nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒07‒21
fourteen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Railroads and Economic Growth: A Trade Policy Approach By Pérez-Cervantes Fernando
  2. The Democratic Window of Opportunity: Evidence from Riots in sub-Saharan Africa By Toke S. Aidt; Gabriel Leon
  3. Notes on Aid Selectivity Based on Human Capital By Atsuko Tanaka
  4. The effect of the financial crisis on TFP growth: a general equilibrium approach By Millard, Stephen; Nicolae, Anamaria
  5. The Nexus Between Financial Development and Economic Growth in Lao PDR By Kyophilavong, Phouphet; Salah Uddin, Gazi; Shahbaz, Muhammad
  6. Modeling Economic Growth and Energy Consumption in Arab Countries: Cointegration and Causality Analysis By Shahateet, Mohammed
  7. Golden Rules for Wages By Andrew T. Young; Hernando Zuleta
  8. Essays on India’s Economy: Growth and Innovation By Singh, Nirvikar
  9. Economic growth and funded pension systems By Michiel Bijlsma; Ferry Haaijen; Casper van Ewijk
  11. The Effect of Federal Government Size on Private Economic Performance in Canada: 1870–2011 By J. Stephen Ferris; Marcel-Cristian Voia
  12. Trillions gained and lost. Estimating the magnitude of growth episodes By Lant Pritchett; Kunal Sen; Sabyasachi Kar; Selim Raihan
  13. Natural resource extraction and the possibilities of inclusive development: politics across space and time By Anthony Bebbington
  14. Growth, de-regulation and rent-seeking in post-war British Economy By Shanti Chakravarty; Dimitrios Thomakos; Konstantinos Nikolo

  1. By: Pérez-Cervantes Fernando
    Abstract: What was the impact of railroads in the output of the United States during the 19th century and how can a New Trade model help answer this question? In order to respond I follow three steps. First, I construct a new digital railroad data set and pair it with geographic and topographic features of the U.S. territory to estimate travel times between every pair of U.S. counties for every year between 1840 and 1900. Second, I use these results, together with a Ricardian model of trade and U.S. county output data from the 19th century, to estimate county gains from trade using a fixed-point algorithm. Third, I estimate ounterfactuals with the railroads built up to a certain year. My estimates suggest that there was a lot of migration anticipating railroad construction and not the other way around. However, leaving all factors of production fixed, if the railroads were made suddenly unavailable in 1890 there would have been a 9.6% reduction in output, but in 1900, after the financial crisis, the impact would have been less than 9 %.
    Keywords: Railroads, Trade, Gravity Models.
    JEL: F10 F14 N71
    Date: 2014–06
  2. By: Toke S. Aidt; Gabriel Leon
    Abstract: We show that drought-induced changes in the intensity of riots lead to moves towards democracy in sub-Saharan Africa, and that these changes are often a result of concessions made as a result of the riots. This provides evidence that low-intensity conflict can have a substantial short-run impact on democratic change, and supports the window of opportunity hypothesis: droughts lead to an increase in the threat of conflict, and incumbents often respond by making democratic concessions.
    Keywords: Riots, drought, transitions, democracy, autocracy.
    JEL: D7 P16
    Date: 2014–06–26
  3. By: Atsuko Tanaka (University of Calgary)
    Abstract: In order to more effectively achieve developmental goals, there has been increasing attention from international communities on the pros and cons of "Aid Selectivity". The empirical results on the effects of foreign aid on economic growth in the receipient countries are mixed. This paper proposes a theoretical framework to reconcile mixed findings on aid effectiveness. In particular, I focus on the growth consequences of a poverty-efficient aid allocation in the recipient's economy, and theoretically show that an important determinant of aid efficacy is the achieved growth of human capital accumulation in recipient countries.
    Date: 2014–07–09
  4. By: Millard, Stephen (Bank of England); Nicolae, Anamaria (Durham University Business School)
    Abstract: In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate. Since firms have to borrow to finance their research and development (R&D) spending, such a rise in the spread leads to a fall in R&D spending, which affects innovation and, hence, reduces TFP growth. In turn, this leads to permanent falls in the levels of output and labour productivity.
    Keywords: Endogenous growth; Research and development; Innovation
    JEL: O40
    Date: 2014–06–27
  5. By: Kyophilavong, Phouphet; Salah Uddin, Gazi; Shahbaz, Muhammad
    Abstract: The relationship between financial development and economic growth is not conclusive in existing economics literature. The aim of this paper is to test two hypotheses: ‘supply-leading’ hypothesis and ‘demand-following’ hypothesis, using Laos time series data. The ARDL bounds testing approach to cointegration is used to carry out this task. Our results confirm the presence of feedback effect between both variables. Financial development promotes economic growth and in resulting, economic growth leads financial development.
