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on Financial Development and Growth |
| By: | Chu, Angus C.; Furukawa, Yuichi |
| Abstract: | In this note, we explore the different implications of patent breadth and R&D subsidies on economic growth and endogenous market structure in a Schumpeterian growth model. We find that these two policy instruments have the same positive effect on economic growth when the model exhibits counterfactual scale effects under an exogenous number of firms. However, when the model becomes scale-invariant under an endogenous number of firms, R&D subsidies increase economic growth but decrease the number of firms, whereas patent breadth expands the number of firms but reduces economic growth. Therefore, R&D subsidy is perhaps a more suitable policy instrument than patent breadth for the purpose of stimulating economic growth. |
| Keywords: | economic growth; endogenous market structure; patents; R&D subsidies |
| JEL: | O30 O40 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41083&r=fdg |
| By: | Anja Baum (University of Cambridge, Faculty of Economics, Austin Robinson Building, Sidgwick Avenue Cambridge, CB3 9DD, UK); Cristina Checherita-Westphal (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany); Philipp Rother (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany) |
| Abstract: | Against the background of the euro area sovereign debt crisis, our paper investigates the relationship between public debt and economic growth and adds to the existing literature in the following ways. First, we extend the threshold panel methodology by Hansen (1999) to a dynamic setting in order to analyse the nonlinear impact of public debt on GDP growth. Second, we focus on 12 euro area countries for the period 1990-2010, therefore adding to the current discussion on debt sustainability in the euro area. Our empirical results suggest that the shortrun impact of debt on GDP growth is positive and highly statistically significant, but decreases to around zero and loses significance beyond public debt-to-GDP ratios of around 67%. This result is robust throughout most of our specifications, in the dynamic and non-dynamic threshold models alike. For high debt-to-GDP ratios (above 95%), additional debt has a negative impact on economic activity. Furthermore, we can show that the long-term interest rate is subject to increased pressure when the public debt-to-GDP ratio is above 70%, broadly supporting the above findings. JEL Classification: H63, O40, E62, C20 |
| Keywords: | Public debt, economic growth, scal policy, threshold analysis |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121450&r=fdg |
| By: | Erzo G.J. Luttmer |
| Abstract: | This paper adds imitation by incumbent firms, and not just by new entrants, to the model of selection and growth developed in Luttmer [2007]. Noisy firm-level innovation and imitation give rise to a long-run growth rate that exceeds the average rate at which individual firms innovate. It can be shown, in simple examples, that the economy converges to a long-run balanced growth path from compactly supported initial productivity distributions. The right tail of the stationary distribution of de-trended productivity is approximately Pareto. The tail index of this distribution depends on the rate at which incumbents are able to imitate only indirectly, through general equilibrium effects of this parameter on the equilibrium growth rate. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:699&r=fdg |
| By: | Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan |
| Abstract: | The Great East Japan Earthquake on 11 March 2011 was the biggest earthquake recorded in Japanese seismic history, and the fourth largest recorded in the world. The scope of the disaster far exceeded that of the Hanshin Earthquake of 1995. The repercussions of this disaster spread far beyond the geographical areas directly affected. For example, Electric power supply capacity in the Kanto area, which accounts for about 40% of Japanese gross domestic product (GDP), fell at one stage by about 40% from the normal peak—a severe constraint on economic activity, and the supply of nuclear-generated electric power has largely been cut off since then. Production supply chains were significantly disrupted, not only in Japan, but all over Asia. The disaster also highlighted Japan’s many other structural challenges besides reconstruction needs, including persistently low growth, population aging and low fertility, burgeoning government debt, declining international competitiveness, and uncertain energy supplies. Moreover, the global financial crisis and the ongoing euro area financial crisis suggest that Japan needs to create its own growth momentum without relying excessively on markets in the United States (US) and Europe. This paper discusses the scope of these challenges and sets out a long-term strategy for overcoming them and putting the Japanese economy on a stable growth path. Domestically, key areas that need to be focused on are supply-side reforms, including support for R&D in high-technology, knowledge-intensive, green growth areas; deregulation to promote growth in service sectors and agriculture; corporate tax reduction; and increased energy security; as well as fiscal and social security reforms to put the public debt to GDP ratio on a sustainable basis. Externally, Japan needs to link its economy firmly with the strong growth track of emerging Asia and its rapidly growing middle class. It needs to promote greater economic links with the rest of Asia, including moves toward an East Asian FTA and support for the TPP that could eventually develop into a trans-Pacific FTAAP. |
| Keywords: | Japan, growth strategy, The Great East Japan Earthquake, the Japanese economy |
| JEL: | E58 E62 F13 H2 H53 J13 L4 O25 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23327&r=fdg |
| By: | Giulio Nicoletti (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany and Bank of Italy); Raffaele Passaro (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany) |
