nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒11‒17
twenty-six papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. French Colonial Trade Patterns: European Settlement By Cristina Terra; Tania El Kallab
  2. Endogenous Growth and Research Activity under Private Information By Oscar Mauricio Valencia
  3. Essays on Growth and Political Transition By Hakobyan, Lilit
  4. The Natural Resource Curse in Post-Soviet Countries : The Role of Institutions and Trade Policies By Roman Horváth; Ayaz Zeynalov
  5. Great Expectations: The Persistent Effect of Institutions on Culture By Litina, Anastasia
  6. Natural Land Productivity, Cooperation and Comparative Development By Litina, Anastasia
  7. Institutions and Economic Performance in Mexican States By Sonora, Robert
  8. Health and Child Labour By Fioroni, Tamara
  9. Technological Change during the Energy Transition By Gerard van der Meijden; Sjak Smulders
  10. The Asymmetric Effect of Oil Price on Growth across US States By Nicholas Apergis; Alper Aslan; Goodness C. Aye; Rangan Gupta
  11. Contraception and the Fertility Transition By Bhattacharya, Joydeep; Chakraborty, Shankha
  12. Growth and distribution: a revised classical model By BRESSER-PEREIRA, Luiz Carlos
  13. Private Services as a Source of Growth? By Ali-Yrkkö, Jyrki; Pajarinen, Mika; Rouvinen, Petri
  14. Fiscal Policy and Growth in Developing Asia By Abdon, Arnelyn May; Estrada, Gemma Esther; Lee, Minsoo; Park, Donghyun
  15. Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth By Escobari, Diego; Vacaflores, Diego
  16. Quake'n and Shake'n...Forever! Long-Run Effects of Natural Disasters: A Case Study on the 1970 Ancash Earthquake By Sebastián J. Miller; Germán Caruso
  17. TFP, R&D AND SEMI ENDOGENOUS GROWTH IN RHOMOLO By Enrique Lopez Bazo; Fabio Manca
  18. Income inequality, intergenerational mobility and the Great Gatsby Curve: is education the key? By John Jerrim; Lindsey Macmillan
  19. Financial Harmonization and Industrial Growth: Evidence from Europe By Ozkok, Zeynep
  20. The effects of state aid on Total Factor Productivit growth By Patrick Van Cayseele; Jozef Konings; Ilona Sergant
  21. The Impact of Debt on Economic Growth: A Case Study of Indonesia By Swastika, Purti; Dewandaru, Ginanjar; Masih, Mansur
  22. Knowledge = Technology + Human Capital and the Lucas and Romer Production Functions By Amavilah, Voxi Heinrich
  23. Tax Revenue and Economic Growth in Ghana: A Cointegration Approach By Takumah, Wisdom
  24. Capital Freedom, Financial Development and Provincial Economic Growth in China By Söderlund, Bengt; Gustavsson Tingvall, Patrik
  25. A Post-Keynesian Response to Piketty's "Fundamental Contradiction of Capitalism" By Javier Lopez Bernardo; Felix Lopez Martinez; Engelbert Stockhammer
  26. Islamic Finance: Debt versus equity An empirical Issue By Hasan, Zubair

  1. By: Cristina Terra; Tania El Kallab (Université de Cergy-Pontoise, THEMA)
    Abstract: We investigate how the colonial strategy through the settlement decision aected French trade patterns. In this regard, we construct a new database relying on various primary histori- cal sources containing information on the value of French sectoral trade between 1880 and 1913. Our results show that French colonies with more European settlements traded more with France, whereas the opposite is true for other colonies. We also investigate two channels through which European settlements might have aected the French trade pattern with colonies: institutions and networking. We nd that better institutions brought by European settlements had a nega- tive impact on trade with French colonies, while it promoted trade with British colonies. These results are consistent with the extractive nature of French trade relations with its colonies. As for networking, it increases overall French trade within French colonies but reduces it in other colonies.
