Openness,growth convergence and China’s development prospects

ABSTRACT

This paper examines China’s long-term growth prospects and the potential drivers of future growth, based on cross-country productivity convergence and China’s featured demographic evolution. In a nonlinear open economy catch-up growth model, per capital GDP growth of the followers depend on that of the leading economy and time varying convergence of the relative per capita GDP. Comparable open economies of China are identified in terms of relative per capita GDP and the historical data of which are used to project China’s trajectory of productivity convergence and then the growth of per capita GDP. Projection shows China’s future GDP growth will gradually descend from 6.6–6.7% (2016–2020) to 2.6–2.7% (2046–2050) in low variant. Predictions under medium and high variants are provided as well. The importance of further opening-up domestic markets, elimination of birth control policies and accumulation of human capital in the process of promoting urbanization are highlighted and have significant implications for the economic restructuring and transformation of China.

Abbreviations: ICRG: International Country Risk Guide; IMF: International Monetary Fund     

The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area

This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point – beyond which the government debt-to-GDP ratio has a negative impact on long-term growth – at about 90–100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70 to 80% of GDP. The channels through which government debt is found to have a non-linear impact on the economic growth rate are private saving, public investment and total factor productivity.     

A vector error-correction forecasting model of the US economy

Any research or policy analysis in economics must be consistent with the time-series properties of observed macroeconomic data. Numerous previous studies reinforce the need to specify correctly a model’s multivariate stochastic structure. This paper discusses in detail the specification of a vector error correction forecasting model that is anchored by long-run equilibrium relationships suggested by economic theory. The model includes six variables––the CPI, the GDP price index, real money balances (M1), the federal funds rate, the yield on long-term (10-year) government bonds, and real GDP––and four cointegrating vectors. The accuracy of VECM model forecasts for individual, univariate time series during for the 1990s is comparable to forecasts made by government agencies and private forecasters, perhaps because many forecasters share a similar implicit, long-run steady-state growth model of the economy. Judged by multivariate statistics that account for forecast-error covariance, VECM forecasts are found to be somewhat more accurate than a naïve random-walk alternative.     

中国技术贸易与经济增长关系研究

第二次世界大战后,国际技术贸易开始形成规模并迅速扩大,已经成为推动各国乃至世界经济发展的助推器。本文从中国技术贸易与经济发展的现状出发,运用协整与误差修正模型对1985～2020年中国技术贸易与经济增长的长期均衡与短期调整关系进行了实证分析。研究认为,技术贸易收支比对GDP增速在短期和长期均有负向影响,但长期影响比短期影响大；技术贸易收支比对GDP增速之间具有短期反向调整机制,但调整力度较小。     

Global Technology Policies for Economic Growth

With the end of the Cold War, nations throughout the world are placing ever greater emphasis on economic growth. Over the last 50 years, advances in technology have been the single most important factor in creating growth in many economies, and thus policies to promote technological innovation rank high on the list of priorities for both developed and developing countries. In general, as countries progress up the economic ladder, national R&D intensity, (i.e., R&D/GDP), tends to increase along with per capita income. In addition, nations move through a discernible sequence of technology policies from an initial focus on infrastructure, through a set of actions designed to encourage technology acquisition from more advanced economies, to comprehensive education and research agendas targeted to the creation and development of new technology. In the United States, national technology policy for economic growth focuses on education, building a 21st century infrastructure, and creating a business climate that encourages growth, technological innovation, and risk taking.Throughout the last 50 years there have been significant changes in the competitive position of nations. In recent years, U.S. corporations have regained some of the competitive leadership they lost in the 1980s. This has been accompanied by significantly increased R&D spending by U.S. industry, particularly in the information and health care related sectors. U.S. industry funding of R&D overtook that from the government in the early 1980s and accounts for almost two-thirds of the national total.     

