nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒01‒24
seventeen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Coal and the European Industrial Revolution By Alan Fernihough; Kevin Hjortshøj O'Rourke
  2. State Capacity and Economic Development: A Network Approach By Daron Acemoglu; Camilo García-Jimeno; James A. Robinson
  3. Entertaining Malthus: Bread, Circuses and Economic Growth By Lemin Wu; Rohan Dutta; David K Levine; Nicholas W Papageorge
  4. The One-Child Policy and Household Savings in China By Keyu Jin; Nicolas Coeurdacier
  5. Where Was the Wealth of the Nation? Measuring Swedish Capital for the 19th and 20th Centuries By Lindmark, Magnus; Andersson, Lars Fredrik
  6. Stages of Diversification and Industry Productivity Differences By Roberto Samaniego
  7. “Tracking positive and negative effects of inequality on long-run growth” By David Castells-Quintana; Vicente Royuela
  8. Natural disasters, growth and institutions: a tale of two earthquakes By Guglielmo Barone; Sauro Mocetti
  10. Terms of Trade Instability, Economic Vulnerability and Economic Growth: The Role Of Institutions in Sub-Saharan Africa By Zaouali, Amira
  11. On Convergence in the Spatial AK Growth Models By Gani Aldashev; Serik Aldashev; Timoteo Carletti
  12. The financial sector and economic growth in a panel of countries By Gründler, Klaus; Weitzel, Jan
  13. Income distribution, multi-quality firms and patterns of trade By Hélène LATZER; Alexandre SIMONS
  14. Do Business Groups Help or Hinder Technological Progress in Emerging Markets? Evidence from India By Bhaumik, Sumon K.; Zhou, Ying
  15. Asymmetric co-integration and causality effects between financial development and economic growth in South Africa By Phiri, Andrew
  16. Nutrition and economic growth in South Africa: A momentum threshold autoregressive (MTAR) approach By Phiri, Andrew; Dube, Wisdom
  17. The Role of Natural Gas Consumption and Trade in Tunisia’s Output By Mohamed Arouri; Sahbi Farhani; Muhammad Shahbaz; Frédéric Teulon

  1. By: Alan Fernihough; Kevin Hjortshøj O'Rourke
    Abstract: We examine the importance of geographical proximity to coal as a factor underpinning comparative European economic development during the Industrial Revolution. Our analysis exploits geographical variation in city and coalfield locations, alongside temporal variation in the availability of coal-powered technologies, to quantify the effect of coal availability on historic city population sizes. Since we suspect that our coal measure could be endogenous, we use a geologically derived measure as an instrumental variable: proximity to rock strata from the Carboniferous era. Consistent with traditional historical accounts of the Industrial Revolution, we find that coal had a strong influence on city population size from 1800 onward. Counterfactual estimates of city population sizes indicate that our estimated coal effect explains at least 60% of the growth in European city populations from 1750 to 1900. This result is robust to a number of alternative modelling assumptions regarding missing historical population data, spatially lagged effects, and the exclusion of the United Kingdom from the estimation sample.
    JEL: J10 N13 N53 O13 O14
    Date: 2014–01
  2. By: Daron Acemoglu; Camilo García-Jimeno; James A. Robinson
    Abstract: We study the direct and spillover effects of local state capacity using the network of Colombian municipalities. We model the determination of local and national state capacity as a network game in which each municipality, anticipating the choices and spillovers created by other municipalities and the decisions of the national government, invests in local state capacity and the national government chooses the presence of the national state across municipalities to maximize its own payoff. We then estimate the parameters of this model using reduced-form instrumental variables techniques and structurally (using GMM, simulated GMM or maximum likelihood). To do so we exploit both the structure of the network of municipalities, which determines which municipalities create spillovers on others, and the historical roots of local state capacity as the source of exogenous variation. These historical instruments are related to the presence of colonial royal roads and local presence of the colonial state in the 18th century, factors which we argue are unrelated to current provision of public goods and prosperity except through their impact on their own and neighbors’ local state capacity. Our estimates of the effects of state presence on prosperity are large and also indicate that state capacity decisions are strategic complements across municipalities. As a result, we find that bringing all municipalities below median state capacity to the median, without taking into account equilibrium responses of other municipalities, would increase the median fraction of the population above poverty from 57% to 60%. Approximately 57% of this is due to direct effects and 43% to spillovers. However, if we take the equilibrium response of other municipalities into account, the median would instead increase to 68%, a sizable change driven by equilibrium network effects.
