nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒03‒15
seventeen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Institutional quality mediates the effect of human capital on economic performance By Adams-Kane, Jonathon; Lim, Jamus Jerome
  2. Caveat Lector: Sample Selection in Historical Heights and the Interpretation of Early Industrializing Economies By Howard Bodenhorn; Timothy Guinnane; Thomas Mroz
  3. Technology Adoption and Demographic Change By Karsten Wasiluk
  4. Technology, trade, and growth: The role of education By Prettner, Klaus; Strulik, Holger
  5. Trapped Factors and China's Impact on Global Growth By Nicholas Bloom; Paul Romer; Stephen Terry; John Van Reenen
  6. Market Potential and Regional Economic Growth in Spain, 1860-1930 By Julio Martínez-Galarraga; Daniel A. Tirado-Fabregat; Rafael González-Val
  7. Cultures of Female Entrepreneurship By Foreman-Peck, James; Zhou, Peng
  8. Resource Depletion, Growth, Collapse, and the Measurement of Capital By Heinrich, Torsten
  10. Natural Resources, R&D and Economic Growth By Thanh Le; Cuong Le Van
  11. Endogenous growth with capital in R&D production functions By Fernando Sánchez-Losada
  12. R&D poverty traps By Abián García-Rodríguez; Fernando Sánchez-Losada
  13. Knowledge Licensing in a Model of R&D-driven Endogenous Growth By Vahagn Jerbashian
  14. Demand-based structural change and balanced economic growth By Jaime Alonso-Carrera; Xavier Raurich
  16. Diffusion of Technology and Convergence of Income among Countries By Sumru Oz

  1. By: Adams-Kane, Jonathon; Lim, Jamus Jerome
    Abstract: This paper considers the relationship between institutional quality, educational outcomes, and economic performance. More specifically, it seeks to establish the linkages by which government effectiveness affects per capita income, via its mediating effect on human capital formation. The empirical approach adopts a two-stage strategy that estimates national-level educational production functions that include government effectiveness as a covariate, and then uses these estimates as instruments for human capital in cross-country regressions of per capita income. The results identify a significant and positive effect of human capital on per capita income levels, and partially resolves the inconsistency between macro- and micro-level studies of the effect of human capital on income. The results also remain robust to alternative specifications, extension to a panel setting, subsamples of the data, and fully endogenous institutions.
    Keywords: Economic Theory&Research,Governance Indicators,Emerging Markets,National Governance,Debt Markets
    Date: 2014–02–01
  2. By: Howard Bodenhorn; Timothy Guinnane; Thomas Mroz
    Abstract: Much of the research on height in historical populations relies on convenience samples. A crucial question with convenience samples is whether the sample accurately reflects the characteristics of the population; if not, then estimated parameters will be affected by sample selection bias. This paper applies a simple test for selection biased developed in Bodenhorn, Guinnane, and Mroz (2013) to several historical samples of prisoners, freed slaves, and college students. We reject the hypothesis of no selection bias in all cases. Using Roy’s (1951) model of occupational choice, we interpret these findings as reflecting the economic forces that lead individuals to take the actions the led to inclusion in the sample. Our findings suggest that much of the evidence on the “industrialization puzzle” during the nineteenth century could reflect changing selection into the samples rather than changes in population heights.
    JEL: N01 N31
    Date: 2014–03
  3. By: Karsten Wasiluk (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper studies the effect of demographic change on the technology distribution of an economy and on aggregate productivity growth. In the quantitative dynamic model, firms decide on employment and the technology they use subject to an aging workforce. Firms with a higher share of elderly workers update their technology less often and prefer older technologies than firms with a younger workforce. The shorter expected worklife of elderly workers makes firms reluctant to train them for new technologies. I calibrate the model for the German economy and simulate the projected demographic change. The results indicate that labor force aging reduces the realized annual productivity growth rate by 0.28 percentage points between 2010–2025.
    Keywords: Demographic Change, TFP growth, Retirement Policies
    JEL: J11 J21 J26 O33
    Date: 2014–02–28
  4. By: Prettner, Klaus; Strulik, Holger
    Abstract: We generalize a trade model with firm-specific heterogeneity and R&D-based growth to allow for an endogenous education decision of households and an endogenously evolving population. Our framework is able to explain cross-country differences in living standards and trade intensities by the differential pace of human capital accumulation among industrialized countries. Consistent with the empirical evidence, scale matters for relative economic prosperity as long as countries are closed, whereas scale does not matter in a fully globalized world. Interestingly, however, the average human capital level of a country influences its relative economic prosperity irrespective of its trade-openness. While being consistent with the empirical evidence, our framework has the additional advantage that steady-state growth of income does not hinge on the unrealistic assumption of an ever expanding population. --
    Keywords: technological progress,globalization,demographic change,education,human capital accumulation
    JEL: F10 I25 O31 O41
    Date: 2014
  5. By: Nicholas Bloom; Paul Romer; Stephen Terry; John Van Reenen
    Abstract: In a general equilibrium product-cycle model, lower trade barriers in-crease Southern purchasing power, which lifts long-run growth by increasing the profit from innovation. In the short run, factors of production must be reallocated inside firms, which lowers the opportunity cost of innovation, generating an additional "trapped factor" effect. Starting from a baseline OECD growth rate of 2% we find that trade integration with low-wage countries in the decade around China's WTO accession could have increased long-run growth to 2.4%. There is an additional short-run trapped factors effect, raising growth to 2.7%. China accounts for about half of these growth increases.
