nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒06‒18
five papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. The Impact of Foreign Direct Investments on Economic Growth: The Case of MENA Region By Gulcin Guresci Pehlivan; Yagmur Saglam
  2. Does Islamic bank financing lead to economic growth: An empirical analysis for Malaysia By Bm, Hakim; Uddin, Md Akther
  3. Institutional Governance, Education and Growth By Jellal, Mohamed; Bouzahzah, Mohamed; Asongu, Simplice
  4. Modeling of State Influence on the Processes of Economic Growth By Shagas, Natalia; Bojechkova, A.V.; Pervishin, Y.N.; Perevyshina, E.A.
  5. The Structure of Government Spending and the Business Cycle By Grechyna, Daryna

  1. By: Gulcin Guresci Pehlivan (Department of Economics, Dokuz Eylul University); Yagmur Saglam (Department of Economics, Dokuz Eylul University)
    Abstract: The main purpose of this paper is to investigate relationship between foreign direct investment and economic growth for MENA countries from 1990 to 2014. We firstly tested heterogeneity and cross sectional dependence and found that all series have homogeneity and cross sectional dependence. For that reason, Hadri Kruzomi and Pesaran et al. Multifactor Error Structure panel unit root tests were used. For obtaining long-run relationship, we used Weterlund’s panel and group cointegration tests. The results supported the long-run relationship, therefore, we used Common Correlated Effect Model, thanks to this method, and coefficients for each cross-section unit could be calculated individually.
    Keywords: Foreign direct investment, economic growth, MENA, panel cointegration
    JEL: F21 O47 C23
    Date: 2016–06
  2. By: Bm, Hakim; Uddin, Md Akther
    Abstract: The purpose of this paper is to empirically examine the impact of the Islamic Bank Financing on Malaysia’s economic growth. Using Malaysia as a case in point, this paper employs Advance time-series ARDL bound testing technique, Vector error correction model (VECM) and variance decompositions (VDCs) to explore short-and long-run relationship and causal relationships between the development of Islamic banks and the economic growth using Islamic bank financing to the private sectors, gross domestic product as a proxy of economic growth, Gross fixed capital formation and the consumer price index variables. The paper documents significant role played by the economic growth to the development of Islamic Banks in Malaysia, supporting the growth-Islamic finance led hypothesis or the demand following view. The policy implication of this paper is to improve the efficiency of Malaysian Islamic banks as financial intermediaries that facilitate the capital accumulation and the economic growth; moreover the paper suggests strengthening the weight of the profit loss sharing instruments in the loan portfolios of the Malaysian Islamic banks.
    Keywords: Supply leading, Demand following, Causality, Islamic banks, Malaysia.
    JEL: G21
    Date: 2016–06–04
  3. By: Jellal, Mohamed; Bouzahzah, Mohamed; Asongu, Simplice
    Abstract: This study articulates the interaction between institutional governance, education and economic growth. Given the current pursuit of education policy reforms and knowledge economy around the world, it is of policy relevance to theoretically analyze the main mechanisms by which the macroeconomic impact of education on growth (and economic development) occurs. Our theoretical model demonstrates how incentives offered by the government affect human capital accumulation which ultimately engenders positive economic development externalities. We articulate two main channels through which education affects economic growth. The first channel highlights direct positive effect of educational quality on the incentive to accumulate human capital by individuals, which makes them more productive. The second channel appears in the explicit function of the economic growth rate. As a policy implication, we have shown that the growth rate depends on the rate of return on human capital or that this rate of return itself depends on the quality of governance, which further increases growth. As a result, institutional quality has a double dividend, which suggests considerable benefits to educational reforms.
    Keywords: Institutions, Human capital, Education, Growth
    JEL: H11 O15 O43
    Date: 2015–12
  4. By: Shagas, Natalia (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Bojechkova, A.V. (Gaidar Institute for Economic Policy); Pervishin, Y.N. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Perevyshina, E.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This paper is devoted to the multidimensional analysis of the effects of public sector on the economic growth. We estimate a threshold share of government consumption and government expenditure, which maximizes economic growth in the group of countries, including Russia. This paper answers the question about the impact of total public expenditure, as well as their individual components on total factor productivity in developing countries. It was found that government expenditure on defense and education influence on the total factor productivity growth is positive. We identify threshold values of the financial sector development level, beyond which there is change in the relationship between financial sector development and economic growth. Public expenditure growth has negative impact on the financial sector threshold development level in the long term. We find that, if the inflation exceeds 6%, then further increase in the growth rate of consumer prices reduces the growth rate of GDP per capita.
    Keywords: multidimensional analysis, public sector, economic growth
    Date: 2016–03–21
  5. By: Grechyna, Daryna
    Abstract: We explore the role of the composition of government spending for the cyclical properties of fiscal variables and for the volatility of the business cycles. In the U.S., the fraction of mandatory spending in total government outlays increased from around 0.40 to 0.60 during the last 50 years, while the share of total government outlays in national output stayed relatively constant during this period. We distinguish mandatory and discretionary public spending in a standard model of optimal fiscal policy and show that the composition of government spending is able to explain a fraction of the reduction in output volatility during the Great Moderation and an increase in the countercyclicality of fiscal policy in the U.S. This is another argument in support of the "rules-based" fiscal policy rather than fiscal discretion.
    Keywords: optimal fiscal policy, mandatory and discretionary public spending, volatility, business cycles.
    JEL: E32 E62 H21 H41
    Date: 2016–03

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