Size Effects on the Transmission Mechanism from Finance to Development: A Study of Large Emerging Economies

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Authors

Colleges, School and Institutes

Abstract

Large emerging economies, typically Brazil, India, China and South Africa (BICS), demonstrate a strong upward trend in many aspects of their macroeconomic performance in recent decades. This surge is attributed to 'size effects' whereby economies of scale and scope, and agglomeration impact, create productivity improvements. This paper concentrates on both conceptual and empirical studies about the most important contributions from real and financial sectors towards economic growth in large emerging economies. In particular, the transmission channels from finance to growth are discussed in this paper, to show how size effects can affect these transmission mechanisms from finance to development. The econometric estimations use a structural vector autoregressive (SVAR) model for four specific large emerging economies - BICS - and analyse dynamic shocks from real sectors and financial sectors, together with size-effect variables: education investment, government spending and military expenditures. We conclude that real shocks have much higher impact effects on output and growth compared to financial shocks.

Details

Original languageEnglish
Pages (from-to)778-791
Number of pages14
JournalWorld Economy
Volume34
Issue number5
Publication statusPublished - 1 May 2011