nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒06‒22
27 papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Human Capital and Industrialization: Evidence from the Age of Enlightenment By Mara P. Squicciarini; Nico Voigtländer
  2. Agricultural Technology and Structural Change By Markus Eberhardt; Dietrich Vollrath
  3. An Ongoing Reversal Of Fortune Among Russian Cities: City Age, Natural Resources, And Changing Spatial Income Distribution By Alexander S. Skorobogatov
  4. Population, land, and growth By Claire Loupias; Bertrand Wigniolle
  5. A tale of two countries: a directed technical change approach By Duarte Leite; Óscar Afonso; Sandra Silva
  6. Inequality of opportunity and economic growth : a cross-country analysis By Ferreira, Francisco H. G.; Lakner, Christoph; Lugo, Maria Ana; Ozler, Berk
  7. Books do not die: the price of information, Human Capital and the Black Death in the long fourteenth century By Eltjo Buringh
  8. Parenting with Style: Altruism and Paternalism in Intergenerational Preference Transmission By Matthias Doepke; Fabrizio Zilibotti
  9. Networks of Military Alliances, Wars, and International Trade By Matthew O. Jackson; Stephen Nei
  10. The Danish Agricultural Revolution in an Energy Perspective: A Case of Development with Few Domestic Energy Sources By Sofia Teives Henriques; Paul Sharp
  11. The Role of Agricultural Productivity on Structural Change By Been-Lon Chen; Shian-Yu Liao
  12. Keeping-up with the Joneses, a new source of endogenous fluctuations By Jean-Philippe Garnier
  13. Effectiveness of capital control, economic growth and animal spirit: A cross-country analysis By Malgorzata Sulimierska
  14. Why Don't Remittances Appear to Affect Growth? - Working Paper 366 By Michael Clemens and David McKenzie
  15. Endogenous Recombinant Growth through Market Production of Knowledge and Intellectual Property Rights. By Marchese, Carla; Marsiglio, Simone; Privileggi, Fabio; Ramello, Giovanni
  16. Transportation Costs and the Spatial Organization of Economic Activity By Stephen J. Redding; Matthew A. Turner
  17. Finance and Productivity Growth: Firm-level Evidence By Levine, Oliver; Warusawitharana, Missaka
  18. Does Development Reduce Migration? - Working Paper 359 By Michael Clemens
  19. Technical change and the elasticity of factor substitution By Antony, Jürgen
  20. Is Financial Development Bad for Growth? By Zhang, Lu; Grydaki, Maria; Bezemer, Dirk
  21. Intellectual property rights, technology diffusion, and agricultural development: Cross-country evidence: By Spielman, David J.; Ma, Xingliang
  22. Investment, growth and employment: VECM for Uruguay By Lucia Ramirez; Gabriela Mordecki
  23. Does Democracy Impact Economic Growth? Exploring the Case of Bangladesh – A Cointegrated VAR Approach By Dasgupta, Shouro; Bhattacharya, Debapriya; Neethi, Dwitiya Jawher
  24. Medium and long run prospects for UK growth in the aftermath of the financial crisis By Nicholas Oulton
  25. The Mechanics of Real Undervaluation and Growth By Wlasiuk, Juan Marcos
  26. Macrodynamics of debt-financed investment-led growth with interest rate rules By Datta, Soumya
  27. Productivity and potential output before, during, and after the Great Recession By Fernald, John G.

  1. By: Mara P. Squicciarini; Nico Voigtländer
    Abstract: While human capital is a strong predictor of economic development today, its importance for the Industrial Revolution is typically assessed as minor. To resolve this puzzling contrast, we differentiate average human capital (worker skills) from upper tail knowledge both theoretically and empirically. We build a simple spatial model, where worker skills raise the local productivity in a given technology, while scientific knowledge enables local entrepreneurs to keep up with a rapidly advancing technological frontier. The model predicts that the local presence of knowledge elites is unimportant in the pre-industrial era, but drives growth thereafter; worker skills, in contrast, are not crucial for growth. To measure the historical presence of knowledge elites, we use city-level subscriptions to the famous Encyclopédie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Alternative measures of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after, but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, by joining data on British patents with a large French firm survey from 1837, we provide evidence for the mechanism: upper tail knowledge raised the productivity in innovative industrial technology.
