Financial Development and Economic Growth in Underdeveloped Countries

During the late 1970s and early 1980s, many African countries experienced a profound slowdown in economic growth. The growth rate of real per capita GDP fell from 0.4% per year during the 1973-80 period to 1.2% per year during the 1980-89 period.' The causes-internal and external-of Africa's economic decline and the strategies for restoring economic growth are much debated. Nevertheless, broad consensus has emerged on the importance of (i) increasing total investment and (ii) promoting private-sector development and increasing its share of total investment for long-term growth.2 It is widely recognized that gross domestic investment fell substantially in Africa during the 1980s and remains severely depressed across the region. The proportion of total domestic investment in GDP fell from 20.8% per year during 1973-80 to 16.1% per year during 1980-89. In some countries, investment has fallen to less than 10% of GDP-a level that is insufficient even to replace depreciated capital. In Africa, the minimum investment needed to replace depreciated capital is estimated at 13% of GDP.3 In recent years, there has also been a growing recognition among many African leaders, faced with new realism and pragmatism, that the private sector could play a significant role in economic development. The focus in the longer term of structural adjustment programs and sectoral reforms adopted by these countries is on creating more appropriate incentives and a framework for private-sector development as the basis for achieving sustainable economic growth. In addition, multilateral and bilateral institutions have developed new initiatives with priorities for private-sector development. In 1989, the International Finance Corporation, an affiliate of the World Bank, es-

A study of the impact of military expenditures on economic growth and development examines the differences in the results of previous studies which led to contradictory conclusions. The authors find that these differences are due to sample variations, specificational choices, and the different time periods examined. The data indicate that there is no consistent, statistically significant connection between military spending and economic growth. Augmentation of the models suggests that military expenditures neither help nor hurt economic growth to any significant extent. 2 tables.

The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime. The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston. Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market. The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85. Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis. The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86%. The real exchange rate distortion index supports the view that Asian countries are more outward oriented. Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets. Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market. An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; i.e. overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia. A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate. Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative. The growth rate/capita of Latin American and African countries would increase 1.5-2.1% with a shift to move outward oriented trade policies. This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates. In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate. The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth.

Economists have recently grown interested in doing research on research or R & D, as it is called in industrial circles. Several studies have tested Schumpeter's hoary hypothesis that large firms are responsible for most industrial inventive activity.1 Few of these studies, however, suggest why this hypothesis is apparently valid for some industries and not for others. And statistical studies going beyond this question, to try to relate R & D expenditures to firm profit expectations and the availability of funds as in other investment decisions, are rare (Mansfield, 1964; Mueller, 1967). This paper reports the results of an empirical investigation into the determinants of research expenditures in three industries-drugs, chemicals, and petroleum refining. These industries have three advantages for such a study: (1) they are among the leaders in total R & D expenditures; (2) most activity is concentrated in an appreciable number of large or moderately large firms; and (3) government support of research work is relatively small, so that decisions are more closely analogous to ordinary

This article examines the brand-name effect of airline crashes. These disasters raise several financial issues. A crash represents the loss of a plane, the loss of lives, the loss of scheduling capacity, higher insurance costs, and the potential loss of consumer goodwill. This article focuses on the last of these. Are consumers reluctant to fly with airlines that have poor safety records or do they treat crashes merely as random events that bear no reflection on the quality of the airline?

Social and economic activities, like religion, entertainment, education, research, and the production of other goods and services, are carried on by different types of organizations, for example, corporations, proprietorships, partnerships, mutuals and nonprofits. There is competition among organizational forms for survival. The form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs. The characteristics of residual claims are important both in distinguishing organizations from one another and in explaining the survival of organizational forms in specific activities. This paper develops a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems. © M. C. Jensen and E. F. Fama, 1983 Michael C. Jensen, Foundations of Organizational Strategy Chapter 6, Harvard University Press, 1998. Journal of Law & Economics, Vol XXVI (June 1983) This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=94032 AGENCY PROBLEMS AND RESIDUAL CLAIMS

