nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒04‒23
eight papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Re-estimating the Relationship between Inequality and Growth By Nathalie Scholl; Stephan Klasen
  2. Financial Development, Structure and Growth: New Data, Method and Results By Luintel, Kul B; Khan, Mosahid; Leon-Gonzalez, Roberto; Li, GuangJie
  3. Growth and welfare effects of intellectual property rights when consumers differ in income By Christian Kiedaisch
  4. Considering the effect of biomass energy consumption on economic growth:fresh evidence from BRICS region By Shahbaz, Muhammad; Ahmed, Khalid; Rasool, Ghulam; Kumar, Mantu
  5. R&D, Scale Effects and Spillovers: New Insights from Emerging Countries By Luintel, Kul B; Khan, Mosahid
  6. Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom By Ambrogio Cesa-Bianchi; Gregory Thwaites; Alejandro Vicondoa
  7. Demographic Cycle, Migration and Housing Investment: a Causal Examination. By E. Monnet; C. Wolf
  8. Volatility and Growth with Recursive Preferences By Barbara Annicchiarico; Alessandra Pelloni; Fabrizio Valenti

  1. By: Nathalie Scholl (Georg-August University Göttingen); Stephan Klasen (University of Göttingen)
    Abstract: In this paper, we revisit the inequality-growth relationship using an enhanced panel data set with improved inequality data and special attention to the role of transition countries. We base our analysis on the specification of Forbes (2000), but also address the functional form concerns raised by Banerjee and Duflo (2003). We arrive at three main findings: First, similar to Forbes we find a significant positive association between inequality and subsequent economic growth in the full sample, but this is entirely driven by transition (post-Soviet) countries. Second, this positive relationship in transition countries is not robust to the inclusion of separate time effects. Lastly, it therefore appears that this association is not causal but rather driven by the particular dynamics of the transition. Our finding is consistent with the claim that the relationship between inequality and growth emerges due to the particular timing of inequality and growth dynamics in transition countries. In particular, the rise in inequality in the 1990s coincided with a sharp output collapse, leading us to find an association between the large increase in inequality in the early 1990 and a growth recovery in the late 1990s. In sum, once the transition country dynamics are accounted for, we find no robust, systematic relationship between inequality and subsequent growth, neither for levels nor for changes in inequality. These results hold for different lag structures as well as in the medium- rather than the short term, and the empirical patterns observed are robust to the use of different data sets on inequality.
    Keywords: Inequality; Growth; Transition Countries; Dynamic Panel
    JEL: O11 O15 O40 E25
    Date: 2016–04–14
  2. By: Luintel, Kul B (Cardiff Business School); Khan, Mosahid; Leon-Gonzalez, Roberto; Li, GuangJie (Cardiff Business School)
    Abstract: The existing weight of evidence suggests that financial structure (the classification of a financial system as bank-based versus market-based) is irrelevant for economic growth. This contradicts the common belief that the institutional structure of a financial system matters. We re-examine this issue using a novel dataset covering 69 countries over 1989-2011 in a Bayesian framework. Our results are conformable to the belief - a market-based system is relevant - with sizable economic effects for the high-income but not for the middle-and-low-income countries. Our findings provide a counterexample to the weight of evidence. We also identify a regime shift in 2008.
    Keywords: Financial Structure; Economic Growth; Cointegration; Bayesian Model Averaging; Structural Breaks
    JEL: G0 O4 O16
    Date: 2016–03
  3. By: Christian Kiedaisch
    Abstract: This paper analyzes how changing the expected length of intellectual property right (IPR) protection affects growth and the welfare of rich and poor consumers. The analysis is based on a product-variety model with non-homothetic preferences and endogenous markups in which, in accordance with empirical evidence, rich households consume a larger variety of goods than poorer ones. Unlike in models with homothetic preferences, the effect of intellectual property (IP) protection on growth depends on the distribution of income: when the length of IP protection is (uniformly) increased, growth increases when there is inequality among households consuming IP protected goods, but stays constant when there is no such inequality. When wealth is unequally distributed, reducing the length of IP protection for new but not for previously issued IPRs can increase growth. In the case where increasing the length of IP protection increases growth, poor households prefer a shorter length of protection than richer ones, although they consume fewer IP protected goods.
