Nexus of Financial Development, Innovation for Green Growth in ASEAN Countries

Jayasooriya, Sujith (2020): Nexus of Financial Development, Innovation for Green Growth in ASEAN Countries.

Abstract

Albeit economic growth of global economies is increasing, nexus of green economic growth, innovation, and financial development needs to be thoroughly understood to make prudent economic policies for sustainability. The research question intends to identify the green growth promoting policies and impact of innovation and financial systems on sustainable economic growth. Rationale for the research is to provide pragmatic evidences to build up economic systems that lead green growth under the emission control and abatement. Empirical approach is used to (i) estimate augmented-Green-Solow model for ASEAN countries (ii) EKC is also estimated with Generalized Method of Moments (GMM) estimation to reveal the impact of financial development, innovation, and trade openness using World Bank data from 1980 to 2014. The empirical results indicate, across estimation methods and specifications, a strong correlation of the innovation, financial development and CO2 emissions per capita for green growth. Further, increase of innovation and financial structure leads the economies to be sustainable with increase of abatement cost with technological adaptation, and human capital. The implications of the study are to deliberate on the determinants of green growth to promote sustainable development in the economies. Finally, the paper guides policymakers to reform financial and innovation systems to achieve advancement in green technologies adapting sustainable economic policies for green growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Finance, Innovation, Green Solow Growth, Generalized Methods of Moments estimation.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts; F - International Economics > F6 - Economic Impacts of Globalization > F63 - Economic Development

References

Acemoglu, D., Aghion, P. and F. Zilibotti (2006). Distance to Frontier, Selection, and Economic Growth. Journal of European Economic Association, 4, 37–74.

Adusei, M. (2012). Financial Development and Economic Growth: Is Schumpeter Right? British Journal of Economics, Management & Trade, 2(3), 265-278.

Aghion, P. and P. Howitt (1998). Endogenous Growth Theory, MIT Press Books.

Aghion, P., Howitt, P. and D. Mayer-Foulkes (2005). The Effect of Financial Development on Convergence: Theory and Evidence. Quarterly Journal of Economics, 120 (1), 173–222.DOI:10.18267/J.Pep.478172 PRAGUE ECONOMIC PAPERS, 2, 2014

Aghion, P., and P. Howitt (2009). The Economics of Growth. Cambridge, Massachusetts: MIT Press, 2009.

Ang, J. B., (2007). CO2 Emissions, Energy Consumption, and Output in France. Energy Policy, 5, 4772-4778.

Arellano, M., and S. R. Bond (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and An Application to Employment Equations. Review of Economic Studies, 58(2), 277–297.

Arellano, M. and O. Bover (1995). Another Look at the Instrumental Variable Estimation of Error- Components Models. Journal of Econometrics, 68(1), 29–51.

Barbier, E. B. (1997). Introduction to the Environmental Kuznets Curve Special Issue. Environment and Development Economics, 2, 369–381.

Barro, R., and Sala-I-Martin, X., Economic Growth, 2nd Edition, Cambridge, Mass MIT Press, 2004.

Bencivenga, V. R., Smith, B. D. and R. M. Starr (1995), Transactions Costs, Technological Choice, and Endogenous Growth, Journal of Economic Theory, 67, 153–177.

Brock, W.A., and M. S. Taylor (2004). The Green Solow Model. NBER Working Paper Series, No: 10557.

Cabral, L., and J. Mata (2003). On the Evolution of the Firm Size Distribution: Facts and Theory. American Economic Review, 93(4), 1075–1090.

Caselli, F., Esquivel, G. And F. Lefort (1996). Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics, Journal of Economic Growth, 1, 363– 389.

Coe, D., and E. Helpman (1995). International R&D Spillovers, European Economic Review, 39, 859-887.

Demirguc-Kunt, A., and E. Degatriache (1998). The Determinants of Banking Crises in Developing and Developed Countries, International Monetary Fund Staff Papers, 45, 81–109.

Demirguc-Kunt, A., and G. Detregiache (2000). Banking Sector Fragility: A Multivariate Logit Approach, World Bank Economic Review, 14, 287–307.

Devereux, M. B., and G. W. Smith (1994). International Risk Sharing and Economic Growth, International Economic Review, 35, 535–550.

Diamond, D. W. (1984). Financial Intermediation and Delegated Monitoring. Review of Economic Studies, 51 (3), 393–414.

Eaton, J., and S. Kortum (1997). Technology and Bilateral Trade, NBER Working Paper 6253.

Gourinchas, P., Landerretche, O. and R. Valde ́S, (2001). Lending Booms: Latin America and the World Economia 1, 47–100.

Graff, M. (2003). Financial Development and Economic Growth in Corporatist and Liberal Market Economies, Emerging Markets and Trade, 39(2), 47-69.

Greenwood, J., and B. Smith. (1997). Financial Markets in Development and the Development of Financial Market, Journal of Economic Dynamic and Control, 21(1), 145-181.

Griliches, Z., and F. Lichtenberg (1984). Inter-Industry Technology Flows and Productivity Growth: A Re-Examination, Review of Economics and Statistics, 66, 324-29.