Public Debt,Economic Growth and the Real Interest Rate: A Panel VAR Approach to EU and OECD Countries

ABSTRACT

We investigate the causal relationship between public debt ratios and economic growth rates for 31 EU and OECD countries. We estimate a panel VAR model that incorporates the long-term real interest rate on government bonds as a vehicle to transmit shocks in both the public debt to GDP ratio and the economic growth rate. We find no causal link from public debt to growth, irrespective of the levels of the public debt ratio. Rather, we find a causal relationship from growth to public debt. In high-debt countries, the direct negative impact of growth on public debt is enhanced by an increase in the long-term real interest rate, which in its turn decreases interest-sensitive demand and leads to a further increase in the public debt ratio.     

Is it Abenomics or Post-Disaster Recovery? A Counterfactual Analysis

This study is an attempt to assess the impact of policy initiatives launched by Japan’s new Prime Minister Shinzo Abe on Japan’s real gross domestic product (GDP) in his first quarter in office. We use as a benchmark for measurement a counterfactual estimate of GDP. Since the Japanese economy is also in the midst of reconstruction from the 2011 Tohoku disaster in the first quarter of 2013, we first estimate the counterfactual GDP that would have materialized in the absence of that disaster. We will use a dummy variable method and the statistical method proposed by Cheng Hsiao and others. We check the validity of these methods with regard to the Kobe earthquake of 1995 and then estimate the post-disaster counterfactual GDP in the absence of the Tohoku disaster. We measure the impact of government policies as the difference between the actual and counterfactual GDP. By doing so, we conclude that government policies have failed to lift Japan’s GDP to the expected level. Even with the help of Abenomics, the gap remains in the range of 6 to 14 trillion yen per year.     

The driving forces of the level and the growth rate of real per capita income in Indonesia

We investigate the driving forces behind the level and the growth rate in real per capita Gross Domestic Product (GDP) in Indonesia. The ultimate reasons and the proximate causes underlying Indonesia's economic growth since the mid-1960s are still unclear. In the literature there have been at least three ways of investigating the driving forces of economic growth in Indonesia, namely: growth accounting system, regression and causality. The difference and improvement in this article is that we employed a two-step bounds testing approach to cointegration, which has not been done before; it uses the endogenous growth model to consider 12 policy variables and two external factors that potentially affect per capita income, this number is more than that has been done before. The empirical results that we obtained using this two-step bounds testing approach help us draw policy implications that if or when implemented would be expected to increase the growth of real per capita income, as well as the welfare of the people of Indonesia. Economic growth in Indonesia is largely driven by government policy, so the ability to increase Indonesia's economic growth rate, in the long run, will largely depend on the implementation of appropriate government policies.     

Human Fallibility, Complementarity, and Fiscal Decentralization

This paper examines economic growth properties under alternative fiscal organizations when a bureau's decisions are fallible. A country consists of J jurisdictions, which need a public service. In a centralized government, one authority decides on services in every jurisdiction. In a decentralized government, J authorities are in charge of each public service. An authority can have high ability or low ability, and an authority with high ability draws a good project with higher probability. We first show that the decentralized government provides the same average quality of public services, with lower variance, than does the centralized government. We then apply this result to an economic growth model where the value of the Solow residual is a constant elasticity of substitution (CES) function of public services. We show that there is a critical value of the degree of complementarity below which fiscal decentralization is more desirable than fiscal centralization for an expected economic growth, and the decentralized government has a lower variance of GDP growth.     

财政支出、税收与经济增长

This paper assesses the effect of fiscal policy on economic growth in an AK model with endogenous labor supply. It is found that the structure of taxation and government expenditure could affect the long-run growth rate through their effect on households’ labor-leisure choice, saving-consuming choice and the proportion of government expenditure to GDP. Barro’s (1990) plausible result that the growth rate and the income tax rate have an inverted-U relationship does not always hold. In addition, based on the panel data of 31 provinces from 1997 to 2007, we investigate the link between components of government productive expenditure and economic growth. It is found that the productive expenditure does not always have a positive effect on the growth rate, and its effect exhibits regional differences. The reason is that there is an excess amount of the government productive expenditure in China or the efficiency of the government productive expenditure may be too low.     

