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on Financial Development and Growth |
| By: | Eswar S. Prasad; Raghuram G. Rajan; Arvind Subramanian |
| Abstract: | We document the recent phenomenon of "uphill" flows of capital from nonindustrial to industrial countries and analyze whether this pattern of capital flows has hurt growth in nonindustrial economies that export capital. Surprisingly, we find that there is a positive correlation between current account balances and growth among nonindustrial countries, implying that a reduced reliance on foreign capital is associated with higher growth. This result is weaker when we use panel data rather than cross-sectional averages over long periods of time, but in no case do we find any evidence that an increase in foreign capital inflows directly boosts growth. What explains these results, which are contrary to the predictions of conventional theoretical models? We provide some evidence that even successful developing countries have limited absorptive capacity for foreign resources, either because their financial markets are underdeveloped, or because their economies are prone to overvaluation caused by rapid capital inflows. |
| JEL: | E2 F3 F4 O4 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13619&r=fdg |
| By: | Minea, A.; Villieu, P. |
| Abstract: | In this paper, we study maximizing long-run economic growth trade-off in monetary and fiscal policies in an endogenous growth model with transaction costs. We show that both monetary and fiscal policies are subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, maximizing-growth government must choose relatively high seigniorage (respectively income taxation), if “tax evasion” and “financial repression” coefficients are high (respectively low). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax-rate, as result of maximizing-growth strategies in different structural environments (notably concerning tax evasion and financial repression). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts. |
| Keywords: | endogenous growth, threshold effects, monetary policy, fiscal policy, public deficit, policy mix, tax evasion, financial repression |
| JEL: | E5 E6 H6 O4 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec07:6546&r=fdg |
| By: | Prüfer, Patricia; Tondl, Gabriele |
| Abstract: | FDI from the European Union (EU) ranks before FDI from North America (NA) in some of the Latin American countries. We investigate the impact of EU- versus NA-FDI on the growth rate including about 50 controls. Country specific effects and parameter heterogeneity are incorporated in our estimation. We use Bayesian Model Averaging to address model uncertainty and to select the best models and most robust parameters. Our results indicate that positive effects of FDI are dependent on the functioning of legal frameworks and the quality of infrastructure. EU-FDI is an important, robust growth determinant whereas NA-FDI is not. |
| Keywords: | Growth determinants, FDI, model uncertainty, Bayesian Model Averaging, Latin America |
| JEL: | C52 F21 F43 O54 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec07:6549&r=fdg |