    Keywords: European Settlement, Institutions, Networking, Trade, Colonization
    JEL: D85 N50 N53 N70 P16 P51
    Date: 2014
  2. By: Oscar Mauricio Valencia
    Abstract: This paper examines an endogenous growth model with occupational choice in which innovators produce ideas. Each innovator has private knowledge of their production costs. Developers offer innovators non-linear contract schemes that affect the number of active innovators and the economic growth rate. Two main results are obtained. First, the equilibrium contract under asymmetric information leads to the selection of highly-talented workers in R&D activities and higher profits for developers. Second, the efficiency-rent extraction tradeoff lowers the economic growth rate with respect to the full information case.
    Keywords: Adverse Selection, Innovation, Endogenous Growth.
    JEL: D82
    Date: 2014–09–15
  3. By: Hakobyan, Lilit (Department of Economics, Umeå School of Business and Economics)
    Abstract: The thesis consists of a summary and three self-contained papers related to political transition and economic growth with parallel study of countries with and without Military Dictatorship (MD) history. Paper [1]: studies the experience of 83 countries in 1950-2004 and addresses the question: when do democratic transitions produce bad economic outcomes. Following the theoretical papers of Acemoglu et al. (2004, 2008), an attempt is made to control for both de jure and de facto sides of political power. The data seem to indicate that democratization induces additional socially wasteful investments into de facto power. The results also suggest that, under military governments countries with low concentration of economic power show better economic performance. In terms of Acemoglu et al. (2007), this may suggest that the institutional environment switches from a “weak” to a “strong” one. The potential tradeoff between democratization and political stability is mainly relevant to the degree of severity of reoccurring economic crises in countries with MD history. Paper [2]: investigates whether democracy renders economic performance more efficient. Efficiency, measured by (mean)/ (standard deviation) of output growth, becomes an important indicator of economic performance, if countries face a tradeoff between scenarios with high-mean and low-volatility of growth. This seems to hold when economies approach the efficient frontier. The study: (i) employs asymmetric (G)ARCH models; (ii) analyses variations in within-country effects of democratization on the growth efficiency conditional on cross-country variations in income inequality; (iii) studies the asymmetry of deviations from the mean. The results suggest (do not suggest) that in countries with no (with) MD history democratization moves economies towards the efficient frontier. Democratizations has stronger impact on the efficiency of growth in countries with higher (lower) income inequality if countries have (have not) MD history. Paper [3]: studies the survival of four different growth regimes conditional on political regime transitions that occurred during the first or prior year of the economic regime. The results suggest that in countries with no MD history, the fast-growing episodes initiated by democratization have about 40% lower hazard of termination than the episodes with no political transitions. This finding does not hold in countries with MD history. The effects of political transitions on the duration of ongoing economic regimes are additionally studied. Data suggest that transitions of both directions under economic crisis render the ongoing economic regime more durable.
    Keywords: de facto and de jure political power; economic crisis; economic growth; efficient frontier of economic growth; military dictatorship; political regimes; weak institutions
    JEL: D72 E02 O43 P16
    Date: 2014–09–09
  4. By: Roman Horváth (Institute of Economic Studies, Charles University); Ayaz Zeynalov
    Abstract: We examine the effect of natural resource abundance on economic performance during the 1996–2011 period in the 15 independent countries that formerly comprised the Soviet Union. These countries were a largely homogeneous group with respect to institutional development, liberalization and economic performance; however, these countries began to demonstrate marked differences from one another with respect to these factors during the transition, which has resulted in unique cross-section and time variation. Using several panel regression models that address the endogeneity issues, our results suggest that natural resources crowd out manufacturing sector unless the quality of domestic institutions is sufficiently high. Conversely, trade policies do not help convert the natural resource curse into a blessing.
