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on Financial Development and Growth |
| By: | Jerzmanowski, Michal |
| Abstract: | In this paper we study long run economic growth as a sequence of accelerations, slowdowns and crises, and estimate the role of institutions and macroeconomic policies in determining this sequence. We analyze the joint effect of policies and institutions on the frequency of the four growth regimes: stable growth, stagnation, crisis and miracle-like fast growth. The results confirm the importance of institutions for growth but also show that macro-policies; inflation, trade openness, size of government and real exchange rate overvaluation matter for the growth process, even after controlling for institutional quality. Importantly, some policies affect regimes differentially; for example, trade makes episodes of fast growth more likely but also increases the frequency of crises. Finally, the effects of policies are nonlinear and dependent on the quality of institutions. For example, government spending reduces growth in countries with good institutions but can increase it when institutions are weak. |
| Keywords: | economic growth; growth accelerations; macroeconomic policies; institutions |
| JEL: | O23 O11 O43 O24 |
| Date: | 2011–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29666&r=fdg |
| By: | Misch, Florian; Gemmell, Norman; Kneller, Richard |
| Abstract: | This paper considers the implications of complementarity in private production and constraints on government for optimal fiscal policy. Using an endogenous growth model with public finance, it derives three central results which modify findings in the literature under standard assumptions. First, it shows that optimal public spending composition and taxation are interrelated so that first- and second-best fiscal policies differ. Second, it shows that the growth-maximizing fiscal policy is affected by preference parameters. Third, it shows that with budget rigidities and informational limitations, knowledge about the optimal fiscal policy parameter values is not necessary for growth-enhancing fiscal policy adjustments. -- |
| Keywords: | Imperfect Knowledge,Economic Growth,Productive Public Spending,Optimal Fiscal Policy |
| JEL: | E62 H21 H50 O40 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11018&r=fdg |
| By: | Shanthini, Rajaratnam |
| Abstract: | The existence and direction of Granger causality between electricity consumption and economic growth, proxied by gross domestic product (GDP), has been investigated in this study using annual data covering the period 1971 to 2007. The results of the augmented Dickey-Fuller, GLS-detrended Dickey-Fuller and Phillips-Perron tests show that the natural logarithms of both the times series are individually I(1). The autoregressive distributed lag bounds testing approach to cointegration used in this study reveals that the two times series are cointegrated. The estimated long-run equilibrium relationship shows that 1% growth in GDP induces 1.45% growth in electricity consumption, and any deviation from the long-run equilibrium following a short-run disturbance is corrected within 17 months. Granger causality test results reveal uni-directional causality running from economic growth to electricity consumption without any feedback effect. The outcome of such results is beneficial to Sri Lanka’s economic growth since it is not dependent on electricity consumption, and thereby production. It is therefore possible to initiate energy policies towards minimizing wasteful electricity production and consumption practices, without compromising Sri Lanka’s GDP growth, to take her on an electricity-wise sustainable economic development path. |
| Keywords: | ARDL; cointegration; Granger causality; gross domestic product; sustainable electricity consumption; Sri Lanka |
| JEL: | C5 |
| Date: | 2010–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29582&r=fdg |
| By: | Muhammad, Javid; Qayyum, Abdul |
| Abstract: | Despite receiving the large quantities of foreign aid, like many other Developing Countries, Pakistan has remained stagnant and become more aid dependent. This grim reality provokes vigorous debate on the effectiveness of aid. This study examines the effectiveness of aid, focusing on the ongoing debate on the interactive effect of aid and policy on sustainable economic growth. The empirical analysis is based on the ARDL cointegration approach using the data for the period 1960 to 2008. Based on the empirical results we find that foreign aid and real GDP has negative relationship while aid-policy interactive term and real GDP growth has positive and significant relationship. The interesting results emerge; when Aid/GDP alone is introduced into the growth equation it has insignificant positive coefficient in the long run and negative and weakly significant coefficient in the short run while aid policy interactive term has positive and significant coefficient both in the short run and long run. When we disaggregate aid in term bilateral and multilateral component, bilateral aid is significantly positive in the short run and multilateral aid is insignificant while aid interactive term is positive in both cases. The results strongly support the view that foreign aid does have positive impact on economic growth in Pakistan conditional on sound macroeconomic policies. |
