nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒05‒14
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Public debt and economic growth: An empirical evaluation By María del Carmen Ramos-Herrera; Simón Sosvilla-Rivero
  2. Balanced growth despite Uzawa By Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  3. The influence of financial markets on economic growth By Kamil Pastor
  4. Macroeconomics of Persistent Slumps By Robert E. Hall

  1. By: María del Carmen Ramos-Herrera (Department of Quantitative Economics, Universidad Complutense de Madrid); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: Based on a data set of 115 economies, this paper empirically investigates the relation between public debt and economic growth. We find that those countries that present low public debt are characterized by higher economic growth, while the smallest growth rates are associated with high public debt. Nevertheless, this conclusion is tempered when we analyse the countries by income level: low-income countries have a different behaviour with respect to lower-middle, upper-middle and high income countries.
    Keywords: Public debt, economic growth
    JEL: C32 H63 O40 O57
    Date: 2016–06
  2. By: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
    Abstract: I use an event study approach to present novel evidence on the impact of trade liberalization on firm level profits. Using the uncertainty surrounding the negotiation and ratification process of the Canada-United States Free Trade Agreement of 1989 (CUSFTA), I estimate the impact of different types of tariff reductions on the abnormal returns of Canadian manufacturing firms. I find that Canadian import tariff reductions lead to lower, and reductions in Canadian intermediate input tariffs to higher abnormal returns. The impact of U.S. tariff reductions is less clear and depends on the size of the affected firms. I also calculate the total profit increase implied by my estimates. Overall, CUSFTA increased per-period profits by around 1.2%. This was mainly driven by intermediate input tariff reductions which more than offset the negative effect of Canadian import tariff reductions.
    Keywords: Demand; neoclassical growth; balanced growth; technological progress; capital-skill; complementarity
    JEL: N0 F3 G3
    Date: 2016–01
  3. By: Kamil Pastor (Warsaw School of Economics)
    Abstract: In this article, the idea of financial cycles will be explained as well as its impact on economy. Price bubble and financial accelerator play key role in financial cycle. If there exist disparities in finance markets and they are not stabilized, the future crisis may be more severe. The role of central banks, governments and surveillance institutions is to conducting adequate policy, aiming at maintaining financial stability not only in short but also in medium term.
    Keywords: financial cycles; financial accelerator; macroprudential policy
    JEL: G15 G18 O43
    Date: 2016–05
  4. By: Robert E. Hall
    Abstract: In modern economies, sharp increases in unemployment from major adverse shocks result in long periods of abnormal unemployment and low output. This chapter investigates the processes that account for these persistent slumps. The data are from the economy of the United States, and the discussion emphasizes the financial crisis of 2008 and the ensuing slump. The framework starts by discerning driving forces set in motion by the initial shock. These are higher discounts applied by decision makers (possibly related to a loss of confidence), withdrawal of potential workers from the labor market, diminished productivity growth, higher markups in product markets, and spending declines resulting from tighter lending standards at financial institutions. The next step is to study how driving forces influence general equilibrium, both at the time of the initial shock and later as its effects persist. Some of the effects propagate the effects of the shock---they contribute to poor performance even after the driving force itself has subsided. Depletion of the capital stock is the most important of these propagation mechanisms. I use a medium-frequency dynamic equilibrium model to gain some notions of the magnitudes of responses and propagation.
    JEL: E24 E32 J21
    Date: 2016–05

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