    Keywords: Finance-growth nexus, ARDL approach, Granger causality, Laos
    JEL: C1
    Date: 2014–07–10
  6. By: Shahateet, Mohammed
    Abstract: ABSTRACT: This paper examines the relationship between energy consumption and real economic growth in 17 Arab countries: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates and Yemen. It uses an Auto Regressive Distributed Lag (ARDL) model to determine this econometric relationship using data during 1980-2011. After testing for unit root and cointegration, it identifies Granger causality between energy consumption and real economic growth. The analysis allowed for the verification of the four hypotheses that have been discussed widely in economic literature: Neutrality, Conservation, Growth, and Feedback hypotheses. Empirical findings support neutrality hypothesis in 16 out of 17 Arab countries. These findings, of no causality from economic growth to energy consumption and the other way round, imply that energy conservation will not have a significant impact on economic growth and economic growth will have insignificant effect on changes in energy consumption. They also suggest including other more important variables in the determination of economic growth, such as labor and capital.
    Keywords: economic growth; energy consumption; ARDL model; Granger causality; Arab countries
    JEL: C33 O13 O47 Q43
    Date: 2014–07
  7. By: Andrew T. Young; Hernando Zuleta
    Abstract: We consider a decentralized version of the neoclassical growth model where labor share is chosen by workers to maximize their long run (permanent) wages. In this framework, if the labor share increases relative to the competitive share, workers capture a larger share of a smaller total income in the steady-state. This is because the incentives to invest are lower and the steady-state capital to labor ratio is lower. We find that the “Golden Rule” labor share is equal to the elasticity of output with respect to labor. This is precisely what would obtain under the assumption of competitive factor markets. We also consider the model with two classes of workers: organized and unorganized. In this case, organized labor may choose a higher than competitive share and the difference is economically significant for plausible parameter values. Furthermore, relative to the Cobb-Douglas case, organized labor chooses a higher share for the empirically relevant case of an elasticity of substitution less than unity. We also analyze versions of the model with endogenous skill acquisition and capitalists with bargaining power.
    Keywords: labor share, capital share, factor shares, trade unions, bargaining power, organized labor, political economy
    JEL: O43 J30
    Date: 2013–08–01
  8. By: Singh, Nirvikar
    Abstract: This is a collection of essays written for the Financial Express, an Indian financial daily. The common themes of these essays, which cover a period of almost four years, from August 2010 to June 2014, are issues of growth and innovation in India, considered in two sequential parts, each part ordered chronologically. Topics considered in the first part include the quality and limits of economic growth, rights and other aspects of well-being, spatial dimensions, and drivers of growth. The second part examines innovation in the context of manufacturing, education, information technology, management and tax incentives.
    Keywords: Business, Social and Behavioral Sciences, inclusive growth, virtuous growth, innovation, venture capital, management, manufacturing, information technology, education, skilling
    Date: 2014–07–01
  9. By: Michiel Bijlsma; Ferry Haaijen; Casper van Ewijk
    Abstract: Growing pension savings lead to deeper capital markets. This can have a positive effect on economic growth by allowing firms that are more dependent on external finance to grow faster. We study this effect using data on 69 industrial sectors in 34 OECD countries for the period 2001-2010 through a difference-in-differences approach that interacts financial development with industry dependence on external finance. We take into account unobserved heterogeneity by including country-time, industry-time and industry-country fixed effects. We find a significant impact of higher level of pension savings on growth in sectors that are more dependent on external financing. The financial crisis does not significantly affect this relation.
    JEL: C23 J26 O43
    Date: 2014–07
  10. By: Mertens, Jean-Francois (CORE, Universite Catholique de Louvain); Rubinchik, Anna (Department of Economics, University of Haifa)
    Abstract: In an exogenous-growth economy with overlapping generations we analyse local stability of a balanced growth equilibrium with respect to changes in consumption endowments, which could be interpreted as a transfer policy. We show that generically, in the space of parameters, equilibria around BGE are locally unique and are locally differentiable functions of endowments, with derivatives given by kernels. Further, those equilibria are stable in the sense that the effects of temporary changes decay exponentially towards plus and minus infinity.
