nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒06‒14
23 papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Long-run effects of the Spanish Inquisition By Vidal-Robert, Jordi
  2. Directed Technical Change and Capital Deepening: A Reconsideration of Kaldor’s Technical Progress Function By Schlicht, Ekkehart
  3. Capital goods trade and economic development By Mutreja, Piyusha; Ravikumar, B.; Sposi, Michael J.
  4. An African Growth Miracle? By Dani Rodrik
  5. Complex endogenous dynamics in a one-sector growth model with differential savings By Fabio Tramontana; Viktor Avrutin
  6. A Politico-economic Approach on Public Debt in an Endogenous Growth Economy By Arai, Real; Naito, Katsuyuki
  7. Bigger cakes with less ingredients? A comparison of material use of the world economy By Pothen, Frank; Schymura, Michael
  8. Time for Men to Catch up on Women? A Study of the Swedish Gender Wage Gap 1973-2012 By Löfström, Åsa
  9. Poverty and Intelligence: Evidence Using Quantile Regression By Oasis, Kodila-Tedika; Remy, Bolito-Losembe
  10. Inequality of opportunity and economic growth: A cross-country analysis By Francisco H. G. Ferreira; Christoph Lakner; Maria Ana Lugo; Berk Ozler
  11. Inequality and growth in the context of the Mexican economy: Does inequality matter for growth? By Jorge Alberto Charles Coll
  12. The environmental Kuznets curve in a public spending model of economic growth By Diallo, Ibrahima Amadou
  13. The Environmental Kuznets Curve: A Primer By David I. Stern
  14. Multinational production and trade in an endogenous growth model with heterogeneous firms By Maemir H.; Ziesemer T.H.W.
  15. Ecological Barriers and Convergence: a Note on Geometry in Spatial Growth Models By Giorgio FABBRI
  16. The maximum debt-GDP ratio and endogenous growth in the Diamond overlapping generations model: Three overlapping generations are better than two By Mark Roberts
  17. The determinants of capital intensity in Japan and the U.S. By Dario Simon Judzik; Hector Sala Lorda
  18. Unionised Labour Market, Unemployment Allowances, Productive Public Expenditure and Endogenous Growth By Bhattacharyya, Chandril; Gupta, Manash Ranjan
  19. Trade Structure and Growth Effects of Taxation in a Two-Country World By Amano, Daisuke; Mino, Kazuo
  20. A non-monotonic relationship between public debt and economic growth: the effect of financial monopsony By Mark Roberts
  21. Deregulation and growth in Italy By Cristina Mocci; Stefania Pozzuoli; Francesca Romagnoli; Cristina Tinti
  22. A Note on How and Why Growth and Unemployment Go Hand in Hand in Developing Economies By Mandal, Biswajit; Mandal, Arindam
  23. Financial liberalization, Foreign Direct investment (FDI) and Economic Growth: A Panel Dynamic Data Validation By SAIEF EDDINE, AYOUNI; FAKHRI, ISSAOUI; SALEM, BRAHIM

  1. By: Vidal-Robert, Jordi (University of Warwick and CAGE)
    Abstract: Using a newly collected dataset on inquisitorial activity for seven regions, fourteen provinces and 947 municipalities, I analyze the long-term economic consequences of the Spanish Inquisition (1478-1834). I show that inquisitorial activity is negatively associated to regional and provincial economic growth (an increase of a thousand inquisitorial trials is associated with 3% to 5% lower urbanization rates). At the municipal level, I find that municipalities affected by the Inquisition experienced an annual population growth rate 0.11% lower than their counterparts. This result is robust when controlling for alternative explanatory factors, such as pre-existent religiosity and proxies for trade activity. I explore three channels through which the Inquisition may have had an impact on economic outcomes. While inquisitorial activity is not linked to levels of trust or social polarization, I find it is negatively associated with the adoption of new technologies and the creation of municipal centres of cultural transmission.
    Keywords: Spanish Inquisition, polarization
    Date: 2014
  2. By: Schlicht, Ekkehart
    Abstract: This note proposes a growth model that is derived from the standard Solow growth model by replacing the neoclassical production function with Kaldor’s technical progress function while maintaining a marginalist theory of factor prices in the spirit suggested by von Weizsäcker (1966, 1966b). The hybrid model so obtained accounts for balanced growth in a way that appears less arbitrary than the Solow model, especially because it directly accounts for Harrod neutral technical change, without any need for further assumptions.
