How should resource‐rich countries diversify? Estimating forward‐linkage effects of mining on productivity growth

Resource‐rich countries willing to diversify their economies are faced with dual policy options; to either develop resource‐based industries, or diversify their economies as a whole and invest into new activities that are not necessarily resource dependent. Not only does the economic theory fail to provide a consensual guidance on this issue but empirical evidence is also lacking. This paper empirically assesses which of these two patterns of diversification is associated with higher productivity growth outcomes for resource‐rich countries. Using panel data for 50 resource‐abundant countries over the period 1970–2010, I find that stronger downstream linkages to mining and extractives do not lead to productivity enhancements. Broadening and diversifying the production structure as a whole offers potential for productivity growth at higher levels of income.     

Investing Volatile Resource Revenues in Capital‐Scarce Economies

Natural resource revenues are an important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper studies fiscal approaches to investing resource revenues, using Angola as an example. With spend‐as‐you‐go, resource revenues are spent as received, resulting in little external saving; public investment can be interrupted, driving up the capital depreciation rate and undermining stability. Gradual scaling‐up, instead, allows countries to build up external saving to shield investment from revenue volatility. The framework adopted here can be used as a planning tool to define a medium‐term fiscal strategy.     

Oil,Growth, and Health: What Does the Cross‐Country Evidence Really Show?*

We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid‐1980s. By exploiting cross‐country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long‐run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil‐rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil‐led health improvements are more pronounced in non‐democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.     

Efficiency‐adjusted public capital,capital grants,and growth

A debate on whether capital grants, and especially European Union (EU) funds, actually contribute to growth has gained prominence lately. This article empirically assesses the relationship between the quality of public investment, capital grants, and growth in a sample of 43 emerging and peripheral economies over 1991–2015. To this end, the contribution of public capital to growth is estimated using efficiency‐adjusted public capital stock series, which reflects the quality of public investment management institutions. In addition, the determinants of effective public investment are analyzed. The results suggest that capital grants contribute positively to effective public investment, and the latter is significant in explaining variations in economic growth. Finally, the article illustrates the impact of raising EU funds absorption on potential growth in emerging and peripheral EU countries.     

Sudden stops in a currency union – some lessons from the euro area

During the Great Financial Crisis several euro area Member States with current account deficits were subject to sharp reversals of private capital flows. We examine how the specific policy rules of the euro area's payments system TARGET2 affects the macroeconomic adjustments to sudden stops. We find that – in the short run – public capital flows in form of TARGET2 help euro area‐deficit countries to stabilize output, consumption, and investment after a sudden stop of private capital inflows. In the long run, however, euro area countries suffer under a prolonged economic recovery and accumulated large public debt as well as higher welfare losses relative to euro peggers.     

Assessing the Impacts of Capital Inflows on Domestic Economy across the Sub-Saharan Africa Countries

Using GMM models, this paper analyzes the impacts of capital inflows on domestic investment in 44 Sub-Saharan Africa (SSA) countries from 2003–2012. It is found that foreign direct investment across the SSA remains to be the largest percentage share, accounting for 35% of the total capital inflows. FDI inflows have significant positive impacts on domestic investment across the SSA in both short term and long term. Other key macroeconomic factors such as age dependency ratio, domestic economic growth, terms of trade, real effective exchange rate and trade openness also play vital roles in determining domestic investment.     

政府公共资本投资的长期经济增长效应

本文首先建立一个包含政府公共资本投资的两部门内生增长模型,并把公共资本投资分为政府物质资本投资和人力资本投资,从而对公共资本投资的长期经济增长效应进行理论分析。结论是,两种形式的公共资本投资对长期经济增长都可能具有正效应也可能具有负效应,取决于民间经济主体消费跨时替代弹性大小。其次,我们利用向量自回归分析框架,对我国1978—2004年间公共资本投资对长期经济增长的影响作实证分析。结论是,我国两种形式的公共资本投资与经济增长之间存在着长期均衡关系,其中政府公共物质资本投资对长期经济增长的正影响更为显著,而政府公共人力资本投资对长期经济增长的正影响较小,且在短期内不利于经济增长。这一结论对我国今后科学制定财政政策和选择公共投资领域都具有重要意义。     

Fiscal policy under a minimum‐time objective

In an endogenous growth model, we characterize the fiscal policy driven by a minimum‐time objective of economic development. We find that in equilibrium government should levy the highest possible consumption taxes, reduce public expenditures to the lowest possible level, and keep labor income tax rate and capital income tax rate satisfy a substitution relationship at the balanced budget constraint. We also identify the condition under which income tax rate should be set to zero. We further find that the equilibrium fiscal policy is equivalent to the growth‐maximizing fiscal policy, whereas it generally deviates from the welfare‐maximizing fiscal policy. We hence identify a circumstance where setting the policy goal of reaching an economic‐performance target as soon as possible cannot be justified in the sense of maximizing the welfare of households.     

