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4201. Education, Financial Institutions, Inflation and Growth

Author:
Iftekhar Hasan, Leonardo Becchetti, and George Mavrotas
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Our paper investigates the unexplored impact of education on inflation and of this relationship on economic growth. By using a sample of 102 countries observed on non-overlapping five-year data spells over the period 1963-2001, we find that average schooling years of the working population have a significant negative impact on inflation rates after controlling for the effects of the stance of domestic monetary policy. We also show that the negative impact of inflation on growth in conditional convergence estimates is significantly increased when the former is instrumented by educational variables. Our findings outline a third potential role of human capital on conditional convergence. They show that education is not only a production factor or a variable which may reduce demographic pressures, but also an important antidote against inflationary pressures which, in turn, negatively affect economic growth and conditional convergence. We interpret our findings by identifying three potential rationales for the education-inflation nexus: (i) education raises consumers' awareness of their power in contrasting producers' inflationary pressures; (ii) more educated individuals have lower inflationary expectations when they are also wealthier and their consumption bundle is relatively less (more) intensive in inferior (superior) goods with higher (lower) inflation potential; (iii) more (less) educated and wealthier (less wealthy) individuals tend to be net creditors (debtors) in their maturity, thereby contributing to increase (reduce) the power of anti-inflationary lobbies.
Topic:
International Relations, Development, Economics, and Education

4202. Financial Sector Development, Savings Mobilization and Poverty Reduction in Ghana

Author:
Peter Quartey
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper primarily investigates the interrelationship between financial sector development and poverty reduction in Ghana. This is done using time-series data from the World Development Indicators from 1970-2001. The main findings are, first, that even though financial sector development does not Granger-cause savings mobilization in Ghana, it induces poverty reduction; and second, that savings do Granger-cause poverty reduction in Ghana. Also, the effect of financial sector development on poverty reduction is positive but insignificant. This is due to the fact that financial intermediaries in Ghana have not adequately channelled savings to the pro-poor sectors of the economy because of government deficit financing, high default rate, lack of collateral and lack of proper business proposals. Another interesting finding is that there is a long-run co integration relationship between financial sector development and poverty reduction.
Topic:
Development, Economics, and Poverty
Political Geography:
Africa and Ghana

4203. Financial Markets and R Investments: A Discrete-Time Model to Interpret Public Policies

Author:
Marco Mazzoli
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper introduces a discrete-time intertemporal investment model in which the flow of profits affects the risk premium on the cost of finance, and, as a consequence, the rate of discount of future profits. While public investments, according to a consolidated literature, constitute the main bulk of innovation policies, this model is used to comment and interpret the potential use of another, secondary, public policy, consisting of tax incentives for firms performing R expenditures and issuing securities in the stock market. Linking public policies for innovation to the stock market might help to reduce the problems of discretionality and the monitoring of public expenditure used to finance R and technical innovation.
Topic:
Security, Development, Economics, and Emerging Markets

4204. Does Financial Liberalization Influence Saving, Investment and Economic Growth? Evidence from 25 Emerging Market Economies, 1973-96

Author:
Robert Lensink and Niels Hermes
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper aims to investigate the relationship between financial liberalization on the one hand and saving, investment and economic growth on the other hand, using a new dataset for measuring financial liberalization for a sample of 25 developing economies over the period 1973-96. We find no evidence that financial liberalization affects domestic saving and total investment (although there are some signs to believe that liberalization may actually reduce rather than increase domestic saving), whereas it is positively associated with private investment, as well as with per capita GDP growth. We find a negative relationship between financial liberalization and public investment. These results suggest that financial liberalization leads to a substitution from public to private investment, which may contribute to higher economic growth.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance

4205. Financial Sector Development and Productivity Growth

Author:
George Mavrotas and Subal C. Kumbhakar
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Recent years have witnessed important structural changes around the world as a result of the globalization process, the creation of new economic blocks and the liberalization of financial sector in many countries. Responding to these changes many sectors of the industrialized countries have gone through major deregulatory changes to acclimate themselves to new environments. At the same time, many countries have undertaken institutional reforms to build a market-orientated financial system in the hope that transition towards market economy will improve productivity. In the face of uncertainty resulting from changes in regulatory structure and the development of financial institutions to foster market economy, many countries may not be able to achieve their maximum growth potential. In other words, productivity growth is likely to depend on the development of financial institutions and the stage of economic development That is, a less developed country is likely to benefit more (in terms of output growth rate) from the development of financial institutions than a developed economy with well-developed financial system. In this paper we document this by using data covering 65 countries, varying substantially in term s of level of development and geographic location, and spanning the period 1960-1999. Empirical results obtained from the estimation of two different empirical models regarding the measurement of total factor productivity growth seem to confirm a priori expectations about the overall positive influence of financial systems on productivity in line with previous work on this front. Our results remain robust with respect to alternative definitions of financial sector development we tried.
Topic:
Development, Economics, Globalization, and International Trade and Finance

