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A Note on Money and Economic Growth in the Baltic States

Author(s): Per-Ola Maneschiƶld

Journal: Engineering Economics
ISSN 1392-2785

Volume: 5;
Start page: 47;
Date: 2006;
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Keywords: Baltic States | Economic growth | Elasticity | Money JEL classification: E51 | E32.

In a neoclassical framework, it is established that thereal money stock is an important input in the aggregateproduction function. This importance is due to thatmoney is assumed to release capital and labour from thedistribution and exchange process of goods and servicesallowing them to be more effectively used in the productionprocess. Thus, the theoretical literature seems ingeneral to be supportive of money as an input in the productionfunction since it is argued to what extent ratherthan whether theory incorporates money as an input.However, the empirical literature is less clear on moneyas a significant input in the production process. Conclusionsin the empirical literature is that the output elasticityof real money is negligible in developed economieswhile it is highly significant for developing economieswhere the experience from transition economies is neglected.This paper builds on the Solow (1957) seminalapproach adopted in Startz (1984) to evaluate the role ofthe real money stock in the production process in the BalticStates. The results of the paper systematically revealpositive output elasticities of money in the Baltic States.
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