|
on Financial Development and Growth |
| By: | Nasir Iqbal (Pakistan Institute of Development Economics, Islamabad); Musleh ud Din (Pakistan Institute of Development Economics, Islamabad); Ejaz Ghani (Pakistan Institute of Development Economics, Islamabad) |
| Abstract: | This study attempts to analyse the impact of fiscal decentralisation on economic growth. It also examines the complementarity between fiscal decentralisation and democratic institutions in promoting growth. The modelling framework is the endogenous growth model augmented with the measures of fiscal decentralisation and democratic institutions. To capture the multidimensionality, three different measures of fiscal decentralisation are used. The overall analysis shows that revenue decentralisation promotes economic growth while expenditure decentralisation retards economic growth. Composite decentralisation positively influences economic growth implying that simultaneous decentralisation reinforces each other to promote economic growth. Analysis also shows that democratic institutions play a significant role in realising the benefits of fiscal decentralisation. Various policy implications emerge from this study. |
| Keywords: | Fiscal Decentralisation, Democracy, Economic Growth, Pakistan |
| JEL: | C26 E02 H11 H72 O11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2013:89&r=fdg |
| By: | Ekrame BOUBTANE (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Dramane COULIBALY (Economix CNRS - Université Paris Ouest); C. Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans) |
| Abstract: | This paper examines empirically the interaction between immigration and host country economic conditions. We employ a panel VAR techniques to use a large annual dataset on 22 OECD countries over the period 1987-2009. The VAR approach allows to addresses the endogeneity problem by allowing the endogenous interaction between the variables in the system. Our results provide evidence of migration contribution to host economic prosperity (positive impact on GDP per capita and negative impact on aggregate unemployment, native- and foreign-born unemployment rates). We also find that migration is influenced by host economic conditions (migration responds positively to host GDP per capita and negatively to host total unemployment rate). |
| Keywords: | immigration;growth;Unemployment;panel VAR |
| Date: | 2013–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00827002&r=fdg |
| By: | Ekrame BOUBTANE (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Dramane COULIBALY (EconomiX-CNRS - Economix CNRS - Université Paris Ouest); C. Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans) |
| Abstract: | This paper examines the causality relationship between immigration, unemployment and economic growth of the host country. We employ the panel Granger causality testing approach of Konya (2006) that is based on SUR systems and Wald tests with country specific bootstrap critical values. This approach allows to test for Granger-causality on each individual panel member separately by taking into account the contemporaneous correlation across countries. Using annual data over the 1980-2005 period for 22 OECD countries, we find that, only in Portugal, unemployment negatively causes immigration, while in any country, immigration does not cause unemployment. On the other hand, our results show that, in four countries (France, Iceland, Norway and the United Kingdom), growth positively causes immigration, whereas in any country, immigration does not cause growth. |
| Keywords: | immigration;growth;Unemployment;Granger causality |
| Date: | 2013–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00827003&r=fdg |
| By: | Daria Onori (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM), IRES - Université Catholique de Louvain, Departement of Economics and Law, Faculty of Economics - University of Rome “La Sapienza”) |
| Abstract: | Some recent evidence on government finance statistics of European countries suggests that countries with public debt issues also show a low tax revenue-GDP ratio. In this paper we develop a small open economy model of endogenous growth in which the engine of growth is public spending. We assume that government can finance public expenditures by borrowing on imperfect international financial markets where her borrowing capacity is limited. In contrast to the existing literature, where debt is constrained by the stock of capital, the collaterals are based on GDP. The balanced growth path and the transitional dynamics are studied. First, we show that the economy may converge in a finite time to the regime with binding collateral constraint. Second, in such regime the steady state public expenditures-GDP ratio is greater than that of the models without collateral constraints and of the stock-based collaterals literature. Third, the model predictions are consistent with recent empirical literature: there exists a certain threshold of financial and institutional development and economic features that an economy needs to attain in order to benefit from financial liberalization. Finally, if the degree of financial markets imperfections is weak, technologically developed countries experience a higher long-run growth rate than that of the stock-based collaterals literature, otherwise the world interest rate need to be high enough. |