    Keywords: directed technical change; directed technological change; bias in innovation; technical progress function; neoclassical production function; Harrod neutrality; Hicks neutrality; Cambridge theory of distribution; marginal productivity theory; Kaldor; Kennedy; von Weizsäcker; Solow model
    JEL: O30 O40 E12 E13 E25 B31 B59
    Date: 2014–03–17
  3. 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.
    Keywords: trade; capital; investment; economic development
    JEL: E22 F11 O11 O4
    Date: 2014–05–01
  4. By: Dani Rodrik
    Abstract: Africa’s recent growth performance has raised expectations of a bright economic future for the continent after decades of decline. Yet there is a genuine question about whether Africa’s growth can be sustained, and if so, at what level. The balance of the evidence suggests caution on the prospects for high growth. While the region’s fundamentals have improved, the payoffs to macroeconomic stability and improved governance are mainly to foster resilience and lay the groundwork for growth, rather than to generate productivity growth on their own. The traditional engines behind rapid growth, structural change and industrialization, seem to be operating at less than full power. If African countries do achieve growth rates substantially higher, they will have to do so pursuing a growth model that is different from earlier miracles based on industrialization. This might be agriculture-led or services-led growth, but it will look quite different than what we have seen before.
    JEL: O11 O40 O55
    Date: 2014–06
  5. By: Fabio Tramontana (Department of Economics and Management, University of Pavia); Viktor Avrutin (DESP, University of Urbino and IST, University of Stuttgart, Germany)
    Abstract: We show that cyclic and chaotic dynamics may emerge in a Kaldor-Pasinetti growth model with different saving propensities, Leontief technology and logistic labor force growth rate.
    Keywords: One-sector growth model; logistic population growth; growth cycles
    JEL: O4
    Date: 2014–05
  6. By: Arai, Real; Naito, Katsuyuki
    Abstract: We consider an overlapping generations closed economy in which a government finances the cost of public good provision by labor income taxation and/or public debt issuance. The size of these public policies is determined in a repeated probabilistic voting game. We investigate the characteristics of a Markov perfect politico-economic equilibrium in which the size of public policies depends on both the stock of public debt and the level of physical capital, and show that individuals' stronger preferences for public good provision tighten fiscal discipline and promote economic growth.
    Keywords: public debt; probabilistic voting; Markov perfect equilibrium; economic growth
    JEL: D72 H41 H63 O43
    Date: 2014–05–27
  7. By: Pothen, Frank; Schymura, Michael
    Abstract: The amount of materials used worldwide in production and consumption increased by 56 per cent from 1995 to 2008. Using an index decomposition analysis based on the logarithmic mean divisia index, we investigate the drivers of material use, both on a global and a country scale. We exploit a panel dataset of 40 countries, accounting for 75 per cent of worldwide material extraction and 88 per cent of GDP, from 1995 to 2008. The results show that economic growth and structural change towards material-intensive countries explain most of the growth in global material use. Slight gains in material efficiency and falling importance of material-intensive sectors have decelerating effects. The country-level analysis reveals substantial heterogeneity. Some nations exhibit stable or falling material use, while it increases notably in most countries. Improving material efficiency is able to dampen growth of material use in important industrializing nations like China or India. --
    Keywords: Material use,Index decomposition analysis,Economic growth
    JEL: Q0 Q40 Q42 Q48
    Date: 2014
  8. By: Löfström, Åsa (Department of Economics, Umeå School of Business and Economics)
    Abstract: The Swedish gender wage gap decreased substantially from the 1960s until the beginning of the 1980s. At the same time women had been narrowing men in employment experience and education. While women continued to catch up on men the average wage gap remained almost the same as in the 1980s. The catch-up hypothesis was obviously not the sole answer to the wage-gap. The purpose here was to discuss other factors of relevance for the evolution of the average pay gap. Data for the period 1972-2012 is used in the analysis: The results are mixed and firm conclusions are scarce. Some indications though, the older the women are at first birth the smaller the pay gap and the same for female union membership while unemployment, economic growth, fertility and time made the gap larger. It seems as “time”, often reliable on issues such as changes in attitudes and prejudices, cannot settle this. One finding, common in other studies as well, is the influence “children” may have on the wage gap. If postponement of motherhood and/or fewer children is necessary to reduce the gender wage gap the question whether this is desirable or not must be addressed more seriously. If the answer is “no” it may be high time for men to catch up on women - through sharing the full responsibility for children and household duties.
