nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒05‒17
twenty-two papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Colonial Legacy, Linguistic Disenfranchisement and the Civil Conflict in Sri Lanka By Paul Castaneda Dower; Victor Ginsburgh; Shlomo Weber
  2. Missing Men: World War II Casualties and Structural Change By Christoph Eder
  3. Is There a Development Gap in Rationality? By Cappelen, Alexander W.; Kariv, Shachar; Sørensen, Erik Ø.; Tungodden, Bertil
  4. Migrant Networks and Trade: The Vietnamese Boat People as a Natural Experiment By Christopher PARSONS; Pierre-Louis VÉZINA
  5. Parental Response to Early Human Capital Shocks: Evidence from the Chernobyl Accident By Sylvia Frühwirth-Schnatter; Martin Halla; Alexandra Posekany; Gerald J. Pruckner; Thomas Schober
  6. Disease and Development: A Reply to Bloom, Canning, and Fink By Daron Acemoglu; Simon Johnson
  7. The Danish Agricultural Revolution in an Energy Perspective: A Case of Development with Few Domestic Energy Sources By Henriques, Sofia Teives; Sharp, Paul
  8. Financial Stress and the Impact of Public Debt on UK Growth in High versus Low-Growth Regimes: 1850-2013 By Costas Milas
  9. Long Run Trends in the Distribution of Income and Wealth By Roine, Jesper; Waldenström, Daniel
  10. Indirect Rule and State Weakness in Africa: Sierra Leone in Comparative Perspective By Daron Acemoglu; Isaías N. Chaves; Philip Osafo-Kwaako; James A. Robinson
  11. Forward Markets to Spur Innovation By Linda Cohen; Amihai Glazer
  12. Environment and Growth By Ryo Horii; Masako Ikefuji
  13. Economic Growth and Development By Mark Setterfield
  14. R&D Policy and Schumpeterian Growth: Theory and Evidence By A. Minniti; F. Venturini
  15. The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia By Moricz, Sara; Sjöholm, Fredrik
  16. Growth, inequality, and social welfare : cross-country evidence By Dollar, David; Kleineberg, Tatjana; Kraay, Aart
  17. What is driving the ‘African Growth Miracle’? By Margaret S. McMillan; Kenneth Harttgen
  18. Income Heterogeneity and Environmental Kuznets Curve in Africa By Ogundipe, Adeyemi; Alege, Philip; Ogundipe, Oluwatomisin
  19. The impact of democracy on economic growth in sub-Saharan Africa, 1982-2012 By Masaki, Takaaki; van de Walle, Nicolas
  20. On the Mechanism of International Technology Diffusion for Energy Productivity Growth By Wei Jin; ZhongXiang Zhang
  21. Short- and Long-Run Relationships between Natural Gas Consumption and Economic Growth: Evidence from Pakistan By Muhammad Shahbaz; Mohamed Arouri; Frédéric Teulon
  22. The structural anatomy and institutional architecture of inclusive growth in sub-Saharan Africa By Thorbecke, Erik

  1. By: Paul Castaneda Dower (New Economic School, Center for Study of Diversity and Social Interactions); Victor Ginsburgh (ECARES, Universite Libre de Bruxelles); Shlomo Weber (Southern Methodist University)
    Abstract: Polarization measures that are used in examining the empirical relationship between ethnic divisions and violent conflict, heavily rely on mechanisms of group identification and often use somewhat arbitrary divisions of a society into ethnic groups. In this paper we construct two new measures of polarization, one that accounts for differences in linguistic policies across localities during the colonial era and one that accounts for the differences over time and across localities in the experience of violence throughout the conflict episode. By examining the protracted war in Sri Lanka and applying these indices (and their combination) to a data set describing victims of the civil conflict by district and year, we are able to better identify the effect of ethno-linguistic polarization on the civil conflict in the country. We find that, for each of our polarization indices, there is a positive effect on the conflict. The historical underpinnings of our indices allow us to demonstrate in a quantitative and concrete way the relevance of historical processes for understanding episodes of civil conflict.
    Keywords: Sri Lanka, violent conflict, ethno-linguistic fractionization, polarization indices, regional differences
    JEL: D74 F54 N45
    Date: 2014–05
  2. By: Christoph Eder
    Abstract: This paper investigates the long-term consequences of violent conflict and the associatedhuman casualties on economic development. Using the World War II casualties suffered in Austrian municipalities as a natural experiment, I find a significant negative causal effect of human losses on economic activity, as measured by the current total wage bill in the affected communities today. The underlying determinants of this reduction in output are traced back to a lower number and density of firms, along with a smaller work force. However, this is only true for the service sector and not the manufacturing sector. As I demonstrate, the likely channel through which the effect persisted over time is through its impact on the structural composition of the work force. Specifically, greater human losses increased the fraction of employment in manufacturing at the expense of agriculture until the 1970s and services from then onwards. A simple model shows that structural change can translate a lower labor share in agricultural production into less participation of service sector growth at a later time.
