nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒02‒21
fifteen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Urbanization with and without Industrialization By Remi Jedwab; Douglas Gollin; Dietrich Vollrath
  2. Transportation Technology and Economic Change: The Impact of Colonial Railroads on City Growth in Africa By Remi Jedwab; Alexander Moradi
  3. History, Path Dependence and Development: Evidence from Colonial Railroads, Settlers and Cities in Kenya By Remi Jedwab; Edward Kerby; Alexander Moradi
  4. Timing of Motherhood and Economic Growth By Ching-Yang Lin
  5. Fertility, Regional Demographics, and Economic Integration By Hiroshi Goto; Keiya Minamimura
  6. Gender Equality (f)or Economic Growth? Effects of Reducing the Gender Gap in Education on Economic Growth in OECD Countries By Olivier Thévenon
  7. Primary Education and Fertility Rates in Southern Africa: Evidence from Before the Demographic Transition By Manoel Bittencourt
  8. Human capital, basic research, and applied research: Three dimensions of human knowledge and their differential growth effects By Prettner, Klaus; Werner, Katharina
  9. Government Activity and Economic Growth – One Size Fits All? By Joscha Beckmann; Marek Endrich; Rainer Schweickert
  10. Rural Push, Urban Pull and... Urban Push? New Historical Evidence from Developing Countries By Remi Jedwab; Luc Christiaensen; Marina Gindelsky
  11. How agglomeration in the financial services industry influences economic growth: Evidence from Chinese cities By Liang, Lin; Lin, Shanglang; Li, Yong
  12. The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections By Robert J. Gordon
  13. Access to finance, product innovation and middle-income traps By Agenor, Pierre-Richard; Canuto, Otaviano
  14. Economic Growth Evens-Out Happiness: Evidence from Six Surveys By Andrew E. Clark; Sarah Flèche; Claudia Senik
  15. Inflation, Income Inequality and Economic Growth in Pakistan: A Cointegration Analysis By Ali, Sharafat

  1. By: Remi Jedwab (Department of Economics/Institute for International Economic Policy, George Washington University); Douglas Gollin (University of Oxford); Dietrich Vollrath (University of Houston)
    Abstract: Many theories link urbanization with industrialization; in partic- ular, with the production of tradable (and typically manufactured) goods. We document that the expected relationship between urbanization and the levelofindustrializationisnotpresentinasampleofdevelopingeconomies. The breakdown occurs due to a large sub-sample of resource exporters that have urbanized without increasing output in either manufacturing or in- dustrial services such as ï¬nance. To account for these stylized facts, we construct a model of structural change that accommodates two different paths to high urbanization rates. The ï¬rst involves the typical movement of labor from agriculture into industry, as in many models of structural change; this stylized pattern leads to what we term “production cities†that produce tradable goods. The second path is driven by the income effect of natural resource endowments: resource rents are spent on urban goods and services, which gives rise to “consumption cities†that are made up pri- marily of workers in non-tradable services. We document empirically that there is such a distinction in the employment composition of cities between developing countries that rely on natural resource exports and those that do not. Our model and the supporting data suggest that urbanization is not a homogenous event, and this has possible implications for long-run growth.
    Keywords: Structural Change; Urbanization; Industrialization
    JEL: L16 N10 N90 O18 O41 R10
    Date: 2014–01
  2. By: Remi Jedwab (Department of Economics/Institute for International Economic Policy, George Washington University); Alexander Moradi (University of Sussex)
    Abstract: What is the impact of modern transportation technology on economic change in poor countries? Rail construction in colonial Africa provides a natu-ral experiment. Using new data on railroads and cities over one century within one country, Ghana, and Africa as a whole, we ï¬nd large permanent effects of transportation technology on economic development. First, railroads had strong effects on agriculture and urbanization before independence. Second, using the fact that railroads collapsed post-independence, we show they had a persistent impact. Evidence suggests that railroad cities persisted because their emergence served as a mechanism to coordinate investments for each subsequent period. Historical shocks can thus trigger an equilibrium in which cities will emerge to facilitate the accumulation of factors, which promotes long-term development.
    Keywords: Transportation Technology; Development; Path Dependence; Africa
    JEL: O1 O3 O18 R4 R1 N97
    Date: 2014–03
  3. By: Remi Jedwab (Department of Economics/Institute for International Economic Policy, George Washington University); Edward Kerby (London School of Economics and Political Science); Alexander Moradi (University of Sussex)
    Abstract: Little is known about the extent and forces of urban path dependence in developing countries. Railroad construction incolonialKenyaprovidesanaturalexperimenttostudytheemer- gence and persistence of this spatial equilibrium. Using new data ataï¬nespatialleveloveronecenturyshowsthatcolonialrailroads causally determined the location of European settlers, which in turn decided the location of the main cities of the country at inde- pendence. Railroads declined and settlers left after independence, yet cities persisted. Their early emergence served as a mechanism to coordinate investments in the post-independence period, yield- ing evidence for how path dependence influences development.
