|
on Financial Development and Growth |
| By: | Olaf POSCH (Aarhus University and CREATES, CESifo); Klaus W€LDE (University of Mainz, CESifo, and UCL Louvain la Neuve) |
| Abstract: | A model highlighting the endogeneity of both volatility and growth is presented. Volatility and growth are therefore correlated but there is no causal link from volatility to growth. This joint endogeneity is illustrated by working out the effects through which economies with different tax levels differ both in their volatility and growth. Using a continuous-time DSGE model with plausible parametric restrictions, we obtain closedform measures of macro volatility based on cyclical components and output growth rates. Given our results, empirical volatility-growth analysis should include controls in the conditional variance equation. Otherwise an omitted variable bias is likely. |
| Keywords: | Tax effects, Volatility measures, Poisson uncertainty, Endogenous cycles and growth, Continuous-time DSGE models |
| JEL: | E32 E62 H3 C65 |
| Date: | 2009–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2009025&r=fdg |
| By: | Kyung-woo Lee; Markus Haacker; Raju Singh |
| Abstract: | The paper investigates the determinants and the macroeconomic role of remittances in sub-Saharan Africa, assembling the most comprehensive dataset available so far on remittances in the region and incorporating data on the diaspora. It finds that remittances are larger for countries with a larger diaspora or when the diaspora is located in wealthier countries, and that they behave countercyclically, consistent with a role as a shock absorber. Although the effect of remittances in growth regressions is negative, countries with well functioning domestic institutions seem nevertheless to be better at unlocking the potential for remittances to contribute to faster economic growth. |
| Keywords: | Cross country analysis , Developing countries , Economic growth , Economic models , Sub-Saharan Africa , Workers remittances , |
| Date: | 2009–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/216&r=fdg |
| By: | Ravindra H. Dholakia |
| Abstract: | Gujarat, West Bengal, Karnataka, Maharashtra, Kerala and Tamil Nadu were the major contributors to the growth acceleration in India after 1991-92. Although the Regional Disparity may increase temporarily, causality test provides support to the hypothesis about spread effects. The Regional growth targets assigned by the 11th Plan in India seem to rely on the spread effects of economic growth acceleration in the better off states to achieve its 9 percent growth target and reduce regional disparity in the long run. To strengthen spread effects, the domestic economy should be further integrated and interlinked with free flow of goods, services and factors of production. |
| Date: | 2009–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2009-03-06&r=fdg |
| By: | Dalila NICET – CHENAF (GREThA UMR CNRS 5113); Eric ROUGIER (GREThA UMR CNRS 5113) |
| Abstract: | Human capital measures (schooling) are poorly significant in explaining growth for developing countries. An explanation is that increases in human capital have no significant effect on growth if this human capital is misallocated and underemployed. In a simple two-sector model of a small open economy, we show that the effect of education on growth is more significant if the country has entered into the structural change that raises the demand for skilled labour. Moreover, we give a special attention to the role of entrepreneurs in the increase in the demand for skills in the modern sector and propose to measure it through the diversification of exports. We then derive an econometric specification from a simple two-sector model of growth with structural change and different levels of skills. From a sample of emerging economies, we provide econometric evidence that the reduction in the traditional share of GDP and a higher diversification of export both have a positive influence on growth rates. We also show that if the drop in traditional activities is to matter for growth, it is not through the skill reallocation from traditional to modern activities whereas export diversification is a factor of higher growth, directly but also through the enhancement of the effect of human capital on the increase of GDP. Then, the point could be that if reallocation of skills is to matter, it is more probably through shifts among the industrial sector, from the older to the newer activities than across sectors, from the traditional to the modern. |
| Keywords: | Human capital, growth, structural change |
| JEL: | C23 O14 O15 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2009-14&r=fdg |
| By: | Korosteleva, J; Lawson, Colin |
| Abstract: | The present paper examines the financial development of Belarus, with special emphasis on 1996-2002, when the financial sector was restrained by pervasive government controls. Belarus is of particular interest, as, despite no economic restructuring, annual growth has averaged seven per cent since 1997. It has been argued that monetary stimulation of investment activity through interest rate ceilings, directed credit and preferential loans revived growth. This article investigates whether a repressive financial policy, adopted by the authorities in the late 1990s, led to financial deepening and increased the share of savings allocated to investment. |