    Keywords: natural resource curse, institutions, manufacturing, post-Soviet countries
    JEL: O11 O13 Q30
    Date: 2014–06
  5. By: Litina, Anastasia
    Abstract: This research exploits the event of immigration to establish that institutions have a persistent effect on culture. It is argued that immigrants coming from corrupt countries, tend to overtrust the institutions at the host country. This inflated trust of immigrants is documented as the Great Expectations effect. This result is interesting and intriguing for several reasons. First, it highlights the persistent effect of institutions (at the origin country) on the cultural attitudes of immigrants. Interestingly, this effect is rather persistent and can be detected even to the second generation immigrants. Second, the analysis explores whether mean attitudes at the origin country have an effect on immigrants' attitude. The findings suggest that mean attitudes do not confer a statistically significant effect, whereas a horserace between origin institutions and origin culture suggests that it is the effect of institutions that prevails. Last, the analysis establishes that the inflated trust of immigrants affects their political attitudes. Immigrants coming from corrupt countries tend to be less interested in politics, to overtrust the host governments and to be less active in the political arena. In a globalized world where international immigration is rather extensive, pinning down the cultural differences across immigrants and thus the differences in their political attitudes is of an essence.
    Keywords: Trust, Institutions, Culture, Migration
    JEL: F22 O17
    Date: 2014–09–16
  6. By: Litina, Anastasia
    Abstract: This research advances the hypothesis that natural land productivity in the past, and its effect on the desirable level of cooperation in the agricultural sector, had a persistent effect on the evolution of social capital, the process of industrialization and comparative economic development across the globe. Exploiting exogenous sources of variations in land productivity across a) countries; b) individuals within a country, and c) migrants of different ancestry within a country, the research establishes that lower level of land productivity in the past is associated with more intense cooperation and higher levels of contemporary social capital and development.
    Keywords: Land productivity, Cooperation, Social Capital, Trust, Growth, Development, Agriculture, Industrialization
    JEL: O11 O13 O14 O3 O31 O33 O4 O5 O50 O57
    Date: 2014–09–09
  7. By: Sonora, Robert
    Abstract: This paper investigates the relationship between institutional quality and economic performance the 32 Mexican states over the period 2003 -- 2010. Using dynamic panel GMM estimation and the Fraser Institutes index of economic freedom, I find that freedom has an ambiguous impact on economic growth and improvements undermines employment. These results are corroborated with dynamic OLS model and panel fixed and random effects models.
    Keywords: Institutions, Economic Performance \& Growth, Mexico, Dynamic Panel
    JEL: E02 O43 O54
    Date: 2014
  8. By: Fioroni, Tamara
    Abstract: In this paper, we investigate the impact of child and adult survival on child labour. We find that, while a rise in adult longevity always has a negative effect on child labour because it increases the returns in education, the impact of child mortality reduction depends on the initial level of income. At a low income level, where parents choose zero or a very low level of education for their children, an increase in child survival, ceteris paribus, renders quantity more attractive than quality because it decreases the net cost of having children. Our results are in line with empirical evidence that suggests a non linear relationship between child labour and child survival. We therefore offer an additional explanation for the persistence of child labour at stagnant per capita income levels.
    Keywords: Child Labour, Fertility, Health.
    JEL: I0 I20 J1
    Date: 2014–09–01
  9. By: Gerard van der Meijden (VU University Amsterdam); Sjak Smulders (Tilburg University, the Netherlands)
    Abstract: The energy transition from fossil fuels to alternative energy sources has important consequences for technological change and resource extraction. We examine these consequences by incorporating a non-renewable resource and an alternative energy source in a market economy model of endogenous growth through expanding varieties. During the energy transition, technological progress is non-monotonic over time: it declines initially, starts increasing when the economy approaches the regime shift, and jumps down once the resource stock is exhausted. A moment of peak-oil does no longer necessarily occur, and simultaneous use of the resource and the alternative energy source will take place if the return to innovation becomes too low.
