nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒08‒21
eight papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Regional development in Spain 1989-2010: capital widening and productivity stagnation By Montes-Solla, Paulino; Faiña Medín, J. Andres; Lopez-Rodriguez, Jesus
  2. Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model By Eckhard Hein
  3. Is Inequality Harmful for Innovation and Growth? Price versus Market Size Effects By Foellmi, Reto; Zweimüller, Josef
  4. Energy consumption, CO2 emissions and economic growth nexus: Evidence from panel Granger causality test By Hamrita, Mohamed Essaied; Mekdam, Mejdi
  5. Can monetary policy drive economic growth? empirical evidence from Tanzania By Nyorekwa, Enock Twinoburyo; Odhiambo, Nicholas Mbaya
  6. Euro Area Imbalances: Measuring the Contribution of Expenditure Growth and Expenditure Switching By Enno Schröder
  7. Persistent Government Spending and Fiscal Multipliers: the Investment-Channel By Patrick Feve; Martial Dupaigne
  8. Unemployment, Sovereign Debt, and Fiscal Policy in a Currency Union By Pablo Ottonello; Ignacio Presno; Javier Bianchi

  1. By: Montes-Solla, Paulino; Faiña Medín, J. Andres; Lopez-Rodriguez, Jesus
    Abstract: This paper analyses the different factors that explain the pattern of economic growth in Spain along the 1989-2010 period. The results of our analysis provide strong evidence of stagnation in productivity throughout most of the period under study. The large investments and the strong growth in capital stocks were practically absorbed by an intense process of job creation. As a consequence, the capital/labour ratio and labour productivity levels had a very low growth, whereas total factor productivity (TFP) decreased over the period of analysis. Therefore unlike other European countries, Spain did not experience a phenomenon of capital deepening with an increase in productivity. The intense GDP pc growth in Spain was of a rather "extensive" type, mainly based on a capital widening process.
    Keywords: Regional development, Infrastructures, Capital widening, Productivity stagnation, Total Factor Productivity
    JEL: R10 R11 R12 R13 R14
    Date: 2015–11–03
  2. By: Eckhard Hein (Berlin School of Economics and Law)
    Abstract: This paper is linked to some recent attempts at including a non-capacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilisation from a normal or target rate of utilisation, we rather focus on the so far neglected issues of deficit, debt and distribution dynamics in such models. For this purpose we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the medium-run convergence of the system towards such a growth rate, analyse the related long-run debt dynamics and deal with stability and income distribution issues. Finally we touch upon the economic and, in particular, fiscal policy implications of our model results.
    JEL: E11 E12 E25 E62
    Date: 2016–08
  3. By: Foellmi, Reto; Zweimüller, Josef
    Abstract: We introduce non-homothetic preferences into an R&D based growth model to study how demand forces shape the impact of inequality on innovation and growth. Inequality affects the incentive to innovate via a price effect and a market size effect. When innovators have a large productivity advantage over traditional producers a higher extent of inequality tends to increase innovators' prices and mark-ups. When this productivity gap is small, however, a redistribution from the rich to the poor increases market sizes and speeds up growth.
    Keywords: Inequality, Growth, Demand Composition, Price Distortion
    JEL: O15 O31 D30 D40 L16
    Date: 2016–07
  4. By: Hamrita, Mohamed Essaied; Mekdam, Mejdi
    Abstract: This paper examines the empirical causal relationship between energy consumption, CO2 emissions and economic growth for six oil-exporting countries from the Golf Cooperation Council (GCC) region over the period 2000:2011. Bootstrap panel Granger causality test approach is used which take account the cross-sectional dependency and the heterogeneity across countries. The empirical results support a bi-directional causality between economic growth and energy consumption for Bahrin and one-way Granger causality running from economic growth to energy consumption for United Emirate Arab and Qatar. Regarding to GDP-CO2 emissions nexus, a reverse relationship from CO2 to GDP for Bahrin and Kuwait is found. However, a two-way Granger causality between CO2 emissions and energy consumption for United Arab Emirate is found.
    Keywords: Energy consumption, CO2 emissions, economic growth, bootstrap panel causality test, Cross-sectional dependence, Heterogeneity, GCC.
    JEL: C1 C3 Q2 Q4 Q5
    Date: 2016–07–20
  5. By: Nyorekwa, Enock Twinoburyo; Odhiambo, Nicholas Mbaya
    Abstract: The role of monetary policy in promoting economic growth remains empirically an open research question. This paper attempts to bridge the knowledge gap by investigating the impact of monetary policy on economic growth in Tanzania during the period from 1975 to 2013 ??? using the autoregressive distributed lag (ARDL) bounds-testing approach. The study uses two proxies of monetary policy, namely, money supply and interest rate, to examine this linkage. The empirical results of this study confirm the existence of long-run monetary policy neutrality ??? irrespective of the proxy used to measure monetary policy. However, the short-run results only confirm the existence of monetary policy neutrality ??? but only when the interest rate is used as a proxy for monetary policy. When money supply is used to measure monetary policy, a negative relationship between monetary policy and economic growth is found to predominate
    Keywords: Monetary Policy, Economic Growth, Interest Rate, Money Supply
    Date: 2016–08
  6. By: Enno Schröder (Institute for New Economic Thinking, 300 Park Avenue South, New York, NY 10010; Department of Economics, New School for Social Research)
    Abstract: The article introduces a decomposition of trade flows that allows to measure expenditure-growth effects (changes in domestic and foreign final demand) and expenditure-switching effects (changes in the allocation of demand across domestic and foreign producers). The decomposition is applied to 11 euro members 1990-2014. Most countries, including Germany, recorded unfavorable expenditure-switching effects (demand shifted from domestic to foreign producers); expenditure switching was most unfavorable in Finland, France, and Italy. There is no correlation between unit labor cost growth and expenditure switching.
    Keywords: Competitiveness, euro area, external adjustment, expenditure switching, macroeconomic imbalances
    JEL: F4 F41 F45
    Date: 2016–08
  7. By: Patrick Feve (University of Toulouse); Martial Dupaigne (Toulouse School of Economics)
    Abstract: This paper inspects the mechanism shaping government spending multipliers in various small-scale DSGE setups with endogenous labor supply and capital accumulation. We analytically characterize the short-run investment multiplier, which in equilibrium can be either positive or negative. The investment multiplier increases with the persistence of the exogenous government spending process. The response of investment to government spending shocks strongly affects short-run multipliers on output and consumption.
    Date: 2016
  8. By: Pablo Ottonello (University of Michigan); Ignacio Presno (Universidad de Montevideo); Javier Bianchi (Federal Reserve Bank of Minneapolis)
    Abstract: Is fiscal stimulus desirable when financing the government spending might imply a surge in borrowing costs and potentially lead to a sovereign debt crisis? This paper studies the optimal fiscal policy for a small open economy in a currency union in which the government cannot commit. In our two-sector dynamic model, the presence of downward nominal wage rigidity coupled with financial frictions may give rise to the welfare-improving effects of an expansionary fiscal policy. The government is confronted with a trade-off between the benefits of reducing unemployment and the financial costs of increasing external borrowing. A quantitative analysis is conducted to assess the desirability of austerity plans and stimulus programs in the context of the ongoing European debt crisis. In our theoretical framework, the response of the economic activity to government expenditures is highly nonlinear in the stock of external debt and the magnitude of the shocks.
    Date: 2016

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