| Keywords: | financial repression; financial sector; financial depth |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:15974&r=fdg |
| By: | Kala Seetharam Sridhar |
| Abstract: | Simultaneous relationship between telecommunications and the economic growth, using data for developing countries are examined. Using 3SLS, a system of equations that endogenize economic growth and telecom penetration (respectively production function and demand for telecom services), along with supply of telecom investment and growth in telecom penetration are estimated. This system of equations are examined separately for main telephone lines and cell phones. [NIPFP Wp No. 14]. |
| Keywords: | cellular services, output, Infrastructure, Reverse causality, labour, telecommunications, economic growth, developing countries, production function, telephone lines, cell phones, services, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2247&r=fdg |
| By: | Daco, Gregory; Hernandez Martinez, Fernando; Hsu, Li-Wu |
| Abstract: | Over the past year, there has been considerable debate about how the slowing of the United States and other major developed economies affects output growth across the world. The main purpose of this paper is to establish relevant conclusions on how the U.S., Euro Area and Japan gross domestic product growth affect international business cycle fluctuations, with the objective of identifying the main factors that influence spillovers into other countries. Using panel data regression, we conclude that output growth in the U.S. and Euro area are significant in explaining output growth across countries. Depending on the specifications, trade linkages play a significant role while financial linkages with respect to the three regions does not (except in one particular specification). There are signs of potential omitted variable bias in some regression indicating that some relevant variables have not been taken into account. There is also clear evidence of a structural change in the transmission mechanism of shocks after 1985 – since when shocks have become more country-specific. |
| Keywords: | Output Growth; Trade and Financial Linkages; Structural Break; Cross- Section Panel Data. |
| JEL: | F40 C23 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18043&r=fdg |
| By: | Maku, Olukayode E. |
| Abstract: | This study examines the link between government spending and economic growth in Nigeria over the last three decades (1977-2006) using time series data to analyze the Ram (1986) model. Three variants of Ram (1986) model were developed-regressing Real GDP on Private investment, Human capital investment, Government investment and Consumption spending at absolute levels, regressing it as a share of real output and regressing the growth rate real output to the explanatory variable as share of real GDP. Result showed that private and public investments have insignificant effect on economic growth during the review period the review period. An attempt to test for presence of stationary using Augmented Dickey Fuller (ADF) unit root test reveals that all variables incorporated in the model were non-stationary at their levels. In an attempt to establish long-run relationship between public expenditure and economic growth, the result reveals that the variables are cointegrated at 5% and 10% critical level. With the use of error correction model to detect short run behaviour of the variables, the result shows that for any distortion in the short-run, the error term restore the relationship back to its original equilibrium by a unit. A number of suggestions were however made on how government spending should be channel in order to influence economic growth significantly and positively in Nigeria. |
| Keywords: | Government spending; public infrastructure; economic growth; human capital investment; Government investment. |
| JEL: | E2 H5 |
| Date: | 2009–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17941&r=fdg |
| By: | Dalila NICE-CHENAF (GREThA UMR CNRS 5113); Eric ROUGIER (GREThA UMR CNRS 5113) |
| Abstract: | In this paper, we argue that the inadequacy of their underlying formal model can explain the failure of the existing empirical studies to exhibit a robust and convergent estimation of the effect of FDI on growth. We build a structural model of growth with endogenous attraction to FDI, and we estimate it on panel data for a sample of Middle East and North Africa countries (MENA). Direct effects of FDI on growth are not significant, and we show that FDI is not only responsive to growth, but it is also likely to promote increases of GDP through indirect channels as it spurs the formation of human capital and exports. |
| Keywords: | FDI, growth, attraction, MENA, simultaneous equations |
| JEL: | F21 F43 O11 O15 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2009-13&r=fdg |
| By: | Wendner, Ronald |
