Browsing by Subject "O40"

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  • Kudrin, Alexey; Gurvich, Evsey (2015)
    BOFIT Policy Brief 1/2015
    This article first appeared in Russian in the journal Voprosy Ekonomiki No. 12, 2014.
    ​The slowdown of the Russian economy is due to chronic factors and cannot be cured by simple fixes such as relaxing monetary or fiscal policy. The biggest impediment to growth in Russia’s case is the weak market environment, evidenced foremost by the dominance of state-owned enterprises and quasi-government companies. Strong incentives for business and public administration to enhance efficiency are required. The key policy objectives necessary to move Russia away from its current model based on imported growth to a new growth model are laid out in this analysis.
  • Pääkkönen, Jenni (2009)
    BOFIT Discussion Papers 15/2009
    Published in Journal of Chinese Economic and Business Studies, Volume 10, Issue 1, February 2012, Pages 1-13
    This paper discusses growth differentials of Chinese provinces geared to agricultural activities and those focusing on industrial production over three decades of economic reform. Following trade theory and endogenous growth theory, we suggest that the fundamental differences between regions arise from their resource allocations at the start of reforms. Thus, capital-abundant regions have tended to specialize in industrial production, while the labor-abundant regions have concentrated on labor-intensive pro- duction (agriculture). Many of China.s agricultural provinces suffer from oversupplies of labor, which has led large numbers of people to migrate within the country to work in non-farming sectors of economy. We show that provinces with high shares of industrial production (the industrial club) have converged, and that agricultural provinces shifting to industrial production have been catching up to initially industrialized provinces. Provinces that have stayed with an agricultural strategy (the agricultural club) show no evidence of convergence and appear to have been left behind in terms of economic development. JEL Classi.cation: O17, O40, O57. Keywords: Growth, Agriculture, Convergence.
  • Klein, Paul-Olivier; Weill, Laurent (2018)
    BOFIT Discussion Papers 15/2018
    This paper analyses the effect of bank profitability on economic growth. While policymakers have shown major concerns for low levels of bank profitability, there are no empirical studies on the growth effects of bank profitability. To fill this gap, we investigate the impact of bank profitability on economic growth using a sample of 133 countries during the period 1999–2013 with several empirical approaches. Our first major conclusion is that a high current level of bank profitability contributes positively to economic growth. Our second conclusion is that the past level of bank profitability exerts a negative influence on economic growth leading to the absence of significance for the overall bank profitability. Hence, the positive impact of bank profitability on economic growth is short-lived. These findings are robust to a battery of robustness checks, including those using alternative measures for profitability and growth.
  • Shen, Jian-Guang (2002)
    BOFIT Discussion Papers 13/2002
    This paper proposes a "before-and-after" approach to empirical examination of the relationship between democracy and growth. Rather than the commonly used cross-country regression method, this paper compares the economic performances of forty countries before and after they became democracies or semi-democracies sometime within the last forty years.The empirical evidence indicates that an improvement in growth performance typically follows the transformation to democracy.Moreover, growth under democracy appears to be more stable than under authoritarian regimes. Interestingly, wealthy countries often experience declines in growth after a democratic transformation, while very poor nations typically experience accelerations in growth.Growth change appears to be negatively related to the initial savings ratio and positively related to the export ratio to GDP.Partial correlation between growth change and primary school or secondary school enrollments and the ratio of government expenditure to GDP is not identified. Keywords: Democracy, economic growth, O40, O57 JEL classification: O40, O57
  • Pääkkönen, Jenni (2009)
    BOFIT Discussion Papers 1/2009
    Published in Economic Systems, Volume 34, Issue 4, December 2010: 469–479
    This paper reviews the political economy view of economic growth in post-communist economies making the transition to free markets, focusing on the role of economic policy and institutions. We test the hypothesis that better institutions, measured in terms of economic freedom, contribute to growth. The empirical results from the cross-section of transition economies confirm this hypothesis. The paper concludes that non-linearities are present in the growth model and that differences arise depending on how economic well-being is defined. JEL Classification: O17, O40, O57. Key Words: growth, institutions, human capital
  • Ikonen, Pasi (2017)
    Bank of Finland. Scientific monographs. E 51