    Keywords: Regularity of Infinite Economies, Policy Evaluation, Overlapping Generations,
    JEL: D50 H43
    Date: 2014–01–21
  11. By: J. Stephen Ferris (Department of Economics, Carleton University); Marcel-Cristian Voia (Department of Economics, Carleton University)
    Abstract: This paper re-examines the relation between private economic performance and federal government size in Canada over the long 1870-2011 time period. The particular focus is on whether the effect of government size on private output has an inverted U shape with a tipping point. Its innovation is to use nonparametric techniques to assess whether the quadratic form most often employed is the appropriate parametric form for undertaking significance tests and whether that relationship is stable across the period. The empirical work does find a nonlinear relationship with a tipping point but finds the quadratic form applicable only to the early 1870-1936 time period. The latter period is more consistent with a linear form embodying a constant rather than increasing output cost to further increases in government size. The latter implies that policy based on the hypothesis that federal government size is currently excessive is premature.
    Keywords: Government Size, nonlinear time series, tipping point, endogeneity correction.
    JEL: H21 H23 C22 C26
    Date: 2014–03–24
  12. By: Lant Pritchett; Kunal Sen; Sabyasachi Kar; Selim Raihan
    Abstract: We propose and implement a new technique for measuring the total magnitude of a growth episode: the change in output per capita resulting from one structural break in the trend growth of output (acceleration or deceleration) to the next. The magnitude of the gain or loss from a growth episode combines (a) the difference between the post-break growth rate versus a counter-factual "no break" growth rate and (b) the duration of the episode to estimate the difference in output per capita at the end of an episode relative to what it would have been in the "no break" scenario. We use three "counter-factual" growth rates that allow for differing degrees of regression to global average growth: "no change" (zero regression to the mean), "world episode average" (full regression to the mean) and "unconditional predicted growth" (which uses a regression for each growth episode to predict future growth based only on past growth and episode initial level). We can also calculate the net present value at the start of an episode of the gain or loss in output comparing the actual evolution of output per capita versus a counter-factual. This method allows us to place dollar figures on growth episodes. The top 20 growth accelerations have Net Present Value (NPV) magnitude of 30 trillion dollars – twice US GDP. Conversely, the collapse in output in Iran between 1976 and 1988 produced an NPV loss of $143,000 per person. The top 20 growth decelerations account for 35 trillion less in NPV of output. Paraphrasing Lucas, once one begins to think about what determines growth events that cause the appearance or disappearance of output value equal to the total US economy, it is hard to think about anything else.
    Date: 2013
  13. By: Anthony Bebbington
    Abstract: This paper addresses institutional and political relationships that govern the interactions between natural resource extraction, economy and society with a focus on the mining and hydrocarbon sectors. These relationships help define the implications of resource extraction for democracy and the qualities of growth. On that basis it explores the conditions under which these relationships are likely to be reproduced or changed, and the ways in which they might mediate the interactions between extraction and inclusion. The paper grounds this framework in two perspectives. The first perspective draws on a more general literature dealing with political settlements, contentious politics and the politics of ideas, placing particular emphasis on the role of social mobilization and political coalitions in processes of institutional change. The second perspective engages with the specific relationships of scale, space and time that characterize the natural resource sector and give it its specificity. These questions of space and time are especially important in influencing how the growth of an extractive economy influences the relationships between growth, redistribution and the politics of recognition. The implication is that any effort to understand the governance of extraction and of its relationships to development must be spatially and historically explicit. In light of these arguments the paper closes with a discussion of the conditions that might favour the emergence of institutional arrangements under which resource extraction is more likely to foster inclusive development.
    Date: 2013
  14. By: Shanti Chakravarty (Bangor University, UK); Dimitrios Thomakos (University of Peloponnese); Konstantinos Nikolo (Bangor University, UK)
    Abstract: There is a view that the financial sector of the post-war British economy was in need of reform that was postponed to the detriment of growth for 30 years until liberalisation started in full earnest after the election of 1979. There is another side of the story in this comparison. The first three decades of the post war period witnessed a decline in the share of wages accruing to the top percentile of earners. The trend was reversed around 1979, without any commensurate rise in output per person employed. The average growth rate of GDP in the second period was no greater than that in the first period because cyclical fluctuations were deeper. The de-regulation of the financial system allowed for recycling the wealth of the rich to contribute to housing inflation and rent seeking opportunities, creating an illusion of prosperity.
    Keywords: Financial liberalisation; Productivity trends, Growth
    JEL: N14 N24 P34 Z19
    Date: 2013–12

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