    JEL: J24 N13 O14 O41
    Date: 2014–06
  2. By: Markus Eberhardt; Dietrich Vollrath
    Abstract: Using data for 128 countries we document low (high) elasticities of agricultural output with respect to labor in economies within temperate (tropical/highland) climate zones. Adopting a standard model of structural change we show that this technology heterogeneity determines the speed of structural transformation following changes in agricultural productivity and population size. Calibration exercises document shifts in sectoral labor allocation and living standards 2–3 times larger in temperate than in otherwise identical equatorial/highland regions for a given productivity shock. Eliminating technology heterogeneity can account for up to one-fifth of the observed differences in aggregate income per capita across countries.
    Keywords: agricultural development, technology heterogeneity, agro-climatic environment, structural change
    JEL: O47 O11 C23
    Date: 2014
  3. By: Alexander S. Skorobogatov (National Research University Higher School of Economics)
    Abstract: This paper documents the negative link between the age of Russian cities and their average wage. This link is robust to various definitions of city age and sample censuring, the inclusion of regional and time fixed effects, dependent variable spatial lag and many urban characteristics. This link is revealed especially for cities founded after the Soviet industriali-zation and for upper quintiles of cities by their average wage. To determine a mechanism behind the established fact, hypotheses as to spatial patterns of economic performance are discussed, including the increasing return hypothesis, the institutions hypothesis and the geography hypothesis. Following the sophisticated version of the geography hypothesis, a model of growth in n-city and two-sector economy is developed. The model replicates the link between age and per capita income and contains testable hypotheses that enable one to check whether a mechanism outlined in the model is behind the link between city age and wage. Our empirical strategy is based on a quasi-experiment, in which the treat-ment effect is made by time and various age groups of the cities are broken up into treatment and control groups. The results are strongly in favor of the sophisticated geography hypothesis. The revealed mechanism suggests that the chang-ing spatial patterns of wage differentials are explained by the changing remaining stocks of natural resources. Older cit-ies are getting relatively poorer due to the shrinking of their remaining resource stocks, while new cities are emerging in resource-rich territories with the respective income advantages.
    Keywords: quasi-experiment, exhaustible resources, internal colonization, differences-in-differences, urban development
    JEL: R12 Q32 O13
    Date: 2014
  4. By: Claire Loupias (EPEE - Centre d'Etudes des Politiques Economiques - Université d'Evry-Val d'Essonne); Bertrand Wigniolle (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper suggests a new explanation for changes in economic and population growth with a long run perspective, emphasizing the role of land in the development process. Starting from a pre-industrialization state called the "Malthusian regime", land and labor are the main production factors. The size of population is limited by the quantity of land available for households and by incomes. Technical progress driven by a "Boserupian effect" may push the economy towards a take-off regime. In this regime, capital accumulation begins and a "learning-by-doing" effect in production takes over from the "Boserupian effect". If this effect is strong enough, the economy can reach an "ultimate growth regime". In the different phases, land plays a crucial role.
    Keywords: Endogenous fertility; Land; Endogenous growth;
    Date: 2013
  5. By: Duarte Leite (FEP); Óscar Afonso (FEP); Sandra Silva (FEP)
    Abstract: It is widely recognized that scientific research has a dramatic impact on economies since it is crucial to foster technological knowledge. Today’s migratory movements and concentration of highly educated population and population with high scientific potential in developed countries play an essential role in enhancing research and boosting economic growth. We propose a North-South model that encompasses these empirical facts and proposes explanatory mechanisms. We show how the technological-knowledge gap is hard to reverse, namely when, due to higher returns, the majority of scientists are concentrated in the North. The implications of having either perfect- or no-labour mobility between countries are studied. In addition, it is showed the effect of complementarity or substitutability of goods on scientists’ incentives may allow countries to avoid a poverty trap. The calibrated model provides consistent dynamics with actual data. Scientists’ incentives are highlighted as the main source of divergence or convergence between countries.
    Keywords: Direct Technical Change; Economic Growth; Inequality; Migration; Trade.
    JEL: O31 O33 O47 F16
    Date: 2014–06
  6. By: Ferreira, Francisco H. G.; Lakner, Christoph; Lugo, Maria Ana; Ozler, Berk
    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. This study uses 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. The 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 associated with unequal opportunities. In the Demographic and Health Surveys sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of the preferred specifications, but the results are not robust to relatively minor changes. On balance, although the results are suggestive of a negative association between inequality and growth, the data do not permit robust conclusions as to whether inequality of opportunity is bad for growth.