    This thesis applies several econometric methods to a selection of country panels to study how growth is influenced by financial development and government debt. The first part presents the thesis discussion, including a synthesis on financial development, government debt, money supply, and economic growth. The second part deepens the discussion with three stand-alone essays. The first essay models how financial development affects growth through utilization of technological innovation. Based on explicit modeling of the innovation channel of finance, the results show a significant and positive sign for the interaction term between the measure of a country’s own innovation and financial development in the most important specifications. This suggests that the innovation channel of finance is likely to be positively relevant to growth. The second essay examines effects of venture capital investment on economic growth in a similar framework. The findings demonstrate that the interaction of venture capital with innovation has a positive and statistically significant coefficient. Further, the joint impact related to venture capital and its interactions is positive in most specifications, suggesting that venture capital is probably a relevant factor for growth. The third essay delves deeply in the effects of general government debt and general government external debt on growth of real GDP. It explores the long-standing endogeneity problem, includes other relevant debt concepts besides government total debt, revisits the issue whether there are threshold values for the government debt ratio, examines the effect of debt on GDP components and structure, uses timely and extensive datasets and extensive robustness analysis, and runs meta-regressions of the results of this and a many of other studies. Even with correction for endogeneity, the study finds modest evidence of a negative and significant growth impact for government debt. The evidence is not robust over all samples and specifications. The final essay also reports evidence of a negative and significant effect of government external debt in the sample of developed economies. The findings overall comport with those of recent papers that conclude that there is no universal threshold value for a government debt ratio that would hold across all countries. Further, government debt appears to decrease the private-investment-to-GDP ratio, but increases the GDP ratio for household consumption. The meta-regression analysis shows that the study’s results on how specification features affect the estimate of the government debt coefficient are broadly in line with those of other studies.
  • Virén, Matti (2012)
    Bank of Finland Research Discussion Papers 29/2012
    This paper deals with economic growth in Europe. The special emphasis is in key institutional factors that are commonly assumed to affect aggregate growth: functioning of labor markets, availability of labor and capital, and the size of government. For more explicit measures, we use the data on profit rates, average working hours, dependency ratios, tax rates and other measures of the size of government (e.g. employment shares), measures of price competitiveness, and finally the structure of production. The data also include the terms of trade, interest rates, and foreign demand as control variables. Empirical analysis makes use of cross-country panel data for EU15 countries for 1971-2010. The results suggest that profitability and competitiveness do indeed constitute the main determinants of growth. However, also other variables like working hours and the size of government appear to affect growth in an important manner. All in all, slowdown of growth in Europe does not appear to be a paradox but at least with some margin something can be done in achieving more ambitious growth rates. JEL classification: O40, O43 Key words: growth, working hours, taxes, competitiveness
  • Soedarmono, Wahyoe; Hasan, Iftekhar; Arsyad, Nuruzzaman (2017)
    International Economics August ; 2017
    This paper investigates the finance-growth nexus where bank credit is decomposed into investment, consumption, and working capital credit. From a panel dataset of provinces in Indonesia, it documents that higher financial development measured by financial deepening and financial intermediation exhibits an inverted U-shaped relationship with economic growth. This non-linear effect of financial deepening is driven by both investment credit and consumption credit. These results suggest that too much investment credit and, to a lesser extent, consumption credit are detrimental to economic growth. Ultimately, only financial intermediation associated with working capital credit has a positive and monotonic impact on economic growth.
  • Pasten, Ernosto; Schoenle, Raphael; Weber, Michael (2018)
    Bank of Finland Research Discussion Papers 3/2018
    Published in European Central Bank Working Paper Series 2102/2017
    We study the ability of sectoral shocks to generate aggregate fluctuations in a multi-sector general equilibrium model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We show fat-tailed distributions of sectoral size or network centrality are neither necessary nor sufficient for idiosyncratic shocks to generate aggregate fluctuations when the responsiveness of prices to shocks varies across sectors. We derive conditions under which a frictional origin of aggregate fluctuations arises, that is, when micro shocks contribute to aggregate fluctuations in an economy with heterogeneous price rigidities but equal sector size and network centrality across sectors. We calibrate a 341-sector version of the to the United States and a quantitatively large frictional effect. When we allow for heterogeneities in price rigidity, sector size, and network centrality, the effect of micro shocks on GDP volatility doubles relative to a frictionless economy. Heterogeneity in price rigidity also substantially changes the identity of the sectors from which GDP fluctuations originate.
