energy consumption and economic growth relationship evidence from panel data for low and middle income countries abstract this paper uses the panel data of energy consumption ec and economic growth gdp for 51 countries from 1971 to 2005 these countries are divided into three groups low income group lower middle income group and upper middle income group countries firstly a relationship between energy consumption and economic growth is investigated by employing pedroni 1999 panel cointegration method secondly panel causality test is applied to investigate the way of causality between the energy consumption and economic growth finally we test whether there is a strong or weak relationship between these variables by using pedroni 2001 method the empirical results of this study are as follows i energy consumption and gdp are cointegrated for all three income group countries ii the panel causality test results reveal that there is long run granger causality running from gdp to ec for low income countries and there is bidirectional causality between ec and gdp for middle income countries iii the estimated cointegration factor is not close to 1 in other words no strong relation is found between energy consumption and economic growth for all income groups considered in this study the findings of this study have important policy implications and it shows that this issue still deserves further attention in future research

financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

energy consumption at business cycle horizons the case of the united states in this paper we propose a simple extension to a keynesian type macro model by augmenting it with energy consumption we show the relationship between energy consumption and output in a macroeconomic setting and ask the question do permanent shocks dominate changes in energy consumption and output at business cycle horizons for the united states to achieve the goal of this paper we undertake a variance decomposition analysis of shocks based on a common trend and common cycle framework within a vector error correction model our main finding is that permanent shocks explain the bulk of the variations in energy consumption and output at business cycle horizons for the united states

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

the effect of business risk on corporate capital structure theory and evidence under corporate and personal taxation we demonstrate that the relation between optimal debt level and business risk is roughly u shaped this result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal tax option therefore the net effect of a change in business risk on the optimal debt level depends upon the relative magnitudes of the resultant marginal changes in the values of these two options results of empirical tests offer support for the predicted u shaped relationship

the causality relationship between energy consumption and gdp in g 11 countries revisited abstract this paper explores whether energy conservation policies can be implemented in countries with the same level of development that is is restraining energy consumption without compromising economic growth feasible in all industrialized countries a new granger non causality testing procedure developed by toda and yamamoto 1995 journal of econometrics 66 225 250 is applied to re investigate the relationship if any between energy consumption and income in 11 major industrialized countries the results clearly do not support the view that energy consumption and income are neutral with respect to each other except in the case of the united kingdom germany and sweden where a neutral relationship is found bi directional causality in the united states and uni directional running from energy consumption to gdp in canada belgium the netherlands and switzerland are found this indicates that energy conservation may hinder economic growth in the latter five countries further the causality relationship appears to be uni directional but reversed for france italy and japan which implies that in these three countries energy conservation may be viable without being detrimental to economic growth

aggregate savings financial intermediation and interest rate there has been considerable controversy about the role of financial factors as determinants of savings in developing countries this paper explores the importance of two such factors namely real interest rate and financial intermediation using pooled time series cross section data a model of savings is estimated for asia latin america and for the total sample particular attention is paid to the error structure in estimation the results suggest that pooling is not justified further there is no unequivocal support for the effect of either of the two factors some qualified support is found for asia but none for latin america copyright 1987 by mit press

bankruptcy risk and optimal capital structure this study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis the alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments based upon the cross sectional implications of the tax shelter bankruptcy cost hypothesis an alternative test of the irrelevance hypothesis is performed the test examines the relationship between failure rates and leverage ratios for 36 lines of business the results are inconsistent with the irrelevance hypothesis in their landmark paper modigliani and miller 26 demonstrate that under certain assumptions the market value of a firm is independent of its capital structure these assumptions include the absence of taxes transactions costs and bankruptcy costs recently miller 24 has argued that the introduction of corporate and personal taxes does not alter the capital structure irrelevance result in the absence of bankruptcy costs 1 the inclusion of bankruptcy costs generally considered in conjunction with the tax deductibility of interest payments has led others to conclude that capital structure will affect the value of the firm 2 in this case value maximizing firms may choose optimal capital structures consisting of both debt and equity there have been numerous attempts to discriminate empirically between the miller irrelevance mi hypothesis and the tax shelter bankruptcy cost ts bc hypothesis several are discussed in section i of this paper there it is argued that studies attempting to measure directly the effect of changes in capital structure on firm values are subject to serious complications and are unable to discriminate between the mi and ts bc hypotheses other studies focus on cross sectional implications of the mi and ts bc hypotheses the cross sectional tests are based on the assertion that bankruptcy costs may tend to induce firms with greater business risk to include less debt in their capital structures whereas the mi hypothesis does not predict such a relationship unfortunately the existence of positive bankruptcy costs is not sufficient to ensure that the ts bc hypothesis will predict the inverse relation