Harbaugh, W., Levinson, A. M., and D. M. Wilson (2002). Reexamining the Empirical Evidence For an Environmental Kuznets Curve. Review of Economics and Statistics, 84, 541–551.

Holmstrom, B., and J. Tirole (1993). Market Liquidity and Performance Monitoring. Journal of Political Economy, 101 (4), 678–709.

Islam, N. (1995). Growth Empirics, A Panel Data Approach. Quarterly Journal of Economics, 110(4), 1127–1170.

Jalil, A., and Y. Ma (2008). Financial Development and Economic: Time Series Evidence From Pakistan and China, Journal of Economic Cooperation, 29(2), 29-68.

Kaminsky, G., and C. Reinhart, (1999). The Twin Crises: The Causes of Banking and Balance of Payments Problems, American Economic Review, 89, 473–500.

Khanna, N., and F. Plassmann (2004). The Demand for Environmental Quality and the Environmental Kuznets Curve Hypothesis, Ecological Economics, 51 (3-4), 225-236.

King R. G., and R. Levine (1993). Finance, Entrepreneurship, and Growth: Theory and Evidence, Journal of Monetary Economics, 32, 513–542.

King, R., and R. Levine (1993a). Finance and Growth: Schumpeter Might Be Right, Quarterly Journal of Economics, 153, 717–738.

King, R., and R. Levine (1993b). Finance, Entrepreneurship, and Growth: Theory And Evidence, Journal of Monetary Economics, 32, 513–542.

Kuznets, S. (1955). Economic Growth and Income Inequality. American Economic Review, 45, 1-28.

Levine, R. (2002). Bank-Based or Market-Based Financial Systems: Which Is Better?, Journal of Financial Intermediation, 11 (4), 398–428. Lichtenberg, F. (1992). R&D Investment and International Productivity Differences, NBER Working Paper 4161.

Lichtenberg, F. and B. Van Pottelsberghe De La Potterie (1998). International R&D Spillovers: A Comment, European Economic Review, 42, 1483-1491.

List, J. A., and C. A. Gallet (1999). The Environmental Kuznets Curve: Does One Size Fit All? Ecological Economics, 31, 409-423.

Loayza, N.V., and R. Rancie’re (2006). Financial Development, Financial Fragility, And Growth, Journal of Money, Credit and Banking, 38(4), 1051-1076.

Mayer, C. (1988). New Issues in Corporate Finance, European Economic Review, 32, 1167– 1188.

Morales, M. F. (2003). Financial Intermediation in a Model of Growth Through Creative Destruction. Macroeconomic Dynamics, 7, 363–393. Morck, R., Shleifer, A. and R. W. Vishny (1990a). The Stock Market and Investment: Is the Market a Sideshow? Brookings Papers on Economic Activity, 21, 157–216.

Morck, R., Shleifer, A. and R. W. Vishny (1990b). Do Managerial Objectives Drive Bad Acquisitions? Journal of Finance, 45, 31–48.

Nadiri, M. (1993). Innovations and Technological Spillovers, NBER Working Paper

Orubu, O.C., and D. G. Omotor (2011). Environmental Quality and Economic Growth: Searching for Environmental Kuznets Curves for Air and Water Pollutants in Africa.Energy Policy, 39, 4178-4188.

Patel, P., and L. Soete (1988). L'évaluation Des Effets Économiques De La Technologie,STI Review, 4, 133-183.

Rajan, R., and L. Zingales (1998). Financial Dependence and Growth, American Economic Review, 88, 559-586.

Ramakrishnan, R., and A. Thakor (1984). Information Reliability and Theory of Financial Intermediation. Review of Economic Studies, 51 (3), 415–432.

Romer, D. (2006). Advanced Macroeconomics, Mcgraw-Hill Irwin: Boston, MA/New York.

Saci, K., Giorgioni, G., and K. Holden (2009). Does Financial Development affect Growth? Applied Economics, 41, 1701–1707.

Scherer, F. (1982). Inter-Industry Technology Flows and Productivity Growth, Review of Economics and Statistics, 64, 627-34.

Schumpeter, J. A. (1912). Theories Der Wirtschaftlichen Entwicklung. (The Theory Of Economic Development), Leipzig: Dunker And Humblot; Translated by Redvers Opie, Cambridge, MA: Harvard University Press, 1934.

Shleifer, A., and L. Summers (1988). Breach of Trust in Hostile Takeovers, in Corporate Takeovers: Causes and Consequences, (Eds) A., Auerbach, Chicago, University of Chicago Press, 33–56.

Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70, 65–94.

Stiglitz, J. E. (1985). Credit Markets and the Control of Capital, Journal of Money, Credit and Banking, 133-152

Stern, D. I. (2004). The Rise and Fall of the Environmental Kuznets Curve. World Development, 32(8), 1419–1439.

Temple, J. R. W. (1999a). The New Growth Evidence, Journal of Economic Literature, 37(1), 112-156.

Tran, A. T. (2008). Financial Development and Economic Growth in the Case of Vietnam, Journal of International Business and Economics, 8(2), 135-153.

Zachariadis, M. (2004). R&D Induced Growth in the OECD, Review of Development Economics, 8, 423-439.