    Date: 2014–02
  3. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Kariv, Shachar (University of California, Berkeley); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We report an experimental test of the four touchstones of rationality in choice under risk – utility maximization, stochastic dominance, expected-utility maximization and small-stakes risk neutrality – with students from one of the best universities in the United States and one of the best universities in Africa, the University of Dar es Salaam. Although the US and the Tanzanian subjects come from different backgrounds and face different economic prospects, they are united by being among the most able in their societies. Importantly, many of whom will exercise an outsized influence over economic and political affairs. We find very small or no significant differences between the two samples in the degree of rationality according to a number of standard economic measures. An alternative approach is to take cognitive ability (IQ) as a proxy for economic rationality. We show that a canonical IQ test indicates a much larger development gap in rationality relative to our economic tests.
    Keywords: Development; rationality; revealed preference; stochastic dominance; expected utility; risk aversion; cognitive ability; experiment.
    JEL: D01 D03 D81 O12
    Date: 2014–01–28
  4. By: Christopher PARSONS (University of Oxford); Pierre-Louis VÉZINA (University of Oxford)
    Abstract: We provide cogent evidence for the causal pro-trade effect of migrants and in doing so establish an important link between migrant networks and long-run economic development. To this end, we exploit a unique event in human history, the exodus of the Vietnamese Boat People to the US. This episode represents an ideal natural experiment as the large immigration shock, the first wave of which comprised refugees exogenously allocated across the US, occurred over a twentyyear period during which time the US imposed a complete trade embargo on Vietnam. Following the lifting of trade restrictions in 1994, the share of US exports going to Vietnam was higher and more diversified in those US States with larger Vietnamese populations, themselves the result of larger refugee inflows 20 years earlier.
    Keywords: : Migrant Networks, US Exports, Natural Experiment
    JEL: F14 F22
    Date: 2014–09
  5. By: Sylvia Frühwirth-Schnatter; Martin Halla; Alexandra Posekany; Gerald J. Pruckner; Thomas Schober
    Abstract: Prior empirical research on the theoretically proposed interaction between the quantity and the quality of children builds on exogenous variation in family size due to twin births and focuses on human capital outcomes. The typical finding can be described as a statistically nonsignificant two-stage least squares (2SLS) esti- mate, with substantial standard errors. We regard these conclusions of no empirical support for the quantity-quality trade-off as premature and, therefore, extend the empirical approach in two ways. First, we add health as an additional outcome di- mension. Second, we apply a semi-parametric Bayesian IV approach for econometric inference. Our estimation results substantiate the finding of a zero effect: we provide estimates with an increased precision by a factor of approximately twenty-three, for a broader set of outcomes.
    Keywords: Quantity-quality model of fertility, family size, human capital, health,semi-parametric Bayesian IV approach
    JEL: J13 C26 C11 I20 J20 I10
    Date: 2014–03
  6. By: Daron Acemoglu; Simon Johnson
    Abstract: Bloom, Canning, and Fink (2014) argue that the results in Acemoglu and Johnson (2006, 2007) are not robust because initial level of life expectancy (in 1940) should be included in our regressions of changes in GDP per capita on changes in life expectancy. We assess their claims controlling for potential lagged effects of initial life expectancy using data from 1900, employing a nonlinear estimator suggested by their framework, and using information from microeconomic estimates on the effects of improving health. There is no evidence for a positive effect of life expectancy on GDP per capita in this important historical episode.
    JEL: I15 N40 O15
    Date: 2014–04
  7. By: Henriques, Sofia Teives (Department of Business and Economics); Sharp, Paul (Department of Business and Economics)
    Abstract: Is a lack of domestic energy resources necessarily a limiting factor to growth, as suggested for example by the work of Robert C. Allen? We examine the case of Denmark - a country which historically had next to no domestic energy resources - for which we present new historical energy accounts for the years 1800-2011. Focusing on the period of the first Industrial Revolution, we demonstrate that Denmark’s take off at the end of the nineteenth century was in fact relatively energy dependent. We relate this to her well-known agricultural transformation and development through the dairy industry. The Danish cooperative creameries, which spread throughout the country over the last two decades of the nineteenth century, were dependent on coal – a point which has not been stressed before in the literature. Denmark had next to no domestic coal deposits, but we demonstrate that her geography allowed cheap availability throughout the country through imports. Thus, Denmark might be seen as the exception that proves the rule: although modern energy forms are important for growth, domestic energy resources are not necessary, as long as it is possible to import them cheaply from elsewhere.
