Is money more productive in a developing economy?

Abstract

This paper tests the frequently cited hypothesis that money is more productive in a developing economy relative to a developed economy. Output elasticity of money is estimated for 20 countries over the 1977–92 sample period. These countries represent various stages of economic development. Two important conclusions can be derived from the results. First, irrespective of the monetary aggregate employed, the output elasticity of money is extremely low for all 20 countries. Second, the elasticity figure is sensitive neither to the stage of economic development in a particular country nor the period of time under consideration. Consequently, it can be argued that money does not play a more productive role in a developing economy relative to a developed economy.