    Keywords: Alternative energy sources, endogenous growth, energy transition, non-renewable resources, technological change
    JEL: O30 Q32 Q42 Q56
    Date: 2014–08–18
  10. By: Nicholas Apergis (School of Economics and Finance, Curtin University, Perth, Australia); Alper Aslan (Nevsehir Haci Bektas Veli University,Faculty of Economics and Administrative Sciences,50300, Nevsehir, Turkey); Goodness C. Aye (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper investigates the dynamic relationship between oil prices and growth across the U.S. States using a panel data framework. We use both annual and quarterly data spanning the periods 1973 to 2013 and 1948Q1 to 2013Q4, respectively. Following Hatemi-J (2012), we allow for the presence of asymmetry in the cointegration and causality testing by decomposing oil prices into cumulative sums of positive and negative oil prices. The null hypothesis of no cointegration is rejected. The long-run coefficients are found to be statistically significant across all empirical models, with positive oil prices reducing output, while negative oil prices increasing output. We also find evidence of both short- and long-run bidirectional causality between aggregate oil prices and output. However, there is evidence of unidirectional causality both from positive and negative oil prices to output based on annual data. The quarterly data generated slightly different result, indicating both long- and short-run bidirectional causality between positive and negative oil prices and output.
    Keywords: Oil prices, economic growth, asymmetric effects, US States
    JEL: C33 O00 Q41 R10
    Date: 2014–10
  11. By: Bhattacharya, Joydeep; Chakraborty, Shankha
    Abstract: Dominant paradigms of fertility choice either ignore or assume small, unchanging costof fertility limitation. Inspired by the historical English experience that is contrary to suchassumptions,we modify the Beckerian paradigm to incorporate costly, societal influence oncontraception. In the model economy, heterogeneous, generationally-linked householdschoose between “traditional†and “modern†contraception. The modern has a higher fixedcost (reflecting social opprobrium) but a lower variable cost of averting childbirths. Initially,the rich adopt the modern, and in doing so, unleash a social diffusion process. Eventuallyeveryone switches lowering fertility further and across society. What hastens the switch isthe decline in child mortality. The model is broadly consistent with important features ofthe English transition and has implications for more recent transitions.
    Keywords: Child mortality; Fertility; Demographic transition; contraception
    JEL: I12 J11 O40
    Date: 2014–10–22
  12. By: BRESSER-PEREIRA, Luiz Carlos
    Abstract: This paper discusses distribution and the historical phases of capitalism. It assumes that technical progress and growth are taking place, and, given that, its question is on the functional distribution of income between labor and capital, having as reference classical theory of distribution and Marx’s falling tendency of the rate of profit. Based on the historical experience, it, first, inverts the model, making the rate of profit as the constant variable in the long run and the wage rate, as the residuum; second, it distinguishes three types of technical progress (capital-saving, neutral and capital-using) and applies it to the history of capitalism, having the UK and France as reference. Given these three types of technical progress, it distinguishes four phases of capitalist growth, where only the second is consistent with Marx prediction. The last phase, after World War II, should be, in principle, capital-saving, consistent with growth of wages above productivity. Instead, since the 1970s wages were kept stagnant in rich countries because of, first, the fact that the Information and Communication Technology Revolution proved to be highly capital using, opening room for a new wage of substitution of capital for labor; second, the new competition coming from developing countries; third, the emergence of the technobureaucratic or professional class; and, fourth, the new power of the neoliberal class coalition associating rentier capitalists and financiers
    Date: 2014–10–29
  13. By: Ali-Yrkkö, Jyrki; Pajarinen, Mika; Rouvinen, Petri
    Abstract: There are almost 200,000 enterprises operating in the Finnish service sector, combined. However, not all of the service industries are the same. Some services have become independent of geographical locations, meaning that they can be exported, much like physical products. Other services still require that they are produced and consumed in the same place. Significant differences also exist between the scalability of different services. Since 2007, employment growth has been the fastest in the location-dependent services. The real growth of value added and the increase of productivity, however, have been concentrated in the service industries which do not depend on geography, and where the economies of scale apply the most.
