nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒10‒23
three papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Government debt, fiscal rules and singular growth dynamics By Brito, Paulo
  2. Financial crises, limited asset market participation, and banks balance sheet constraints By Elton Beqiraj Elton; Di Bartolomeo Giovanni; Di Pietro Marco
  3. Foreign Direct Investment, Institutional Framework and Economic Growth By Hayat, Arshad

  1. By: Brito, Paulo
    Abstract: A fiscal rule controlling the government surplus as a function of the deviation of the actual debt ratio from a target level is introduced in an otherwise benchmark endogenous growth model in which productive government expenditures are financed by taxes and government debt. This generates a feedback mechanism from the government debt ratio to expenditure that can generate impasse-singular dynamics, in the sense that rates of growth can become locally infinitely valued. We characterize locally the different impasse-singular dynamics that can exist and discuss their consequences for the existence and characterization of general equilibrium endogenous growth paths, for different parameterizations of the fiscal rule. We present some consequences of impasse-singular dynamics generated by particular fiscal rules, which are not present in regular models: existence of multiple over-determinate balanced growth paths (BGP), existence of constraints in the domain of existence of determinate equilibrium paths converging to a regular BGP, and the existence of singular BGP's.
    Keywords: government debt, fiscal rules, endogenous growth, impasse-singular dynamics
    JEL: C6
    Date: 2016–10–17
  2. By: Elton Beqiraj Elton; Di Bartolomeo Giovanni; Di Pietro Marco
    Abstract: Our paper focuses on the effects of financial imperfections. It considers the interaction between two kinds of imperfections in an otherwise standard medium--scale New Keynesian economy characterized by nominal price and wage frictions, habits and capital adjustment costs. The imperfection investigated are the long--run limited--asset market participation assumption and the banks' balance sheet constraints due to an agency problem between financial intermediaries and depositors. The key question of the chapter is if the simultaneous presence of both amplifies or mitigates the negative effects of a financial crises, i.e., if these are substitutes or complements for the downturn after the crisis.
    Date: 2016–11
  3. By: Hayat, Arshad
    Abstract: The paper explores the role of institutional quality on economic growth and more specifically the role it plays through foreign direct investment. The paper uses an economic performance relevant indicators of institutional quality (both in aggregate and individual indicators) to evaluate its direct impact on economic growth and an indirect impact on economic growth via foreign direct investment. The paper applied instrumental variable model to a larger dataset of 106 countries and found that besides a strong direct positive effect on economic growth the aggregate institutional quality variable as well as all individual variables except for the rule of law have a small but significant indirect impact on economic that takes place through boosting foreign direct investment.
    Keywords: Foreign Direct Investment, Institutional Quality, Economic Growth, Instrumental Variable
    JEL: E14 F23 F43
    Date: 2016–10–14

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