    Keywords: Inequality,Equity and Development,Poverty Impact Evaluation,Services&Transfers to Poor,Achieving Shared Growth
    Date: 2014–06–01
  7. By: Eltjo Buringh
    Abstract: The overall price trend of late-medieval hand-written books was downwards, despite rising demand by a more literate population, causing upward pressure on prices. Gradually, higher writing speeds reduced late-medieval book prices. A lower price of information facilitated schooling and an increase in human capital. The plague’s demographic shock (1348-1351) reduced used book prices to one half or two-thirds of their pre-plague levels, while production costs of new books then rose. Cheaper access to information (used books) in combination with other post-plague trend breaks gave human capital in the Latin West a boost, and laid a foundation for modern economic growth.
    Keywords: : hand-written books, human capital, economic growth, black death, books
    Date: 2014–06
  8. By: Matthias Doepke (Northwestern University); Fabrizio Zilibotti (University of Zurich)
    Abstract: We develop a theory of intergenerational preference transmission that rationalizes the choice between parenting styles. Parents maximize an objective function that combines Beckerian altruism and paternalism towards children. They can affect their children's choices via two channels: either by influencing children's preferences or by imposing direct restrictions on their choice sets. Different parenting styles (authoritarian, authoritative, permissive) emerge as equilibrium outcomes, and are affected both by parental preferences and by the socioeconomic environment. The theory is consistent with the decline of authoritarian parenting in industrialized countries, and with the greater prevalence of permissive parenting in countries characterized by low inequality.
    Keywords: Parenting Style, Intergenerational Preference Transmission, Paternalism, Occupational Choice
    JEL: D10 J10 O10
    Date: 2014–06
  9. By: Matthew O. Jackson (Department of Economics, Stanford University, Santa Fe Institute and CIFAR); Stephen Nei (Department of Economics, Stanford University)
    Abstract: We investigate the role of networks of military alliances in preventing or encouraging wars between groups of countries. A country is vulnerable to attack if there is some fully-allied group of countries that can defeat that country and its (remaining) allies based on a function of their collective military strengths. Even with such a demanding notion of vulnerability, we show that there do not exist any networks that are stable against the addition and deletion of alliances. We then show that economic benefits from international trade can provide incentives to form alliances in ways that restore stability and prevent wars. In closing, we briefly examine the historical data on interstate wars and trade, noting that a dramatic (more than ten-fold) drop in the rate of interstate wars since 1960 is paralleled by an unprecedented growth in trade over the same period.
    Keywords: Alliances, Conflict, War, Networks, International Trade, Treaties
    JEL: D74 D85 F10
    Date: 2014–04
  10. By: Sofia Teives Henriques (University of Southern Denmark); Paul Sharp (University of Southern Denmark)
    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 1800-1913. 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: N5 Q4
    Date: 2014–06
  11. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Shian-Yu Liao (Department of Economics, National Taiwan University)
    Abstract: Many authors have estimated and found that the productivity growth in agriculture was higher than that in non-agriculture in today’s richest countries. Several papers suggested that growth in agricultural productivity was essential for today’s richest countries to take off early. However, few articles noticed that growth in agricultural productivity is critical in driving structural change in today’s richest countries. This paper studies a two-sector neoclassical growth model with subsistence agricultural consumption and shows that growth in agricultural productivity plays a more important role than growth in non-agricultural productivity in governing massive structural change in today’s richest countries.
    Keywords: two-sector neoclassical growth model, subsistence agricultural consumption, sectoral productivity growth, structural transformation, sectoral reallocation, shooting algorithm
    JEL: O10 O11 O14
    Date: 2014–05
  12. By: Jean-Philippe Garnier (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille I - Sciences et technologies - Université Lille II - Droit et santé - Université Lille III - Sciences humaines et sociales - PRES Université Lille Nord de France)
    Abstract: Our main objective is to study the impact of consumption externality like keeping of with the Joneses on the properties of long-run equilibrium in the two-sector optimal growth model. Does this consumption externality lead to a new mechanism of local indeterminacy and endogenous fluctuations? We will see that, in two-sector growth models with exogenous labor and without technological externalities, if the representative agent is able to give more value to his social status than his own consumption, this is the keys of a new mechanism for endogenous fluctuations. Moreover, by opposition with the other endogenous fluctuation mechanisms, we will see that this one doesn't need to have restriction on the factor intensity configuration of the consumption sector.