    Keywords: Service, growth, policy, offshorability, tradability, scalability
    JEL: L52 L80 L88 O30 F23
    Date: 2014–10–31
  14. By: Abdon, Arnelyn May; Estrada, Gemma Esther (Asian Development Bank); Lee, Minsoo (Asian Development Bank); Park, Donghyun (Asian Development Bank)
    Abstract: In this paper we empirically explore the relationship between fiscal policy and economic growth in developing Asia. The region’s overall level of taxes and government spending are substantially lower than those prevailing in advanced economies. Nevertheless, there are conceptual grounds why fiscal policy, including the composition of taxes and government spending, can have a significant effect on growth, as our empirical analysis shows. In line with economic theory, property taxes have a more benign impact on growth than direct taxes, and spending more on education has a sizable positive impact on growth.
    Keywords: fiscal policy; growth; taxation; government spending; Asia
    JEL: H20 H50
    Date: 2014–10–01
  15. By: Escobari, Diego; Vacaflores, Diego
    Abstract: This paper sets to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth—larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics.
    Keywords: Foreign Direct Investment, Economic Growth, Rational Expectations
    JEL: F36 F43 O11 O47 O54
    Date: 2014–07–17
  16. By: Sebastián J. Miller; Germán Caruso
    Abstract: This study estimates the effects of the 1970 Ancash earthquake on human capital accumulation on the affected and subsequent generation, 37 years after the shock, using the Peruvian censuses of 1993 and 2007. The main finding is that males affected by the earthquake in utero completed on average 0. 5 years less schooling while females affected by the earthquake completed 0. 8 years less schooling. Surprisingly, those whose mothers were affected at birth by the earthquake have 0. 4 less years of education, while those whose fathers were affected by the earthquake at birth have no effects on their education. The evaluation of other outcomes also suggests that the level of welfare of the affected individuals has been negatively impacted in the long run. The present investigation supports previous literature on shocks in early childhood, providing evidence of the existence of intergenerational transmission of shocks.
    Keywords: Youth & Children, Education, Disasters, Poverty, Natural disasters, Intergenerational transmission, Long-term effects
    Date: 2014–10
  17. By: Enrique Lopez Bazo (European Commission – JRC - IPTS); Fabio Manca (European Commission – JRC - IPTS)
    Abstract: This paper describes the semi-endogenous growth approach used in the dynamic spatial general equilibrium model RHOMOLO. We illustrate here how regional R&D expenditures can be used to explain Total Factor Productivity differentials across regions and how shocks to the former end up affecting regional economic performances and economic convergence. As to do so, the current contribution provides econometric estimates of the relationship between regional productivity and R&D intensity by applying the technology catch-up model proposed by Benhabib and Spiegel (2005) to the EU-regional context. We then use the estimated elasticities within the DSCGE framework while also building a simple simulation example to illustrate the potential of the model in capturing the heterogeneous income effects produced a shock to regional R&D expenditures.
    Keywords: TFP, R&D, CGE model, regional policy
    JEL: C51 C68 O47 R12
    Date: 2014–10
  18. By: John Jerrim (Department of Quantitative Social Science, Institute of Education, University of London); Lindsey Macmillan (Department of Quantitative Social Science, Institute of Education, University of London)
    Abstract: It is widely believed that countries with greater levels of income inequality also have lower levels of intergenerational mobility. This relationship, known as the Great Gatsby Curve (GGC), has been prominently cited by high-ranking public policy makers, best-selling authors and Nobel Prize winning academics. Yet relatively little cross-national work has empirically examined the mechanisms thought to underpin the GGC – particularly with regards to the role of educational attainment. This paper uses the cross-nationally comparable Programme for International Assessment of Adult Competencies (PIAAC) dataset to shed new light on this issue. We find that income inequality is associated with several key components of the intergenerational transmission process – including access to higher education, the financial returns to education, and the direct effect of parental education upon labour market earnings. Thus, consistent with theoretical models, we find that educational attainment is an important driver of the relationship between intergenerational mobility and income inequality. We hence conclude that unequal access to financial resources plays a central role in the intergenerational transmission of advantage.
    Keywords: Income inequality, intergenerational mobility, Great Gatsby Curve, PIAAC.