  • Schmöller, Michaela (2019)
    Bank of Finland Research Discussion Papers 8/2019
    I propose a two-sector endogenous growth model with heterogeneous sectoral productivity and sector-specific, nonlinear hiring costs to analyse the link between sectoral resource allocation, low productivity growth and stagnant real wages. My results suggest that an upward shift in the labor supply, triggered for instance by a labor market reform, as among others implemented in Germany in 2003-2005, is beneficial in the long-run as it raises growth of technology, labor productivity and real wages. I show, however, that in the immediate phase following the labor supply shock, labor productivity and real wages stagnate as employment gains are initially disproportionally allocated to low-productivity sectors, limiting the capacity for technology growth and depressing real wages and productivity. I demonstrate that due to the learning-by-doing growth externality in the high-productivity sector the competitive equilibrium is ineffcient as firms fail to internalize the effect of their labor allocation on aggregate growth. Subsidies to high-productivity sector production can alleviate welfare losses along the transition path.
  • Aizenman, Joshua (2015)
    BOFIT Discussion Papers 4/2015
    Published in Pacific Economic Review, Volume 20, Issue 3, pages 444–460, August 2015.
    ​This paper provides an overview of Chinese financial and trade integration in recent decades, and the challenges facing China in the coming years. China had been a prime example of export-led growth, benefiting from learning by doing, and by adopting foreign know-how, supported by a complex industrial policy. While the resultant growth has been spectacular, it comes with hidden but growing costs and distortions. The Chinese export-led growth path has been challenged by its own success, and the Global Financial Crisis forced China toward rebalancing, which is a work in progress. Reflecting on the internationalization of the CNY, one expects the rapid accelerating of the commercial internationalization of the CNY. In contrast, there are no clear-cut reasons to rush with the full CNY financial internationalization: The gains from CNY financial internationalization are overrated. Publication keywords: export led growth, CNY internationalization, mercantilism, financial integration, FDI
  • Vilmi, Lauri (2017)
    BoF Economics Review 1/2017
    We estimate the long-term natural rate of interest for the euro area with two specifications of a simple semi-structural macroeconomic model. The estimates provide competing interpretations for the euro area’s current economic environment of weak growth, subdued inflation and exceptionally low nominal interest rates. In our first estimation, the current state of economy is attributed to persistent, recurring negative shocks to the output gap that restrain growth even when expansionary monetary policies are applied. The second estimation suggests that a large drop in the natural rate of interest is the problem, because, even with interest rates held close to zero, policy actions have not been able to revive the economy after major shocks in 2008, 2012 and 2016. As both views may explain some of the observed trends, the task of teasing out the drivers of current conditions and future trends is non-trivial. Nevertheless, policymakers should pay attention to both stories as they have quite different endings.
  • Hasan, Iftekhar; Horvath, Roman; Mares, Jan (2015)
    Bank of Finland Research Discussion Papers 17/2015
    We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator – the efficiency of financial intermediaries – is robustly related to long-term growth.
  • Kilponen, Juha; Virén, Matti (2008)
    Bank of Finland Research Discussion Papers 13/2008
    Published in Empirica, Volume 37, Number 3, July 2010, pp. 311-328
    We estimate a standard production function with a new cross-country data set on business sector production, wages and R&D investment for a selection of 14 OECD countries including the United States. The data sample covers the years 1960-2004. The data suggest that growth differences can largely be explained by capital deepening and an ability to produce new technology in the form of new patents. The importance of patents is magnified by the openness of the economy. We find some evidence of increasing elasticity of substitution over time, all though the results are sensitive to assumptions on the nature of technological progress. Keywords: growth, R&D, production function, patents JEL classification numbers: O40, E10, O43