| Abstract: | This paper investigates the impact of the desire to keep up with the Joneses (KUJ) on economic growth and optimal tax policy in a continuous time overlapping generations model with AK technology and gradual retirement. Due to the desire to KUJ, the propensity to consume out of total wealth rises (declines), and the balanced growth rate declines (increases) when the households' individual total (accumulated \emph{and} human) wealths are increasing (decreasing) with age. The rate of retirement determines whether or not a household's total wealth is increasing with age. If total wealth is increasing/decreasing with age, an optimal allocation is decentralized by a lump sum tax system that is progressive/regressive in age. The desire to KUJ strengthens the intergenerational regressivity (progressivity) of the optimal tax system. |
| Keywords: | Keeping up with the Joneses; AK growth; overlapping generations; gradual retirement; optimal taxation |
| JEL: | D91 O40 E21 |
| Date: | 2009–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18001&r=fdg |
| By: | William T. Gavin; Benjamin D. Keen; Michael R. Pakko |
| Abstract: | This paper examines the impact of a permanent shock to the productivity growth rate in a New Keynesian model when the central bank does not immediately adjust its policy rule to that shock. Our results show that inflation and productivity growth are negatively correlated at business cycle frequencies when the central bank follows a Taylor-type policy rule that targets the output gap. We then demonstrate that inflation is more stable after a permanent productivity shock when monetary policy targets the output growth rate (not the output gap) or the price-level path (not the inflation rate). As for the welfare implications, both the output growth and price-level path rules generate much less volatility in output and inflation after a productivity shock than occurs with the Taylor rule. |
| Keywords: | Taylor's rule ; Productivity ; Inflation (Finance) |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-049&r=fdg |
| By: | Oliver Falck (Ifo Institute for Economic Research); Michael Fritsch (University of Jena); Stephan Heblich (Max Planck Institute of Economics, Entrepreneurship, Growth, and Public Policy) |
| Abstract: | An emerging literature on the geography of bohemians argues that a region’s lifestyle and cultural amenities explain, at least partly, the unequal distribution of highly qualified people across space, which in turn, explains geographic disparities in economic growth. However, to date, there has been little or no empirical attempt to identify a causal relation. To identify the causal impact of bohemians on economic growth, we apply an instrumental variable approach using as an exogenous instrument the geographic distribution of bohemians prior to the Industrial Revolution in Germany. This distribution was primary the result of competition for prestige between courts and not of economic prosperity. Accordingly, the instrument is independent of today’s regional economic development. Focusing on the concentration of highly skilled people today that is explained by the proximity to exogenous concentrations of bohemians, the observed local average treatment effect supports the hypothesis of a positive impact of bohemians on regional economic development. |
| Keywords: | Regional Growth, Human Capital, Bohemians, Instrumental Variables |
| JEL: | R11 J24 C31 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-12&r=fdg |
| By: | Germana Bottone (ISAE - Institute for Studies and Economic Analyses) |
| Abstract: | The notions of human capital and growth have been debated for a long time in economic literature. The limits of these concepts are generally recognised. In fact, recently, there has been an attempt to articulate a more extensive definition of “human capital” by considering all the attributes embodied in individuals that are relevant to economic activity. On the other hand, the GDP growth rate has been included into the Human Development Index, taking into account different aspects of development such as life expectation, literacy and health. Nevertheless, the evolution of the definitions of human capital and growth is in some way restricted to their economic meaning, neglecting the intrinsic complexity of concepts demanding an in-depth re-examination of their social, cultural, and historical value. Using an interdisciplinary approach, this paper focuses on the conceptual meaning of progress. Progress was considered as the economic, social, and cultural evolution of a country. The idea of evolution has ancient roots and is subjective. In economic and social terms, evolution may be deemed as the path human beings follow towards freedom. Since the earliest times, humanity has been fighting against poverty, scarcity of resources, disease, abuse of power by a group, environmental disaster. In order to give a more complex definition of progress entailing the idea that freedom is its driving force, we used the main concepts of institutional and evolutionary economics. Highlighting the contributions of the best Old Institutionalists (Veblen, Commons, Dewey, and Ayres), we introduced two alternative notions: “knowledge” in place of human capital and “progress” instead of economic growth. Local knowledge is the most important factor of development, while, on the other hand, the model of ongoing institutional change is the “alarm bell” for progress or stagnation. In this way, institutional change towards freedom and the