    JEL: I20 J62 J24
    Date: 2014–10–30
  19. By: Ozkok, Zeynep
    Abstract: This paper analyzes the growth effects of the Financial Services Action Plan (FSAP) of the European Commission, a set of measures and directives that aim to harmonize European financial markets. Using a panel of 25 countries and 30 industries, we find that the standard specification predicts harmonization to lower growth, though the negative effect is mitigated for industries that depend more on external finance. We then show that this seemingly surprising result is due to omitted variable bias. We would expect early adopters to bear more of the costs and experience less of the benefits of harmonization. Once we control for the relative timing of adoption, harmonization is shown to have a positive effect on growth. This finding is robust to including further controls, splitting up the sample into different groups of countries, and extending the model to a dynamic setting.
    Keywords: Financial integration; Legal, regulatory harmonization; External finance dependence; European Union; FSAP
    JEL: F15 F36 F55 G15 G28 K4 O4
    Date: 2012–12–15
  20. By: Patrick Van Cayseele; Jozef Konings; Ilona Sergant
    Abstract: This paper analyzes the relationship between state aid and ?rm performance in terms of productivity growth. To this end, we use all European state aid cases that were granted (either to an individual ?rm or a group of ?rms under the form of a scheme) in manufacturing between 2003 and 2011. Our ?ndings show that state aid measures are able to enhance productivity growth when ?rms are constraint due to a lack of cash availability. Since laggard ?rms are more likely to be ?nancially constraint, they experience more TFP growth than ?close-to-frontier??rms when receiving state aid. This bene?cial e¤ect of state aid is mainly driven by the post-crisis years in the sample. Our results are consistent with optimal development planning by pro?t maximizing ?rms.
    Date: 2014–10
  21. By: Swastika, Purti; Dewandaru, Ginanjar; Masih, Mansur
    Abstract: The paper is the first attempt to analyse the impact of debt on economic growth in the context of Indonesia by combining the application of wavelet and non-linear techniques. Our results tend to indicate that there are complex lead-lag dynamic interactions between external debt-to-GDP ratio and GDP growth. Debt is shown to be inversely related with economic growth in a shorter scale, while it is not in the longer scale. Nonetheless, positive contribution of debt on economic growth is very restricted as it only occurs as the country stops borrowing more debt. Perhaps, this result confirms that Indonesia is one of the examples of "debt intolerance" countries. Therefore, our recommendation to the policy makers would be for a shift to risk-sharing system which shields the economy from any adversity resulting from interest-bearing system and hence spurs the economic growth
    Keywords: Debt Intolerance, Economic Growth, Indonesia, Wavelet Coherence, Maximal Overlap Discrete Wavelet Transform, Non-Linear Hansen Threshold. _____________________________________
    JEL: C22 C58 E44 G12
    Date: 2013–08–20
  22. By: Amavilah, Voxi Heinrich
    Abstract: The Lucas and Romer production functions are currently the two most popular descriptions of the new growth theories in which knowledge is endogenous to economic growth and technological change. However, in both production functions the relationship between technology and human capital is implicit, and human capital is measured as an area. The latter is inconsistent with common understanding by which knowledge can be deep and wide and evolving over and in time, meaning human capital is 3D. This paper takes human capital as being 3D and frames it in Lucas and Romer production functions. Both functions bunch knowledge together, i.e., human capital and technological knowledge are strictly inseparable. Analysis and intuition find that if we take human capital to be a volume, the Lucas production function is most appropriate for use at the micro-economic level where emphasis is on production knowledge. At the macroeconomic level the Romer production function appears more reasonable, as knowledge is far more than just production knowledge. A limitation of the paper is how to actually calculate human capital as a volume and then to estimate the production functions empirically. The limitation represents a fruitful direction for future research.