    Keywords: Gender wage-gap; education; employment; fertility; parental leave
    JEL: J30 J31 J38 J68
    Date: 2014–06–11
  9. By: Oasis, Kodila-Tedika; Remy, Bolito-Losembe
    Abstract: This study revisits the conclusion of Lynn and Vanhanen (2006) which suggests that countries with a high IQ on average are those with low poverty rates. We go beyond the simple bivariate correlation by controlling for other variables and using alternative econometric techniques. Our findings confirm that the conclusions of Lynn and Vanhanen (2006) remain robust. Moreover, the mitigating incidence of intelligence is higher in bottom quantiles than in top quantiles, which supports the greater relevance of knowledge economy in poorer countries.
    Keywords: Poverty, Intelligence
    JEL: D6 I2
    Date: 2014–06–04
  10. By: Francisco H. G. Ferreira (World Bank and IZA); Christoph Lakner (World Bank); Maria Ana Lugo (World Bank); Berk Ozler (University of Otago and the World Bank)
    Abstract: Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. We construct two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity – driven by circumstances at birth - has a negative effect on subsequent growth. Results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component we attribute to unequal opportunities. In the DHS sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of our preferred specifications, but the results are not robust to relatively minor changes. On balance, although our results are suggestive of a negative association between inequality and growth, the data at our disposal does not permit robust conclusions as to whether inequality of opportunity is bad for growth.
    Keywords: inequality, inequality of opportunity, economic growth.
    JEL: D31 D63 O40
    Date: 2014–05
  11. By: Jorge Alberto Charles Coll (Universidad Autonoma de Tamaulipas)
    Abstract: This paper contributes to the debate over the relationship between inequality and inclusive growth by testing the proposition of a kinked-non linear relationship between income inequality and economic growth in a country specific context. The proposition is first confirmed with a wide panel dataset of 138 countries, using the Kuznets hypothesis as a vehicle of validation. Then, the non linearity is contrasted for the Mexican economy using a highly disaggregated dataset at the municipal level. An inverted ``U'' shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth, while high levels have a negative one. Additionally, and more importantly, it is demonstrated the existence of an optimal rate of inequality (ORI) that maximizes growth rates and releases the economy from any distortion generated by elevated inequality or taxation. It is confirmed that inequality does matter for growth, governments that wish to promote economic growth should incorporate redistributive policies not only as a part of the social agenda but as an important element of the growth strategy.
    Keywords: Inequality, Growth, Redistribution, Optimal Rate of Inequality.
    JEL: O15 D31 D33 E25
    Date: 2014–05
  12. By: Diallo, Ibrahima Amadou
    Abstract: This paper theoretically analyzes the dynamics of economic growth and the environmental Kuznets curve. This curve states an inverse U-relationship between pollution and income. The presented model specifically shows how a dynamic environmental Kuznets curve can emerge by introducing pollution and abatement technology in a public spending model of endogenous economic growth. We also derive the turning point in function of the parameters of the model. The numerical section demonstrates that when taxes are below some threshold, the turning point decreases with taxes but it increases when taxes are above the threshold point given some explanations about an N-shaped Kuznets curve. Additionally, the simulations demonstrate that taxes reduce the level of pollution by pulling down the environmental Kuznets curve. Lastly the numerical exercises highlight that the pollution level of the social planner problem is less than that of the representative agent.
    Keywords: Abatement; Dynamic Optimization; Endogenous Growth Theory; Environmental Kuznets Curve; Numerical Simulations; Pollution; Public Spending; Taxes; Turning Point
    JEL: C61 C63 H23 H41 H54 H61 O41 O44
    Date: 2014–06–09
  13. By: David I. Stern
    Abstract: The environmental Kuznets curve (EKC) is a hypothesized relationship between various indicators of environmental degradation and income per capita. As economies get richer environmental impacts first rise but eventually fall. In reality, though some types of environmental degradation have been reduced in developed countries others have not. Furthermore, the statistical evidence for the EKC is not robust and the mechanisms that might drive such patterns are still contested.
    Keywords: Economic growth, decoupling, pollution, environmental Kuznets curve, convergence
    JEL: Q53 Q56
    Date: 2014–06
  14. By: Maemir H.; Ziesemer T.H.W. (UNU-MERIT)
    Abstract: This paper offers a unified framework to explore both the static and dynamic welfare effects of trade and multinational production MP in the presence of firm-specific productivity heterogeneity. The model captures the dynamic effects by allowing for RD spillovers between firms in a framework of Helpman et al. 2004 that generates endogenous growth without scale effects. We show that multinational presence improves average productivity by strengthening the selection process among heterogeneous firms, but leads to a lower growth rate of intermediate varieties along the transition path toward the new steady state. Thus the presence of multinationals has an ambiguous effect on overall welfare. We also compare the welfare implications of a change in trade cost in our model and in trade models without multinationals. We find that the gains from trade can be higher or lower than the gains obtained in the trade-only models, depending on the degree of firm heterogeneity, the size of trade and FDI costs, and the magnitude of technology spillover parameters. We further show that firm heterogeneity always magnifies average productivity, international spillovers and fixed costs of developing a new variety, which leads to ambiguous effects on overall welfare. Calibrating the model to the US economy suggests that aggregate welfare improves in response to a reduction in trade and FDI costs for empirically plausible parameter values.Keywords firm heterogeneity, endogenous growth, trade, multinational production, technology spillovers.
