Is More Finance Better? Disentangling Intermediation and Size Effects of Financial Systems
Thorsten Beck, Hans Degryse, Christiane Kneer
Journal of Financial Stability,
2014
Abstract
Financial systems all over the world have grown dramatically over recent decades. But is more finance necessarily better? And what concept of financial system – a focus on its size, including both intermediation and other auxiliary “non-intermediation” activities, or a focus on traditional intermediation activity – is relevant for its impact on real sector outcomes? This paper assesses the relationship between the size of the financial system and intermediation, on the one hand, and GDP per capita growth and growth volatility, on the other hand. Based on a sample of 77 countries for the period 1980–2007, we find that intermediation activities increase growth and reduce volatility in the long run. An expansion of the financial sectors along other dimensions has no long-run effect on real sector outcomes. Over shorter time horizons a large financial sector stimulates growth at the cost of higher volatility in high-income countries. Intermediation activities stabilize the economy in the medium run especially in low-income countries. As this is an initial exploration of the link between financial system indicators and growth and volatility, we focus on OLS regressions, leaving issues of endogeneity and omitted variable biases for future research.
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Transfer Payments without Growth: Evidence for German Regions, 1992–2005
Michael Koetter, Michael Wedow
International Journal of Urban and Regional Research,
No. 4,
2013
Abstract
After German reunification, interregional subsidies accounted for approximately 4% of gross fixed capital investment in the new federal states (i.e. those which were formerly part of the German Democratic Republic). We show that, between 1992 and 2005, infrastructure and corporate investment subsidies had a negative net impact on regional economic growth and convergence. This result is robust to both the specification of spatially weighted control variables and the use of instrumental variable techniques to control for the endogeneity of subsidies. Our results suggest that regional redistribution was ineffective, potentially due to a lack of spatial concentration to create growth poles.
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Human Capital Mobility and Convergence – A Spatial Dynamic Panel Model of the German Regions
Alexander Kubis, Lutz Schneider
Abstract
Since the fall of the iron curtain in 1989, the migration deficit of the Eastern part of Germany has accumulated to 1.8 million people, which is over ten percent of its initial population. Depending on their human capital endowment, these migrants might either – in the case of low-skilled migration – accelerate or – in high-skilled case – impede convergence. Due to the availability of detailed data on regional human capital, migration and productivity growth, we are able to test how geographic mobility affects convergence via the human capital selectivity of migration. With regard to the endogeneity of the migration flows and human capital, we apply a dynamic panel data model within the framework of β-convergence and account for spatial dependence. The regressions indicate a positive, robust, but modest effect of a migration surplus on regional productivity growth. After controlling for human capital, the effect of migration decreases; this decrease indicates that skill selectivity is one way that migration impacts growth.
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Human Capital Mobility and Convergence. A Spatial Dynamic Panel Model of the German Regions
Alexander Kubis, Lutz Schneider
Abstract
Since the fall of the iron curtain in 1989, the migration deficit of the Eastern part of Germany has accumulated to 1.8 million people, which is over 10 percent of its ini-tial population. Depending on their human capital endowment, these migrants might either – in the case of low-skilled migration – accelerate or – in high-skilled case– impede convergence. Due to the availability of detailed data on regional human capital, migration and productivity growth, we are able to test how geographic mobil-ity affects convergence via the human capital selectivity of migration. With regard to the endogeneity of the migration flows and human capital, we apply a dynamic panel data model within the framework of β-convergence and account for spatial depend-ence. The regressions indicate a positive, robust, but modest effect of a migration surplus on regional productivity growth. After controlling for human capital, the effect of migration decreases; this decrease indicates that skill selectivity is one way that migration impacts growth.
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Technological Intensity of Government Demand and Innovation
Viktor Slavtchev, Simon Wiederhold
Abstract
Governments purchase everything from airplanes to zucchini. This paper investigates whether the technological intensity of government demand affects corporate R&D activities. In a quality-ladder model of endogenous growth, we show that an increase in the share of government purchases in high-tech industries increases the rewards for innovation, and stimulates private-sector R&D at the aggregate level. We test this prediction using administrative data on federal procurement performed in US states. Both panel fixed effects and instrumental variable estimations provide results in line with the model. Our findings bring public procurement within the realm of the innovation policy debate.
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The Impact of Government Procurement Composition on Private R&D Activities
Viktor Slavtchev, Simon Wiederhold
Abstract
This paper addresses the question of whether government procurement can work as a de facto innovation policy tool. We develop an endogenous growth model with quality-improving in-novation that incorporates industries with heterogeneous innovation sizes. Government demand in high-tech industries increases the market size in these industries and, with it, the incentives for private firms to invest in R&D. At the economy-wide level, the additional R&D induced in high-tech industries outweighs the R&D foregone in all remaining industries. The implications of the model are empirically tested using a unique data set that includes federal procurement in U.S. states. We find evidence that a shift in the composition of government purchases toward high-tech industries indeed stimulates privately funded company R&D.
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The Laffer curve revisited
Mathias Trabandt, Harald Uhlig
Journal of Monetary Economics,
No. 4,
2011
Abstract
Laffer curves for the US, the EU-14 and individual European countries are compared, using a neoclassical growth model featuring “constant Frisch elasticity” (CFE) preferences. New tax rate data is provided. The US can maximally increase tax revenues by 30% with labor taxes and 6% with capital taxes. We obtain 8% and 1% for the EU-14. There, 54% of a labor tax cut and 79% of a capital tax cut are self-financing. The consumption tax Laffer curve does not peak. Endogenous growth and human capital accumulation affect the results quantitatively. Household heterogeneity may not be important, while transition matters greatly.
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Openness and Income Disparities: Does Trade Explain The 'Mezzogiorno' Effect?
Claudia M. Buch, P. Monti
Review of World Economics,
No. 4,
2010
Abstract
We use Italian regional data to answer the question whether trade affects within-country income differentials. In Italy, the more affluent Northern regions trade more with the rest of the world than the poorer ones in the Southern “Mezzogiorno” regions. Prima facie, there is a positive correlation between external trade and per capita income. Studying this relationship empirically requires taking into account the endogenous component of trade. We argue that panel cointegration models can complement instrumental variables techniques to account for the endogeneity of trade in a panel context. Both methods show a positive link between trade openness and the level of income per capita.
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Technology Clubs, R&D and Growth Patterns: Evidence from EU Manufacturing
Claire Economidou, J. W. B. Bos, Michael Koetter
European Economic Review,
No. 1,
2010
Abstract
This paper investigates the forces driving output change in a panel of EU manufacturing industries. A flexible modeling strategy is adopted that accounts for: (i) inefficient use of resources and (ii) differences in the production technology across industries. With our model we are able to identify technical, efficiency, and input growth for endogenously determined technology clubs. Technology club membership is modeled as a function of R&D intensity. This framework allows us to explore the components of output growth in each club, technology spillovers and catch-up issues across industries and countries.
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Do All Countries Grow Alike?
Claire Economidou, J. W. B. Bos, Michael Koetter, James W. Kolari
Journal of Development Economics,
No. 1,
2010
Abstract
This paper investigates the driving forces of output change in 77 countries during the period 1970–2000. A flexible modeling strategy is adopted that accounts for (i) the inefficient use of resources, and (ii) different production technologies across countries. The proposed model can identify technical, efficiency, and input change for each of three endogenously determined regimes. Membership in these regimes is estimated, rather than determined ex ante. This framework enables explorations into the determinants of output growth and convergence issues in each regime.
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