| Abstract: | We investigate the predictive content of credit and government interest spreads with respect to the Italian GDP growth. Our analysis with Dynamic Model Averaging identifies when interest spreads were more useful predictors of economic activity: these periods are not limited to the Great Recession. For credit spreads we gather information from both bank loans and corporate bonds and we compare their predictive role over time and over different forecasting horizons. JEL Classification: C52, E37 |
| Keywords: | GDP forecasting, Bayesian Econometrics, Model Averaging |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121447&r=fdg |
| By: | Ravi Bansal; Ivan Shaliastovich |
| Abstract: | We show that bond risk-premia rise with uncertainty about expected inflation and fall with uncertainty about expected growth; the magnitude of return predictability using these two uncertainty measures is similar to that by multiple yields. Motivated by this evidence, we develop and estimate a long-run risks model with time-varying volatilities of expected growth and inflation. The model simultaneously accounts for bond return predictability and violations of uncovered interest parity in currency markets. We find that preference for early resolution of uncertainty, time-varying volatilities, and non-neutral effects of inflation on growth are important to account for these aspects of asset markets. |
| JEL: | E0 F0 F3 F31 G0 G1 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18357&r=fdg |
| By: | William F. Bassett; Seung Jung Lee; Thomas W. Spiller |
| Abstract: | The disappointingly slow recovery in the U.S. from the recent recession and financial crisis has once again focused attention on the relationship between financial frictions and economic growth. With bank loans having only recently started growing and still sluggish, some bankers and borrowers have suggested that unnecessarily tight supervisory policies have been a constraint on new lending that is hindering recovery. This paper explores one specific aspect of supervisory policy: whether the standards used to assign commercial bank CAMELS ratings have changed materially over time (1991-2011). We show that models incorporating time-varying parameters or economy-wide variables suggest that standards used in the assignment of CAMELS ratings in recent years generally have been in line with historical experience. Indeed, each of the models used in this analysis suggests that the variation in those standards has been relatively small in absolute terms over most of the sample period. However, we show that when this particular aspect of supervisory stringency becomes elevated, it has a noticeable dampening effect on lending activity in subsequent quarters. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2012-55&r=fdg |
| By: | Chakraborty, Suparna; Otsu, Keisuke |
| Abstract: | What are the economic mechanisms that account for sudden growth spurts? Are these mechanisms similar across episodes? Focusing on the economic resurgence of the BRICs over the last decade, we employ the Business Cycle Ac- counting methodology developed by Chari, Kehoe and McGrattan (2007) to address these questions. Our results highlight that while efficiency wedges do contribute in a large part to growth, especially in Brazil and Russia, there is an increasing importance of investment wedge especially in the late 2000s, noted in China and India. The results are typically related to the stages of development with Brazil and Russia coming off a crisis to grow in the 2000s, while India and China were already on a stable growth path. Our conclusions are robust to alternative methodological extensions where we allow shocks to the trend component of efficiency as opposed to traditional shocks to the cyclical component, as well as to standard modifications where we allow for investment adjustment costs. Relating improvements in wedges to institutional and financial reforms, we find that financial development and improvements in effective governance in BRICs are consistent with improvements in investment and efficiency wedges that led to growth |
| Keywords: | business cycle accounting; efficiency; market frictions; trend shocks; investment adjustment costs |
| JEL: | E32 O57 O4 |
| Date: | 2012–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41076&r=fdg |
| By: | Davide Furceri; Ernesto Crivelli; Joël Toujas-Bernate |
| Abstract: | The aim of this paper is to provide new estimates of employment-output elasticities and assess the effect of structural and macroeocnomic policies on the employment-intensity of growth. Using an unbalanced panel of 167 countries over the period 1991 - 2009, the results suggest that structural policies aimed at increasing labor and product market flexibility and reducing government size have a significant and positive impact on employment elasticities. In addition, the results also suggest that in order to maximize the positive impact on the responsiveness of employment to economic activity, structural policies have to be complemented with macroeconomic policies aimed at increasing macroeconomic stability. |
| Date: | 2012–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/218&r=fdg |
| By: | Fonseka, Daminda; Pinto, Brian; Prasad, Mona; Rowe, Francis |
| Abstract: | Following the cessation of hostilities in May 2009, the Government of Sri Lanka has announced a suitably ambitious macroeconomic vision to capitalize on the peace dividend. Its goals include growing at 8 percent or more per year and lowering government indebtedness from around 80 to 60 percent of GDP by 2015. This paper's main finding is that while some post-conflict bounce is only to be expected, sustaining high growth presents significant challenges. A substantial rise in the national investment and savings rates will be needed to sustain growth rates of 8 percent even when accompanied by a significant rise in total factor productivity growth. With the government's balance sheet constrained by its desire to lower public indebtedness, private investment will need to become the engine of growth. This places high priority on better infrastructure, clear signals about the relative roles of the public and private sectors, and hard budget constraints and competition both to strengthen the investment climate and spur technological upgrading in pursuit of faster productivity growth. |
| Keywords: | Debt Markets,Economic Theory&Research,Emerging Markets,Access to Finance,Banks&Banking Reform |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6192&r=fdg |