    JEL: H4 H7 P16
    Date: 2014–01
  3. By: Lemin Wu; Rohan Dutta; David K Levine; Nicholas W Papageorge
    Date: 2014–01–20
  4. By: Keyu Jin (London School of Economics); Nicolas Coeurdacier (SciencesPo Paris)
    Abstract: This paper analyzes the impact of the 'one child policy' in China on its household saving behavior. First, it develops a life-cycle model with endogenous fertility, intergenerational transfers and human capital accumulation. We show a macroeconomic and a microeconomic channel of a fall in fertility on raising aggregate household saving: at the macroeconomic level, the population composition shifts initially towards the middle-aged—the high savers of the economy. At the microeconomic level, (1) expenditures of children fall—despite higher education investment in each child—as quantity substitutes for quality; (2) middle-aged save additionally for retirement in anticipation of reduced transfers from their only child. Second, our quantitative model implies policy-induced changes in aggregate savings and age-saving profiles broadly consistent with estimates from Chinese household-level data. Third, an empirical study using the birth of twins as a source of exogenous increase in fertility is shown to support the micro-economic channels we highlight. Overall, our estimation suggests that the policy is able to account for 30% to 50% of the rise in household savings rate since its implementation in 1980.
    Date: 2013
  5. By: Lindmark, Magnus (CERE, Umeå University); Andersson, Lars Fredrik (CERE, Umeå University)
    Abstract: This report presents estimates of the Swedish national wealth from 1830 to 2010. This contributes to economic historical research on structural change and growth, while it also supplements debates on the composition of wealth and incomes across countries. The report also includes for the first time a historical estimate of the Consumer Rate Interest CRI and an estimate of wealth based on surveys and insurance data. The report includes an extensive description and documentation of the historical estimates. The main findings are that the proportion of intangible capital grew before modern economic growth was achieved in Sweden during the 1890’s. Secondly, we show that the proportion of natural assets fell prior to and during the industrialization, while the share of produced capital has fluctuated, but has remained fairly stable over the period as a whole.
    Keywords: capital stocks; national wealth; Historical national accounts; Sweden; Economic history
    JEL: N00
    Date: 2014–01–13
  6. By: Roberto Samaniego (George Washington University)
    Abstract: Economies tend to diversify and then re-specialize as they develop. In an economy with many industries that experience different rates of productivity growth, these "stages of diversification" may obtain if initial conditions are skewed away from the industries that dominate economic structure in the long run as a matter of productivitydriven structural change. A calibrated multi-industry growth model with many countries replicates the main features of the "stages of diversification". We also present evidence that countries shift resources towards high-TFP growth manufacturing industries, and towards low-TFP growth sectors, consistent with the model.
    Date: 2013
  7. By: David Castells-Quintana (Faculty of Economics, University of Barcelona); Vicente Royuela (Faculty of Economics, University of Barcelona)
    Abstract: Despite extensive research, there is still controversy on the effects of income inequality on economic growth. The literature proposes several transmission channels through which these effects may take place, and even the existence of two different forms of inequality. However, empirical studies have generally not distinguished between these channels, nor have their analyses included a consideration of the two forms of inequality and their separate effects on growth. In this paper we review the theory and the evidence on the different transmission channels through which inequality influences growth. We contribute to the literature by using a system of recursive equations, following a control function approach, to empirically assess the relevance of these channels and to differentiate between two forms of inequality. In this way we have captured in a single model not only a negative effect, but also a positive effect of inequality on long-run economic growth.
    Keywords: inequality, economic growth, development. JEL classification: O1, O4
    Date: 2014–01
  8. By: Guglielmo Barone (Bank of Italy); Sauro Mocetti (Bank of Italy)
    Abstract: We examine the impact of natural disasters on GDP per capita by applying the synthetic control approach. Our analysis encompasses two large-scale earthquakes that occurred in two different Italian regions in 1976 and 1980. We show that the short-term effects are negligible in both regions, though they become negative if we simulate the GDP that would have been observed in absence of financial aid. In the long-term, our findings indicate a positive effect in one case and a negative effect in the other, largely reflecting divergent patterns of the TFP. Consistently with these findings, we offer further evidence suggesting that a quake and related financial aids might either increase technical efficiency via a disruptive creation mechanism or reduce it by stimulating corruption, distorting the markets and deteriorating social capital. We finally show that the bad outcome is more likely to occur in areas with lower pre-quake institutional quality. As a result, our evidence suggests that natural disasters are likely to exacerbate differences in economic and social development.
