nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒05‒24
twenty-one papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Population growth and human capital: a welfarist approach By Thomas Renstrom; Luca Spataro
  2. Economics breeds culture By Patricio Garcia-Minguez; Ausias Ribo Argemi
  3. Growth Theory and "Green Growth" By Sjak Smulders; Michael Toman; Cees Withagen
  4. Growth in public finances as tool for control: Norwegian development 1850-1950. By Grytten, Ola
  5. Capital goods trade and economic development By Mutreja, Piyusha; Ravikumar, B.; Sposi, Michael J.
  6. The internationalization of economic history: a puzzle By Johan Fourie; Leigh Gardner
  7. A survey on modeling economic growth. With special interest on natural resource use By Voosholz, Frauke
  8. The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia By Moricz, Sara; Sjöholm, Fredrik
  9. The effect of aid on growth : evidence from a quasi-experiment By Galiani, Sebastian; Knack, Stephen; Xu, Lixin Colin; Zou, Ben
  10. Cash-in-advance constraint with status and endogenous growth By Kawagishi, Taketo; Kaminoyama, Ken-ichi
  11. Exploring the effect of economic growth and government expenditure on the environment By Halkos, George; Paizanos, Epameinondas
  12. Remittances and Economic Growth: The Role of Financial Development By Unbreen Qayyum; Muhammad Nawaz
  13. Rethinking the Emissions-Income Relationship in Terms of Growth Rates By Anjum, Zeba; Burke, Paul J.; Gerlagh, Reyer; Stern, David I.
  14. Innovation, Product-Cycle Trade, and the Cross-Country Distribution of Income By Scott French
  15. Government Debt and Economic Growth By César Calderón; J. Rodrigo Fuentes
  16. The Impact of Public Expenditures in Education, Health, and Infrastructure on Economic Growth and Income Distribution in Peru By Jorge A. Mesones; Jorge R. Peschiera Cassinelli; Jorge F. Baca Campodónico
  17. The Significance of Research and Development for Economic Growth: The Case of Pakistan By Khan, Jangraiz; Tariq, Muhammad
  18. An Analysis of the Impact of Government Size on Economic Growth of Pakistan: An Endogenous Growth By Zareen, Shumaila; Qayyum, Abdul
  19. The electricity-growth nexus in South Africa: Evidence from asymmetric co-integration and co-feature analysis By Phiri, Andrew; Nyoni, Botha
  20. Economic History and Economic Development: New Economic History in Retrospect and Prospect By Peter Temin
  21. Novelty, Hysteresis, and Growth By Mario Amendola; Jean-Luc Gaffard

  1. By: Thomas Renstrom (University of Durham (UK)); Luca Spataro (Dipartimento di Economia e Management, University of Pisa (Italy))
    Abstract: In this paper we investigate the relationship between economic and population growth in an endogenous growth model driven by human capital accumulation à la Lucas (1988). Since we allow for endogenous population growth, we adopt the population criterion Relative Critical Level Utilitarianism (an extension of Critical Level Utilitarianism, Blackorby et al. 1995) which allows axiomatically founded welfare orderings under variable population. Under this extension the Critical Level Utility is dependent on parents’ wellbeing. In this scenario we investigate the equilibrium relation between economic growth and population growth as functions of the underlying parameters and we provide the conditions for the economic take-off to occur.
    Keywords: population growth, endogenous growth, human capital, critical level utilitarianism
    JEL: D6 J11 O41
    Date: 2014–05
  2. By: Patricio Garcia-Minguez (Facultat d'Economia i Empresa; Universitat de Barcelona (UB)); Ausias Ribo Argemi (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: Several recent papers document the influence and long lasting effects oftechnology on preferences. Simultaneously, cultural factors are often invoked to explain heterogeneity in preferences. These two ideas suggest that culture determines the short run equilibrium values of economic variables, but, in the long run, culture changes in response to the underlying economic fundamentals. We build a model in which preferences are endogenous and the diversity in preferences (the "cultural" diversity) is explained by the variation in the relevant economic fundamentals. This can help explain observed differences in labor market attachment among groups defined e.g., by citizenship, ethnicity or gender.
    Keywords: Endogenous Preferences, Technology, Culture, Labor market participation, Taxes.