    Keywords: Two-sector models ; continous-time models ; consumption externality ; keeping up with the Joneses ; local indeterminacy ; endogenous fluctuations
    Date: 2014
  13. By: Malgorzata Sulimierska (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: This paper is an attempt to understand the mechanism which is thought to be an economic growth interaction between Capital Account Liberalization (CAL) and financial instability. The effect of financial capital liberalization is investigated through a discussion of two main channels of economic performance: animal spirits and economic allocative. In the first step, all determinants of the effectiveness of capital controls are analyzed and they seem to be statistically significant. Then, the analysis investigates the causality effect between economic growth, CAL and financial crisis. Empirical evidence from a sample of 88 countries observed between 1995 and 2005 shows statistical evidence for causality effect. Also, the results suggest that CAL has a positive effect on economic growth since capital follows the rise of economic growth. Control for indirect affects, through instability of the financial sector or animal spirit through banking currency crises, have little effect on the CAL process which points to the political nature of the capital control liberalization.
    Keywords: Financial Globalisation, Capital Account Liberalization, Financial Crisis, Economic Growth and Aggregate Productivity
    JEL: G01 G18
    Date: 2014–06
  14. By: Michael Clemens and David McKenzie
    Abstract: While measured remittances by migrant workers have soared in recent years, macroeconomic studies have difficulty detecting their effect on economic growth. We review existing explanations for this puzzle and propose three new ones. First, we offer evidence that a large majority of the recent rise in measured remittances may be illusory—arising from changes in measurement, not changes in real financial flows. Second, we show that even if these increases were correctly measured, cross-country regressions would have too little power to detect their effects on growth. Third, we point out that the greatest driver of rising remittances is rising migration, which has an opportunity cost to economic product at the origin. Net of that cost, there is little reason to expect large growth effects of remittances in the origin economy. Migration and remittances clearly have first-order effects on poverty at the origin, on the welfare of migrants and their families, and on global GDP; but detecting their effects on growth of the origin economy is likely to remain elusive.
    Keywords: remittances, growth, migration, measurement
    JEL: F24 F22 E01 O15
    Date: 2014–05
  15. By: Marchese, Carla; Marsiglio, Simone; Privileggi, Fabio; Ramello, Giovanni (University of Turin)
    Abstract: We analyze the relationship between economic growth, knowledge production and intellectual property rights. Economists and historians underline different aspects as possible causes of knowledge accumulation; the former stress the role of incentive mechanisms while the latter the autonomous progress of science. We construct a unified theory allowing for the presence of markets and the autonomous accumulation of knowledge by introducing intellectual property right policies in an endogenous recombinant growth model. In this framework a benevolent government should reallocate resources from the final to the knowledge production sector and implement a tax-subsidy scheme in order to correct for the inefficiencies generated by the process. We characterize the (asymptotic) steady state equilibrium, and some properties of the transitional path. We show that if certain conditions are met, then the economy will converge to its (asymptotic) balanced growth path, and along such a path growth will be independent of the government policy; conversely, transition dynamics and the capital to knowledge ratio are affected by the choice of the tax-subsidy parameter. We then quantitatively analyze the effect of different policy interventions on welfare, and show that welfare is increasing in the policy parameter and a strictly positive policy level may be required to avoid stagnation.
    Date: 2014–06
  16. By: Stephen J. Redding; Matthew A. Turner
    Abstract: This paper surveys the theoretical and empirical literature on the relationship between the spatial distribution of economic activity and transportation costs. We develop a multi-region model of economic geography that we use to understand the general equilibrium implications of transportation infrastructure improvements within and between locations for wages, population, trade and industry composition. Guided by the predictions of this model, we review the empirical literature on the effects of transportation infrastructure improvements on economic development, paying particular attention to the use of exogenous sources of variation in the construction of transportation infrastructure. We examine evidence from different spatial scales, between and within cities. We outline a variety of areas for further research, including distinguishing reallocation from growth and dynamics.
    Keywords: Highways, market access, railroads, transportation
    JEL: F15 R12 R40
    Date: 2014–06
  17. By: Levine, Oliver (University of Wisconsin); Warusawitharana, Missaka (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Using data on a broad set of European firms, we find a strong positive relationship between the use of external financing and future productivity (TFP) growth within firms. This relationship is robust to various measures of financing and productivity, and strengthens as financing costs increase. We provide evidence against a reverse-causality explanation by showing that this relationship arises from the component of TFP that is outside the information set of the firm. These findings indicate that financial development supports productivity growth within firms, and helps explain why economic activity remains persistently depressed following financial crisis.
