaddes, Kamiar; Raissi, Mehdi
  6. Unconventional US Monetary Policy: New Tools, Same Channels? By Martin Feldkircher; Florian Huber
  7. Capital, growth and inequality in Piketty's approach. Is it able to explain level and changes of inequality in the personal income distribution? By Renata Targetti Lenti

  1. By: Pedro Mazeda Gil (University of Porto, Faculty of Economics, and CEF.UP - Center for Economics and Finance at University of Porto); Oscar Afonso (University of Porto, Faculty of Economics, and CEF.UP - Center for Economics and Finance at University of Porto); Paulo Brito (ISEG (School of Economics and Management) and UECE (Research Unit on Complexity and Economics), Universidade de Lisboa)
    Abstract: Europe's “2020 Strategy” has the main goal of stimulating economic growth by increasing the weight of the high-tech sector and the share of high-skilled workers. However, cross-country European data is at odds with that strategy: the relationship between economic growth and both the technology structure and the skill structure is statistically insignificant, although the last two are positively related. We investigate an analytical mechanism that connects these facts by extending a directed technical change growth model in several directions. We take the model to the data by calibrating it after the estimation of key structural relationships with cross-country data. When we allow for high relative barriers to entry into the high-tech sector and scale effects on growth we are able to replicate the empirical relationships. We derive quantitative policy implications on the effects of education policy on economic growth when leveraged by industrial policy aiming to reduce barriers to entry into the high-tech sector.
    Keywords: growth, high skilled, high tech, scale effects, directed technical change.
    JEL: O41 O31
    Date: 2014–09
  2. By: Asongu, Simplice A.; Kodila-Tedika, Oasis
    Abstract: We explore a newly available dataset on quality of growth to investigate the effect of institutions on growth quality in 93 developing countries for the period 1990 to 2011. Quality of institutions is measured in term of political risk. The empirical evidence is based on: (i) Ordinary Least Squares (OLS) and Two Stage Least Squares (2SLS) and (ii) cross-sectional and panel data structures. In order to avail room for more policy implications, the dataset is further disaggregated into income levels, namely: Lower middle income (LMIC), low income (LI) and upper middle income (UMIC). Three main findings are established. First, institutions are positively related to the quality of growth. Second, institutions have significantly contributed to growth quality in increasing order during the following time intervals: 2005-2011, 1995-1999 and 2000-2004. Third, the positive nexus between institutions and growth quality is fundamentally driven by LMIC. Policy implications are discussed.
    Keywords: Quality of growth; Institutions; Social indicators.
    JEL: I10 O40 O55
    Date: 2015–09
  3. By: Harker, Patrick T. (Federal Reserve Bank of Philadelphia)
    Abstract: President Patrick T. Harker gives his economic outlook and views on monetary policy at the meeting of the Money Marketeers of New York University. In his speech, "Growth and the Role of Economic Policies," he also discusses the prospects of long-term economic growth in the U.S. and the role of economic policies in affecting those prospects.
    Keywords: Economic growth; Monetary policy; Economic policy; Technology; Capital;
    Date: 2016–03–22
  4. By: Shima'a Hanafy (University of Marburg)
    Abstract: This paper investigates the effect of sectoral foreign direct investment (FDI) on economic growth in Egypt, using a novel panel dataset of 26 Egyptian governorates for the period 1992–2007. The growth literature is robust with the benefits of using a within-country dataset for such a research question (Ford et al., 2008). Despite the large number of theoretical models on the channels through which FDI can enhance economic growth, empirical findings are still inconclusive. We argue that one possible reason for the ambiguous effect is the use of aggregate FDI data across different sectors. Our results show no significant effect of aggregate FDI stock on economic growth in Egyptian governorates, which can be partly explained by the contradictory growth effects of FDI at the sectoral level. We find a positive effect of manufacturing FDI, a negative effect of agricultural FDI and no significant effect of services FDI on economic growth.
    Keywords: Foreign direct investment; sectoral FDI; economic growth; Egypt
    JEL: B59 C61 D21 D69
    Date: 2015
  5. By: Cashin, Paul (International Monetary Fund); Mohaddes, Kamiar (University of Cambridge); Raissi, Mehdi (International Monetary Fund)
    Abstract: China’s GDP growth slowdown and a surge in global financial market volatility could both adversely affect an already weak global economic recovery. To quantify the global macroeconomic consequences of these shocks, we employ a GVAR model estimated for 26 countries/regions over the period 1981Q1 to 2013Q1. Our results indicate that (i) a one percent permanent negative GDP shock in China (equivalent to a one-off one percent growth shock) could have significant global macroeconomic repercussions, with world growth reducing by 0:23 percentage points in the short-run; and (ii) a surge in global financial market volatility could translate into a fall in world economic growth of around 0:29 percentage points, but it could also have negative short-run impacts on global equity markets, oil prices and long-term interest rates.
    JEL: C32 E32 F44 O53
    Date: 2016–03–17
  6. By: Martin Feldkircher (Oesterreichische Nationalbank (OeNB)); Florian Huber (Department of Economics, Vienna University of Economics and Business)
    Abstract: In this paper we compare the transmission of a conventional monetary policy shock with that of an unexpected decrease in the term spread, which mirrors quantitative easing. Employing a time-varying vector autoregression with stochastic volatility, our results are two-fold: First, the spread shock works mainly through a boost to consumer wealth growth, while a conventional monetary policy shock affects real output growth via a broad credit / bank lending channel. Second, both shocks exhibit a distinct pattern over our sample period. More specifically, we find small output effects of a conventional monetary policy shock during the period of the global financial crisis and stronger effects in its aftermath. This might imply that when the central bank has left the policy rate unaltered for an extended period of time, a policy surprise might boost output particularly strongly. By contrast, the spread shock has affected output growth most strongly during the period of the global financial crisis and less so thereafter. This might point to diminishing effects of large scale asset purchase programs.
    Keywords: Unconventional monetary policy, transmission channel, Bayesian TVP-SV-VAR
    JEL: C32 E52 E32
    Date: 2016–03
  7. By: Renata Targetti Lenti
    Abstract: The paper is a critical review of Piketty’s book “Capital in the XXI Century”. The book provides a general theory of the functioning of a capitalist economy. Piketty’s intent is to link the functional and personal income distribution to the economic growth. The setting can be called "classic". However Piketty is not interested in explaining the role of capital accumulation on economic growth, but instead the inverse relation, that is the role of economic growth on the increase of the returns to capital, on the concentration of wealth and of income’s inequality in capitalist economies. In this review Piketty’s framework is discussed arguing that it can explain only partially level and changes of the personal income distribution. The factors which explain the dynamic of wealth (accumulation of capital) are different from those which explain the dynamics of labor income (demand and supply of skills and education, technology). It is very difficult, therefore, to reach a consensus on a shared theory of personal income distribution. Piketty links in a very innovative way the returns from capital r to the rate of growth of national income g comparing them in a macroeconomic framework. He claims that when returns on capital rise more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth, and growing inequality, takes place. However the fact that r exceeds g explains nothing about the rise in inequality. An analysis of the generation of personal incomes, and consequently of inequality, requires a suitable framework that links personal endowments to incomes. At the end I will indicate some steps that could be required by framework suitable to analyze the personal income generation process.
    Keywords: Capitalism, Inequality, Income Distribution
    JEL: P16 P48 D31

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