    JEL: D01 J22 J3 Z10
    Date: 2014
  3. By: Sjak Smulders; Michael Toman; Cees Withagen
    Abstract: The relatively new and still amorphous concept of "Green Growth" can be understood as a call for balancing longer-term investments in sustaining environmental wealth with nearer-term income growth to reduce poverty. We draw on a large body of economic theory available for providing insights on such balancing of income growth and environmental sustainability. We show that there is a no a priori assurance of substantial positive spillovers from environmental policies to income growth, or for a monotonic transition to a "green steady state" along an optimal path. The greenness of an optimal growth path can depend heavily on initial conditions, with a variety of different adjustments occurring concurrently along an optiaml path. Factor-augmenting technical change targeting at offsetting resource depletion is critical to sustaining long-term growth within natural limits on the availability of natural resources and environmental services.
    Keywords: growth, environment, natural resources, innovatoin, R&D spillovers, sustainable development, natural capital
    JEL: O1 O3 O4 Q2 Q3 Q4
    Date: 2014
  4. By: Grytten, Ola (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: By drawing on information from public accounts from the nineteenth and twentieth century the present paper aims at mapping the development of key financial indicators for the Norwegian central government sector. It concludes that growth in the size of this sector often, but clearly not always, reflects political economy regimes. The paper concludes that persistant growth in public finances as tool for control over the economy did not take place before the introduction of the social-democratic regime in 1935.
    Keywords: Public finances; Norwegian development.
    JEL: N23 N24 N33 N34 N43 N44 O16 O21 O23 P11 P16 P41
    Date: 2014–05–05
  5. By: Mutreja, Piyusha (Syracuse University); Ravikumar, B. (Federal Reserve Bank of St. Louis); Sposi, Michael J. (Federal Reserve Bank of Dallas)
    Abstract: Almost 80 percent of capital goods production in the world is concentrated in 10 countries. Poor countries import most of their capital goods. We argue that international trade in capital goods has quantitatively important effects on economic development through two channels: (i) capital formation and (ii) aggregate TFP. We embed a multi country, multi sector Ricardian model of trade into a neoclassical growth model. Barriers to trade result in a misallocation of factors both within and across countries. We calibrate the model to bilateral trade flows, prices, and income per worker. Our model matches several trade and development facts within a unified framework. It is consistent with the world distribution of capital goods production, cross-country differences in investment rate and price of final goods, and cross-country equalization of price of capital goods and marginal product of capital. The cross-country income differences decline by more than 50 percent when distortions to trade are eliminated, with 80 percent of the change in each country’s income attributable to change in capital. Autarky in capital goods results in an income loss of 17 percent for poor countries, with all of the loss stemming from decreased capital.
    JEL: E22 F11 O11 O4
    Date: 2014–05–16
  6. By: Johan Fourie; Leigh Gardner
    Abstract: The internationalization of economic history is everywhere except in the publication outputs. Using a new dataset of publications in the top four economic history journals, we investigate this puzzle and attempt to explain why relatively few papers on and from developing countries are published in top journals despite the growing internationalization of economic history more broadly. We find little evidence to suggest that this is due to a bias against papers on developing country topics and by developing country authors. Developing country papers and authors also do not perform worse in citation analyses. Authors from developing countries, it seems, are less productive, or discouraged from submitting their papers to top quality journals, choosing instead local journals. This journal aims to reduce this disparity.
    Keywords: internationalization; publication output; developing countries; citation analysis; journals
    JEL: Z10
    Date: 2014–05
  7. By: Voosholz, Frauke
    Abstract: The purpose of this paper is to survey the contributions to economic growth theory. We focus on the basic models and literature that link resource economic and economic growth, in order to reveal the main differences on how the different aspects are incorporated into growth models. As economic science is not a hard science, all economic activities must always be considered against the background of the current economy, the political and social institutions and technical capabilities (as already mentioned by Solow (1985), p. 328). That is why many of the first growth models, fitted to current state when they were developed, are not transferable to remote periods. Furthermore, natural resources as input factors, which influence economic growth, were neglected for a long time, whereas today they are one of the most discussed factors influencing economic growth. --
    Keywords: economic growth,growth theory,historical overview,renewable resources,non-renewable resources
    JEL: O13 O41 O40 Q20 Q32
    Date: 2014
  8. By: Moricz, Sara (Department of Economics, Lund University); Sjöholm, Fredrik (Department of Economics, 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: 2014–05–07
  9. By: Galiani, Sebastian; Knack, Stephen; Xu, Lixin Colin; Zou, Ben
    Abstract: The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. This paper exploits an instrumental variable based on the fact that since 1987, eligibility for aid from the International Development Association (IDA) has been based partly on whether or not a country is below a certain threshold of per capita income. The paper finds evidence that other donors tend to reinforce rather than compensate for reductions in IDA aid following threshold crossings. Overall, aid as a share of gross national income (GNI) drops about 59 percent on average after countries cross the threshold. Focusing on the 35 countries that have crossed the income threshold from below between 1987 and 2010, a positive, statistically significant, and economically sizable effect of aid on growth is found. A one percentage point increase in the aid to GNI ratio from the sample mean raises annual real per capita growth in gross domestic product by approximately 0.35 percentage points. The analysis shows that the main channel through which aid promotes growth is by increasing physical investment.