Cross‐Country Income Differences Revisited: Accounting for the Role of Intangible Capital

This paper develops a new intangible investment database that is consistent and internationally comparable for a set of 60 economies over the period 1995–2011. I find that over time a growing share of total investment consists of intangible assets, rather than investment in tangible assets, like machinery and buildings. Across countries, the level of economic development of a country is positively associated with its investment intensity in intangibles. By including intangible capital as an additional production factor, this paper finds that we can account for substantially more of the variation in cross‐country income levels. Depending on the assumptions regarding the output elasticities of factor inputs, the observed differences in intangible capital can account for up to 16 percentage points of the cross‐country income variation.     

Public Investment and Economic Growth in Latin America: an Empirical Test

The paper analyzes the impact on economic growth of public investment spending and other relevant variables (such as human capital) for nine major Latin American nations over the 1983–93 period. The results suggest that both public and private investment spending contribute to economic growth. Overall central government consumption expenditures, on the other hand, are found to have a negative effect on private investment and growth. Finally, public expenditures on education and healthcare are found to have a positive and statistically significant effect on private capital formation and long–term economic growth. From a policy standpoint, the results suggest that indiscriminate cuts in public and private investment spending are likely to be counterproductive in the long run, and more importantly, scarce public expenditures should be channeled to the promotion of new human capital (via primary and secondary education) and the maintenance of existing human capital (through healthcare expenditures).     

Growth in fragile states in Africa: Conflict and post‐conflict capital accumulation

This article analyses the pattern of capital accumulation in Africa and its interaction with political fragility. Political fragility, defined as armed conflict or civil war, retards or reverses gains with respect to capital accumulation, slowing long‐term economic growth. Many countries experience negative rates of capital accumulation, particularly during periods of acute political instability. In post‐war periods, countries generally continue to experience capital destruction, lending support to the “war ruin hypothesis.” This has implications for long‐term economic growth in view of the strong association between capital accumulation and economic performance. The main policy implication of the analysis is that African countries and their international partners should pay more attention to capital accumulation, including capital reconstruction after periods of political instability, to lay the foundations for sustainable economic growth.     

The dynamics of financial development,globalisation, economic growth and life expectancy in sub‐Saharan Africa

The importance of life expectancy is recognised in the development economics literature because of its increasing effects on labour productivity and economic growth in long‐run. However, no published study to date empirically examines the nonlinear relationships between globalisation, financial development, economic growth and life expectancy in sub‐Saharan African (SSA) countries. Therefore, our study intends to fill this gap by using non‐parametric cointegration test and multivariate Granger causality test towards a non‐linear empirical understanding of the factors affecting the life expectancy. We consider the case of 16 sub‐Saharan African economies using annual data over the period 1970–2012. The empirical analysis indicates that financial development, globalisation and economic growth appear to have a positive impact upon life expectancy in sub‐Saharan African economies, except for Gabon and Togo. Our empirical findings may provide insightful policy implications towards improving population health conditions which are vital for promoting the productivity of labour force and long‐run economic growth in sub‐Saharan African countries. In light of these policy implications, governments should incorporate globalisation, financial development and economic growth as key economic instruments in formulating sustainable developmental policy to promote life expectancy for the people in sub‐Saharan African countries.     

Government size,composition of public spending and economic growth in Brazil

The performance of the fiscal policy is largely affected by the relationship between government size, composition of public spending and economic growth. We use a theoretical framework to find optimal relations among these variables and confront them with a panel data for the Brazilian states. Private capital and government spending are substitute inputs in production as the Brazilian states require provision of public spending to fill gaps in the underdeveloped private sector. Public investment and current government expenditures are combined in fixed ratios in the overall government spending due to strong rigidity of the public budget. The optimal share of public investment is considerably lower than current expenditures, as occurs in developing countries characterized by low economic dynamism. Finally, the average tax burden from the data is below the estimated optimal level, meaning that there is space for increasing tax rate without harming economic growth for some Brazilian states.     

Capital Mobility—Resource Gains or Losses? How,When, and for Whom?

This paper investigates which of the two types of countries—resource‐rich or resource‐poor—gains from capital market integration and capital tax competition. We develop a framework involving vertical linkages through resource‐based inputs as well as international fiscal linkages between the two types of countries. Our analysis shows that capital market integration causes capital flows from resource‐poor to resource‐rich countries and improves global production efficiency. However, such gains accrue only to resource‐poor countries, and capital mobility might even negatively affect resource‐rich countries. Furthermore, we show that resource‐rich countries can exploit the gains when taxes on capital are available.     

