Hung, Victor Tin Yau
(1993)
Essays on economic growth and fluctuations.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis comprises five chapters and a short introduction. Chapter 1 reexamines the "stylised facts" about cyclical fluctuations in external balances proposed by real business cycle economists and investigates whether technology shocks are the main source of fluctuations in external balances. It is found that real business cycle evidence is not invariant to the method of detrending and a substantial proportion of movement of current accounts is due to demand shocks. Furthermore, it is found that the single commodity real business cycle model cannot explain countercyclical movement of current accounts. Chapter 2 studies the effect of anticipated inflation on economic growth in an endogenous growth model. Money is introduced into an endogenous growth model which exchange requires cash-in-advance. It is shown that the decentralized competitive outcome is an inefficient balanced growth equilibrium. It is also shown that efficiency is restorable by means of a well-known optimum money supply rule. Chapter 3 extends the basic product variety endogenous growth model by introducing a fixed cost in research and development. It is shown that the fixed cost determines the rate of growth. By integrating with the human capital accumulation, it is shown that the It is growth rate of output is twice the rate of human capital accumulation without any increasing returns to scale or externality assumptions. In addition, this chapter also studies the effects of trade liberalization of physical goods on economic growth and further discuss the effect of economic integration on economic growth. Chapter 4 addresses the question of whether environmental conservation adversely affects growth. It is shown that environmental control is not necessarily a depressant on growth from a laissez-faire economy. Even if the economy starts off pursuing optimal growth without considering environmental damage, the growth rate of output may be increased if the environment is a factor of production. Chapter 5 deals with financial development in an endogenous growth model. The model integrates theories of growth and financial intermediation. Problems of moral hazard dictate that an optimal loan contract must involve either ex ante or ex post monitoring which is costly. However, lenders can delegate the monitoring to a financial intermediary. It is found that there is a positive, two-way causal relationship between growth and financial development. Different economies may evolve towards different financial systems depending on cross-country differences in the relative costs of these systems. In addition, it is also shown that the market may choose a financial system which does not generate the fastest possible economic growth.
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