Lessons from the experience of OECD nations on macroeconomic growth and economic freedom, 2004–2008

This study empirically investigates the impact on per capita real economic growth of each of the ten measures of economic freedom computed annually by the Heritage Foundation. Within the context of the Random Effects Model, panel least squares estimations using a 5-year panel (2004 through 2008) dataset for the OECD nations as a group reveal that the percentage growth rate in the purchasing-power-parity adjusted per capita real GDP for OECD nations was, at the 5?% statistical significance level or better, an increasing function of at least seven of the ten economic freedom measures. The results underscore the critical role that economic freedom plays in a nation??s economic growth and prosperity and the importance of pursuing policies that are consistent with increasing economic freedom.     

Government expenditure and economic growth: A heterogeneous-agents approach

This study examines the relationship between productive government expenditures and economic growth. An R&D-based model of endogenous growth is used, in which agents have heterogeneous entrepreneurial abilities. We show that if the number of high-ability entrepreneurs is non-negligible, then the relationship between the government expenditure/GDP ratio and the economic growth rate is depicted by an inverted U-shaped curve with a flat top. The flat top of the curve indicates that changes in the size of the government expenditures have a limited impact on growth. We calibrate the model using U.S. data and empirically confirm our theoretical predictions. The theoretical and numerical results suggest that the debate on the relationship between the size of the government and economic growth may be off the mark unless the size of the government is extremely large or small.     

江苏省财政科技支出与经济增长的协整关系研究

在对财政科技支出与经济增长关系的相关文献进行回顾的基础上,综合运用协整分析、因果关系检验等计量方法定量分析江苏省财政科技支出总量与江苏省国内生产总值之间关系。结论是：江苏省财政科技支出与经济增长之间存在正向的长期稳定的均衡关系,江苏省国内生产总值不是财政科技支出的格兰杰原因,江苏省财政科技支出是国内生产总值的格兰杰原因。最后分析结果,提出相关政策建议。     

Regionalization, public spending and growth: a stylized model dealing with ‘predatory states’

In this paper, a micro-founded model analyzing the effects of ‘regionalization’ on economic activity is developed. It shows that the spatial division of public competencies can have an impact on the growth rate via the efficiency of governmental choices: initially advantageous for weak levels, decentralization (/reduction of regional size) becomes limited due to the risk of underestimation of the real profitability of public expenditure by local governments (non-internalized cross-border effects). In accordance with the theory, a transversal estimation for a sample of 51 countries for the 1990s establishes a ‘bell-shaped’ relation between indicators of regionalization and the quality of governance.     

Foreign Direct Investment,Financial Development and Their Impact on the GDP Growth in Low-income Countries

ABSTRACT

This essay empirically studies the effects and causal links between foreign direct investment (FDI), financial development (FD) and economic growth. The sample consists of the main economies of low-income countries and the study covers the period 1990–2015. The results of the estimate show that, under certain specific economic conditions, FDI affects positively the level of long-term economic growth; it thus makes it possible to improve the economic situation of these countries. Using Johansen’s cointegration technique, the results find that FD; FDI and GDP growth are cointegrated, that shows the pursuit of the long-term equilibrium relationship between them. The error correction model confirms the existence of a double causal relationship between FDI and GDP growth, and between FD and FDI and between GDP growth and FD.     

OUTPUT GROWTH AND STRUCTURAL REFORM IN LATIN AMERICA: HAVE BUSINESS CYCLES CHANGED?