    Keywords: Coal; dairying; Denmark; energy transition
    JEL: N50 Q40
    Date: 2014–05–06
  8. By: Costas Milas (University of Liverpool, UK; Rimini Centre of Economic Analysis, Italy)
    Abstract: Using a long historical dataset, we estimate a Threshold Vector Autoregression (T-VAR) model for the UK based on a financial stress measure, the debt-to-GDP ratio, borrowing costs and real GDP growth. Our model allows for the impact of debt/GDP to vary between periods of high and low economic growth. We find that financial stress depresses growth much more in the low as opposed to the high-growth regime. We also find that positive shocks to debt/GDP depress economic growth and raise borrowing costs; again, the impact is much stronger when growth is low. This is an important finding as economists and policy-makers are currently debating whether it makes sense to proceed swiftly with fiscal consolidation when economic conditions remain weak.
    Keywords: Debt, financial stress, GDP growth regimes
    JEL: C2 H3 H6
    Date: 2014–04
  9. By: Roine, Jesper (Stockholm School of Economics); Waldenström, Daniel (Department of Economics, Uppsala University)
    Abstract: This paper reviews the long run developments in the distribution of personal income and wealth. It also discusses suggested explanations for the observed patterns. We try to answer questions such as: What do we know, and how do we know, about the distribution of income and wealth over time? Are there common trends across countries or over the path of devel-opment? How do the facts relate to proposed theories about changes in inequality? We present the main inequality trends, in some cases starting as early as in the late eighteenth century, combining previous research with recent findings in the so-called top income literature and new evidence on wealth concentration. The picture that emerges shows that inequality was historically high almost everywhere at the beginning of the twentieth century. In some coun-tries this situation was preceded by increasing concentration, but in most cases inequality seems to have been relatively constant at a high level in the nineteenth century. Over the twentieth century inequality decreased almost everywhere for the first 80 years, largely due to decreasing wealth concentration and decreasing capital incomes in the top of the distribution. Thereafter trends are more divergent across countries and also different across income and wealth distributions. Econometric evidence over the long run suggests that top shares increase in periods of above average growth while democracy and high marginal tax rates are associat-ed with lower top shares.
    Keywords: Income inequality; Income distribution; Wealth distribution; Economic history; Top incomes; Welfare state; Taxation
    JEL: D31 H20 J30 N30
    Date: 2014–05–05
  10. By: Daron Acemoglu; Isaías N. Chaves; Philip Osafo-Kwaako; James A. Robinson
    Abstract: A fundamental problem for economic development is that most poor countries have ‘weak state’ which are incapable or unwilling to provide basic public goods such as law enforcement, order, education and infrastructure. In Africa this is often attributed to the persistence of ‘indirect rule’ from the colonial period. In this paper we discuss the ways in which a state constructed on the basis of indirect rule is weak and the mechanisms via which this has persisted since independence in Sierra Leone. We also present a hypothesis as to why the extent to which indirect rule has persisted varies greatly within Africa, linking it to the presence or the absence of large centralized pre-colonial polities within modern countries. Countries which had such a polity, such as Ghana and Uganda, tended to abolish indirect rule since it excessively empowered traditional rulers at the expense of post-colonial elites. Our argument provides a new mechanism which can explain the positive correlation between pre-colonial political centralization and modern public goods and development outcomes.
    JEL: D7 H11
    Date: 2014–05
  11. By: Linda Cohen (Department of Economics, University of California-Irvine); Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: This paper presents a mechanism inducing costly research and innovation in the absence of intellectual property rights. The mechanism relies on forward contracting between the provider of the innovation and firms or individuals that benefit from the pecuniary effects of the innovation, rather than from its direct use. Applied to innovation as a non-discrete public good, the mechanism resolves time consistency, agency, and free-riding problems, and provides an incentive for ex post efficient pricing.