| Keywords: | Foreign Aid; Macroeconomic Policies; Economic Growth; Pakistan; ARDL |
| JEL: | F35 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29498&r=fdg |
| By: | Ghosh, Swati; Sugawara, Naotaka; Zalduendo, Juan |
| Abstract: | This paper examines the growth patterns of emerging Europe and the Commonwealth of Independent States (CIS) countries prior to the global financial crisis. The aim is to draw lessons on what policies can best position these countries going forward to enjoy growth without a buildup in macro and financial vulnerability. Cluster analysis is used to classify these countries across the growth and vulnerability dimensions; namely, a classification into low or high growth outcomes, each of which may occur with low or high vulnerability features. The vulnerability indicators used are multifaceted, covering both the domestic and the external dimensions that have been identified in previous studies as being good indicators of likelihood of crisis -- itself understood as multidimensional. Based on multinomial logit regressions, the initial conditions and the economic policies that might affect the probabilities of being in each of the four possible cluster combinations are examined. Many (if not most) of the countries in the sample experienced very large capital inflows relative to their gross domestic product prior to the crisis, which can complicate macroeconomic management and lead to a buildup of vulnerability. These large inflows were partly due to the high liquidity in global markets and, at least for some countries in the country sample, the particular attractiveness of"new Europe and emerging countries in the region"in the eyes of foreign investors. Nonetheless, the analysis finds strong evidence that the macroeconomic and structural policies that over time influence the structure of the economy, can play a significant role in explaining (and, going forward, in influencing) the different growth and vulnerability patternsexperienced by the countries covered in this paper. |
| Keywords: | Currencies and Exchange Rates,Debt Markets,Economic Theory&Research,Achieving Shared Growth,Economic Conditions and Volatility |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5592&r=fdg |
| By: | Romain Houssa; Oleg Badunenko; Daniel J. Henderson (Center for Research in the Economics of Development, University of Namur) |
| Abstract: | This paper employs a production frontier approach that allows distinguishing technologic progress from efficiency development. Data on 35 African countries in 1970-2007 show that efficiency losses have constrained growth in Africa while technology progress has played a marginal growth enhancing role in the region. Moreover, physical and human capital accumulation are the main factors that drive productivity growth at the country level. Examining the outcomes of successful countries suggests that good governance, institutional quality and good policies are key factors for improving economic development in Africa. These factors are even more required in Sub-Saharan Africa given the natural constraints of geography in the region. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:nam:wpaper:1013&r=fdg |
| By: | Raouf Boucekkine (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Giorgio Fabbri (Dipartimento Matematica e statistica - Université de Naples); Patrick-Antoine Pintus (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579) |
| Abstract: | We show that leapfrogging and growth reversals entail sizeable welfare gains and losses, respectively, in an AK economy that cannot credibly commit to investment when borrowing from international financial markets. Small no-commitment delays originate a trade-off that has an ambiguous effect on welfare: they reduce the long-run consumption growth rate but increase the initial level of consumption that is optimally chosen. Essentially, the larger the delay, the tighter the borrowing constraint and the weaker the incentives to accumulate capital, so that smaller growth and larger initial consumption follow. We show under logarithmic utility and small delays that the short-run effect dominates the long-run effect and that welfare improves, provided that the economy has historically been growing fast enough, and numerical examples suggest that this benchmark result extends to CRRA utility. When relative risk aversion is larger than one, it follows that there exists a positive welfare-maximizing delay associated with slower growth relative to the no-delay case. We then apply our results to show that leapfrogging in consumption level typically imply large welfare gains. In contrast, growth reversals occur for large delays and lead to significant welfare losses. Finally, financial integration, as measured by the credit multiplier given the no-commitment delay, is welfare-improving only for economies that have historically been growing fast enough. |
