nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒07‒23
seven papers chosen by
Georg Man

  1. The Determinants of Economic Growth in Ghana: New Empirical Evidence By Ho, Sin-Yu; Njindan Iyke, Bernard
  2. Do economic and financial integration stimulate economic growth? A critical survey By Ehigiamusoe, Kizito Uyi; Hooi Hooi Lean
  3. Systemic Crisis and Growth Revisited: Has the Global Financial Crisis Marked a New Era? By Sven Steinkamp; Frank Westermann
  4. Financial Development, Economic Growth, and Electricity Demand: A Sector Analysis of an Emerging Economy By Roubaud, David; Shahbaz, Muhammad
  5. Testing for causality between FDI and economic growth using heterogeneous panel data By Chanegriha, Melisa; Stewart, Chris; Tsoukis, Christopher
  6. Monetary Policy in a Schumpeterian Growth Model with Two R&D Sectors By Huang, Chien-Yu; Yang, Yibai; Zheng, Zhijie
  7. Credit to GDP gap as an indicator for upcoming financial crisis By Shota Bakhuashvili

  1. By: Ho, Sin-Yu; Njindan Iyke, Bernard
    Abstract: This paper deals with an investigation into the determinants of economic growth in Ghana over the period 1975 to 2014. In particular, we investigated the impact of physical capital, human capital, labour, government expenditure, inflation, foreign aid, foreign direct investment, financial development, globalisation and debt servicing on economic performance within an augmented Solow growth model. It was found that, in the long run, both human capital and foreign aid have a positive influence on output, while labour, financial development and debt servicing have a negative impact on output. It was also found that, in the short run, government expenditure and foreign aid have a positive influence on economic growth, while labour, inflation and financial development have a negative impact on economic growth. These findings hold important policy implications for the country.
    Keywords: Determinants; economic growth; Ghana; ARDL bounds testing.
    JEL: C22 O47 O55
    Date: 2018
  2. By: Ehigiamusoe, Kizito Uyi; Hooi Hooi Lean
    Abstract: The recent vote by Britain to quit European Union (EU) and the political pressures in some member countries to exit EU necessitates a critical evaluation of the long-run economic benefits of economic integration or union to member countries. Consequently, this paper examines recent empirical studies on the nexus between economic integration and economic growth in developed and developing countries. It also investigates the literature on the impact of financial integration on economic growth. Evidence from the study shows that though other views exist, but there are overwhelming supports for growth-enhancing effects of economic integration, albeit common currency adoption has insignificant effect on growth. The channels through which economic integration exerts its influence on growth include, capital accumulation, productivity growth, trade and financial integration. However, the study shows that the impact of financial integration on economic growth is inconclusive. Based on the findings, the study draws some implications and policy options.
    Keywords: economic integration,financial integration,economic growth
    JEL: E44 F15
    Date: 2018
  3. By: Sven Steinkamp; Frank Westermann
    Abstract: Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result anymore when updating the sample by one decade that includes the Global Financial Crisis, 2007/8. We analyze the time-varying nature of this relationship in rolling regressions and an historical dataset. In the subset of countries with enforceability problems, we find that the link between occasional crisis, measured by the negative skewness of credit growth, and per-capita output growth still remains intact.
    Keywords: long-term growth, systemic crisis, financial liberalization
    JEL: F34 O43 G01
    Date: 2018
  4. By: Roubaud, David; Shahbaz, Muhammad
    Abstract: We employ an augmented production function to examine the association between electricity consumption and economic growth at the aggregate and sectoral levels for the period 1972-2014 for Pakistan. We posit that financial development is an important driver of electricity consumption and economic growth. The unit root test, combined cointegration framework, and VECM Granger causality approach are applied. There is a long-term association between the variables at the aggregate and sectoral levels. Electricity consumption and financial development stimulate economic growth. The causality analysis validates the presence of the feedback effect between economic growth and electricity consumption. Bidirectional causality exists between financial development and electricity consumption in the agriculture and services sectors. Financial development drives electricity consumption in the industrial sector. Policies have to be implemented to maintain sufficient electricity supply for economic growth. The financial sector should incentivize investment in renewable energy to reduce Pakistan’s heavy reliance on oil imports.