the scope and limits of financial liberalisation in developing countries a critical survey this article reviews the growing literature on financial reform in developing countries we draw both on the theoretical contributions outlining the case for and against liberalisation as well as on the experience of many developing countries with liberalisation we argue that the existence of market failures in financial markets hampers the liberalisation process and indeed suggests that the simple liberalising strategy envisaged in much of the literature is inappropriate we argue instead for an alternative strategy which integrates some aspects of liberalisation with the development of appropriate financial institutions designed to serve best the needs of the real economy

financial development economic growth and banking sector controls evidence from india this paper uses newly collected data from the reserve bank of india to examine the effects of various types of banking sector controls on the process of financial deepening with the exception of a lending rate ceiling these controls are found to influence financial deepening negatively independently of the well known effect of the real interest rate exogeneity tests suggest that financial deepening and economic growth are jointly determined thus policies which affect financial deepening may also have an influence on economic growth the role of banking sector controls in the process of economic development has received considerable attention in the literature the traditional approach due to mckinnon i973 and shaw i973 postulates that government intervention in the pricing and allocation of loanable funds dubbed financial repression inhibits financial development by depressing real interest rates see

is the relationship between financial development and economic growth monotonic evidence from a sample of middle income countries summary we revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980 2008 period using pooled mean group estimations in a dynamic heterogeneous panel setting we show that there is an inverted u shaped relationship between finance and growth in the long run in the short run the relationship is insignificant this suggests that too much finance can exert a negative influence on growth in middle income countries the finding of a non monotonic effect of financial development on growth is confirmed by estimating a threshold model

are observed capital structures determined by equity market timing contrary to baker and wurgler 2002 i find that the importance of historical average market to book ratios in leverage regressions is not due to past equity market timing al though equity transactions may be timed to equity market conditions they do not have sig nificant long lasting effects on capital structure debt transactions exhibit timing patterns that are unlikely to induce a negative relation between market to book ratios and leverage i also find that historical average market to book ratios have significant effects on current financing and investment decisions implying that they contain information about growth opportunities not captured by current market to book ratios

poverty and growth impacts of high oil prices evidence from sri lanka the sharp rise in oil and food prices in 2007 and 2008 caused negative impacts on poverty and economic growth in many oil and food importing developing countries some analysts believe that these countries are under stress again due to a rise in crude oil prices to a two and a half year high in march 2011 which has also been partly responsible for higher food prices in recent months however there is a limited body of empirical evidence available from developing countries on the impact of high oil prices on growth in general and household poverty in particular in this study sri lanka is used as a case study and a computable general equilibrium cge approach is adopted as an analytical framework to explore the growth and poverty impacts of high oil prices the results suggest that urban low income households are the group most adversely affected by high global oil prices followed by low income rural households in contrast estate low income households are the least affected out of all low income households the energy intensive manufacturing sector and services sector are affected most compared to the agricultural sector

evidence on the impact of the agency costs of debt on corporate debt policy in the last several years there has been increased theoretical emphasis on the agent principal problem as it applies to corporate finance this paper is an attempt to empirically test for the presence of the agency costs and their relation to the debt policy of corporations we find that firms with higher insider ownership have greater debt ratios than firms with lower insider ownership which may be explained by the agency costs of debt and or the agency costs of equity other regression results tend to confirm the theoretically optimal relationships put forth by myers we find that high growth firms use less debt rather than more debt high operating risk firms use more debt rather than less debt and firm size appears to be uncorrelated to the level of debt