    Keywords: Innovation, trade, China, endogenous growth
    JEL: D92 E22 D8 C23
    Date: 2014–03
  6. By: Julio Martínez-Galarraga (Universitat de València,València,Spain); Daniel A. Tirado-Fabregat (Universitat de València,València,Spain); Rafael González-Val (Universidad de Zaragoza, Zaragoza, Spain)
    Abstract: In this paper we employ parametric and nonparametric techniques to analyse the effect of the changes registered on regional market potential on the growth of Spanish regions during the period 1860-1930. The study of the Spanish experience during these years conforms a case study that allows analyzing whether the construction of new transport infrastructure, as well as the changes in trade policy, that affected the relative market potential of the Spanish regions, ended up shaping regional growth trajectories. In order to carry out the analysis we make use of new evidence on regional inequality patterns in the long term based on recent estimations of per capita GDP for NUTS III Spanish regions (provinces) and an a la Harris measure of regional market potential that takes into account the economic distance between territories according to the changes registered in transport networks, the variations in the actual transport costs and the tariff policy followed over the period. Our results show a clear positive influence of market potential on regional economic growth, particularly along the years 1900-1930.
    Keywords: market potential, New Economic Geography, regional growth, economic history
    JEL: R0 N9 O18 N64 F14
    Date: 2014–03
  7. By: Foreman-Peck, James (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: The present research shows how entrepreneurial culture contributes to the widely noted difference in entrepreneurial propensities between men and women. The consequences of the assumed differential importance of household and family generate testable hypotheses about the gender effects of entrepreneurial culture. The principal hypothesis is that there is a greater chance of females in ‘unentrepreneurial’ cultures being relatively entrepreneurial compared to males. Also women from different entrepreneurial cultures show greater similarity of behaviour (lower variance) than men. But proportionate gender gaps within entrepreneurial cultures are less than those between males of different cultures. These hypotheses are tested on US immigrant data from the 2000 census and are not rejected.
    Keywords: Entrepreneurship; Culture; Gender; Migrants
    JEL: D01 J15 J23 J61 J16
    Date: 2014–01
  8. By: Heinrich, Torsten
    Abstract: Growth is often treated as something like a general property of any well-managed economic system, but the sustainability of this has been called into question since the 1970s. The current paper argues that the main problem with growth statistics - measured in income or capital - lies in the way the measures are constructed. Any measure of the total value of capital relies on a common denominator of that value, a numeraire, the choice of which also determines the dynamic development of the value statistics. In some cases the resulting patterns may differ sharply. One such case is the depletion of natural resources. The current paper develops a simple model of a 4-good economy (two resources, two final products) with the slow (exogenous) depletion of resources. It is shown that the choice of the numeraire determines the form of the capital statistics. This result is confirmed for both Walrasian, heuristic, and local pricing models in a computer simulation.
    Keywords: capital, economic collapse, resource depletion, price level, limits to growth
    JEL: C63 D24 E01 Q32
    Date: 2014–01–28
    Date: 2014
  10. By: Thanh Le; Cuong Le Van
    Abstract: This paper studies the long-run economic impact of natural resources by constructing a Schumpeterian endogenous growth model that incorporates an upstream resource intensive sector. Natural resources are extracted, processed and utilized to produce intermediate capital goods which are essential inputs for producing a ffnal consumption good. R&D activities are targeted at improving the quality of existing intermediate products. In this context, we characterize balanced growth paths and examine the issues of sustainability and long-run growth associated with these compet- itive equilibrium solution trajectories. The analysis is conducted through the comparison of the two natural resource types: renewable versus non- renewable and two optimal equilibrium conditions: social versus private. We show that negative growth is possible, however, only applied to an economy that is endowed with non-renewable resources. In addition, we derive conditions under which an economy experiences permanent stag- nant growth. We also show that having a strong innovative sector is essential for escaping this stagnant growth trap. We then identify condi- tions under which growth is larger under renewable resources as compared to their non-renewable counterpart and vice versa.
    Keywords: non-renewable resources, renewable resources, R&D-based growth,stagnant growth, vertical innovation.
