nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒04‒29
eight papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. The Lindahl equilibrium in Schumpeterian growth models: Knowledge diffusion, social value of innovations and optimal R&D incentives By Gray, Elie; Grimaud, André
  2. The Effect of Regional Entrepreneurship Culture on Economic Development - Evidence for Germany By Michael Fritsch; Michael Wyrwich
  3. Is Religion Associated with Entrepreneurial Activity? By Henley, Andrew
  4. Uzawa(1961)’s Steady-State Theorem in Malthusian Model By Li, Defu; Huang, Jiuli
  5. Necessary and sufficient conditions for an environmental Kuznets curve with some illustrative examples By Sushama Murty
  6. Income Inequality, Trade and Financial Openness By G. C. Lim; Paul D. McNelis
  7. Can general purpose technology theory explain economic growth? Electrical Power as a case study By Cristiano Andrea Ristuccia; Solomos Solomou
  8. A Refinement of the Relationship between Economic Growth and Income Inequality in Developing Countries By Fawaz, Fadi; Rahnamamoghadam, Masha; Valcarcel, Victor

  1. By: Gray, Elie; Grimaud, André
    Abstract: What is the social value of innovations in Schumpeterian growth models? This issue is tackled by introducing the concept of Lindahl equilibrium in a standard endogenous growth model with vertical innovations which is extended by explicitly considering knowledge diffusion. Assuming that knowledge diffuses on a Salop (1979) circle allows us to formalize the creation of the pools of knowledge in which research and development (R&D) activities draw from to produce innovations. Within this model, we compare two equilibria. The standard Schumpeterian equilibrium à la Aghion & Howitt (1992) is mainly characterized by incomplete markets since knowledge is not priced. It provides the usual private value of innovations. The Lindahl equilibrium is a benchmark enabling us to compute the system of prices that sustains the first-best social optimum, and thus to define and to determine analytically the social value of innovations. It provides a suitable methodology for revisiting issues involving the presence of knowledge, often studied in the industrial organization and endogenous growth literatures. This comparison sheds a new light on the consequences of non-rivalry of knowledge and of market incompleteness on innovators’ behavior in the Schumpeterian equilibrium. We notably revisit the issues of Pareto sub-optimality and of R&D incentives in presence of cumulative innovations. Basically, the key externality triggered by market incompleteness implies that knowledge creation is indirectly funded by means of intellectual property rights on rival goods embodying knowledge. Therefore, because the private value of innovations differs from the social one, innovators are not given the optimal incentives.
    Keywords: Schumpeterian growth theory - Lindahl equilibrium - Social value of innovations - Pareto sub-optimality - Cumulative innovations - Knowledge spillovers
    JEL: D52 O31 O33 O40 O41
    Date: 2014–01
  2. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Wyrwich (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: We use the historical self-employment rate as an indicator of a regional culture of entrepreneurship and link this measure to economic growth in recent periods. The results indicate that German regions with a high level of entrepreneurship in the mid- 1920s have higher start-up rates about 80 years later. Furthermore, we find that the effect of current start-up activity on regional employment is significantly higher in regions with a pronounced entrepreneurial culture. We conclude that a regional culture of entrepreneurship is an important resource for regional growth.
    Keywords: Entrepreneurship, economic development, self-employment, new business formation, entrepreneurship culture, institutions
    JEL: L26 R11 O11
    Date: 2014–04–17
  3. By: Henley, Andrew (Aberystwyth University)
    Abstract: This paper provides a quantitative investigation of the strength of the potential relationship between entrepreneurial activity and religious affiliation. The relationship between religion and economic development has attracted recent attention. A positive association may indicate that religion raises the social acceptability of entrepreneurial activity, by inculcating incentives to accumulate wealth and acquire personal responsibility, as well as providing social capital and may be particularly effective where state governance systems are weak. Institutionalist perspectives suggest that religious institutions may support definition of property rights. Economic benefits flow through reduced transactions costs. This paper engages these discussions in order to present a preliminary empirical investigation of the relationships which may exist across national boundaries between religion and entrepreneurship. Definitions of entrepreneurship are taken from the Global Entrepreneurship Monitor (GEM) studies for 2011 and 2012, focusing on the individual rather than on the business venture. Recent data on religious affiliation across countries are used to construct various measures of religious activity and diversity. Preliminary findings suggest, in particular, a significant association between GEM indicators and evangelical-pentecostal-charismatic Christian affiliation. The strength of these associations is offset by state regulation of religion. These findings suggest that attention needs to be paid to the potentially important role that certain forms of religion might play is providing a supportive cultural environment for entrepreneurship. They also suggest that policy-makers may wish to pay closer attention to the potentially supportive role that certain religious organizations might play in new business formation.