    Keywords: natural disasters, economic growth, aids, corruption, social capital, synthetic control approach
    JEL: R11 O40 H84 Q54
    Date: 2014–01
  9. By: André Nassif; Carmem Feijó; Eliane Araújo
    Abstract: We present a Kaldor-Thirlwall theoretical and empirical framework on the basic driving forces of the behaviour of productivity and economic development in the long-run. By calculating the so- called Thirlwall equation, the main contribution of our research is to examine whether Brazil has been catching up or falling behind. We show some empirical evidence based on both descriptive statistics and econometric regressions for Brazil between 1970 and 2010. Some important indicators of descriptive statistics reveal that Brazil has entered into a process of early de-industrialization. In addition, since our econometric estimates also show that there was a dramatic increase in the income elasticity of demand for imports between 1980–1998 and 1999–2010 (from 1.97 to 3.36) and a small decrease in the income elasticity for exports during the same periods (from 1.36 to 1.33), we conclude that Brazil not only has already embarked on a trajectory of falling-behind relative to the world economy and the international economic frontier, but also that it might show, in the absence of appropriate policies, lower growth rates in the long run. However, if the opposite occurs, it would face major long-term external constraints to growth.
    Date: 2013
  10. By: Zaouali, Amira
    Abstract: Economists have a long argue that institutions and implementation of good governance are important for economic growth. The main objective of this research is to demonstrate that one of positive institutions effects is its ability to mitigate the negative effect of economic vulnerability linked to terms of trade fluctuations on economic growth. The impact of the economic vulnerability and implementation of good governance are estimated for a panel of 15 Sub-Saharan-Africa countries over the period 1996-2011. The results show that good institutional quality helps to undermine the negative effects of economic vulnerability on economic growth. It is also clear from this analysis that the interaction terms between trade openness and institutions can reduce the negative effects of economic vulnerability and that trade openness has a positive effect on economic growth only until a certain level of institutional quality.
    Keywords: Economic vulnerability, instability of terms of trade, economic growth, institutions.
    JEL: C23 O43 O47
    Date: 2014–01–14
  11. By: Gani Aldashev; Serik Aldashev; Timoteo Carletti
    Abstract: Recent research in economic theory attempts to study optimal economic growth and spatial location of economic activity in a unified framework. So far, the key result of this literature - asymptotic convergence, even in the absence of decreasing returns to capital - relies on specific assumptions about the objective of the social planner. We show that this result does not depend on such restrictive assumptions and obtains for a broader class of objective functions. We also generalize this finding, allowing for the time-varying technology parameter, and provide an explicit solution for the dynamics of spatial distribution of the capital stock.
    Date: 2014–01
  12. By: Gründler, Klaus; Weitzel, Jan
    Abstract: Does the financial sector contribute to economic growth? While most of the studies carried out before the Financial crisis tend to answer the question with 'yes', recent empirical work provides evidence that the opposite is true. We study these new findings in detail, applying GMM and 3SLS estimations of simultaneous equation models that cover a comprehensive set of growth determinants proposed by theory and recent empirical work. It turns out that finance in general exerts a positive influence but this influence vanishes in the development process and eventually becomes negative. While finance still boosts growth in developing countries, a growing financial sector hinders the increase of incomes in rich economies. --
    Keywords: Economic Growth,Financial Sector
    JEL: O40 G20
    Date: 2013
  13. By: Hélène LATZER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Alexandre SIMONS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: We provide a North-South Schumpeterian growth model endogenously generating demand-driven patterns of vertical intra-industrial trade. More precisely, we build a model featuring non-homothetic preferences and income differences, and show that such conditions guarantee the endogenous emergence of multi-location, multi-quality firms. The existence of such firms and wealth heterogeneity among consumers both across and within countries then generate and shape rich patterns of intra-industrial vertical trade and FDI, with the extent of income disparities also conditioning the incentives to invest in R&D of both incumbents and challengers, and by extension the long-run growth rate. We then investigate the impact of within-region redistribution and trade integration policies on the endogenous wage gap across regions, the length of the quality-life cycle and long-run growth. We particularly find that a larger income gap within regions contributes to lowering growth and increasing the inter-regional inequality level. We also find that trade integration boosts long run growth but increases the North-South wage gap.