| Keywords: | Growth Reversals; Leapfrogging; International Borrowing; Open Economies; Welfare |
| Date: | 2011–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00576743&r=fdg |
| By: | Vahagn Jerbashian |
| Abstract: | This paper presents an endogenous growth model where, in line with the recent em- pirical evidence, the telecommunications industry (telecom) is an engine of growth. In such a framework, this paper analyzes the channels through which telecom con- tributes to economic growth and focuses on market structure analysis for telecom, in the light of the recent changes in it. This paper suggests how the market struc- ture of telecom and the competition type in the telecom market can matter for its contribution to economic growth. It also proposes the optimal market structure for telecom from the social welfare perspective. In addition, it suggests the direction of telecom policies which can improve social welfare, and uses its theoretical results for qualitative evaluation of the Telecommunications Act of 1996 and similar policies. |
| Keywords: | telecommunication industry; market structure; economic growth; policy evaluation |
| JEL: | O41 O25 O38 L10 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp431&r=fdg |
| By: | Schoder, Christian |
| Abstract: | Following Lavoie et al. (2004), this paper empirically assesses four investment functions closing the Kaleckian baseline model in the long-run: (a) the Naive-Kaleckian specification without any long-run adjustment; (b) the Intermediate-Kaleckian specification with an endogenous adjustment of the normal utilization rate; (c) the Hysteresis-Kaleckian specification with an additional endogenous adjustment of autonomous investment; and (d) the French-Marxian specification with an exogenous normal utilization rate and endogenous autonomous investment. Confronting these specifications with data of the US manufacturing sector, we compare them with respect to the plausibility of the parameter estimates, the goodness of fit, the parameter stability, the out-of-sample performances and relative encompassing. We find the Intermediate-Kaleckian specification to be superior. For the Hysteresis-Kaleckian specification, we get implausible results which contradict Lavoie et al. (2004). Yet, their estimates seem to be biased due to endogeneity issues. |
| Keywords: | Kaleckian growth model; Marxian growth model; investment functions; post-Keynesian economics |
| JEL: | E12 E22 E11 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29584&r=fdg |
| By: | Weinhold, Diana; Killick, Evan; Reis, Eustaquio Jose |
| Abstract: | The recent growth of soybean cultivation in the Brazilian Amazon has been unprecedented, even as the debate continues over its economic and environmental consequences. Based on contemporary datasets as well as our own field studies, this paper examines the social and economic costs and benefits of increases in soybean production for local populations. After presenting some background information on the rise of soybean cultivation in Brazil we examine the relationship between increases in soybean production and local economic indicators. We find that increased soy production raises median rural incomes and may reduce poverty. However, we also note that this increase is associated with increased measures of inequality, and we consider the wider political and social consequences of this connection in our qualitative fieldwork. The mixed-method approach helps shed light not only economic effects of soy cultivation but also on the more complex social and political context that is, arguably, even more policy-relevant. |
| Keywords: | soybeans; land use; brazil; poverty; inequality; |
| JEL: | Q56 O13 R11 |
| Date: | 2011–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29647&r=fdg |
| By: | Enrico Perotti (University of Amsterdam, Duisenberg school of finance, and CEPR); Javier Suarez (CEMFI, and CEPR) |
| Abstract: | This paper discusses liquidity regulation when short-term funding enables credit growth but generates negative systemic risk externalities. It focuses on the relative |
| Keywords: | Systemic risk; Liquidity risk; Liquidity requirements; Liquidity risk levies; Macroprudential regulation |
| JEL: | G21 G28 |
| Date: | 2011–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20110040&r=fdg |
| By: | Marotta, Daniela; Yemtsov, Ruslan; El-Laithy, Heba; Abou-Ali, Hala; Al-Shawarby, Sherine |