    Keywords: Innovation; Public goods; Mechanism design; Patents; Forward contracts
    Date: 2014–04
  12. By: Ryo Horii (Graduate School of Economics and Management, Tohoku University); Masako Ikefuji (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: This paper examines the implications of the mutual causality between environmental quality and economic growth. While economic growth deteriorates the environment through increasing amounts of pollution, the deteriorated environment in turn limits the possibility of further economic growth. In a less developed country, this link, which we call “limits to growth,” emerges as the “poverty-environment trap,” which explains the persistent international inequality both in terms of income and environment. This link also threatens the sustainability of the world’s economic growth, particularly when the emission of greenhouse gases raises the risk of natural disasters. Stronger environmental policies are required to overcome this link. While there is a trade-off between the environment and growth in the short run, we show that an appropriate policy can improve both in the long run.
    Keywords: Environmental Kuznets Curve, Limits to Growth, Poverty-Environment Trap, Sustainability, Natural Disasters
    JEL: Q5
    Date: 2014–04
  13. By: Mark Setterfield
    Abstract: The historical growth record is reviewed and growth is shown to have resulted in divergence between the incomes of fast growing rich economies and slower growing poorer economies. Supply-led, neoclassical growth is then contrasted with demand-led, Keynesian growth. Three Keynesian growth theories (Harrodian, Kaleckian, and Kaldorian) are outlined and shown to differ according to whether investment spending or export demand is the key “driver” of demand formation and growth. The properties of Keynesian growth are then identified and discussed. These include the relationship between saving behaviour and growth, the effects of income redistribution on growth, the relationship between technical progress and growth, and the interaction of supply and demand in the growth process.
    Keywords: Economic growth, divergence, demand-led growth, Keynesian growth theory
    JEL: O41 O47 O57
    Date: 2014–04
  14. By: A. Minniti; F. Venturini
    Abstract: In recent years, a large body of empirical research has investigated whether the predictions of secondgeneration growth models are consistent with actual data. This strand of literature has focused on the longrun properties of these models by using productivity and innovation data but has not directly assessed the effectiveness of R&D policy in promoting innovation and economic growth. In the present paper, we fill this gap in the literature by providing a unified growth setting that is empirically tested with US manufacturing industry data. Our analysis shows that R&D policy has a persistent, if not permanent, impact on the rate of economic growth and that the economy rapidly adjusts to policy changes. The impact of R&D tax credits on economic growth appears to be long lasting and statistically robust. Conversely, more generous R&D subsidies are associated with an increase in the rate of economic growth in the short run only, indicating that, at best, this policy instrument has only temporary effects. Overall, the evidence regarding the effectiveness of R&D policy provides more support for fully endogenous growth theory than for semi-endogenous growth theory.
    JEL: O3 O38 O4
    Date: 2014–05
  15. By: Moricz, Sara (Lund University); Sjöholm, Fredrik (Lund University)
    Abstract: Does democracy increase economic growth? Previous literature tends to find a positive effect but does also suffer from possible endogeneity problems: democratization is typically not random and might be affected by factors that also have an impact on economic growth. This paper narrows down the question to empirically estimating the causal effect of local elections on local economic growth in Indonesia by using a quasi-experimental research method. The first direct elections of district leaders in Indonesia were performed in a staggered manner, and decided such that the year of election is exogenous. Thus, growth in districts that have had their first elections of district heads can be compared with growth in districts that have not had a direct election, which more specifically is performed by using a difference-in-difference approach. Our estimations show no general effect of local elections on economic growth. The result is robust to various robustness tests and is supported by data that show small effects of elections on governance.
    Keywords: Democracy; Elections; Growth; Indonesia; Natural experiment
    JEL: H11 O10 O43
    Date: 2014–05–08
  16. By: Dollar, David; Kleineberg, Tatjana; Kraay, Aart
    Abstract: Social welfare functions that assign weights to individuals based on their income levels can be used to document the relative importance of growth and inequality changes for changes in social welfare. In a large panel of industrial and developing countries over the past 40 years, most of the cross-country and over-time variation in changes in social welfare is due to changes in average incomes. In contrast, the changes in inequality observed during this period are on average much smaller than changes in average incomes, are uncorrelated with changes in average incomes, and have contributed relatively little to changes in social welfare.
    Keywords: Inequality,Achieving Shared Growth,Economic Conditions and Volatility,Economic Theory&Research,Equity and Development
    Date: 2014–04–01
  17. By: Margaret S. McMillan; Kenneth Harttgen
    Abstract: We show that much of Africa’s recent growth and poverty reduction can be traced to a substantive decline in the share of the labor force engaged in agriculture. This decline has been accompanied by a systematic increase in the productivity of the labor force, as it has moved from low productivity agriculture to higher productivity manufacturing and services. These declines have been more rapid in countries where the initial share of the labor force engaged in agriculture is the highest and where commodity price increases have been accompanied by improvements in the quality of governance.