    Keywords: Income distribution, vertical trade in quality, growth, FDI
    JEL: D63 F43 O31 O41
    Date: 2014–01–17
  14. By: Bhaumik, Sumon K. (Aston University); Zhou, Ying (Aston University)
    Abstract: Business groups, which are ubiquitous in emerging market economies, balance the advantages of characteristics such as internal capital markets with the disadvantages such as inefficient internal distribution of resources and suppression of technological and other forms of innovativeness. In this paper, we examine, in the Indian context, whether business group affiliation provides an advantage over unaffiliated (or private independent) firms with respect to technological progress, which lies at the heart of wider economic growth and prosperity. Our results suggest that while business group affiliation did provide an advantage over private independent firms at the start of the sample period (2000), this advantage was more than offset by the turn of the century. We discuss the implications of our results for economic growth rates in emerging market economies.
    Keywords: business groups, technological progress, India
    JEL: D24 L21 L22 O12
    Date: 2014–01
  15. By: Phiri, Andrew
    Abstract: This paper investigates asymmetric co-integration and causality effects between financial development and economic growth for South African data spanning over the period of 1992 to 2013. To this end, we make use of the momentum threshold autoregressive (MTAR) approach which allows for threshold error correction (TEC) modelling and granger causality analysis between the variables. In carrying out our empirical analysis, we employ six measures of the financial development variables against gross domestic per capita, that is, three measures which proxy banking activity and another three proxies for stock market development. The empirical results generally indicate an abrupt asymmetric co-integration relationship between banking activity and economic growth, on one hand, and a smooth co-integration relationship between stock market activity and economic growth, on the other hand. Moreover, causality analysis generally reveals that while banking activity tends to granger causes economic growth, stock market activity is, however, caused by economic growth increase.
    Keywords: Financial development; Economic growth; Threshold co-integration; Asymmetric causality; Emerging economy; South Africa
    JEL: C32 E51 E58 G21 G23 G28
    Date: 2014–01–20
  16. By: Phiri, Andrew; Dube, Wisdom
    Abstract: Purpose: This purpose of our paper is to examine asymmetric co-integration effects between nutrition and economic growth for annual South African data from the period 1961-2013. Design/methodology/approach: We deviate from the conventional assumption of linear co-integration and pragmatically incorporate asymmetric effects in the framework through a fusion of the momentum threshold autoregressive and threshold error correction (MTAR-TEC) model approaches, which essentially combines the adjustment asymmetry model of Enders and Silkos (2001); with causality analysis as introduced by Granger (1969); all encompassed by/within the threshold autoregressive (TAR) framework, a la Hansen (2000). Findings: The findings obtained from our study uncover a number of interesting phenomena for the South Africa economy. Firstly, in coherence with previous studies conducted for developing economies, we establish a positive relationship between nutrition and economic growth with an estimated income elasticity of nutritional intake of 0.15. Secondly, we find bi-direction causality between nutrition and economic growth with a stronger causal effect running from nutrition to economic growth. Lastly, we find that in the face of equilibrium shocks to the variables, policymakers are slow to responding to deviations of the variables from their co-integrated long run steady state equilibrium. Originality/value: In our study, we make a novel contribution to the literature by exploring asymmetric modelling in the correlation between nutrition intake and economic growth for the exclusive case of South Africa.
    Keywords: Nutrition; Economic growth; Threshold co-integration; Asymmetric causality; South Africa
    JEL: C12 C13 E20 I15
    Date: 2014–01–14
  17. By: Mohamed Arouri; Sahbi Farhani; Muhammad Shahbaz; Frédéric Teulon
    Abstract: This paper examines the impact of natural gas consumption, real gross fixed capital formation and trade on the real GDP in the case of Tunisia over the period 1980-2010. We use an Autoregressive Distributed Lag (ARDL) bounds testing approach to test the existence of a longterm relationship between the variables. The Vector Error Correction Method (VECM) Granger approach is applied to test the direction of the causal relation between the series. Our findings indicate the existence of a long-term relationship among the variables. Natural gas consumption, real gross fixed capital formation and trade add in economic growth. Natural gas consumption, real gross fixed capital formation and real trade Granger-cause real GDP. These findings open up new insights for policymakers to formulate a comprehensive energy policy to sustain economic growth in the long term.
    Keywords: Natural gas consumption, Economic growth, ARDL approach
    JEL: C7 D8
    Date: 2014–01–06

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