causality relationship between electricity consumption and gdp in bangladesh in this paper we examine the causal relationship between the per capita electricity consumption and the per capita gdp for bangladesh using cointegration and vector error correction model our results show that there is unidirectional causality from per capita gdp to per capita electricity consumption however the per capita electricity consumption does not cause per capita gdp in case of bangladesh the finding has significant implications from the point of view of energy conservation emission reduction and economic development

the interest elasticity of savings in developing countries the existing evidence abstract this paper presents a critical analysis of some of the most recent empirical work on the interest elasticity of savings in developing economies supported by a set of empirical results the paper argues that a the real interest elasticity of savings is not easily detected using the existing empirical models which generally yield insignificant interest rate parameters in the seventies b the existing models suffer from serious defects that make if very difficult to interpret the estimated parameters

the effects of uncertainty on the leverage of nonfinancial firms this paper investigates the link between the optimal level of nonfinancial firms short term leverage and macroeconomic and idiosyncratic sources of uncertainty we develop a structural model of a firm s value maximization problem that predicts a negative relationship between uncertainty and optimal levels of borrowing this proposition is tested using a panel of nonfinancial u s firms drawn from the compustat quarterly database covering the period 1993 2003 the estimates confirm that as either form of uncertainty increases firms decrease their levels of short term leverage this effect is stronger for macroeconomic uncertainty than for idiosyncratic uncertainty jel c23 d8 d92 g32

on the existence of an optimal capital structure theory and evidence one of the most contentious issues in the theory of finance during the past quarter century has been the theory of capital structure the geneses of this controversy were the seminal contributions by modigliani and miller 18 19 the general academic view by the mid 1970s although not a consensus was that the optimal capital structure involves balancing the tax advantage of debt against the present value of bankruptcy costs no sooner did this general view become prevalent in the profession than miller 16 presented a new challenge by showing that under certain conditions the tax advantage of debt financing at the firm level is exactly offset by the tax disadvantage of debt at the personal level since then there has developed a burgeoning theoretical literature attempting to reconcile miller s model with the balancing theory of optimal capital structure e g deangelo and masulis 5 kim 12 and modigliani 17 the general result of this work is that if there are significant leverage related costs such as bankruptcy costs agency costs of debt and loss of non debt tax shields and if the income from equity is untaxed then the marginal bondholder s tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing the firm s optimal capital structure will involve the trade off between the tax advantage of debt and various leverage related costs the upshot of these extensions of miller s model is the recognition that the existence of an optimal capital structure is essentially an empirical issue as to whether or not the various leverage related costs are economically significant enough to influence the costs of corporate borrowing the miller model and its theoretical extensions have inspired several timeseries studies which provide evidence on the existence of leverage related costs trczinka 28 reports that from examining differences in average yields between taxable corporate bonds and tax exempt municipal bonds one cannot reject the miller hypothesis that the marginal bondholder s tax rate is not different from the corporate tax rate however trczinka is careful to point out that this finding does not necessarily imply that there is no tax advantage of corporate debt if the personal tax rate on equity is positive indeed buser and hess 1 using a longer time series of data and more sophisticated econometric techniques estimate that the average effective personal tax rate on equity is statistically positive and is not of a trivial magnitude more importantly they document evidence that is consistent with the existence of significant leverage related costs in the economy

a quantitative content analysis of the characteristics of rapid growth firms and their founders a group of firms that is attracting attention are rapid growth firms these firms are of particular interest because rapid growth is an indication of market acceptance and firm success by studying rapidgrowth firms researchers can help all firms better understand the attributes associated with firm growth despite these positive outcomes however rapid firm growth is difficult to achieve and maintain this study adds to the literature through a quantitative content analysis of the narrative descriptions of 50 rapid growth firms and a comparison group of 50 slow growth companies the purpose of the study was to draw from the narratives a list of empirically grounded growth related attributes that are associated with rapid growth firms the findings of the study resulted in the advancement of a conceptual model of the attributes of rapid growth firms in four areas founder characteristics firm attributes business practices and human resource management hrm practices