    Keywords: Path Dependence; Urbanisation; Transportation; Colonialism
    JEL: R11 R12 R40 O18 O33 N97
    Date: 2014–02
  4. By: Ching-Yang Lin (International University of University)
    Abstract: The postponement of motherhood has drawn much attention in recent research. Yet,it is the U shape pattern of the mean age of the mother at first birth that observed in the data in 1950-2005. This phenomena can not be fully explained by the explanatory variables of the delay of motherhood documented in the empirical and theoretical literature. This paper develops a theoretical model to jointly consider femalesf decisions on motherhood timing, as well as human capital accumulation, working, and resources spent on child rearing. The calibration results successfully generate the U shape pattern of age at maternity along the growth path. Our explanations differ from the existing human capital story, by taking into account that child rearing affects motherfs decisions on human capital investment both before and after motherhood. The model predicts that the delay in motherhood timing will continue.
    Keywords: Fertility, Human Capital, Time Allocation, Labor Supply
    Date: 2014–02
  5. By: Hiroshi Goto (Graduate School of Economics, Kobe University); Keiya Minamimura (Graduate School of Economics, Kobe University)
    Abstract: To explain the links between population distribution and economic integration, we construct a spatial economics model with endogenous fertility. A higher population concentration increases real wages and child-raising costs, thus lowering the fertility rate. However, people migrate to more populated regions to obtain higher real wages. We show that mobility across regions results in more people flowing into highly populated regions, but lowers fertility rates there. The population growth path resembles a logistic curve in the early phase, but population decreases in the last phase. Additionally, economic integration leads to population concentration and decreases population size in the whole economy.
    Keywords: Population Change, Migration, Agglomeration, Trade freeness
    JEL: F15 J13 R12 R23
    Date: 2014–02
  6. By: Olivier Thévenon (INED)
    Abstract: This paper assesses the extent to which the increase in women's human capital, as measured by educational attainment, has contributed to economic growth in OECD countries over the past five decades. Using longitudinal cross-country data covering 30 countries from 1960 to 2008 on education (the Barro-Lee dataset) and growth (update of OECD data), our results point out a positive and significant impact ofthe increase in women's educational attainment relative to men on output per capita growth - as measuredby GDP per capita. Our results are robust to the distinction between sub-periods and indicate that the effect of the equalisation of years of completed education on economic growth has been higher in the most recent periods. Results also hold when countries with an above-average increase in years of completed education are removed from the sample.
    Date: 2014
  7. By: Manoel Bittencourt (Department of Economics, University of Pretoria)
    Abstract: We investigate whether primary school completion has played any role on total fertility rates in all fifteen members of the Southern African Development Community (SADC) between 1980 and 2009. The evidence, based on panel time-series analysis, suggests that primary education has indeed reduced fertility rates in the region, or that the community is already trading-off quantity for quality of children. The results are important not only because lower fertility, caused by education, implies more capital per worker, higher productivity and therefore higher growth rates, but also because - in accordance to the unified growth theory - they suggest that southern Africa, like other countries in the past, is experiencing its own transition from the Malthusian epoch into a sustained growth regime.
    Keywords: Education, fertility, Africa
    JEL: I20 J13 O55
    Date: 2014–02
  8. By: Prettner, Klaus; Werner, Katharina
    Abstract: We analyze the differential growth effects of basic research, applied research, and embodied human capital accumulation in an R&D-based growth model with endogenous fertility and endogenous education. In line with the empirical evidence, our model allows for i) a negative association between long-run economic growth and population growth, ii) a positive association between long-run economic growth and education, and iii) a positive association between the level of per capita GDP and expenditures for basic research. Our results also indicate that raising public investments in basic research reduces the growth rate of GDP in the short run because resources have to be drawn away from other productive sectors of the economy. These short-run costs of basic research might be an explanation for the reluctance of governments to increase public R&D expenditures notwithstanding the long-run benefits of such a policy. --
    Keywords: basic vs. applied science,endogenous schooling decisions,endogenous fertility decisions,R&D-based growth,governmental research policies
    JEL: H41 J11 J24 O32 O41
    Date: 2014
  9. By: Joscha Beckmann; Marek Endrich; Rainer Schweickert
    Abstract: This study investigates the role of government activity in economic growth, arguing that economic systems are important and that, therefore, one size of government does not fit all countries. Taking a panel of 111 countries over the years from 1971 to 2010, we consider clusters of economic systems as predicted by an extended Varieties of Capitalism (VoC) approach. The empirical growth impact of government activity is positive but u-shaped and depends on both the quality of institutions and the institutional setting. For the polar cases of liberal economies and Scandinavian coordinated market economies, the potential growth impact is quite similar and superior to other clusters of countries. However, the maximum growth effect is realized for above-average levels of government activity in the Scandinavian countries, while this would be detrimental to growth in liberal countries. Hence, high levels of government activity are consistent with growth but only in economic systems consistently rooted in a high level of government activity
    Keywords: Government spending, regulation, economic growth, economic systems, institutions
    JEL: H10 P10 P51
    Date: 2014–01
  10. By: Remi Jedwab (Department of Economics/Institute for International Economic Policy, George Washington University); Luc Christiaensen (Development Research Group, The World Bank); Marina Gindelsky (Department of Economics, George Washington University)
    Abstract: Standard models explain urbanization by rural-urban migration in response to an (expected) urban-rural wage gap. The Green Revolution and rural poverty constitute rural push factors of migration. The Indus- trial Revolution and the urban bias are urban pull factors. This paper offers an additional demographic mechanism, based on internal urban population growth, i.e. an urban push. Using newly compiled historical data on urban birth and death rates for 7 countries from Industrial Europe (1800-1910) and 33 developing countries (1960-2010), we show that many cities of to- day’s developing world are “mushroom cities†vs. the “killer cities†of In- dustrial Europe; fertility is high, while mortality is much lower. The high rates of urban natural increase have then accelerated urban growth and ur- banization in developing countries, with urban populations now doubling every 18 years (15 years in Africa), compared to every 35 years in Industrial Europe. This is further found to be associated with higher urban congestion, possibly mitigating the beneï¬ts from agglomeration and providing further insights into the phenomenon of urbanization without growth. Both migra- tion and urban demographics must be considered in debating urbanization.
