Thesis advisor: Robert Murphy / In this paper, I explore the connection between governance and economic growth. Economic growth has been a phenomenon experienced by some countries, but totally lacking in others. This paper explores the role of governance on growth, utilizing the governance indicators developed by the World Bank’s Worldwide Governance Indicators project. I develop a model that is a synthesis of the Solow Growth Model, as well as the growth models developed by Burnside and Dollar (2000) and Kaufmann and Kraay (2002). My results conclude that governance is linked with economic growth through two channels: first, governance and economic growth are positively correlated with each other; and secondly, good governance positively affects trade and investment, which then is positively associated with the growth of GDP per capita. Thus, good governance should be of the utmost concern for countries attempting to achieve growth of GDP per capita. / Thesis (BA) — Boston College, 2010. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.

The liberalization of FDI is deepening, so have the incentive schemes put in place by a number of countries. Investment promotion agencies in these countries are seen to be actively promoting their countries as the best locations for foreign direct investment (FDI). With FDI emerging as a fovourite source of capital for most countries, profound questions about the true value of FDI to host countries are addressed in this study. While incentive packages may be justified on the basis of incomplete internalization of FDI benefits by foreign firms, it still remains critical to establish whether these benefits (spillovers) are substantive. As an attempt to answer these questions, this dissertation uses both firm level and country level data to investigate the effects of foreign direct investment (FDI) on productivity and economic growth. The first part of the study uses cross sectional firm level data to investigate whether foreign firms are more productive than domestic firms. We further examine whether there are any significant productivity spillovers from foreign to domestic firms or not. SIn the second part, focus is on country level analysis which uses both time series and panel data techniques. In the time series analysis we use the recent Toda-Yamamoto causality testing framework to determine the direction of causality between FDI and growth for three groups of countries: developing, emerging and developed countries. This is followed by fixed effects and dynamic panel data analyses for the 37 countries (9 developing, 12 emerging and 16 developed) where we test for absorptive capacity effects. Our findings show that results are determined to a great extent by the method of analysis. Interesting findings emerge from this study. The firm level data revealed the importance of multinational corporations in improving domestic firm productivity. With this finding, we anticipate these results to filter through the macro system and show up in the time series and panel data analyses. In the case of developing economies, productivity differences between domestic and foreign firms are confirmed only where the definition of FDI is below the full ownership level. Positive but statistically insignificant spillovers are found in the developing country sample. From the emerging economy sample, we iii find neither significant productivity differences nor related spillovers from foreign to domestic firms. With regards to developed economies, as in the case of emerging economies, there are no statistically significant productivity differences between domestic and foreign firms. Interestingly, for this sample, positive and highly significant spillovers from foreign to domestic firms are documented. The Toda Yamamoto Granger causality framework shows unidirectional causality from FDI to GDP in Colombia, Egypt and Zambia. These results suggest that in these three countries, we have a case of growth enhancing FDI. There is also evidence of causality which runs from GDP to FDI in China, Indonesia, France, Japan, Spain and the United Kingdom. This is a case where higher levels of economic activity attract foreign direct investment. We also find evidence of bi-directional causality for Argentina, Kenya and Thailand. No clear cut relationship between FDI and growth is established in the rest of the countries: Brazil, Chile, Ghana, India, Jordan, Madagascar, Malawi, Morocco, South Africa and all but four of the developed economies. The dynamic panel data analysis for the developing economy sample reveals positive effects between FDI and economic growth. A key finding from this is the negative impact of financial development, an absorptive capacity measure. This unexpected result raises the possibility of international capital flows becoming more harmful to developing economies when extensive development of the domestic financial sector makes it difficult to regulate financial transactions of relatively esoteric financial contracts. This evidence there should be a nuanced embrace of financial globalization by developing economies. In the emerging economy analysis, the roles of openness of the economy and financial development as absorptive capacity indicators are elevated. Overall, the dynamic analysis shows a largely negative and statistically insignificant effect of FDI on economic growth. For developed economies, we find that negative effects of FDI on economic growth are encountered at both the minimum and mean levels of openness. This suggests that for developed economies, a level of openness above the mean value would be ideal for economic growth to be realized through FDI. iv Corroborating our findings with the work of other scholars, we conclude that our results are complementary. It appears that the contradictions inherent in the FDI-Growth literature could be partly due to methodological differences.