    Keywords: Models of Trade with Imperfect Competition and Scale Economies; Multinational Firms; International Business; Economic Growth of Open Economies; Innovation and Invention: Processes and Incentives; One, Two, and Multisector Growth Models;
    JEL: F12 F23 F43 O31 O41
    Date: 2014
  15. By: Giorgio FABBRI (EPEE et Department d'Economie, Université d'Evry - Val d'Essonne)
    Abstract: We introduce an AK spatial growth model with a general geographical structure. The dynamics of the economy is described by a partial differential equation on a Riemannian manifold. The morphology interacts with the spatial dynamics of the capital and is one determinant of the qualitative behavior of the economy. We characterize on the geographical structure the conditions that guarantee, in the long run, the convergence of the detrended capital across locations and those inducing spatial capital agglomeration
    Keywords: Dynamical spatial model; growth; agglomeration; convergence; infinite dimensional optimal control problems; Riemannian manifolds
    JEL: R1 O4 C61
    Date: 2014–05–30
  16. By: Mark Roberts
    Abstract: While the public debt has an interior maximum in the Diamond OLG model, due to an inherent nonlinearity [Rankin and Roffia (2003)], this feature also extends to a linear, AK model when it is conjoined with a backward-looking adjustment process for public debt [Braeuninger (2005)]. We show that if the debt dynamics are forward-looking, the maximum will instead be at a degeneracy – another possibility considered by Rankin and Roffia. However, the main point of the present paper is to show that any debt maximum in a finite-horizon model will be of an implausibly low order of magnitude, unless households save over at least two periods. This is because it is the debt flow that crowds-out investment flows, while this is synonymous with the debt stock in a model with only two, non-altruistic, overlapping generations, thus leading to a low maximum stock by default. Removing this restriction produces plausible results, and causes a low rate of economic growth to be a cause as well as a consequence of a high public debt.
    Keywords: Public debt, endogenous growth, primary deficit/surplus, dynamics, bifurcation, degeneracy, backward-looking, forward-looking
    Date: 2014
  17. By: Dario Simon Judzik (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Hector Sala Lorda (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: We estimate the determinants of capital intensity in Japan and the US, characterized by striking different paths. We augment an otherwise standard Constant Elasticity of Substitution (CES) model with demand-side considerations, which we find especially relevant in the US. In this augmented setting, the elasticity of substitution between capital and labor is placed around 0.85 in Japan, and 0.30 in the US. We also find evidence of biased technical change, which is capital-saving in Japan but labor-saving in the US. These differences help us explain the diverse experience in the capital deepening process of these economies, and lead us to conclude that demand-side drivers may also be relevant to account for different growth experiences. A close look at the nature of technological change is also needed before designing one-size-fits-all industrial, economic growth, and/or labor market policies.
    Keywords: Capital intensity, Biased technological change, Elasticity of substitution, Capacity utilization rate, Employment
    JEL: E22 E24 O33
    Date: 2014–05
  18. By: Bhattacharyya, Chandril; Gupta, Manash Ranjan
    Abstract: This paper develops a model of endogenous economic growth with special focus on the role of unionized labour market and on the interaction between the tax financed productive public expenditure and unemployment benefit policy of the government. We incorporate a ‘Managerial’ labour union in an otherwise identical Barro (1990) model; and use both ‘Efficient Bargaining’ model and ‘Right to Manage’ model to solve the negotiation problem between a labour union and an employers’ association. Properties of growth rate maximizing income tax policy are derived in the steady state equilibrium; and the effects of unionization are analysed on the level of employment, growth rate, welfare and on tax rate respectively. This growth rate maximizing income tax rate appears to be higher than (equal to) the competitive output share of public input in the presence (absence) of unemployment benefit. Unionisation may be good or bad for the economy in the case of Efficient bargaining model; and the nature of the effect depends on the orientation of the labour union. However, this is always bad for both employment and growth in the case of a ‘Right to Manage’ model.
