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Financial Policies and the Aggregate Productivity of the Capital Stock: Evidence from Developed and Developing Economies

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  • Philip Arestis
  • Panicos Demetriades
  • Bassam Fattouh

Abstract

We collect data on a number of financial restraints, including restrictions on interest rates and capital flows and reserve and liquidity requirements, and capital adequacy requirements from central banks of 14 countries. We estimate the effects of these policies on the aggregate productivity of the capital stock, controlling for the effects of inputs and financial development and using modern econometric techniques. We find that financial development has positive effects on productivity, while the effects of financial policies vary considerably across countries. Our findings demonstrate that financial liberalization is a much more complex process than has been assumed by earlier literature, and its effects on macroeconomic aggregates are ambiguous.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_362.

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Date of creation: Oct 2002
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Handle: RePEc:lev:wrkpap:wp_362
Contact details of provider: Web page: http://www.levyinstitute.org

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Find related papers by JEL classification:
  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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  16. Philip Arestis & Panicos O. Demetriades & Bassam Fattouh & Kostas Mouratidis, 2002. "The Impact of Financial Liberalisation Policies on Financial Development Evidence from Developing Economies," Discussion Papers in Economics 02/1, Department of Economics, University of Leicester.
  17. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers 928, Cowles Foundation for Research in Economics, Yale University.
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  19. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  20. Arestis, Philip & Demetriades, Panicos O & Luintel, Kul B, 2001. "Financial Development and Economic Growth: The Role of Stock Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 16-41, February.
  21. Gordon H. Sellon, Jr. & Stuart E. Weiner, 1996. "Monetary policy without reserve requirements: analytical issues," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-24.
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  23. Panicos O. Demetriades & Michael P. Devereux & Kul B. Luintel, 1995. "Productivity and Financial Sector Policies: Evidence from South East Asia," Keele Department of Economics Discussion Papers (1995-2001) 95/14, Department of Economics, Keele University.
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  29. Lynde, Catherine & Richmond, J, 1993. "Public Capital and Long-Run Costs in U.K. Manufacturing," Economic Journal, Royal Economic Society, vol. 103(419), pages 880-93, July.
  30. Demetriades, Panicos O & Mamuneas, Theofanis P, 2000. "Intertemporal Output and Employment Effects of Public Infrastructure Capital: Evidence from 12 OECD Economics," Economic Journal, Royal Economic Society, vol. 110(465), pages 687-712, July.
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Cited by:

  1. Majumder, Md. Alauddin & Eff, E. Anthon, 2012. "The link between economic growth and financial development: Evidence from districts of Bangladesh," MPRA Paper 44122, University Library of Munich, Germany.
  2. Ang, James B., 2011. "Financial development, liberalization and technological deepening," European Economic Review, Elsevier, vol. 55(5), pages 688-701, June.
  3. Philip Arestis & Santonu Basu, 2003. "Financial Globalization and Regulation," Economics Working Paper Archive wp_397, Levy Economics Institute.
  4. Felix Rioja & Neven Valev, 2004. "Finance and the Sources of Growth at Various Stages of Economic Development," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 127-140, January.
  5. Marialuz Moreno Badia & Veerle Slootmaekers, 2008. "The Missing Link Between Financial Constraints and Productivity," LICOS Discussion Papers 20808, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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