This paper explores the relationship between stock market development and economic growth in Africa. It provides a theoretical basis for establishing the channel through which stock market affect economic growth and this is empirically examined by using regression analysis to test if indeed there is such a relationship. Three stock market indicators, namely market capitalization as a percentage of GDP, turnover ratio and numbers of listed shares, are used to test whether they have any impact on economic growth, together with other explanatory variables of growth such as foreign direct investment, inflation and credit. The study uses data on four countries: Kenya, Nigeria, Egypt and South Africa for the period 1991-2010. Furthermore, the study investigated whether a collaborative regional cross-listing will improve the stock market development of the country of secondary listing. Dummy variables and interactive variables are used in regressions to test for collaborative relationships between the exchanges in the region. The results show that indeed there is an association between stock market development and economic growth. Results also show that cross-listing within a region can boost stock market development, which in turn boosts economic growth. Africa does not have a lot of cross-listings but from this paper, the evidence suggests that it is a path worth exploring.

Since the 1990s, advocates of policy to prevent catastrophic climate change have been divided over the appropriate economic instruments to curb CO2 emissions-carbon taxes or schemes of emission trading. Barack Obama claimed that policies implemented during his presidency set in motion irreversible trends toward a clean-energy economy, with the years 2008-2015 given as evidence of decoupling between CO2 emissions and economic growth. This is despite California being the only state in the USA that has implemented a specific policy to curb emissions, a cap-and-trade scheme in place since 2013. To assess Obama's claims and the effectiveness of policies to reduce CO2 emissions, we analyze national and state-level data from the USA over the period 1990-2015. We find: (a) annual changes in emissions strongly correlated with the growth conditions of the economy; (b) no evidence for decoupling; and (c) a trajectory of CO2 emissions in California which does not at all support the claim that the cap-and-trade system implemented there has reduced CO2 emissions. / Series: SRE - Discussion Papers

Foreign direct investment is an important topic in economic research. FDI occurs when a firm invests in a foreign country. The purpose of this thesis is to empirically analyze the effects of FDI on the economic growth of the selected sample of twenty-one OECD countries. The thesis is based on a theoretical model of cross-country regressions and a panel data technique methodology was followed. The results of the time-period 1998-2017, show a direct positive impact of FDI on GDP per capita growth, namely economic growth. Moreover, it was found a lack of complementarity between FDI inflows and human capital, and a negative dependency between FDI inflows and institutions such as private sector credit.

O objetivo deste trabalho é analisar empiricamente os principais fatores condicionantes do crescimento econômico brasileiro, no período de 1970 a 2010, a partir de um modelo de autoregressão vetorial estrutural seguindo especificação neoclássica da teoria macroeconômica de crescimento. Para isso, o estudo inicia-se com o enfoque teórico dos modelos de crescimento econômico e prossegue com a análise empírica do caso brasileiro utilizando o ferramental de séries temporais. Os principais resultados empíricos obtidos sugerem que: (i) a formação bruta de capital fixo, o capital humano e o grau de abertura da economia são instrumentos importantes de formulação de políticas de crescimento econômico; (ii) há um efeito da curva J na dinâmica da taxa de câmbio; e (iii) há diferenças nas elasticidades de curto e longo prazo, promovendo diferentes abordagens para políticas de planejamento econômico entre as variáveis. / This research aims to empirically analyze the main conditioning factors of the Brazilian economic growth for the period 1970-2010 using a structural vector autoregression model following a neoclassical specification for the macroeconomic theory of economic growth. In order to do it, the analysis starts with the theoretic approach of the economic growth models and part to the empirical approach to the Brazilian case, using time series analysis. The mean partial empirical results suggest that: (i) gross fixed capital formation, followed by human capital and trade openness are important instruments of economic growth policy; (ii) there is an J curve e_ect on the dynamics of the exchange rate; and (iii) there are di_erences in the short and long-run elasticities, promoting di_erent approaches to economic planning policies between the variables.

This thesis examines the effects income inequality has on economic growth, drawing on data from China. It focuses on two related questions: whether income inequality is harmful to economic growth and, if so, why. The first empirical chapter uses a newly-developed panel dataset at the province level to examine the long-run impact of income inequality on economic growth, addressing the problem of spurious regression that affects much of the existing literature. The empirical results indicate that the long-run effect of income inequality on economic growth is non-linear: while income inequality exerts a positive impact on economic growth for rich provinces, it is harmful to economic growth for poor regions. The second empirical chapter provides mathematical and empirical evidence that demonstrates the deficiencies in existing studies that solely rely on macroeconomic data. It examines three mainstream transmission mechanisms by using data at both the household and village level. At the village level, the empirical results show that income inequality leads to lower economic growth. However, at the household level, income inequality is positively linked to income growth for households with low levels of initial income. Such seemingly contradictory results agree with the predictions of my mathematical example and suggest that the political economy channel is responsible for the inequality-growth relationship in rural China. The last empirical chapter examines whether inequality and growth are linked across generations by evaluating the impact of the One Child Policy on fertility and education in China. Using a difference-in-differences approach, the empirical results suggest that the One Child Policy successfully lowered the probability of having a child for Han women and increased the probability of attending school for Han children. This empirical evidence indicates that the endogenous fertility channel operates in China.