4206. The Tax Reform Experience of Kenya

Author:
Stephen Njuguna Karingi and Bernadette Wanjal
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In evaluating tax reform in the developing countries, one first needs to determine what is the unique role of the tax system in each particular country. One of the key reasons for undertaking tax reforms in Kenya was to ad dress issues of in equality and to create a sustainable tax system that could generate adequate revenue to finance public expenditures. In this respect, the tax modernization programme introduced in the country was to achieve a tax system that was sustainable in the face of changing conditions domestically and internationally. Policy was shifted towards greater reliance on indirect taxes as opposed to direct taxes. Consumption taxes were seen to be more favourable to investments and hence growth. Trade taxes, instead of being used for protection or revenue-maximization purposes, were viewed more as instruments to foster export-led industrialization. Trade taxes were therefore used to create a competitive exports sector rather than protect the import-competing manufacturing sector, as had been done in the past.
Topic:
International Relations, Development, and Economics
Political Geography:
Kenya and Africa

4207. Tax Reforms in Ghana

Author:
Peter Quartey and Robert Darko Osei
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Ghana's tax reforms constitute the major policy instrument needed to accelerate growth and poverty reduction. Over the past two decades, the government has consistently spent more revenue than it is able to generate and the gap is often financed with foreign aid which has perpetuated the country's aid dependency. Two options can be explored to reduce the gap between government revenue and expenditure; generate more revenue or reduce government expenditure. Although the latter sounds reasonable, the government needs to spend more on key sectors like education, health and infrastructure if the country is to significantly reduce poverty. The critical issue has been how to generate the needed resources domestically, using tax instruments that are least harmful to the poor. This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate. This paper provides an assessment of the changing structure of the tax system in Ghana over the last two decades and suggests ways to improve tax administration in the country.
Topic:
International Relations, Development, and Economics
Political Geography:
Africa and Ghana

4208. Consistent Testing for Poverty Dominance

Author:
Bram Thuysbaert and Ricardas Zitikis
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
If uncertainty exists over the exact location of the poverty line or over which measure to use to compare poverty between distributions, one may want to check whether poverty dominance holds. We develop a consistent statistical test to test the null of poverty dominance against the alternative of nondominance. Dominance criteria corresponding to absolute and relative poverty measures are dealt with. The poverty line is allowed to depend on the income distribution. A bootstrap procedure is proposed to estimate critical values for the test. Our results cover both independent and paired samples.
Topic:
Demographics, Development, Economics, and Poverty

4209. The Microeconomics of Inequality, Poverty and Market Liberalizing Reforms

Author:
Rafael E. De Hoyos
Publication Date:
11-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper illustrates how the use of microeconometric techniques can be used to uncover the micro dynamics behind macro shocks. Using Mexican micro data we find out that—controlling for everything else—between 1994 and 1998 returns to personal characteristics in the tradable sector increase d particularly those of skilled labourers. By the year 2000 the positive shock upon the tradeable sector vanishes with returns to personal characteristics converging to the levels observed in the non-tradable sector. We use our model's results to simulate a scenario where the Mexican economy experienced the negative shock of the peso crises in the absence of trade liberalization (NAFTA) and find out that under such a scenario the poverty headcount ratio would have increased more than 2 percentage points above the one observed in 1996. The simulated second- order effect of these changes shows that the skill mixed changed in a way that favoured relatively skilled men and relatively unskilled women. These changes in labour participation and occupation had an overall positive income effect though adverse in distributive terms.
Topic:
Demographics, Development, and Economics
Political Geography:
Central America

4210. Poverty Measurement and Theories of Beneficence

Author:
S. Subramanian
Publication Date:
10-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This note points to certain similarities of orientation and outcome between Derek Parfit's quest for a theory of beneficence and Amartya Sen's quest for a suitable real-valued representation of poverty. It suggests th at both projects, in a certain sense, have been instructive failures. Using Sen's own work, the note also suggests a logically natural way of dealing with some of the problems in poverty measurement reviewed in it—but only to reject this way out on other compelling grounds.
Topic:
Demographics, Development, Economics, and Poverty