    Keywords: entrepreneurship, economic development, religion
    JEL: L26 M13 O43 Z12
    Date: 2014–04
  4. By: Li, Defu; Huang, Jiuli
    Abstract: This paper proves that there is a similar Uzawa (1961) steady-state growth theorem in a Malthusian model: If that model possesses steady-state growth, then technical change must be purely land-augmenting and cannot include labor augmentation.
    Keywords: Malthusian Model, Neoclassical Growth Model, Uzawa’s Steady-State Theorem
    JEL: O33 O41
    Date: 2014–04
  5. By: Sushama Murty (Department of Economics, University of Exeter)
    Abstract: We propose a set of necessary and sufficient conditions for the environmental Kuznets curve (EKC) phenomenon in a general model that permits non-smooth preferences and feasible sets and corner solutions for welfare maximisation. These conditions pertain to the relationship between the sets of preference and technology-based shadow prices at an outcome reached by an emission-held-fixed-effect (EHFE), where the emission policy does not adjust to an increase in the economic resource base and only consumption adjusts. In particular, an EKC arises if and only if there exists a threshold level of resource such that, at any level of resource below (respectively, above) the threshold, the outcome reached by the EHFE is one where the set of preference-based shadow prices lies completely below (respectively, above) the set of technological shadow prices. This characterisation is employed to study and construct examples of preference-technology combinations that can potentially result in an EKC, when emission is a consumption externality. In particular, the cases of homothetic economies, increasing returns to abatement, emission as a normal good, and EKC in a model with economic growth are studied.
    Keywords: environmental Kuznets curve, Clarke's tangent and normal cones, sets of preference and technology-based shadow prices of emission, marginal willingness to pay, marginal abatement cost, welfare maximisation, homotheticity, normal good, inferior good, increasing returns to abatement.
    JEL: Q56 D62 C60
    Date: 2014
  6. By: G. C. Lim (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Paul D. McNelis (Department of Finance, Graduate School of Business Administration, Fordham University)
    Abstract: This paper examines the relationships between the Gini coefficient, trade-openness, foreign aid and foreign direct investment flows. Panel data estimates show that trade openness can be effective for changing income inequality, but its effectiveness depends on the stage of development. Simulation results show that the Gini and openness can be negatively or positively correlated — it depends on the capital intensity and on the degree of openness. Overall, the results suggest that trade and financial openness can be effective policies for reducing inequality in low income countries, if they significantly increase the marginal productivity of labour through capital intensive methods of production.
    Keywords: Gini coefficient, openness
    JEL: E10 F41
    Date: 2014–03
  7. By: Cristiano Andrea Ristuccia; Solomos Solomou
    Abstract: Does the concept of General Purpose Technologies help explain periods of faster and slower productivity advance in economies? The paper develops a new comparative data set on the usage of electricity in the manufacturing sectors of the USA, Britain, France, Germany and Japan and proceeds to evaluate the hypothesis of a productivity bonus as postulated by many existing GPT models. Using the case of the diffusion of electrical power in the early twentieth century this paper shows that there was no generalized productivity boost from electrical power diffusion as postulated by many existing GPT models. The productivity gains from this GPT varied widely across economies and industries, suggesting that the power of GPTs to predict aggregate or sectoral growth is limited.
    Keywords: General Purpose Technologies, Economic Growth, Economic History,Productivity, Long Swings
    JEL: N11 N12 N13 N14 N60 O40
    Date: 2014–04–16
  8. By: Fawaz, Fadi; Rahnamamoghadam, Masha; Valcarcel, Victor
    Abstract: There is mixed evidence in the literature of a clear relationship between income inequality and economic growth. Most of that work has focused almost exclusively on developed economies. In what we believe to be a first effort, our emphasis is solely on developing economics, which we classify as high-income and low-income developing countries (HIDC and LIDC). We make such distinction on theoretical and empirical grounds. Empirically, the World Bank has classified developing economies in this manner since 1978. The data in our sample is also supportive of such classifications. We provide a theoretical scaffolding that uses asymmetric credit constraints as a premise for separating developing economies in such a way. We find strong evidence of a negative relationship between income inequality and economic growth in LIDC to be in stark contrast with a positive inequality-growth relationship for HIDC. Both correlations are statistically significant across multiple econometric specifications. These results are robust to degree of persistence in the variables of interest as well as a measure threshold of income that is estimated endogenously for our sample.
    Keywords: Income inequality, economic growth, Gini coefficient, credit constraints, collateral
    JEL: O1 O10 O40
    Date: 2014–04–08

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