This paper documents important changes in real gross domestic product (GDP) growth of six large Latin American countries. The main results can be summarized as follows. First, there is evidence of a structural break in real GDP toward stronger mean growth and a substantial reduction in volatility. Second, the timing of the breaks suggests that the important changes in economic policies of the 1980s and 1990s have been effective in permanently improving economic growth in the region. These changes in the growth processes imply recessions that are shorter in duration and milder in amplitude. The sustained increase in commodity prices observed in recent years explains an important share of growth in the region since 2003. But after accounting for the effect of commodity prices, there is even stronger evidence of a structural break in real GDP growth. (JEL E32)     

Impact of US monetary policy rate shock and other external shocks on the Hong Kong economy: A factor‐augmented vector autoregression approach

This paper uses the factor‐augmented vector autoregression framework to study the impact on the Hong Kong economy of the diverging monetary policies by the Fed, the European Central Bank (ECB) and the Bank of Japan as well as the slowdown of the Mainland economy. The empirical results show that shocks in US monetary policy rate mainly affect interest rate‐sensitive sectors in Hong Kong and that monetary easing from the European Central Bank and the Bank of Japan somewhat offsets the impact of tightening of the Fed. The transmission of external shocks is through trade and capital markets. Real variables such as real GDP growth and the unemployment rate are more sensitive to the economic slowdown in Mainland China. It is estimated that the combined effect of the four external shocks will on average lower Hong Kong's quarterly GDP growth by 0.6 percentage points and quarterly inflation by 0.2 percentage points in the first four quarters. However, Hong Kong's financial stability, particularly with regard to loan quality, banks’ capital and liquidity, is well maintained by macroprudential policies, suggesting that Hong Kong's financial system is resilient to external shocks.     

Optimal military spending in the US: A time series analysis

This paper extends previous work on the optimal size of government spending by including nested functional decompositions of military spending into consumption and investment. Post World War II US data are then used to estimate nested non-linear growth models using semi-parametric methods. As expected, investments in military and non-military expenditure are both found to be productive expenditures with respect to the private production. Moreover there is little evidence to suggest that current military spending is having a negative impact on economic growth in the US, while civilian consumption only tends to have only a weak impact. This does not imply that society will necessarily benefit from a reallocation of more spending to the military sector, nor that it is the best way to achieve economic growth.     

Economy as Instituted Process: Change,Transformation, and Progress

During the past two decades, chronic fiscal deficits have led to elevated and rising ratios of government debt to nominal GDP in Japan. Nevertheless, long-term Japanese government bonds' (JGBs) nominal yields initially declined, and have since stayed remarkably low and stable. This is contrary to the received wisdom which holds that higher government deficits and indebtedness will exert upward pressures on nominal yields. This paper examines the relationship between JGBs' nominal yields and short-term interest rates, as well as other factors, such as low inflation, persistent deflationary pressures, and tepid growth. We also argue that Japan has monetary sovereignty, which gives the Japanese government the ability to service its debt, and enables the Bank of Japan (BOJ) to keep JGBs' nominal yields low by ensuring that short-term interest rates are low, and by using various other tools of monetary policy. The argument that short-term interest rates and monetary policy are the primarily drivers of long-term interest rates follows John Maynard Keynes's (1930) insights.     

Decentralization,social capital,and regional growth: The case of the Italian North-South divide

This paper aims to show how a region's constant level of social capital may have a very different impact on its economic growth depending on whether the central or the local level of government is responsible for regional policy.Our case study is the economic performance of Northern and Southern Italy in the post-World War II period, when a long phase of regional convergence came to a sudden halt in the early 1970s. We focus on the economic effects of the 1970s institutional reforms on government decentralization and wage bargaining. Our main hypothesis is that decentralization allocates the provision of public capital to institutions, the local ones, more exposed to a territory's social capital. Since social capital is lower in the Southern regions, decentralization made their developmental policies less effective from 1970 onwards, and regional inequality increased.We build an endogenous growth model augmented to include the interaction between social capital and public investment as well as the reform of the Italian labour market. We calibrate our model using data of the Italian regions for 1951–71. Our quantitative results indicate that decentralization triggered the influence of local social capital on growth and played a central role in halting the convergence path of the low-social-capital regions.