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on Financial Development and Growth |
| By: | Jo Reynaerts; Jakob Vanschoonbeek |
| Abstract: | This paper provides empirical evidence that declaring independence significantly lowers per capita GDP based on a large panel of countries covering the period 1950-2013. To do so, we rely on a semi-parametric identification strategy that controls for the confounding effects of past GDP dynamics, anticipation effects, unobserved heterogeneity, model uncertainty and effect heterogeneity. Our baseline results indicate that declaring independence reduces per capita GDP by around 20% in the long run. We subsequently propose a novel triple-differential procedure to demonstrate the stability of these results. Another methodological novelty consists of the development of a two-step estimator to shed some light on the primary channels driving our results. We find robust evidence that the adverse effects of independence increase in the extent of surface area loss, pointing to the presence of economies of scale, but that they are mitigated when newly independent states liberalize their trade regime or use their new-found political autonomy to democratize. |
| Keywords: | Independence dividend, panel data, dynamic model, synthetic control method, difference-in-difference, triple-difference, two-step approach |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ete:vivwps:547244&r=fdg |
| By: | Ambrogio Cesa-Bianchi (Bank of England; Centre for Macroeconomics (CFM)); Jean Imbs (Paris School of Economics; Centre for Economic Policy Research (CEPR)); Jumana Saleheen (Bank of England) |
| Abstract: | In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks. |
| Keywords: | Financial linkages, Business cycles synchronization, Contagion, Common shocks, Idiosynchratic shocks |
| JEL: | E32 F15 F36 G21 G28 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1622&r=fdg |