    Keywords: Labour union; Income tax; Public expenditure; Unemployment benefit; Efficient bargaining; Right to manage; Steady-state equilibrium; Endogenous growth
    JEL: H21 H41 J51 J65 O41
    Date: 2014–06–06
  19. By: Amano, Daisuke; Mino, Kazuo
    Abstract: This paper explores the long-run impacts of tax policy in a two-country model of endogenous growth with variable labor supply. We focus on international spillover effects of tax reforms under alternative trade structures. It is shown that if the instantaneous utility function of the representative family in each country is additively separable and if international capital mobility is absent, then a change in taxation in one country does not directly affect capital formation in the other country. Such a conclusion is fundamentally modified if international borrowing and lending are allowed. Due to free financial flows, a change in tax policy in one country directly diffuses to the growth performance of the other country, even though preference structures are assumed to be log-additive forms.
    Keywords: factor-income tax, consumption tax, equilibrium dynamics, two-country model, endogenous growth, variable labor supply,
    Date: 2014–05
  20. By: Mark Roberts
    Abstract: There is some evidence of a non-monotonic relationship between public debt and economic growth. With reference to the Diamond (1965) OLG model, we provide a rationale for this possibility; (i) where the financial sector is monopsonistic; (ii) where the acquisition of its equity constitutes a form of non-productive saving; (iii) where public debt has a fixed price form. As a competing asset, the issuance of debt reduces financial profits and equity values and, possibly over an initial range, the sum of non-productive saving, comprising public debt and financial sector equity, thereby leading to a net crowding-in effect.
    Keywords: Public debt, monopsony, non-productive saving, financial sector equity, economic growth
    Date: 2014
  21. By: Cristina Mocci; Stefania Pozzuoli; Francesca Romagnoli; Cristina Tinti
    Abstract: The aim of this study is to assess the effects of anti-competitive service regulation on economic performance in Italy. This paper runs a cross-sector panel regression of the Italian value added growth on the OECD PMR sectoral regulation indicators (ETCR and RBSR) in the 1995-2008 period using the national Input-Output matrix. This analysis enriches the empirical understanding of the effects of regulation on national value added growth with relevant implications for policy making. The results prove that in Italy sectoral liberalization on total economy and manufacturing played a relevant role in increasing the value added. We find a negative and statistically significant relationship between the overall liberalization of services, as well as in Energy and Professions, and the performance of the whole economy and manufacturing sector in the considered period. Being Italy among the countries with a significant difference between the regulation (PMR) and the business perception (EFW-DB) indicators, this paper provides a sense of this misalignment in the years of the panel. In particular, evidence shows that economic agents reacted positively to reforms related to state participation (Post, Telecom, Railways) and simplification of paperwork for start-ups in Italy.
    Keywords: Regulation, sector analysis, growth
    JEL: O40 L51 L80
    Date: 2014–05
  22. By: Mandal, Biswajit; Mandal, Arindam
    Abstract: This paper develops a very simple model to explain the phenomenon of persistent unemployment even in an economy experiencing high output growth. Unemployment will also grow at a rate identical with other factors and sectors. The result is primarily triggered by pre-fixed minimum wage rate for unskilled workers. To corroborate our claim we have checked it for twelve developing countries and found empirical results quite consistent with theoretical apprehension. In deciding on desired rate of growth in different sectors to mitigate or reduce unemployment history becomes crucial.
    Keywords: Growth, Unemployment, General Equilibrium
    JEL: D5 E24 O40
    Date: 2014
    Abstract: The aim of this study is to show that financial liberalization, as a determinant of financial development, can stimulate the relationship between foreign direct investment (FDI) and economic growth. Two distinct components have been analyzed. The first one is a theoretical component in which we tried to treat the relationship between financial development, internal financial liberalization, and FDI using an endogenous growth model. The second component consists of an empirical study which tried using a panel data to validate the previously stated theoretical relationship. The survey, covering a sample of sixty nine developed and developing countries enabled us to reach three fundamental results. First, when financial systems are non-liberalized, we have noted that FDIs had a negative effect on GDP growth per capita. Second, when FDIs are implemented in countries characterized by their developed financial sector they generate positive effects on growth. This implies that the key variable which determines FDI efficiency is the degree of financial systems liberalization. Consequently, in non-liberalized financial systems FDIs effects on growth are challenged. Third, we showed that financial development level is a strategic variable which positively affects growth
    Keywords: financial liberalization, Foreign Direct investment, GMM system
    JEL: E61 F3 F37 G1
    Date: 2014–06–01

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