nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒11‒20
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Balanced Growth Despite Uzawa By Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  2. Asset Bubbles, Endogenous Growth, and Financial Frictions By Hirano, Tomohiro; Yanagawa, Noriyuki
  3. Public Expenditures, Innovation and Economic Growth: Empirical Evidence from G20 Countries By Horst Hanusch; Lekha Chakraborty; Swati Khurana
  4. Explaining the Euro crisis: Current account imbalances, credit booms and economic policy in different economic paradigms By Engelbert Stockhammer; collin constantine; Severin Reissl

  1. By: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  2. By: Hirano, Tomohiro; Yanagawa, Noriyuki
    Abstract: This paper analyzes the existence and the effects of bubbles in an endogenous growth model with nancial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the nancial market might increase the potential for asset bubbles. Moreover, when the degree of pledgeability is relatively low, bubbles boost long-run growth; when it is relatively high, bubbles lower growth. Furthermore, we examine the effects of a bubble burst, and show that the effects depend on the degree of pledgeability, i.e., the quality of the nancial system. Finally, we conduct a full welfare analysis of asset bubbles.
    Keywords: Asset Bubbles, Endogenous Growth, Pledgeability, bubble burst, welfare effects of bubbles
    Date: 2016–10
  3. By: Horst Hanusch (Institute of Economics, University of Augsburg, Augsburg); Lekha Chakraborty (National Institute of Public Finance and Policy, New Delhi; Levy Economics Institute of Bard College, New York); Swati Khurana (National Institute of Public Finance and Policy, New Delhi)
    Abstract: The paper examines public expenditures and their effects on economic growth. For that purpose we choose four categories of expenditures, defence, infrastructure, human capital and R & D expenditures. Behind these expenditures stands, in socio-political consideration, a certain notion of the state as an active provider of public services for different purposes. From an analytical perspective the state is integrated in an institutional or sectoral framework which consists of the public, the financial and the real sector. All of these parts are oriented towards the development of an economy like it is formulated in the concept of "Comprehensive Neo-Schumpeterian Economics" (CNSE). In such a framework the state offers in the first case via defence expenditures national security as a pure public good which may have severe effects on the economic situation of an economy. In the second case the state provides capital investment as a prerequisite for economic development. In the third instance the state is defined as an institution preparing individuals and society for the uncertainties to come (resilience). The fourth category is closely related to innovation, hence traditionally R & D expenditures are taken as a proxy for the propensity of a firm or a society to invest into the future by creating novelties and using them as innovations. So, which kind of state is the most relevant one when we focus on economic growth and development? Is it the "security state" or the "development state", in the sense of catching up, which matters most? What role plays a state which focusses on resilience by stressing education and health (human capital) of its citizens in order to master the future? Or is it, last but not least, the "innovation oriented state", focussing on R & D, which has the biggest influence on economic growth? To answer these questions we investigate the links between the four categories of public expenditures and economic growth in an empirical panel data regression model using data for the G20 countries during the period between 2000 and 2012 within the constraints of data availability. The results reveal that the impact of innovation oriented spending on economic growth is much higher than that of the variables. The data used stems from the electronic data base of Government Finance Statistics (IMF), the Infrastructure Reports for the G20 countries and the World Development Indicators (World Bank).
    Keywords: Schumpeterian economics, development, country studies, data estimation
    JEL: O30 O38 H5
    Date: 2016–11
  4. By: Engelbert Stockhammer (Kingston University); collin constantine; Severin Reissl
    Abstract: The paper proposes a post-Keynesian analysis of the Eurozone crisis and contrasts interpretations inspired by New Keynesian, New Classical, and Marxist theories. The origin of the crisis is the emergence of a debt-driven and an export-driven growth model, which resulted in a rapid increase in private debt ratios and current account imbalances. The reason the crisis escalated in southern Europe, but not in other parts of the world, lies in the unique dysfunctional economic policy regime of the Euro area. European fiscal rules and the Troika impose fiscal austerity on countries in crisis and the separation of fiscal and monetary spaces has made countries vulnerable to sovereign debt crises and forced them to comply. We analyse the role different paradigms attribute to current account imbalances, fiscal policy and monetary policy. Remarkably, opposing views on the relative importance of cost and demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and large parts of orthodox economics endorsing it. We conclude that there is a weak mapping between post-Keynesian, New Classical, New Keynesian and Marxist theories and different economic policy strategies for the Euro area, which we label Keynesian New Deal, European Orthodoxy, Moderate Reform and Progressive Exit respectively.
    Keywords: Euro crisis, European economic policy, sovereign debt crisis, current account balance, fiscal policy, quantitative easing
    JEL: B00 E00 E50 E63 F53 G01
    Date: 2016–11

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