providing of incentives for progressive forces become a proxy for the level of cultural, social, and economic progress reached by a society. Progressive forces may grow in societies where there are no barriers to the free exchange of opinions and knowledge and where education and training systems are conceived to create autonomous people. The enemy of progressive forces are “ceremonial institutions”, that is institutions opposing any kind of renewal. Using the available data, we showed that the GDP growth rate is not necessarily a factor of human life satisfaction and it does not necessarily improve the quality of life. We compared some European Countries to demonstrate that there is no clear-cut link between material wealth and the quality of life. Instead, at a given level of material wealth, the freedom of choice and the governance indicators seem much more correlated to life satisfaction. Finally, utilizing the Veblen’s notion of “recursive causality”, we highlighted that it is possible for policy makers to foster a given institutional context rather than an alternative one. Therefore, it is possible that the culture of “GDP growth” has influenced institutions and has created a number of problems (pollution, social distrust, social immobility, life dissatisfaction, corruption, and rent-seeking) which emerged in the recent financial and economic crisis. |
| Keywords: | human capital, growth, institutional economics. |
| JEL: | J24 J31 O3 B52 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:isa:wpaper:117&r=fdg |
| By: | Martin, Christopher; Milas, C |
| Abstract: | We present empirical evidence that the marked rise in liquidity in 2001-2007 was due to large and persistent current account deficits and loose monetary policy. If this increase in liquidity was a pre-condition for the financial crisis that began in July 2007, we can conclude that loose monetary and the deterioration in current account balances were causes of the financial crisis. |
| Keywords: | financial crisis; liquidity; monetary policy; global imbalances |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:15961&r=fdg |
| By: | Kingsley I. Obiora |
| Abstract: | Should policymakers still be concerned about economic growth in trading partners? Have developing and emerging market countries decoupled from the US enough to grow despite significant recession in the US? Using VAR models, this paper addresses these questions for Nigeria in the context of the global crisis. The results seem to debunk the "decoupling theory" and suggest there are still significant spillovers from Nigeria's main trading partners, including the US, with trade and commodity price linkages being the dominant transmission channels. Given the sharp fall in both trade financing and commodity prices in aftermath of the crisis, these results provide some explanation to the realization of adverse second-round effects in Nigeria. |
| Keywords: | Brazil , Cross country analysis , Direction of trade , Economic growth , Economic models , European Union , Financial crisis , Global competitiveness , International trade , Nigeria , Spillovers , Trade policy , United States , |
| Date: | 2009–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/218&r=fdg |
| By: | Boileau Loko; Mame Astou Diouf |
| Abstract: | This paper studies the main determinants of total factor productivity (TFP) growth using principal component analysis and a dynamic panel data model and, through a case study, explores key areas where accelerated reforms in the Maghreb countries would boost TFP gains. The results reveal that reforms targeted at attracting foreign direct investment and rationalizing government size, shifting resources from low-productivity sectors to higher ones, and encouraging women to enter the work force, could accelerate TFP gains. Equally important are reforms aimed at strengthening human capital, increasing the volume of trade, and improving the business environment. |
| Date: | 2009–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/225&r=fdg |
| By: | Simon Johnson; William Larson; Chris Papageorgiou; Arvind Subramanian |
| Abstract: | This paper sheds light on two problems in the Penn World Table (PWT) GDP estimates. First, we show that these estimates vary substantially across different versions of the PWT despite being derived from very similar underlying data and using almost identical methodologies; that this variability is systematic; and that it is intrinsic to the methodology deployed by the PWT to estimate growth rates. Moreover, this variability matters for the cross-country growth literature. While growth studies that use low frequency data remain robust to data revisions, studies that use annual data are less robust. Second, the PWT methodology leads to GDP estimates that are not valued at purchasing power parity (PPP) prices. This is surprising because the raison d'être of the PWT is to adjust national estimates of GDP by valuing output at common international (purchasing power parity [PPP]) prices so that the resulting PPP-adjusted estimates of GDP are comparable across countries. We propose an approach to address these two problems of variability and valuation. |
| JEL: | O11 O40 O47 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15455&r=fdg |