| Abstract: | This paper presents a detailed picture of how sustained growth in Egypt over 2005-2008 affected different groups both above and below the poverty line. This analysis, based on the Household Income, Expenditure and Consumption Panel Survey conducted by Egypt’s national statistical agency, compares the changes in the static poverty profiles (based on growth incidence curves on a cross-section of data) with poverty dynamics (relying on panel data, growth incidence curves and transition matrices). The two approaches yield contrasting results: the longitudinal analysis reveals that growth benefited the poor while the cross-sectional analysis shows that the rich benefitted even more. The paper also shows the importance of going beyond averages to look at the trajectories of individual households. Panel data analysis shows that the welfare of the average poor household increased by almost 10 percent per year between 2005 and 2008, enough to move out of poverty. Conversely however, many initially non-poor households were exposed to poverty. As a matter of fact, only 45 percent of the population in Egypt remained consistently out of (near-) poverty throughout the period, while the remaining 55 percent of Egyptians experienced at least one (near-) poverty episode. This high mobility is not a statistical artefact: it reflects the actual process of growth. Taking high vulnerability into account is essential when designing policies to protect the poor and to ensure that growth is really inclusive. |
| Keywords: | Rural Poverty Reduction,Achieving Shared Growth,Regional Economic Development,Inequality |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5589&r=fdg |
| By: | Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Anton Mihailov; Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Gábor Hunya (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Zdenek Lukas (The Vienna Institute for International Economic Studies, wiiw); Josef Pöschl (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Waltraut Urban (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Sándor Richter (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | The outlook for the world economy has improved in the course of 2010 and the recovery has gained strength in the EU as well. The Central, East and Southeast European countries (CESEE) have also recovered from the crisis; the majority of them recorded positive GDP growth. On average, the recent revival of exports has been even stronger than their growth before the crisis. By way of contrast, the trends in industrial output have so far remained more or less flat. The persistent decline in construction and fixed investments – both related to the still hesitant credit markets – represents one of the key downward internal risks to our moderately optimistic regional economic forecast. The general outlook for the CESEE region in the baseline scenario reckons with a gradual strengthening of economic growth over the period 2011-2013, in most cases rarely exceeding 4% per annum. GDP growth will become more broadly based. The formerly predominant role of external demand will weaken somewhat, while both household consumption and gross fixed investments will ultimately contribute positively to GDP growth. With exports, industrial output levels and eventually also GDP growth having already recovered, the economy is seen as having largely returned ‘back to normal’ – yet with at least two important differences: (1) post-crisis growth will be slower. That slower growth, however, also implies that (2) the labour market situation will be ‘very far from normal’ as unemployment will remain high, with young and low-skilled workers being especially adversely affected, and any improvement only gradual and delayed. Inflation rose throughout 2010 as food and commodity prices soared; in general, however, it will pose no (or little immediate) threat. The moderate economic upturn and a revival of capital inflows have resulted in renewed appreciation pressures. The forecasts point to a gradual deterioration of current account positions in all CESEE countries, yet the return (or persistence) of extreme imbal-ances are only expected for Montenegro, Albania and Serbia. The financing constraint with respect to both domestic and external loans will constitute one of the key brakes on future economic growth. Given the sorry state of public finances and the ensuing budget consolidation efforts, we cannot expect any new additional growth-stimulating measures from the public sector – on the contrary, owing to the limited fiscal space government deficits and public debts will be scaled back. The sharp drop in GDP in most CESEE countries during the crisis resulted in both absolute and relative declines in their per capita GDP. The catching-up process of the previous decade was thus interrupted and income gaps vis-à-vis Western Europe widened. In the baseline GDP growth sce-nario wiiw reckons with a renewed catching-up process starting as early as 2011 (after losing 5 to 7 years in terms of income convergence). |
| Keywords: | Central and East European new EU member states, Southeast Europe, future EU member states, Balkans, former Soviet Union, Turkey, economic forecasts, employment, foreign trade, competitiveness, exchange rates, inflation, monetary policy |
| JEL: | G18 O52 O57 P24 P27 P33 P52 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:wii:fpaper:fc:7&r=fdg |