A THEORY of human capital is in the process of formulation. The primary question is "What is the contribution of changes in the quality of people to economic growth?" The academic economists first raised the question after their research showed that production in developed economies had been increasing much faster than could be explained by inputs of physical capital and additions to the labor force. But the wide interest which the question has aroused indicates much more than academic curiosity. It reflects the desires and aspirations of people throughout the world-people anxious to add weight to their demands for action against disease and illiteracy by showing that such action is not only humanitarian, but will make a major contribution to economic growth as well. Though research on the return to investment in people is barely getting started, even the most tentative conclusions have been widely quoted. Preliminary indications that the rate of return on investment in people is high have been seized upon in a growing number of countries as justification for in-

IT is now generally recognized that there are many cases of vertical restraints that do not fit the standard "consumer free riding on special services" theory.1 For example, the widespread use of resale price maintenance in the marketing of brand name clothing cannot be explained as inducing retailers to supply services such as dressing rooms. It is unlikely that consumers must be prevented from trying on clothing free of charge at a full-service retailer before purchasing the clothing at a discount from retailers who do not supply dressing rooms. A number of authors recently have attempted to correct this deficiency in the standard theory by expanding the type of services that vertical restraints may induce retailers to supply and the corresponding retailer free-riding problems.2 The standard economic analysis of how vertical restraints operate to induce desired retailer behavior has remained essentially unchanged, however. The standard analysis assumes that when it is not feasible for a manufacturer to write explicit, court-enforceable contracts with retailers for the supply of particular services, the only alternative mechanism manufacturers can use to induce the supply of desired services is to increase the direct return retailers receive from consumers when those

PurposeThe primary objective of this research is to assess the influence of financial development, institutional quality and renewable energy consumption on India’s carbon emissions.Design/methodology/approachThis study utilises econometric methodologies, specifically the autoregressive distributed lag (ARDL) model and Toda–Yamamoto causality tests, to explore the interplay among renewable and non-renewable energy consumption, financial development, economic growth, institutional quality, trade openness and carbon emissions in India spanning the years 1996–2019.FindingsThe research indicates that in India, greater utilisation of renewable energy, enhanced financial development and improved institutional quality are linked to lower carbon emissions. On the contrary, an escalation in carbon emissions is related to the consumption of non-renewable energy and greater trade openness. The Toda–Yamamoto causality tests reveal one-way causal relationships from institutional quality, financial development, non-renewable energy consumption and economic growth to CO2 emissions. Furthermore, the study identifies reciprocal causation, demonstrating that carbon dioxide emissions influence renewable energy consumption and trade openness.Research limitations/implicationsThis study recommends that forthcoming research expand its focus by integrating more comprehensive indicators such as consumption, production, transport-based CO2 emissions or ecological footprint. Additionally, to bolster the rigour of future inquiries, researchers might consider exploring alternative regression analysis methods like NARDL and STAR.Originality/valueThis study addresses a significant gap in the existing literature by being the first empirical investigation into the effects of renewable energy consumption, institutional quality and financial development on carbon emissions in the Indian economy. Unlike prior research, we consider a comprehensive financial development and institutional quality index, providing a more holistic perspective. This unique approach contributes valuable insights into the environmental challenges faced by the Indian economy, offering a nuanced understanding of the complex dynamics of environmental degradation in this region.

The relationship among innovation, economic growth, trade openness and financial development has been an interesting topic in context of research, and many researchers have done significant work on these relationships. As far as economic growth is concerned, the impact of financial development, trade openness and innovation has been considered to be the most essential. In the similar context, the current study has been designed with the motive to find out and investigate the casual relationships between innovation, financial development, trade openness and economic growth of Asian countries. Based on the context of Asian countries, the data has collected of Asian countries including Bangladesh, Indonesia, Japan, Philippines, Thailand and Turkey, for the time period of 1980 to 2018. The Cobb Douglas production model has been used to get assistance for the achievement of the objectives of the current study. The collected data was analyzed by applying unit root test and panel VAR estimation model in the study. The results have indicated that there is no casual relationship among financial development and innovation. In the same way, no casualty has been found among trade openness and innovation. Contrarily, unidirectional casual relations have been found between economic growth along with financial development and in the same way, between trade openness and financial development. Lastly, this study has found a "bidirectional" casual relationship amid economic growth and trade openness. This study provides different implications especially for the policy makers of the Asian countries who can get assistance from this study to enhance their economic growth.