The objective of this Dissertation is to develop alternative macromodels that explore macroeconomic implications of some environmental and ecological economics concerns. The first essay develops an environmental extension of a Lewis dual economy model to explore long-run effects of a pollution abatement rule in developing economies. It is shown that this pollution abatement requirement makes for the possible emergence of an ecological development trap. Meanwhile, this economy can be released from such a trap not only through a standard Big Push, but also by means of what the essay calls an Environmental Big Push. The second essay presents an extension of a Harrodian model of cyclical growth, which explores a bidirectional causal relationship between the environment and effective demand in dual low-income economies with relatively low levels of environmental quality. The model shows that perpetual vicious circles may characterize the pattern of fluctuations in economic activity. Finally, the third essay presents a classical--Marxian model that describes a possible transitional dynamics to clean technology based on evolutionary game theory. The results show that heterogeneity in the frequency distribution of strategies of the adoption of clean and dirty techniques may be a persistent outcome. An outcome in which all, or at least a great proportion of firms, adopt the clean technique is theoretically possible, but inevitably, such a result is only achieved with an initial profit-reducing shock on functional income distribution and thus a fall in economic growth. / O objetivo desta Dissertação é desenvolver modelos macro que exploram implicações econômicas de algumas questões ecológicas e ambientais. O primeiro ensaio desenvolve uma extensão ambiental de um modelo Lewisiano de economia dual para explorar efeitos de longo prazo de uma regra de abatimento da poluição em países em desenvolvimento. Mostra-se que tal regra pode gerar uma armadilha de desenvolvimento ecológica. Contudo, essa economia pode ser libertada da armadilha não apenas por meio de um Big Push padrão, mas também por meio do que o ensaio chama de um Big Push Ambiental. O segundo ensaio apresenta uma extensão de um modelo Harrodiano que explora uma relação causal bidirecional entre meio ambiente e demanda efetiva em economias duais de baixa renda com níveis baixos de qualidade ambiental. Mostra-se que círculos viciosos perpétuos podem caracterizar o padrão de flutuações cíclicas da atividade econômica. O terceiro ensaio apresenta um modelo clássico--Marxiano que explora uma possível dinâmica de transição para a tecnologia limpa baseada em jogos evolucionários. Mostra-se que a heterogeneidade na distribuição de frequência das estratégias de adoção de tecnologia limpa e suja pode ser persistente. Um resultado em que todas, ou uma grande proporção de firmas adota a tecnologia limpa, é teoricamente possível, mas só será atingido com um choque inicial redutor de lucros sobre a distribuição funcional da renda e uma queda no crescimento econômico

This thesis aims at analyzing the impact of water on economic growth and economic development. We explore different topics that are directly linked to the availability of water, which directly influence economic growth and development. The thesis consists of four studies. The first study models the effect of water utilization and water pollution on economic growth. The second study is based upon reflections on the fixed effects model and makes the distinction between the impact of the mean of a variable X and deviations from that mean on another variable Y. To date it has tended to be assumed that these impacts are the same; we argue that this is not always the case that countries can to an extent adjust to a specific water environment. However having adjusted they face problems when the water environment deviates from the mean. In the third study we explore the effect of different socio economic factors such as labour productivity, agricultural inputs, population density, water resources per land, and variables such as the trade regime, on water withdrawal for the agricultural and non-agricultural sectors. A specific focus is on the interactions between these two sectors. This study is new in its content and its theme of the work. We argue that many global trends will put increasing pressures on agricultural and non-agricultural water use. But there is also potential for increased efficiency in this use. The fourth study tries to fill the gap in the literature that deals with development aid for water and sanitation. We explore the impact of aid and aid volatility on safe access to water and sanitation, using a newly available OECD/DAC data base. Specifically, we analyse both the recipient countries and the donors to determine the role of aid in affecting safe access to water and sanitation.

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