    Keywords: Achieving Shared Growth,Economic Theory&Research,Development Economics&Aid Effectiveness,Inequality,Country Strategy&Performance
    Date: 2014–05–01
  10. By: Kawagishi, Taketo; Kaminoyama, Ken-ichi
    Abstract: This paper explores a one-sector AK model with a cash-in-advance (CIA) constraint that itself depends on relative income, which implies status (we call this constraint the “CIA-status constraint”). The CIA-status constraint means that agents with higher income are more creditworthy and can make purchases with fewer money holdings. Under the Clower-Lucas-type CIA-status constraint, we show that the endogenous growth rate and money growth are positively correlated. On the other hand, under the Stockman-type CIA-status constraint, we confirm that the relationship between the endogenous growth rate and money growth changes from negative to positive when the elasticity of the CIA constraint with respect to status exceeds one.
    Keywords: Cash-in-advance constraint; Status; Endogenous growth; Money growth
    JEL: E41 E52 O42
    Date: 2014–05–14
  11. By: Halkos, George; Paizanos, Epameinondas
    Abstract: This paper examines the effect of economic growth and government spending on the environment using a panel of 71 countries for the time period 1970-2008. In particular, we test the hypothesis of the existence of an inverted U-shaped relationship between economic performance and pollution, as well as the hypothesis of a negative direct relationship between fiscal spending and pollution. To take into account that environmental degradation may respond to changes in income and government spending with a time lag, due to technological and institutional reasons, we apply appropriate dynamic econometric methods. We report the estimates for both the short-run and long-run effects on two different air pollutants, namely SO2 and CO2, distinguishing the results for different levels of economic development. Policy implications range depending on the level of income of the considered countries.
    Keywords: Government expenditure; economic growth; environment; dynamics.
    JEL: E60 H50 Q53 Q54 Q56
    Date: 2014–05
  12. By: Unbreen Qayyum (Pakistan Institute of Development Economics, Islamabad); Muhammad Nawaz (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Remittances and financial developments have been an important and overgrowing source in accelerating the growth process of many transitional economies. The economies that have enough source of remittance from their expatriate necessitate the well established technology for financial transactions that ultimately result in economic growth. This paper theoretically extends the Ramsey-Cass-Koopmans model by incorporating the remittances and financial developments that has emerged in financial sector. Theoretical results of steadystate indicate that higher amount of migrant remittances along with financial developments increase the consumption level of the domestic residents that results in higher economic growth by inducing more investment. In the long-run, both overseas remittances and financial developments increase the steady-state rate of output growth and capital stock. The findings also highlights that remittance creates the current account surplus and financial developments produce an upward shift in production function that lead to further growth. This research explores the new dimension for policy-maker particularly, working for innovations in the financial sectors.
    Keywords: Financial Development, Remittances, Economic Growth
    JEL: G2 F24 F43
    Date: 2014
  13. By: Anjum, Zeba; Burke, Paul J.; Gerlagh, Reyer; Stern, David I.
    Abstract: The long-run average growth rates of per capita carbon dioxide emissions and GDP per capita are positively correlated, though the rate of emissions intensity reduction varies widely across countries. The conventional approach to investigating these relationships involves panel regression models of the levels of the variables, which are plagued by unit root and cointegration issues as well as the difficulty of identifying time effects. In this paper, we adopt a new representation of the data in terms of long-run growth rates, which allows us to test multiple hypotheses about the drivers of per capita emissions of pollutants in a single framework. It avoids the econometric issues associated with previous approaches and allows us to exploit the differences in growth performance across countries. We also apply our new approach to sulfur emissions. The results show that scale, environmental Kuznets, convergence, and, for sulfur, time effects are important in explaining emissions growth. Though the elasticity of emissions with respect to income declines with increased income, for carbon the effect of growth is monotonic. For sulfur, most of our specifications find an in sample turning point, but for our preferred specification the turning point is three times mean income. We also found that the Green Solow Model convergence effect is more important than GDP growth or the EKC effect in explaining sulfur emissions but that the latter is true for carbon emissions.