    Keywords: Financial development, Electricity consumption, Economic growth, Energy policy, Bidirectional causality, Feedback effect, Electricity demand–supply gap, Non-renewable energy, Carbon Emissions, Pakistan
    JEL: E0
    Date: 2018–06–01
  5. By: Chanegriha, Melisa (Middlesex University); Stewart, Chris (Kingston University London); Tsoukis, Christopher (Keele University)
    Abstract: In this paper we investigate the causal relationship between the ratio of FDI to GDP (FDIG)and economic growth (GDPG). We use innovative econometric methods which are based on the heterogeneous panel test of the Granger non-causality hypothesis based on the works of Hurlin (2004a), Fisher (1932, 1948) and Hanck (2013) using data from 136 developed and developing countries over the 1970-2006 period. According to the Hurlin and Fisher panel tests FDIG unambiguously Granger-causes GDPG for at least one country. However, theresults from these tests are ambiguous regarding whether GDPG Granger-causes FDIG for at least one country. Using Hanck’s (2013) panel test we are able to determine whether and for which countries there is Granger-causality. This test suggests that at most there are three countries (Estonia, Guyana and Poland) where FDIG Granger-causes GDPG and no countries where GDPG Granger-causes FDIG.
    Keywords: Granger-causality Tests; Panel Data; FDI; Economic Growth;
    JEL: C33 F21 F43 N10
    Date: 2018–05–23
  6. By: Huang, Chien-Yu; Yang, Yibai; Zheng, Zhijie
    Abstract: This study investigates the effects of monetary policy on economic growth and social welfare in a Schumpeterian economy with an upstream and a downstream sector in which the R&D investment of these sectors is subject to a cash-in-advance (CIA) constraint. We show that a higher nominal interest rate reallocates labor from a more cash-constrained R&D sector to a less one, which could generate an inverted-U effect on economic growth. In addition, we examine the necessary and sufficient conditions for the (sub)optimality of the Friedman rule by relating the underinvestment and overinvestment of R&D in the decentralized economy, and find that this relationship is crucially determined by the presence of CIA constraints, the relative productivity between upstream R&D and downstream R&D, and the strength of markup.
    Keywords: CIA constraint; Endogenous growth; Monetary policy; Two R&D sectors
    JEL: E41 O30 O40
    Date: 2018–06–18
  7. By: Shota Bakhuashvili (International School of Economics at Tbilisi State University)
    Abstract: According to the Basel III Framework, the gap between Credit to GDP Ratio and its long-run trend is the single best indicator for setting the Countercyclical Capital Buffer (CCB). The aim of setting the CCB is to increase the Capital Adequacy Requirement (CAR), in order to increase the resilience of the banking system in the case of upcoming financial difficulties. For calculating the long run trend of the Credit to GDP Ratio, the Basel Committee suggests to use the Hodrick-Prescott (HP) filter. In order to detrend the Credit to GDP Ratio, the HP filter only relies on the Credit to GDP Ratio itself and does not take into account other variables, which may be relevant to the risks to financial stability. Economic theory immediately suggests the Real Gross Domestic Product and the Real Estate Price Index as these relevant variables. During periods of negative Real Gross Domestic Product and Real Estate Price Index gaps, a high Credit to GDP Gap is less dangerous than is indicated by the HP filter. The reverse is true when gaps of these two variables are positive, that is a high Credit to GDP Gap is more dangerous for the financial system and the economy than is indicated by the HP filter. The present paper provides a theoretical and empirical justification of using Real GDP and Real Estate Price Index gaps in the process of detrending Credit to GDP ratio. Since the HP filter cannot work with different variables simultaneously, the paper introduces the Kalman filter as a solution. Comparing credit to GDP gaps calculated using different filters, the paper shows two cases when the Kalman filter outperformed the HP filter in Georgia between the years 2000 and 2016. The first case is the financial crisis of 2007-2008, during which the HP filter could only signal that a crisis was occurring after the fact, while the Kalman filter could work as an early warning indicator, informing about an upcoming crisis in the beginning of 2006. The second case is the first half of 2016, when the HP filter suggested to set the CCB while there was no financial crisis, which was correctly indicated by the Kalman filter.
    Keywords: Credit to GDP gap, Countercyclical Capital Buffer, Financial cycles, Financial crisis, Hodrick?Prescott filter, Kalman filter.
    JEL: G01 G21 E61
    Date: 2017–07

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