| By: | Aradhna Aggarwal (Research Institute for Economics and Business Administration, Kobe University and the Department of Business Economics, University of Delhi, New Delhi 110021 INDIA); Takahiro Sato (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | This paper examines the effects of firms‟ dynamics on industry level productivity growth in India during the period 2000-01 to 2005-06 using plant level panel data of 22 manufacturing industries. The empirical analysis is based on decomposition techniques of aggregate productivity growth. The analysis is confined to large sector plants. Results suggest that the contribution of entry of new plants to aggregate productivity growth is positive in most industries. While newly established plants have rather small entry effect, small plants that grow and enter the large size class have substantial effects on industry level productivity growth. In low tech matured industries entry effects are supported by the productivity growth of the continuing firms. In medium tech industries entry effects are modest; productivity growth of the continuing firms is supported by reallocation effects. In high tech industries all the three effects seem to reinforce productivity growth. |
| JEL: | O14 O33 O53 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2011-07&r=fdg |
| By: | Foster, Vivien; Pushak, Nataliya |
| Abstract: | Infrastructure contributed 1.8 percentage points to Cote d'Ivoire's annual per capita GDP growth over the mid-2000s before conflict began to erase the country's infrastructure and its growth contributions. Raising the country's infrastructure endowment to the level of the region's middle-income countries could boost the growth rate by a further 2 percentage points. Private sector contracts signed in the 1990s resulted in improved operational performance and funding for investments in the water, power, transport, and ICT sectors. Impressively, those contracts survived the crisis and delivered uninterrupted service. But private investment flows have decreased since the mid-2000s. Cote d'Ivoire's most pressing infrastructural challenge will be to regain the financial equilibrium needed to restore a reliable energy supply. Reestablishing the prominence of Abidjan's port will require investments in terminal capacity and road and rail infrastructure upgrades on hinterland linkages. The underfunding of road maintenance and poor sanitation are additional challenges. Cote d'Ivoire's annual infrastructure spending was $750 million in the mid-2000s, with going to power sector operations and maintenance. If the underpricing of power and other inefficiencies (valued at $200 million annually) were eliminated, the country’s annual infrastructure funding gap would amount to $1 billion, and infrastructure goals could be reached within 20 years. Cote d'Ivoire's has relatively good prospects for bridging its funding gap by raising public investment from its low current level, choosing more efficient technologies, and harnessing additional private investment for infrastructure. |
| Keywords: | Transport Economics Policy&Planning,Infrastructure Economics,Public Sector Economics,Energy Production and Transportation,Banks&Banking Reform |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5594&r=fdg |
| By: | Romain Houssa (Center for Research in the Economics of Development, University of Namur) |
| Abstract: | This paper proposes Bayesian estimates for welfare e¤ects of consumption fluctuations and growth. Annual data from 82 developed and developing countries indicate a large degree of uncertainty as regards point estimates. Moreover, the comparison between the welfare gain from consumption stabilization and the welfare gain from growth yields inconclusive results for many developed and developing countries. These ?ndings suggest the need for caution in drawing policy conclusions from point estimates. |
| Keywords: | Business Cycles, Growth Welfare |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nam:wpaper:1101&r=fdg |
| By: | Gonenc, Rauf; Rawdanowicz, Lukasz |
| Abstract: | In the 2000s, Turkey has enjoyed rapid catching–up. This was possible despite the adverse business environment, as the semi–formal and informal economy had a significant contribution to the expansion of the private sector. Productivity growth was strong, but labour utilisation remained very low. Looking forward, higher employment and productivity growth will not be possible without profound regulatory reforms of minimum wages, severance payments, social security contributions and flexible job contracts. These reforms have been discussed for a long time, but political obstacles prevented implementing them. Resolving this deadlock calls for advancing an integrated strategy of labour reforms and formalisation via experimenting with new regulation on the voluntary basis to identify the most successful solutions that can be later rolled out to the whole economy. Moreover, Turkey has to ease further anti–competitive product market regulations by reducing barriers to entrepreneurship and foreign direct investment, and by limiting government involvement in business. A successful implementation of these reforms would allow Turkey to enjoy golden decades. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:reg:wpaper:650&r=fdg |