    Keywords: Economic growth, environmental Kuznets curve, decoupling, Environmental Economics and Policy, Q56, O44,
    Date: 2014
  14. By: Scott French (School of Economics, Australian School of Business, the University of New South Wales)
    Abstract: This paper develops a quantitative, multi-country model of endogenous growth, international trade, and international knowledge flows in order to understand how access to both foreign products and technologies, together, influences innovation incentives and the world distribution of income. An endogenous product cycle arises in equilibrium, in which innovative countries engage in both horizontal and vertical research, while others far from the technological frontier specialize in learning about and applying research previously conducted abroad. The effect of trade barriers on the level and dispersion of income across countries is found to be larger than would be predicted by a static trade model, and the effect of access to international knowledge flows is also quantitatively important and dependent on trade flows. For instance, halving the cost of learning reduces income dispersion by 23%, while doing so after eliminating asymmetric international trade barriers reduces income dispersion by only 10%.
    Keywords: Income differences, Trade, Endogenous growth, Product cycle, Innovation, Productivity, Technology diffusion
    JEL: F11 F12 F14 O19 O31 O33 O40
    Date: 2014–05
  15. By: César Calderón; J. Rodrigo Fuentes
    Abstract: The growth prospects of a nation are stymied by the burden of government debt. This study has two goals: first, it tests whether public debt hinders growth; and, second, it explores whether economic policy ameliorates this effect. A large panel data of countries for 1970-2010 reveal a negative and robust effect of public debt on growth. Strong institutions, high quality domestic policies, and outward-oriented policies partly mitigate this adverse effect. An enhanced policy environment and its interaction with public debt has helped explain the improved growth performance of industrial and developing countries for the years 2001-05 compared to the years 1991-95. Viewing the actual performance of the Latin America and the Caribbean region, South America encompasses the group of countries more benefited by improvement of economic policies, while Central America and the Caribbean lag considerably. A simultaneous sharp reduction in public debt and an improvement in the policy environment induce an increase in the growth rate per capita of 1.7 percentage points for the Caribbean and 2 percentage points for South America. A more conservative scenario that considers an upgrade in quality of policies and a reduction of public debt leads to lower but still significant growth benefits for the Caribbean and South America, by 0.85 and 1.5 percentage points, respectively.
    Keywords: Public debt, Fiscal Policy, Financial Markets, Investment, Public debt, policy environment, growth
    Date: 2013–10
  16. By: Jorge A. Mesones; Jorge R. Peschiera Cassinelli; Jorge F. Baca Campodónico
    Abstract: The Peruvian economy has exhibited remarkable growth in the past 20 years. Good tax and monetary policies, along with comprehensive structural adjustment, which has attracted substantial foreign investment, are regarded as the pillars of this success. Notwithstanding the advances experienced on reducing poverty, lowering inequality and unemployment continue to be elusive targets for the Peruvian government and constitute main causes of social unrest. This paper assesses the impact of Peruvian public expenditures in education, health, and infrastructure on economic growth, poverty, and income distribution in the past 20 years using a Dynamic Computable General Equilibrium Model (DCGEM), which is an economy-wide model that describes the behavior of producers and consumers and the linkages among them.
    Keywords: Public debt, Economic Development & Growth, Government budget, Public expenditure, Computable general equilibrium models, public expenditures, health, education, infrastructure
    Date: 2014–02
  17. By: Khan, Jangraiz; Tariq, Muhammad
    Abstract: This paper concentrates on the significance of Research and Development (R&D) for economic growth in the developing economy of Pakistan. The paper also questioned the major macro determinants of R&D in Pakistan. The study used time series data for the period 1971- 2008. The results obtained from the Ordinary Squares method showed that R&D significantly affects the Real GDP per capita in Pakistan. Health, labour force , and Physical capital are among the other determinants of Real GDP per capita. The results further show that real GDP per capita and quality of educational institutions are the significant factors which affect R&D. The Johansen Cointegration test confirmed the existence of long run relationship between R&D and economic growth. Similarly, R&D and its determinants were also found in long run relationship.It is therefore recommended to increase investment in R&D to achieve sustained economic growth. It is also recommended to collect and record quality R&D data for effective policy making in the field of science and technology, and social sectors in Pakistan.
