A Pasinetti model of savings and growth

2017

This paper develops a two-sector growth model in which institutional investors play a significant role. A necessary and suffi cient condition is established under which these investors own the entire capital stock in the long run. The dependence of the long-run growth rate on the behaviour of such investors, and the effects of a productivity increase are analysed. JEL classification. O41, O43 Acknowledgements. I am grateful to Stefano Zambelli for his advice, and to Waikato University, New Zealand, for a constructive research environment. Thanks also to the Carnegie Foundation for a grant which supported this research. Any remaining errors or omissions are entirely mine.

Review of Political Economy

This paper develops a two-sector growth model in which institutional investors play a signi…cant role. A necessary and su¢ cient condition is established under which these investors own the entire capital stock in the long run. The dependence of the long-run growth rate on the behaviour of such investors, and the e¤ects of a productivity increase are analysed. JEL classi…cation. O41, O43 Acknowledgements. I am grateful to Stefano Zambelli, and to two anonymous referees of this journal, for their advice. I am further indebted to Waikato University, New Zealand, for a constructive research environment. Thanks also to the Carnegie Foundation for a grant which supported this research. Any remaining errors or omissions are entirely mine.

2004

This paper studies the role of institutional investors (pension fund, insurance companies and investment companies) in the development of the financial sector and economic growth in OECD countries by employing a dynamic panel VAR. While pervious studies in this area have mainly focused on contractual savings institutions of pension funds and insurance companies, we provide a consistent analysis of institutional investors that includes pension funds, insurance companies, and investment companies both at the aggregated and disaggregated levels. At the aggregate level, we found that institutional investors significantly Granger causes stock market developments and economic growth. However, we do not find such evidence with the banks. At the disaggregated level, we found that market capitalization Ganger causes the development of contractual savings institutions of pension funds and insurance companies. While these contractual savings institutions Granger causes liquidity and turnover in the stock market, the results suggest that the maturity and large coverage of these institutional investors have diluted the impact in deepening the stock market. In turn, the 'risk averseness' of these contractual savings institutions in holding large capitalized and diversified stock portfolio verifies the reverse causality evidence. Contrary to a passive 'buy and hold' strategy, the unidirection causality to both market liquidity and turnover verifies that contractual savings institutions actively manage their portfolios. Another key finding of this study is the significant role of investment companies in Granger causing both financial sector development and economic growth. While both contractual savings institutions exhibit uni-directional causality on economic growth, we found a dynamic relationship between investment companies and growth due to the risk taking activities of investment companies.

The Manchester School, 1999

We analyse a Kaldor^Pasinetti two-class model of growth and distribution in which ¢scal activity is explicitly introduced along the lines of Pasinetti (`Ricardian Debt/Taxation Equivalence in the

Journal of Financial Economics, 2003

This paper examines the relation between the institutional structures of advanced OECD countries and the comparative growth and investment of 27 industries in those countries over the period 1970 to 1995. The paper reports a strong relation between the structure of countries' financial systems, the characteristics of industries, and the growth and investment of industries in different countries. r

This study analyzes the nonlinear relationship between financial development under the presence of institutional investors (assets in insurance companies, mutual funds, and pension funds, as a percentage of GDP) and economic growth. The analysis considers data on 116 economies obtained from the World Bank for the period 1991-2014. We examine both industrialized and developing economies using a dynamic panel threshold technique. We find that countries below the finance threshold grow less and those above the threshold grow faster. In addition, in the industrialized economies, institutional investors have a positive effect on the growth of GDP per capita.

SSRN Electronic Journal, 2000

This paper proposes a framework for comparing the predictions of representative household models with those of models of overlapping generations, in the context of a class of endogenous growth theories with investment adjustment costs. In the model used in this paper, savings and investment are co-determined through adjustments in the real interest rate, and the equilibrium investment rate determines the long-run growth rate. The two classes of models have similar predictions regarding the effects of technological and preference shocks, but the overlapping generations model predicts lower savings and investment, higher interest rates and lower growth rates that the corresponding representative household model. We calibrate the two models using similar parameter values and the results suggest that the differences between the two models are not quantitatively large. For plausible parameter values, the differences in growth rates, savings rates and investment rates are of the order of 0.1 to 0.2 of a percentage point per annum, which accumulated over twenty five years is at most 5% of aggregate output. The differences for real interest rates are even smaller. Overall the results suggest that the relative simplicity of the representative household model does not lead to results that would be too far off quantitatively, even if the real world is characterized by overlapping generations.

Journal of Macroeconomics, 1995

Frequently, intertemporal models, for example, Uzawa's (1969) work on growth, are based on the separation of investment and the financing decisions of firms. Finance variables are disregarded. In contrast, along the lines of the theory of imperfect capital markets, the ...

1994

Variations in growth performances across regions of the world have been of significant interest to development economists. Prior to the spectacular growth of many of the East Asian economies, a variety of structural and non-structural factors were employed to explain the differences in growth performances. Since that time, however, regional variation in growth achievement has been explained in terms of differences in savings and investment performances. It has been widely observed in the literature that some regions ( e.g., Sub-Saharan Africa and Latin America) tend to save and invest a smaller proportion of their aggregate outputs than did their more dynamic counterparts (e.g., Asia and the Organization for Economic Cooperation and Development Countries (OECD)). Our interest in the linkage between savings, investment and economic growth is not new in the economic development literature. The works of Arthur Lewis in the 1950s, for example, portray the central task of economic development as that of raising the proportion of national income saved and invested from 4-5 per cent to 12-15 per cent (Lewis 1954). Recent theoretical perspectives, typified by endogenous growth models, suggest that high investment rates can result in a permanent increase in an economy's overall growth rates (Romer:·1986; Lucas 1988). Both theoretical approaches identify investment as a fundamental factor in economic growth. In contrast to developed countries, where growth- problems were viewed in the Keynesian sense of too much saving and too little spending, investment and, hence, economic growth in developing countries were constrained by the insufficiency of savings (James, et al 1987). In this context, evidence from development experiences strongly suggests that the best performing countries (even among the developing ones), have achieved this status largely on the basis of their high rates of savings and investment (Oyejide 1998). Although savings, capital formation and economic growth have been central to economic development analysis for several decades, the connection between them and the direction of causality is far from clear (Fry 1980; Schmidt-Hebbel, et al 1996). Accepting that the relationship is unidirectional (i.e., moving from saving to investment and, hence, to economic growth) may be misleading. The transformation of an initial growth spurt into sustained expansion of output requires the accumulation of capital and its corresponding financing. Expansion, in turn, sets in motion a self-reinforcing process by which the anticipation of growth encourages investment, investment supports growth, and increased income raises saving (Schmidt-Hebbel, et al 1996).