    JEL: O13 O31 O41
    Date: 2014–02–25
  11. By: Fernando Sánchez-Losada (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: In this paper we claim that capital is as important in the production of ideas as in the production of final goods. Hence, we introduce capital in the production of knowledge and discuss the associated problems arising from the public good nature of knowledge. We show that although population growth can affect economic growth, it is not necessary for growth to arise. We derive both the social planner and the decentralized economy growth rates and show the optimal subsidy that decentralizes it. We also show numerically that the effects of population growth on the market growth rate, the optimal growth rate and the optimal subsidy are small. Besides, we find that physical capital is more important for the production of knowledge than for the production of goods.
    Keywords: knowledge, public good, growth.
    JEL: O30 O40 O41
    Date: 2014
  12. By: Abián García-Rodríguez (European University Institute); Fernando Sánchez-Losada (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: In this paper we show that the R&D effort of a country and its economic growth are highly correlated. In order to analyze this relationship, we study the nature of the researching activity. In particular, we focus on the following characteristics of research: the inherent uncertainty of researching, the existence of a wage premium associated to innovative activities, and moral hazard. Assuming that a higher R&D effort translates into a higher R&D success probability, we show that when the R&D success probability is low, the economy is not willing to bear the risk associated to R&D activities. As a consequence, few researchers are hired and the economy stays in an R&D poverty trap, a situation where the economy is stacked in a low growth environment due to the uncertainty associated with the researching activity. In this situation, the economy grows at a constant rate, independent of the R&D success probability (although it could grow at a higher rate through a higher effort). On the other hand, if the economy increases its R&D effort such that the R&D success probability increases sufficiently, then the risk associated with R&D activities drops and the economy hires more researchers. Consequently, growth does depend on the R&D success probability and technological advancement becomes a driving force of the economy. We show that imperfect information widens this R&D poverty trap. We also show that subsidizing R&D through researchers' hiring increases growth, but it does not increase the likelihood of leaving the R&D poverty trap. Moreover, the subsidy widens the R&D poverty trap.
    Keywords: R&D, poverty trap, growth.
    JEL: O30 O38 O40 O41
    Date: 2014
  13. By: Vahagn Jerbashian (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: In this paper I present an endogenous growth model where the engine of growth is in-house R&D performed by high-tech firms. I model knowledge (patent) licensing among high-tech firms. I show that if there is knowledge licensing, high-tech firms innovate more and economic growth is higher than in cases when there are knowledge spillovers or there is no exchange of knowledge among high-tech firms. However, in case when there is knowledge licensing the number of high-tech firms is lower than in cases when there are knowledge spillovers or there is no exchange of knowledge.
    Keywords: Knowledge Licensing, Intra-firm R&D, Competitive Pressure,Endogenous Growth.
    JEL: O30 O41 L16
    Date: 2014
  14. By: Jaime Alonso-Carrera (Universidade de Vigo); Xavier Raurich (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: We analyze the equilibrium of a multi-sector exogenous growth model where the introduction of minimum consumption requirements drives structural change. We show that equilibrium dynamics simultaneously exhibt structural change and balanced growth of aggregate variables as is observed in US when the initial intensity of minimum consumption requirements is sufficiently small. This intensity is measured by the ratio between the aggregate value of the minimum consumption requirements and GDP and, therefore, it is inversely related with the level of economic development. Initially rich economies benefit from an initially low intensity of the minimum consumption requirements and, as aconsequence, these economies end up exhibiting balanced growth of aggregate variables, while there is structural change. In contrast, initially poor economie ssuffer from an initially large intensity of the minimum consumption requirements, which makes the growth of the aggregate variables unbalanced during a very large perid.These economies may never exhibit simultaneously balanced growth of aggregate variables and structural change
    Keywords: Structural change, non-homothetic preferences, Balanced growth,Speed of convergence.
    JEL: O41 O47
    Date: 2014
    Date: 2014
  16. By: Sumru Oz (Koc University-TUSIAD Economic Research Forum)
    Abstract: Theoretical models of growth reveal that either exogenous or endogenous, technology is the main driving force behind the long-run economic growth. Furthermore, in the endogenous growth framework, diffusion of technology is the basic mechanism of per capita income convergence among countries. This paper analyzes the per capita income convergence implications of foreign direct investment (FDI), considering that the latter is an international technology diffusion channel. Although FDI appears to be an important channel in the diffusion of technology models theoretically, empirical evidence related to the effect of FDI on growth is ambiguous. By applying the approach of Ben-David (1996), which focuses on convergence among countries grouped with respect to their mutual trade, this paper presents evidence that per capita income convergence exists among FDI home and host countries using three different convergence measures. The relatively higher speed of convergence prevailed among countries linked by FDI justifies the technological spillovers accompanied by FDI and provides evidence that FDI inflow is a mechanism of per capita income convergence among countries by allowing the diffusion of technology.
    Keywords: Economic Growth; FDI; Economic Integration; Technology Diffusion; Income Convergence.
    JEL: O47 O33 F43 F15 F21
    Date: 2014–03
    Date: 2014

This nep-gro issue is ©2014 by Marc Patrick Brag Klemp. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.