| Keywords: | open economy; two-stage growth; public debt; flow collaterals; imperfect financial markets; multi-stage optimal control |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00824672&r=fdg |
| By: | Ken-ichi Hashimoto (Graduate School of Economics, Kobe University); Ken Tabata (School of Economics, Kwansei Gakuin University) |
| Abstract: | This paper constructs a simple, overlapping generations version of an R&D-based growth model à la Diamond (1965) and Jones (1995), and examines how an increase in old-age survival probability impacts purposeful R&D investment and long-run growth by affecting fertility and education decisions. We demonstrate that under certain conditions, old-age survival probability, when relatively low (high), positively (negatively) affect economic growth. This study also compares the growth implications of child education subsidies and child rearing subsidies and demonstrates that although child education subsidies always foster economic growth, child rearing subsidies may negatively impact economic growth in particular situations. Finally, we briefly consider the effects of a child education subsidy on welfare levels. |
| Keywords: | R&D, Fertility, Human Capital, Child Education Subsidy, Child Rearing Subsidy |
| JEL: | J13 J24 O10 O30 O40 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:104&r=fdg |
| By: | Philippe Aghion (Department of Economics, Harvard University); Ufuk Akcigit; Peter Brown (Department of Economics, Brown University) |
| Abstract: | Schumpeterian growth theory has .operationalized. Schumpeter’s notion of creative destruction by developing models based on this concept. These models shed light on several aspects of the growth process that could not be properly addressed by alternative theories. In this survey, we focus on four important aspects, namely: (i) the role of competition and market structure; (ii) firm dynamics; (iii) the relationship between growth and development with the notion of appropriate growth institutions; and (iv) the emergence and impact of long-term technological waves. In each case Schumpeterian growth theory delivers predictions that distinguish it from other growth models and which can be tested using micro data. |
| Keywords: | Creative destruction, entry, exit, competition, .rm dynamics, reallocation, R&D, industrial policy, technological frontier, Schumpeterian wave, general purpose technology |
| JEL: | O10 O11 O12 O30 O31 O33 O40 O43 O47 |
| Date: | 2013–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-026&r=fdg |
| By: | Karim Azizi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Nicolas Canry (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Jean-Bernard Chatelain (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Bruno Tinel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rates has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available in OECD database, those two conditions were simultaneously validated only for 29% of the cases under examination. Second, those two conditions were more frequent in the 1980s and the 1990s when monetary policies were more restrictive. Third, in tune with the Keynesian view, when the real interest rate is higher than the GDP growth, it corresponds to 75% of the cases of the increases of the debt/GDP ratio but to only 43% of the cases of the decreases of the debt/GDP ratio (fiscal consolidations). |
| Keywords: | Government solvency; austerity; fiscal consolidation; No-Ponzi game condition; transversality condition; Keynesian countercyclical budgetary policy; monetary policy; economic growth |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00825446&r=fdg |
| By: | Chu, Angus C.; Cozzi, Guido; Lai, Ching-Chong; Liao, Chih-Hsing |
| Abstract: | This study analyzes the growth and welfare effects of monetary policy in a two-country Schumpeterian growth model with cash-in-advance constraints on consumption and R&D investment. We find that an increase in the domestic nominal interest rate decreases domestic R&D investment and the growth rate of domestic technology. Given that economic growth in a country depends on both domestic and foreign technologies, an increase in the foreign nominal interest rate also decreases economic growth in the domestic economy. When each government conducts its monetary policy unilaterally to maximize the welfare of only domestic households, the Nash-equilibrium nominal interest rates are generally higher than the optimal nominal interest rates chosen by cooperative governments who maximize the welfare of both domestic and foreign households. This difference is caused by a cross-country spillover effect of monetary policy arising from trade in intermediate goods. Under the CIA constraint on consumption (R&D investment), a larger market power of firms decreases (increases) the wedge between the Nash-equilibrium and optimal nominal interest rates. We also calibrate the two-country model to data in the Euro Area and the UK and find that the cross-country welfare effects of monetary policy are quantitatively significant. |