人口老龄化、公共人力资本投资与 经济增长*

本文利用内生化老龄化的世代交叠模型,探讨了老龄化社会中为了促进经济增长可选择的公共人力资本投资的最优相对规模和结构。本文研究表明,公共人力资本投资相对规模（即占GDP比例）和公共健康支出占比（即占公共人力资本投资比例）均与经济增长呈倒U型关系,且最优值通过老龄化对经济增长的作用表现出来。即当老龄化对经济增长有促进（抑制）作用时,政府促进经济增长的政策是提高（降低）人力资本投资相对规模和公共健康支出占比。基于中国省级面板数据的实证研究发现,老龄化不利于经济增长,公共人力资本投资相对规模及公共健康支出占比偏大,均处在倒U型曲线的下降阶段,分别通过挤出对经济增长更具促进作用的私人投资、公共物质资本投资和公共教育支出而不利于经济增长。本文的政策含义是,政府需提高公共教育支出占比,引导和鼓励更有效率的社会私人资本进行人力资本投资,以逐步降低公共人力资本投资的相对规模。当前公共物质资本投资则需继续加强。     

Does Taxation Stifle Corporate Investment? Firm‐Level Evidence from ASEAN Countries

This article conducts a firm‐level analysis of the effect of taxation on corporate investment, using large‐scale panel data on non‐financial firms over the period 1990–2014, and controlling for macrostructural differences among ASEAN countries. We find a significant degree of persistence in fixed investment over time, which varies with firm characteristics, such as size, growth prospects, profitability and leverage. The non‐linear estimations indicate that taxation facilitates business investment (possibly by enabling public investment in infrastructure and human capital, and the proper functioning of government institutions), but this effect turns negative and stifles private investment growth as the tax burden increases.     

Demographic change and economic growth: The role of natural resources in the MENA region

This paper analyses the conditional effect of demographic change on economic development in the MENA region. We employ fixed-effects panel analysis on data from 19 countries in the region and demonstrate a negative impact of natural rents on the relationship between the working-age population and economic growth. Once the critical level of approximately 16% of resource rents (as share in total GDP) is reached, a one-unit increase in working-age population appears to harm economic growth. Further tests show that this finding is mainly driven by the negative effects of resource rents on female labor force participation. However, other drivers are a large public sector, low private sector development and inefficient labor market policies and issues such as the “Dutch disease”. The main finding remains after robustness checks in the form of controlling for competing hypotheses. Policy makers are advised to encourage economic diversification, female employment and private sector development.     

Effects of financial liberalization on financial market development and economic performance of the SSA region: An empirical assessment

This study investigates the role of financial liberalization in promoting financial deepening and economic growth in Sub-Saharan African countries (SSA). We apply the more efficient system GMM estimator in dynamic panel data that combines first difference and original level specification to deal with the problems of weak instruments. Our dataset covers 21 countries in Sub-Saharan Africa over the period of 1981–2009.Additionally, the paper sought to examine both the direct and indirect impacts of financial liberalization policies on economic growth and financial deepening using a much more comprehensive and recent financial liberalization dataset. The econometric results suggest that, on average, financial liberalization is negatively associated with income growth in SSA region. Our findings provide support for the skeptical empirical view of financial liberalization in emerging markets, which show that liberalization, by itself, might be associated with lower economic growth through leading to destabilization, stimulating domestic capital flight and increasing the risk of financial fragility. However, the research finds that financial liberalization does indeed impact positively on financial deepening and resource mobilization in SSA region, after controlling for key macroeconomic factors such as institutional quality, fiscal imbalances and inflation. In fact the study reports a stronger reforms effect for countries that have stronger legal institutions, protection of property rights and higher human capital. Policy-wise, the study finds that institutional and human capital factors are important in explaining growth and financial development; therefore, it is necessary for SSA governments to promote a stronger and more transparent institutional development as we move forward.     

On the Growth Implications of Foreign Aid for Public Investment Co-Financing

In this paper we present an endogenous growth model with foreign transfers for public capital formation in order to analyze the implications for growth maximization when the public sector in recipient countries co‐finances investment projects. Our main innovation is to show that, first, there is a unique growth‐maximizing absorption rate of funds that decreases with the co‐financing ratio and, second, that high amounts of assistance may be an impediment to growth due to the excess domestic taxation required to co‐finance investment projects. We then derive a policy rule for designing the growth‐maximizing co‐financing share under a given level of assistance. Finally, we also highlight some implications for EU regional policies, which aim at fostering growth in poorer EU countries by co‐financing public capital formation.     

资本性支出分权、公共资本投资构成与经济增长

本文建立一个财政分权框架下的两部门内生增长模型,从理论上分析最优公共资本投资配置及其对经济增长的影响,并以我国全国和省份经济数据为基础对本文理论分析进行实证检验。分析表明,我国公共资本投资构成不尽合理,全国和地方公共物质资本投资比重明显偏低;中央和地方政府间公共资本投资事权划分也欠妥,资本性支出分权水平明显过高。这些结论对于我国今后财政政策的合理调整、政府间事权的科学划分具有重要意义。