    Keywords: Finance-growth nexus; financial crisis; total factor productivity (TFP)
    Date: 2014–02–24
  18. By: Michael Clemens
    Abstract: The most basic economic theory suggests that rising incomes in developing countries will deter emigration from those countries, an idea that captivates policymakers in international aid and trade diplomacy. A lengthy research literature and recent data suggest something quite different: that over the course of a “mobility transition”, emigration generally rises with economic development until countries reach upper-middle income—at least until countries reach upper-middle income level, like Algeria or El Salvador. Only thereafter, as countries become even richer, do emigration rates typically fall. This note quantifies the shape of the mobility transition in every decade since 1960. It then briefly surveys 45 years of research, which has yielded six classes of theory to explain the mobility transition and numerous tests of its existence and characteristics in both macro- and micro-level data. This evidence suggests that donors to low income countries have little hope of using assistance to deter migration, unless the determinants of migration undergo rapid change in the future. Policy research might be better directed toward understanding how to shape rising migration flows for mutual gain. The note concludes by suggesting five questions that require further study.
    Keywords: emigration, mobility, economic growth
    JEL: F22 J61 O15
    Date: 2014–03
  19. By: Antony, Jürgen
    Abstract: This paper addresses the relationship between technical change and the elasticity of substitution between factors of production. It is shown how the elasticity within a CES production setting can change due to technical change. Technical change is interpreted in the spirit of horizontal differentiation as in many growth models. Cases for positive and negative returns to differentiation are analyzed which can be understood as progress or complexity congestions. It is shown how the elasticity changes due to technical choices for each of them. --
    Keywords: Elasticity of substitution,CES production function,Inequality
    JEL: E23 O33 F41 J24
    Date: 2014
  20. By: Zhang, Lu; Grydaki, Maria; Bezemer, Dirk (Groningen University)
    Abstract: Is financial development good for growth? In new data, we find that the growth effect of bank credit-to-GDP ratios - the traditional measure for financial development - is on average negative for 46 economies over 1990-2011. We explain this by the changing composition of credit. Financial development since 1990 was mostly due to growth in credit to real estate and other asset markets. The share of credit to nonfinancial business in total credit decreased sharply. We find negative growth coefficients for credit-to-GDP stocks supporting asset markets. In contrast, we estimate robustly positive growth effects of credit flows to nonfinancial business and insignificant effects of credit flows to asset markets, including real estate. The positive growth effect of credit flows diminishes at higher levels of financial development. Our findings are in line with recent suggestions that high ratios of financial capital to GDP since the 1990s may depress growth, through real negative returns to capital (Summers, 2013; Piketty, 2014). Even though credit flows may give a short-term stimulus to growth, the longer term effect of financial development is negative.
    Date: 2014
  21. By: Spielman, David J.; Ma, Xingliang
    Abstract: The role of intellectual property rights (IPRs) has been extensively debated in the literature on technology transfers and agricultural production in developing countries. However, few studies offer cross-country evidence on how IPRs affect yield growth, for example, by incentivizing private-sector investment in cultivar improvement. We address this knowledge gap by testing technology diffusion patterns for six major crops using a unique dataset for the period 1961–2010 and an Arellano–Bond linear dynamic panel-data estimation approach. Findings indicate that both biological and legal forms of IPRs tend to promote yield gap convergence between developed and developing countries, although effects vary between crops.
    Keywords: Technology transfer, Agricultural development, productivity, Developing countries, Intellectual property rights, Diffusion of information,
    Date: 2014
  22. By: Lucia Ramirez (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Gabriela Mordecki (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Investment is a key to analyze an economy’s growth, as its increase the economy productive capacity, either expanding the capital stock as incorporating new technology that makes the production process more efficient. In Uruguay, investment has substantially increased in recent years, both overall and sectoral. This would have occurred as a result of strong growth in the period, as well as government policies on investment promotion. Growth and investment evolution, together with employment, has undergone a long history in economic theory. In that sense, there are empirical studies that support the theory that investment precedes growth, while there are others that provide evidence to the hypothesis that growth determines investment. Through a model with vector error correction (VECM) we found a long-term relationship between GDP without primary activity, investment and urban workers of Uruguay. In this model we observe a positive relationship between GDP and the other two variables, where GDP precedes both urban workers and investment.