    Keywords: Urbanization;DemographicTransition;Migration;Poverty;Slums
    JEL: O1 O18 R11 R23 J11
    Date: 2014–04
  11. By: Liang, Lin; Lin, Shanglang; Li, Yong
    Abstract: This paper empirically tests the effect of financial knowledge spillovers on agglomeration in China's financial services industry and examines the external effects on cities' economies. The authors apply hierarchical linear modeling to examine a data set that comprises 276 Chinese cities and draw the following conclusions. Firstly, they find that agglomeration in the financial services industry and the Jacobs spillovers of industry diversification both promote financial knowledge spillovers in terms of industry specialization. Secondly, agglomeration in this studied industry has a significant positive influence on a city's economic growth, while financial knowledge spillovers have a significant but negative effect on a city's economic growth. Thirdly, the tendency towards agglomeration in the financial services industry in a few major cities is clear and the clustering significantly influences cities' boundaries. Finally, China's financial services industry is limited by a serious degree of regulation and is dominated by the main banking institutions. --
    Keywords: financial services industry agglomeration,industry specialization,knowledge spillovers,city economies,hierarchical linear modeling
    JEL: G20 O4
    Date: 2014
  12. By: Robert J. Gordon
    Abstract: The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group. The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades. There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.
    JEL: D24 E02 E66 J11 J15 O11 O31 Q43
    Date: 2014–02
  13. By: Agenor, Pierre-Richard; Canuto, Otaviano
    Abstract: This paper studies interactions between access to finance, product innovation, and labor supply in a two-period overlapping generations model with an endogenous skill distribution and credit market frictions. In the model lack of access to finance (induced by high monitoring costs) has an adverse effect on innovation activity not only directly but also indirectly, because too few individuals may choose to invest in skills. If monitoring costs fall with the number of successful projects, multiple equilibria may emerge, one of which, a middle-income trap, characterized by low wages in the design sector, a low share of the labor force engaged in innovation activity, and low growth. A sufficiently ambitious policy aimed at alleviating constraints on access to finance by innovators may allow a country to move away from such a trap by promoting the production of ideas and improving incentives to invest in skills.
    Keywords: Labor Policies,Access to Finance,Debt Markets,Economic Theory&Research,Banks&Banking Reform
    Date: 2014–02–01
  14. By: Andrew E. Clark (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Sarah Flèche (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Claudia Senik (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), UP4 - Université Paris 4, Paris-Sorbonne - Université Paris IV - Paris Sorbonne - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)
    Abstract: In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has dropped in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the "very unhappy" and the "perfectly happy". The extension of public amenities has certainly contributed to this greater happiness homogeneity. This new stylized fact comes as an addition to the Easterlin paradox, offering a somewhat brighter perspective for developing countries.
    Keywords: Happiness ; Inequality ; Economic growth ; Development ; Easterlin paradox
    Date: 2014–01
  15. By: Ali, Sharafat
    Abstract: The study is an attempt to explore the impact of inflation and income inequality in Pakistan. The study also analyzes the effect of foreign direct investment, workers’ remittances and manufacturing value added on growth. Annual time series data from 1972 to 2007 was used for the analysis. After finding all of the time series stationary at first difference, Johansen cointegration approach and vector error correction models are applied for the long run and short run analysis, respectively. The cointegration test results confirmed growth increasing impact of income inequality in Pakistan. Foreign direct investment, remittances and manufacturing valued added are found to have positives and significant impact on growth in Pakistan. The study also suggests some policy implications.
    Keywords: Inequality, Development, Manufacturing Value Added, Investment, Time Series, Unit Root, Error Correction, Pakistan
    JEL: C22 L6 O4 P24
    Date: 2014–02–16

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