assessing the impact of interest rates in less developed countries abstract empirical results obtained do not unambiguously support what one should expect on the basis of conventional economic theory cross country evidence on the average relationship for 64 ldcs during the period 1971 1980 between some of the macroeconomic variables such as rate of growth of real gdp real financial assets saving income and investment income ratios and rate of return on investment on the one hand and the level of the real interest rate on the other is analyzed by applying a non parametric mann whitney test it is found that there is no difference with any statistical significance between the two groups of ldcs above and below the mean real interest rate this implies that the level of the real interest rate by itself has little or no impact on the selected macroeconomic variables

public sector banking efficiency and economic growth in india abstract this paper develops a framework that integrates harrod domar growth model and mckinnon shaw hypothesis via molho s dynamic adjustment mechanism the model is used to determine the impact of bank nationalization through aggressive bank branch expansion programs and priority sector credit allocation on india s financial savings investment productivity and gdp the empirical findings indicate that the bank nationalization policy has been a mixed blessing the aggressive bank branch program since 1969 resulted in an increased in savings investment productivity of capital and gdp however the priority sector credit allocation policy did not fully achieve its desired goals

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

target behavior and financing how conclusive is the evidence the notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance yet how definitive is the evidence we address this issue by generating samples where financing is unrelated to a firm s current debt ratio or a target we find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples taken together our findings suggest that a number of existing tests of target behavior have no power to reject alternatives

testing theories of capital structure and estimating the speed of adjustment this paper examines time series patterns of external financing decisions and shows that publicly traded u s firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low the historical values of the cost of equity capital have long lasting effects on firms capital structures through their influence on firms historical financing decisions we also introduce a new econometric technique to deal with biases in estimates of the speed of adjustment toward target leverage we find that firms adjust toward target leverage at a moderate speed with a half life of 3 7 years for book leverage even after controlling for the traditional determinants of capital structure and firm fixed effects

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

the role of target leverage in security issues and repurchases the paper examines whether security issues and repurchases adjust the capital structure toward the target the time series patterns of debt ratios imply that only debt reductions are initiated to offset the accumulated deviation from target leverage the importance of target leverage in earlier debt equity choice studies is driven by the subsample of equity issues accompanied by debt reductions unlike debt issues and reductions equity issues and repurchases have no significant lasting effect on capital structure therefore even firms that have target debt ratios can engage in timing the equity market

risks and financing decisions in the energy sector an empirical investigation using firm level data using a sample of 102 uk energy firms over the period 1981 2009 this paper empirically examines the effects of uncertainty on firms leverage decisions the results indicate that both firms specific and macroeconomic uncertainty have negative sizeable and statistically significant impacts on the uk energy sector firms target leverage the results also indicate that the profitability of energy firms plays an important role in uncertainty leverage relationship by changing the total effect of uncertainty on leverage while more profitable firms appear to reduce their leverage by a relatively large amount in response to increased macroeconomic uncertainty they are less likely to be affected by firm specific uncertainty these results suggest that stability in macroeconomic conditions and business activity is important to the stability of the capital structure of firms in the energy sector which would in turn be conducive to stability in their investments and production

the role of the state in financial markets this paper reexamines the role of the state in financial markets and identifies seven major market failures that provide a potential rationale for government intervention in practice government interventions in capital markets even in industrial countries have been pervasive the paper provides a taxonomy of those interventions with respect to both the objectives they serve and the instruments they employ there is a role for the government in financial markets but the success of government interventions has been mixed it is important that interventions be well designed the paper sets out principles for government regulatory interventions and applies them to prudential regulation it then examines three other areas of intervention directed credit finanical repression and competition policy and identifies circumstances in which some amount of financial repression may actually be beneficial

how does industry affect firm financial structure we examine the importance of industry to firm level financial and real decisions we find that in addition to standard industry fixed effects financial structure also depends on a firm s position within its industry in competitive industries a firm s financial leverage depends on its natural hedge its proximity to the median industry capital labor ratio the actions of other firms in the industry and its status as entrant incumbent or exiting firm financial leverage is higher and less dispersed in concentrated industries where strategic debt interactions are also stronger but a firm s natural hedge is not significant our results show that financial structure technology and risk are jointly determined within industries these findings are consistent with recent industry equilibrium models of financial structure copyright 2005 oxford university press