    Keywords: Research and Development, Economic Growth, Health, Labour Force, Quality of Educational Institutions
    JEL: O3 O38 O39 O4
    Date: 2014–05–21
  18. By: Zareen, Shumaila; Qayyum, Abdul
    Abstract: Keeping in view the importance of economic growth in a country’s development, this study intended to examine the relationship between the government size and other determinants on economic growth using a time series data over the period 1973-2012. To specify the growth equation, we have followed the Barro (1990) model of endogenous growth. The exogenous variables in the model consisted of the government size, employment, inflation, capital and trade openness. To examine the impact of the 9/11 incident, the earth quake in 2005 and financial crises, we have introduced three dummies in our growth equation. Keeping in view the nature of variables and possible endogenity in the model, we have used the VAR methodology which is believed to overcome the possible endogenity. The estimation strategy comprised of two steps. In the first step, we have estimated the long run growth equation using the Johansen co-integration technique. In the second step, we have estimated the ECM model to arrive at the short run growth elasticities with respect to the variables concerned. The long run results indicated that almost all the variables have found out to be significant with their expected signs except for trade openness which carried negative coefficient. The negative and significant coefficient of the government size suggested that large government size negatively affect economic growth of Pakistan. On the other hand, the positive and significant coefficient of capital indicated that increase in capital holdings enhances economic growth. The positive and significant long run coefficients of inflation and employment highlight that economic growth increase along with increase in inflation and employment. The trade openness variable was found to be significant with positive sign which is the only significant variable in the ECM model except the dummies. The ECM term in the error correction model has carried out significant coefficient with negative sign and plausible magnitude that highlights the stability of the model.
    Keywords: Government size, Economic growth, Co-integration, Time Series Analysis
    JEL: C4 C5 C50 E1 O4 O41 O5
    Date: 2014
  19. By: Phiri, Andrew; Nyoni, Botha
    Abstract: This study undertakes an examination of asymmetric adjustment effects between electricity consumption and economic growth in South Africa using quarterly data collected from 1983Q1 to 2013:Q4. In our study, we employ a momentum-threshold co-integration method to examine the long-run equilibrium relationship between electricity consumption and economic growth. Our empirical results reveal significant nonlinear co-integration behavior between the time series variables with uni-directional causality running from electricity consumption to economic growth and no causal effects in the short-run. This implies that energy authorities in South Africa should avoid implementing conservative electricity policies as this may hamper long-run economic growth. We further extend our empirical analysis by decomposing the time series into their trend and cyclical components and our estimations also depict stronger nonlinear behavior among the de-trended components with bi-directional causality existing between the variables in both the short and long-run. Generally, our study highlights that co-integration and causal effects between electricity usage and output growth is related with the business cycle. Therefore, ignoring the cyclical components of the variables could prove to be quite costly for South African policymakers.
    Keywords: Electricity consumption; Economic growth; Threshold co-integration; Nonlinear granger causality; South Africa
    JEL: C32 C51 Q43
    Date: 2014–05–22
  20. By: Peter Temin
    Abstract: I argue in this paper for more interaction between economic history and economic development. Both subfields study economic development; the difference is that economic history focuses on high-wage countries while economic development focuses on low-wage economies. My argument is based on recent research by Robert Allen, Joachim Voth and their colleagues. Voth demonstrated that Western Europe became a high-wage economy in the 14th century, using the European Marriage Pattern stimulated by the effects of the Black Death. This created economic conditions that led eventually to the Industrial Revolution in the 18th century. Allen found that the Industrial Revolution resulted from high wages and low power costs. He showed that the technology of industrialization was adapted to these factor prices and is not profitable in low-wage economies. The cross-over to economic development suggests that demography affects destiny now as in the past, and that lessons from economic history can inform current policy decisions. This argument is framed by a description of the origins of the New Economic History, also known as Cliometrics, and a non-random survey of recent research emphasizing the emerging methodology of the New Economic History.
    JEL: N01 N10 O11 O15
    Date: 2014–05
  21. By: Mario Amendola (Università degli Studi di Roma "La Sapienza"); Jean-Luc Gaffard (OFCE)
    Abstract: Novelty and hysteresis are the main engines of economic evolution. However, they are also at the origin of co-ordination issues, as the consequences of any innovative choice can never be fully expected. Thus, there is no sense in analysing economic change as an intertemporal equilibrium with rational expectations. Not only growth and fluctuations cannot be dissociated, but there is no long-term trend that would be independent from what happens in the short- term. The explicit consideration of essential evolutionary phenomena like novelty and hysteresis help a clearer understanding of some important episodes of contemporaneous economic history. The periods considered are characterized by crises and structural changes, and it is exactly when important disturbances affect the functioning of the economies that the relevant features of their behaviour come to the surface and hence the right interpretations of the phenomena taking place, with the adequate policy implications, can be formulated.
    Date: 2014–05

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