| Keywords: | monetary policy, economic growth, R&D, trade in intermediate goods. |
| JEL: | E41 F43 O30 O40 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47364&r=fdg |
| By: | Berliant, Marcus; Weiss, Adam |
| Abstract: | We examine spatial econometric issues arising from the model specification in Henderson, Storeygard and Weil (2012), that uses night light data to proxy for missing or unreliable GDP growth data. |
| Keywords: | GDP, Night light data, Spatial autocorrelation |
| JEL: | C21 C23 |
| Date: | 2013–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47340&r=fdg |
| By: | Katsushi Imai (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)); Raghav Gaiha (Faculty of Management Studies, University of Delhi, India); Abdilahi Ali (School of Social Sciences, University of Manchester, UK); Nidhi Kaicker (Faculty of Management Studies, University of Delhi, India) |
| Abstract: | The present study re-examines the effects of remittances on growth of GDP per capita using annual panel data for 24 Asia and Pacific countries. The results generally confirm that remittance flows have been beneficial to economic growth. However, our analysis also shows that the volatility of capital inflows such as remittances and FDI is harmful to economic growth. This means that, while remittances contribute to better economic performance, they are also a source of output shocks. Finally, remittances contribute to poverty reduction – especially through their direct effects. Migration and remittances are thus potentially a valuable complement to broad-based development efforts. |
| Keywords: | remittances, economic growth, volatility, poverty, Asia |
| JEL: | C23 F24 I32 O15 O47 O53 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2013-18&r=fdg |
| By: | Brückner, Markus (National University of Singapore); Schwandt, Hannes (Princeton University) |
| Abstract: | Do populations grow as countries become richer? In this paper we estimate the effects on population growth of shocks to national income that are plausibly exogenous and unlikely to be driven by technological change. For a panel of over 139 countries spanning the period 1960-2007 we interact changes in international oil prices with countries' average net oil export shares in GDP. Controlling for country and time fixed effects, we find that this measure of oil price induced income growth is positively associated with population growth. The IV estimates indicate that a one percentage point increase in GDP per capita growth over a ten year period increases countries' population growth by around 0.1 percentage points. Further, we find that this population effect results from both a positive effect on fertility and a negative effect on infant and child mortality. |
| Keywords: | economic development, population growth |
| JEL: | O1 Q56 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7422&r=fdg |
| By: | Tortosa-Ausina Emili (INSTITUTO VALENCIANO DE INVESTIGACIONES ECONÓMICAS (Ivie) UNIVERSITY JAUME I); Peiró Palomino Jesús (Universidad Jaime I) |
| Abstract: | This working paper analyzes the impact of social capital on economic growth in Spain during the 1985-2005 period. The literature in this context is virtually nonexistent and, in addition, whereas most studies, regardless of their context, have used survey data in order to measure social capital, we use a measure whose construction is based on similar criteria to other measures of capital stock. In addition, compared with more standard measures of social capital and trust, the measure we use is available with a high level of disaggregation, and with annual frequency for a long time period. Following a panel data approach, our findings indicate that social capital has a positive impact on GDP per capita growth in the context of Spanish provinces, implying that social features are important for explaining the differences in wealth observable across Spanish provinces. Following some recent contributions, we also explore the transmission mechanisms from social capital to growth, finding a highly positive relation between social capital and private physical investment. |
| Keywords: | Growth, physical capital investment, province, social capital |
| JEL: | Z13 O18 R11 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:fbb:wpaper:2012122&r=fdg |
| By: | Halvor Mehlum (Department of Economics, University of Oslo); Ragnar Torvik (Department of Economics, Norwegian University of Science and Technology); Simone Valente (Department of Economics, Norwegian University of Science and Technology) |