    Keywords: investment, growth, employment, cointegration
    JEL: B23 E22 F43
    Date: 2014–06
  23. By: Dasgupta, Shouro; Bhattacharya, Debapriya; Neethi, Dwitiya Jawher
    Abstract: The key socioeconomic indicators of Bangladesh have apparently experienced improvement since the advent of a new phase of democracy in 1991. This paper examines the impact of democracy on economic growth in Bangladesh using a cointegrated Vector Autoregressive model. Results suggest that democracy as practiced in Bangladesh does not seem to have a significantly positive impact on economic growth, and at the same time authoritarian regimes tend to have a significantly negative impact on economic growth. Inadequate democratic decision making practices, ineffective policy designs and weak policy making institutions are some of the likely causes behind this relationship. The situation is aggravated by the fact that the institutions do not positively alter the decision making behaviour even under democratically elected regimes.
    Keywords: Democracy, Economic Growth. Cointegration, VAR, and Polity IV
    JEL: C10 C12 C51 E13 O43
    Date: 2013–09
  24. By: Nicholas Oulton (London School of Economics (LSE), Centre for Economic Performance (CEP); Centre for Macroeconomics (CFM))
    Abstract: In this paper I argue that the financial crisis is likely to have a long term impact on the level of labour productivity in the UK while leaving the long run growth rate unaffected. Based entirely on pre-crisis data, and using a two-sector growth model, I project the future growth rate of GDP per hour in the market sector to be 2.61% p.a. Based on a cross-country panel analysis of 61 countries over 1950-2010, the permanent reduction in the level of GDP per worker resulting from the crisis could be substantial, about 5½%. The cross-country evidence also suggests that there are permanent effects on employment, implying a possibly even larger hit to the level of GDP per capita of about 9%.
    Keywords: productivity, potential output, growth, financial, banking crisis, recession
    JEL: J24 E32 O41 G01 H63
    Date: 2013–12
  25. By: Wlasiuk, Juan Marcos
    Abstract: The media and policy makers often mention that China manipulates its real exchange rate (RER) in order to improve its exports and boost growth. This view, however, is not supported by the most prominent economic models, which do not predict a positive relationship between real undervaluation and economic growth. I propose a 3-sector model with labor market frictions that explains how a policy aimed at increasing domestic savings and depreciating the RER can, at the same time, generate real growth through a reallocation of workers from a low-productivity traditional sector into a high-productivity manufacturing sector. The policy is particularly effective in countries with relative abundance of labor, scarcity of agricultural resources, and high barriers for the entry of workers into the manufacturing sector. Empirically, I verify that higher real undervaluation (measured as deviations from PPP) is positively associated with GDP and manufacturing growth in countries with lower per capita agricultural land and higher rural population. The relationship vanishes and even becomes negative in the opposite cases. Finally, I propose a simple methodology for the identification of real depreciations exogenously induced (i.e. that are not related to changes in productivities or in terms of trade). I find that, during the last 20 years, such episodes have been mainly observed in East Asian developing countries.
    Keywords: Real Exchange Rate, Growth, Labor Market Frictions, Urban-Rural Migration, China
    JEL: E5 E58 F31 F43 J61 O11
    Date: 2013–06
  26. By: Datta, Soumya
    Abstract: This paper demonstrates the diverse dynamical possibilities arising out of a simple macroeconomic model of debt-financed investment-led growth in the presence of interest rate rules. We show possibilities of convergence to steady state, growth cycles around it as well as various complex dynamics. We investigate whether, given this framework, the financial sector can provide endogenous bounds to an otherwise unstable system. The effectiveness of monetary policy in the form of a Taylor-type interest rate rule targeting capacity utilization is examined under this context.
    Keywords: Growth cycles, Hopf bifurcation, complex dynamics, Taylor rule.
    JEL: C62 C69 E12 E32 E44 G01
    Date: 2014–06
  27. By: Fernald, John G. (Federal Reserve Bank of San Francisco)
    Abstract: U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about ¾ of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.
    Keywords: Potential output; productivity; information technology; business cycles; multi-sector growth models
    JEL: E23 E32 O41 O47
    Date: 2014–06–13

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