    Keywords: Intellectual property rights, income distribution, endogenous growth, nonhomothetic preferences
    JEL: O34 O31 L16 D30 O15
    Date: 2016–03
  4. By: Shahbaz, Muhammad; Ahmed, Khalid; Rasool, Ghulam; Kumar, Mantu
    Abstract: This paper investigates the relationship between biomass energy consumption and economic growth by incorporating capital and trade openness in production function for the case of BRICS countries. In doing so, unit root and cointegration tests have been used in order to examine unit root properties and long run relationship between the series for the period of 1991Q1-2015Q4. The results confirm the presence of long-run equilibrium relationship between the variables. Moreover, biomass energy consumption stimulates economic growth. Capital increments economic growth and trade openness spurs economic growth. The feedback effect exists between biomass energy consumption and economic growth. Trade openness Granger causes economic growth, capital and biomass energy consumption. The policy to adopt biomass as the primary source of renewable energy helps BRICS countries to achieve sustainable development goal in both short-run and long-run. However, the key innovative point of this study is to establish the sign for Granger causality test.
    Keywords: Biomass energy, Growth, Capital, Trade
    JEL: C0
    Date: 2016–03–12
  5. By: Luintel, Kul B (Cardiff Business School); Khan, Mosahid
    Abstract: There has been a concomitant rise in R&D and the rate of economic growth in emerging countries. Analyzing a panel of 31 emerging countries, we find convincing evidence of scale effects which make government policies potent for long-run growth. This contrasts sharply with the well known findings of Jones (1995a). Innovations show increasing returns to knowledge stock, implying that the diminishing returns assumed by some semi-endogenous growth models might not be generalized. International R&D spillovers raise the innovation bar. The observed growth rates of emerging economies appear in transition therefore their growth rates may recede with the passage of time.
    Keywords: Scale Effects; Ideas Production; Diffusion; Panel Integration and Cointegration
    JEL: O3 O4 O47
    Date: 2016–04
  6. By: Ambrogio Cesa-Bianchi (Bank of England; Centre for Macroeconomics (CFM)); Gregory Thwaites (Bank of England; Centre for Macroeconomics (CFM)); Alejandro Vicondoa (European University Institute)
    Abstract: This paper constructs a new series of monetary policy surprises for the United Kingdom and estimates their effects on macroeconomic and financial variables, employing high-frequency identification methods. Using direct projections, monetary policy is found to have persistent effects on real interest rates and expected inflation at long horizons. We use our series of surprises as an instrument in a SVAR and show that monetary policy affects economic activity, prices, the exchange rate, and the trade balance. Exploiting the availability of the narrative series of monetary policy shocks computed by Cloyne and Huertgen (2014), we propose a test of overidentifying restrictions and find no evidence that either set of shocks contains any 'endogenous' response to macroeconomic variables.
    Keywords: Monetary Policy Transmission, External Instrument, High-Frequency Identification, Structural VAR, Local Projections
    JEL: E31 E32 E43 E44 E52 E58
    Date: 2016–04
  7. By: E. Monnet; C. Wolf
    Abstract: We study residential investment over GDP in 20 OECD countries since 1980, and show that it is closely associated with the growth dynamics of population aged 20-49. We develop a new method to uncover the causal effect of the growth of the 20-49 age group. Using past demographic data as an instrument to avoid potential endogeneity between migration and the housing cycle, we find that a 1% increase in the population aged 20-49 increases the residential investment rate by 1.3 pp. Demographic changes are a better predictor of the residential investment rate than any macroeconomic or financial variable we control for.
    Keywords: business cycle, housing, demography, migration.
    JEL: E32 J11 R21
    Date: 2016
  8. By: Barbara Annicchiarico (Department of Economics and Finance, University of Rome Tor Vergata, Italy); Alessandra Pelloni (Department of Economics and Finance, University of Rome Tor Vergata, Italy; The Rimini Centre for Economic Analysis, Italy); Fabrizio Valenti (Save the Children International, Freetown, Sierra Leone)
    Abstract: This paper studies the relationship between volatility and long-run growth in a complete market economy with human capital accumulation and Epstein-Zin preferences. There is both cross-country and time-series evidence that volatility is associated with lower growth. Matching this evidence has proved a challenge for growth models with no market failures as they tend to predict the opposite for values of risk aversion higher than unity. However in our model, risk aversion and intertemporal elasticity of substitution are allowed to move independently of each other, and when both are relatively high or relatively low, the relationship between volatility and growth is negative. Indeed this is the case for parametrizations of preferences in line with the literature.
    Date: 2016–04

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