| Abstract: | China's growth is characterized by massive capital accumulation, made possible by high and increasing domestic savings. In this paper we develop a model with the aim of explaining why savings rates have been high and increasing, and we investigate the general equilibrium effects on capital accumulation and growth. We show that increased savings and capital accumulation stimulates further savings and capital accumulation, through an intergenerational distribution effect and an old-age requirement effect. We introduce what we term the savings multiplier, and we discuss why and how the one-child policy, and the dismantling of the cradle-to-grave social benefits provided through the state owned enterprises, have stimulated savings and capital accumulation. |
| Keywords: | China, One-child policy, Overlapping generations, Growth, Savings |
| JEL: | O11 D91 E21 |
| Date: | 2013–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:nst:samfok:14713&r=fdg |
| By: | Yuqing Xing (National Graduate Institute for Policy Studies; Asian Development Bank Institute); Manisha Pradhananga (Asian Development Bank Institute; University of Massachusetts Amherst) |
| Abstract: | The Global Financial Crisis and the recent slowdown of China’s growth have led to questions about the sustainability of China’s growth. The argument is that, China is too dependent on external demand and that it needs to “rebalance” its economy toward domestic consumption. However, conventional measures of external: net exports-over-GDP and exports-over-GDP are biased and do not accurately measure the contribution of external demand to GDP growth. In this paper, we propose two measures that are simple modifications of the conventional measures. We argue that our proposed measures provide a more accurate estimate of the vulnerability of China’s economy to external shocks, in the form of exports and FDI. Our estimates show that in 2001, exports and FDI accounted for 18.2% of GDP growth and by 2004 the share rose to 49 percent. During 2005-2007, the contribution of exports and FDI to growth remained in the range of 38-40 percent. Our estimates also show that the impressive recovery of the Chinese economy in the post-crisis period owed at least 53% of its growth to exports and FDI. Based on these results, we conclude that the Chinese economy remains highly dependent on external demand in the form of exports and FDI, and re-balancing the economy towards domestic demand has not been achieved yet. |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:13-04&r=fdg |
| By: | Philippe Aghion (Department of Economics, Harvard University and NBER); Ufuk Akcigit (Department of Economics Univerity of Pennsylvania and NBER); Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania and NBER) |
| Abstract: | Chamley (1986) and Judd (1985) showed that, in a standard neoclassical growth model with capital accumulation and infinitely lived agents, either taxing or subsidizing capital cannot be optimal in the steady state. In this paper, we introduce innovation-led growth into the Chamley-Judd framework, using a Schumpeterian growth model where productivity-enhancing innovations result from pro.t-motivated R&D investment. Our main result is that, for a given required trend of public expenditure, a zero tax/subsidy on capital becomes suboptimal. In particular, the higher the level of public expenditure and the income elasticity of labor supply, the less should capital income be subsidized and the more it should be taxed. Not taxing capital implies that labor must be taxed at a higher rate. This in turn has a detrimental effect on labor supply and therefore on the market size for innovation. At the same time, for a given labor supply, taxing capital also reduces innovation incentives, so that for low levels of public expenditure and/or labor supply elasticity it becomes optimal to subsidize capital income. |
| Keywords: | : Capital tax, labor tax, optimal taxation, innovation, R&D, growth. |
| JEL: | H2 O3 O4 |
| Date: | 2013–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-025&r=fdg |
| By: | Bezemer, Dirk; Grydaki, Maria |
| Abstract: | During the Great Moderation, borrowing by the U.S. nonfinancial sector structurally exceeded GDP growth. Using flow-of-fund data, we test the hypothesis that this measure of debt buildup was leading to lower output volatility. We estimate univariate GARCH models in order to obtain estimates for the volatility of output growth. We use this obtained volatility in a VAR model with excess credit growth and control variables (interest rate and inflation) over two periods, 1954-1978 (before the Great Moderation) and 1984-2008 (during the Great Moderation). We so test whether the relation between excess credit growth and GDP volatility changed between the two periods, controlling for the stance of monetary policy, for inflation, and for the endogeneity of credit to growth (as well as for other endogeneities). Results from Granger causality tests, impulse response functions and forecast error variance decompositions suggest that changes in our ‘excess credit growth’ measure of debt in the nonfinancial sector were among the causal factors of the decline in output volatility during the Great Moderation. We discuss implications. |
| Keywords: | great moderation, credit, VAR, causality |
| JEL: | C32 C51 C52 E44 |
| Date: | 2013–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47399&r=fdg |