    Keywords: Knowledge, technology, 3D human capital, Lucas production function, Romer production function
    JEL: O15 O3 O33 O4
    Date: 2014–09–24
  23. By: Takumah, Wisdom
    Abstract: This study examines the effect of tax revenue on economic growth in Ghana using quarterly data for the period 1986 to 2010 within the VAR framework. The study found that there exist both short run and long run relationship between economic growth and tax revenue. The result indicated a unidirectional causality between tax revenue and economic growth and it flows from tax revenue to economic growth. The result suggests that tax revenue exerted a positive and statistically significant effect on economic growth both in the long-run and short-run implying that tax revenue enhances economic growth in Ghana. The study recommended that the tax base need to be widened and the tax rates reduced in order to generate more revenue. It was recommended that the government should improve tax collection measures in order to generate more revenue so as to increase economic growth in Ghana.
    Keywords: Tax revenue, Economic Growth, Cointegration, Causality, Ghana
    JEL: C3 E6 H2
    Date: 2014–09–12
  24. By: Söderlund, Bengt (The Ratio institute and Stockholm School of Economics); Gustavsson Tingvall, Patrik (Södertörn University and The Ratio Institute)
    Abstract: For more than three decades, China has managed to combine rapid economic growth with a heavily regulated financial sector. The discrepancy between economic and financial development has raised the question of whether China might be an exception to the so-called finance-growth nexus. This study examines the relationship between finance and growth at the provincial level in China using a new set of measures of capital freedom and financial development. The results indicate that capital freedom and financial development are associated with both higher income and growth rates. In particular, we find that the marketization of financial institutions and strengthening of legal and government institutions have a particularly strong impact on income and growth in low-income provinces.
    Keywords: Keywords: China; Economic growth; Financial institutions
    JEL: C23 E44 G28 O11 O43
    Date: 2014–10–02
  25. By: Javier Lopez Bernardo (Kingston University); Felix Lopez Martinez; Engelbert Stockhammer
    Abstract: In Capital in the Twenty-First Century, the French economist Thomas Piketty develops a new and rich set of data that deals with income and wealth distribution, output-wealth dynamics and rates of return, and has proposed as well some "laws of capitalism". At the core of his theoretical argument lies the "fundamental inequality of capitalism", an empirical regularity that states that the rate of return on wealth is higher than the growth rate of the economy. This simple construct allows him to conclude that increasing wealth (and income) inequality is an inevitable outcome of capitalism. While we share some of his conclusions, we will highlight some shortcomings of his approach based on a Cambridge post-Keynesian growth-and-distribution model. We argue, first, that r>g (i.e. that the rate of return on wealth is greater than the growth rate of the economy) is not necessarily associated with increasing inequality in functional distribution; second, Piketty commits a fallacy-of-composition argument when he says that the necessary condition for r>g is that capitalists have to save a high amount of their capital income; third, post-Keynesian economists can learn from Piketty’s insights about personal income distribution and incorporate them into their models; and, fourth, we reiterate the post-Keynesian argument that a well-behaved aggregate production function does not exist and it therefore cannot explain the distribution of income.
    Keywords: Rate of return, income distribution, post-Keynesian growth and distribution models, Cambridge equation, Pasinetti's theorem
    JEL: B22 B50 E12 O40
    Date: 2014–10
  26. By: Hasan, Zubair
    Abstract: The current financial turmoil has led many writers in the area of Islamic finance to revive an old edict in Islamic finance – no risk, no gain. I have discussed this axiom in my earlier writings and have not come across anything in recent advocacy of its proponents that could make me change my position. Thus the object of this brief note is not to reopen that dialogue. In view of the theoretical heat that recent writings have generated, empiricists are prompted to test the hypothesis: Equity financing is better than reliance on debt for economic stability and growth, Muslim countries being the reference point. For this purpose, it is not difficult to select a sample and specify the relevant variables. But as growth in GDP is pivotal variable here the choice of production function for the work becomes important as there is a variety of frame works available. This note discusses the selection issue. More specifically, can we safely use a Model with technology remaining unchanged or it is imperative to have a dynamic framework?
    Keywords: Islamic finance; Production function; Technological change; Risk sharing
    JEL: G2 M2
    Date: 2014–09–29

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