    JEL: O13 O4 Q16
    Date: 2014–04
  18. By: Ogundipe, Adeyemi; Alege, Philip; Ogundipe, Oluwatomisin
    Abstract: The Environmental Kuznets Curve (EKC) hypothesis asserts that pollution levels rises as a country develops, but reaches a certain threshold where pollution begins to fall with increasing income. In EKC analysis, the relationship between environmental degradation and income is usually expressed as a quadratic function with turning point occurring at a maximum pollution level. The study seeks to examine the pattern and nature of EKC in Africa and major income groups according to World Bank classification comprising low income, lower middle income and upper middle income in Africa. In ensuring the robustness of our study; the paper proceeded by ascertaining the nature of EKC in all fifty-three countries of Africa in order to confirm the results obtained from basic and augmented EKC model. The study could not validate EKC hypothesis in Africa (combined), low income and upper middle income but empirical and analytical evidences supports the existence of EKC in lower middle income countries. Likewise, evidences from the robustness checks confirmed the findings from the basic and augmented EKC model. The study could not attain a reasonable turning point as there are evidences that Africa could be turning on the EKC at lower levels of income. Also, there is need to strengthen institutions in order to enforce policies that prohibits environmental pollution and ensure pro-poor development.
    Keywords: Pollution, Income, Environmental Kuznets Curve, Africa
    JEL: N17 Q1 Q4 Q5
    Date: 2014–05–03
  19. By: Masaki, Takaaki; van de Walle, Nicolas
    Abstract: Does democracy promote economic growth? There is still an ongoing debate over the economic implications of democracy, and this question has gained critical importance particularly in the African context, where a wave of democratization in the early 1990s
    Keywords: economic growth, democracy, democratization
    Date: 2014
  20. By: Wei Jin (College of Public Policy and Administration, Zhejiang University); ZhongXiang Zhang (Department of Public Economics School of Economics, Fudan University)
    Abstract: International diffusion of advanced environment and energy-related technologies has received much attention in recent environmental economics studies. As a much needed complement to the “black box” complex numerical modelling, this paper contributes to developing a simple, intuitive analytical framework to unveil the mechanism of international technology diffusion for energy productivity growth. We draw on the Solow growth model to build a benchmark exogenous framework to explore the basic mechanism of energy technology diffusion. This exogenous model is then extended to a Romer-type endogenous one where the R&D-induced expansion of energy technology varieties is used to represent the deep structure of technology diffusion. We show that the growth rates of energy productivity are the same across countries in the balanced growth path equilibrium, but the cross-country differences in the efficiency of foreign technology absorption and indigenous innovation lead to cross-country divergence in the levels of energy productivity. The economy that has a stronger capacity of assimilating foreign technology diffusion and undertaking indigenous innovation tends to gain a higher level of energy productivity.
    Keywords: Technological Innovation, Energy Technology Diffusion, Solow Growth Model, Endogenous Growth Model
    JEL: Q55 Q58 Q43 Q48 O13 O31 O33 O44 F18
    Date: 2014–04
  21. By: Muhammad Shahbaz; Mohamed Arouri; Frédéric Teulon
    Abstract: This paper examines the dynamic relationship between natural gas consumption and economic growth in Pakistan using a multivariate model by including capital and labor as control variables for the period between 1972QI and 2011QIV. The results of the ARDL bounds testing indicate the presence of cointegration among the variables. The estimated long-run impact of gas consumption on economic growth is greater than other factor inputs suggesting that energy is a critical driver of production and growth in Pakistan. Furthermore, the results of causality test suggest that natural gas consumption and economic growth are complements. Given that natural gas constitutes to the primary source of energy in Pakistan, the implication of this study is that natural gas conservation policies could harm growth and, therefore, requires the policy makers to improve the energy supply efficiency as well as formulate appropriate policies to attract investment and establish public-private partnership initiatives.
    Keywords: Gas Consumption, Economic Growth, Cointegration.
    JEL: C22 R41
    Date: 2014–05–15
  22. By: Thorbecke, Erik
    Abstract: The distinct features of inclusive growth within the context of sub-Saharan Africa are identified. The anatomy of growth is analysed by exploring the interrelationship among growth, inequality, and poverty. The present growth spell appears to have been re
    Keywords: inclusive growth, inequality, poverty, structural transformation, institutions, sub-Saharan Africa
    Date: 2014

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