EUGENE FAMA and Michael Jensen's treatment of the "Separation of Ownership and Control" is both insightful and informative. It deepens our understanding of corporate control, and the analysis of residual claimants usefully extends the economics of internal organization to include partnerships, mutuals, nonprofits, and the like. The basic argument is this: specialized governance structures arise in response to the efficiency needs of each type of organization. This is an important argument and one with which I broadly concur. They couple this, however, with a strong suggestion that these structures have reached a high degree of refinement-on which account there is not now, if indeed there ever has been, an organization control problem with which scholars and others are legitimately concerned. On this point I have grave doubts. My discussion of the paper addresses three issues: What is the relation, if any, of the hierarchical organization of the firm to economic performance? What relation, if any, does residual claimant status have to the composition and character of the board of directors? And is there now or has there ever been a corporate control problem? I deal with each of these issues in order.

Firm Size and Rate of Growth

Of recent times many countries are suffering from environmental problems such as global warming and emission of greenhouse gases. Emissions of carbon dioxide as been recognized as the major contributor to global warming and climate change. This paper examines the long run relationship among the variables environmental quality, financial development and economic growth in Kenya using time series for the period 1970-2019. Autoregressive distributed lag bounds test is used to investigate long run relationship and Granger causality method is used to test for causality among the variables. Empirical results indicate that there is long-run relationship among the variables. Long run results suggest that increases in financial development, lagged CO 2 , energy consumption, population growth, and trade openness significantly worsens environmental quality in Kenya. Natural resources significantly improve environmental quality in Kenya. According to the results the relationship between CO 2 and financial development in Kenya is non-linear suggesting presence of EKC between CO 2 and financial development. The empirical results confirm that the Environmental Kuznets curve does not exist between CO 2 and economic growth in Kenya in the long run. Short-run results also show that financial development, lagged CO 2 , FDI, population growth, and trade openness increase CO 2 emissions while natural resources reduce it. Causality results show unidirectional causality running from financial development to environmental quality and from CO 2 to GDP. According to the findings, there is evidence of neutrality hypothesis between financial development in Kenya and economic growth. Existence of long run relationship suggests that the government of Kenya needs to implement appropriate environmental policies that reduce pollution during economic growth. The government should set policies and guidelines to the financial sector so that the sector offers credit to firms that reduce air pollution. Keywords : Financial development, economic growth, CO 2 , Autoregressive distributed lag model, Kenya JEL Classification: E44, C32, Q43, Q56 DOI: 10.7176/JESD/11-12-03 Publication date: June 30th 2020

Purpose– The purpose of this paper is to examine the relationship between financial development and income inequality in India using annual data from 1982-2012.Design/methodology/approach– Stationarity properties of the series are checked by using ADF, DF-GLS, KPSS and Ng- Perron unit root tests. The paper applied the auto regressive distributed lag (ARDL) bound testing approach to co-integration to examine the existence of long run relationship; and error correction mechanism for the short run dynamics.Findings– The co-integration test confirms a long run relationship between financial development and income inequality for India. The ARDL test results suggest that financial development, economic growth, inflation aggravates the income inequality in both long run and short run. However, trade openness reduces the gap between rich and poor in India.Research limitations/implications– The present recommend for appropriate economic and financial reforms focussing on financial inclusion to reduce income inequality in India.Originality/value– Till date, there is hardly any study that makes a clear comparison between market-based indicator and bank based indicator of financial development in India and those examining the relationship between finance and income inequality nexus. Further there is hardly any study to include gini coefficient as a proxy for inequality for India and apply ARDL techniques of co-integration, using the basic principles of GJ hypothesis and provide short run and long run dynamics for India. So the contribution of the paper is to fill these research gaps.

In this paper, we empirically investigate the causal nexus between economic growth (GDP), CO2 emissions (environmental degradation), financial development and trade openness by using the ordinary least squares technique for a yearly panel data of 40 European economies, during the period of study from 1985 to 2014. To examine this causal link, we utilise the Cobb-Douglas production function. The empirical findings point to a bidirectional Granger causal linkage among GDP and pollution, GDP and financial sector development, GDP and trade openness, financial sector development and trade openness and trade openness and pollution in the case of European economies. From the causal link between GDP and environmental pollutants, we validate the existence of the environmental Kuznets curve hypothesis. Also, we confirm the feedback suggestion of the bidirectional causality among trade openness and financial sector development. Besides, we find the neutrality hypothesis linking carbon emissions and financial sector development inflows. Finally, we find the presence of the bidirectional nexus between GDP and financial sector development and amongst GDP and trade openness in the European economies.