nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒07‒28
seventeen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Letter Grading Government Efficiency By Chong, Alberto; La Porta, Rafael; Lopez-de-Silanes, Florencio; Shleifer, Andrei
  2. It's A Sin - Contraceptive Use, Religious Beliefs, and Long-Run Economic Development By Prettner, Klaus; Strulik, Holger
  3. The Transmission of Democracy: From the Village to the Nation-State By Giuliano, Paola; Nunn, Nathan
  4. Questionable Inference on the Power of Pre-Colonial Institutions in Africa By Denis Cogneau; Yannick Dupraz
  5. Informality and Development By LaPorta, Rafael; Shleifer, Andrei
  6. National Happiness and Genetic Distance: A Cautious Exploration By Proto, Eugenio; Oswald, Andrew J.
  7. The modeling of the economic development on the basis of an extended Solow-Swan growth model with the inclusion of spatial aspect By Beata Bal-Domanska; Michal Bernard Pietrzak
  8. Skill-Biased Technical Change and the Cost of Higher Education By Fang Yang; John Bailey Jones
  9. Saving Rate, Total Factor Productivity and Growth Process for Developing Countries By Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
  10. Endogenous Fluctuations in an Endogenous Growth Model with Infl ation Targeting By Rangan Gupta; Lardo Stander
  11. What Drives the Historical Formation and Persistent Development of Territorial States? By James B. ANG
  12. Imitation Induced Innovation in General Equilibrium By Karsten Wasiluk
  13. Growth: Now and Forever? By Giang Ho; Paolo Mauro
  14. Public Debt, Economic Growth, and Inflation in African Economies By Lopes da Veiga, José; Ferreira-Lopes, Alexandra; Sequeira, Tiago
  15. Does Islamic Banking Development Favour Macroeconomic Efficiency? Evidence on the Islamic Finance – Growth Nexus By Laurent Gheeraert; Laurent Weill
  16. The Cost of Pollution on Longevity, Welfare and Economic Stability By Natacha Raffin; Thomas Seegmuller
  17. Income versus Sanitation; Mortality Decline in Paris, 1880-1914 By Lionel Kesztenbaum; Jean-Laurent Rosenthal

  1. By: Chong, Alberto; La Porta, Rafael; Lopez-de-Silanes, Florencio; Shleifer, Andrei
    Abstract: We mailed letters to non-existent business addresses in 159 countries (10 per country), and measured whether they come back to the return address in the United States and how long it takes. About 60% of the letters were returned, taking over six months, on average. The results provide new objective indicators of government efficiency across countries, based on a simple and universal service, and allow us to shed light on its determinants. The evidence suggests that both technology and management quality influence government efficiency, just as they do that of the private sector.
    Date: 2014
  2. By: Prettner, Klaus (Department of Economics); Strulik, Holger (Department of Business and Economics)
    Abstract: This study presents a novel theory on the interaction of social norms, fertility, education, and their joint impact on long-run economic development. The theory takes into account that sexual intercourse is utility enhancing and that the use of modern contraceptives potentially conflicts with prevailing social norms (religious beliefs). The theory motivates the existence of two steady states. At the traditional steady state, the economy stagnates, fertility is high, education is minimal, and the population sustains a norm according to which modern contraceptives are not used. At the modern steady state, the population has abandoned traditional beliefs, modern contraceptives are used, fertility is low and education and economic growth are high. Social dynamics explain why both equilibria are separated by a saddlepoint-equilibrium (a separatrix), i.e. why it is so hard to transit from the traditional regime to the modern regime. Enhancing the value of education is identified as a promising policy to encourage contraceptive use and to initiate the take-off to long-run growth.
    Keywords: Religion; fertility; sex; contraceptive use; education; economic growth
    JEL: I25 J10 O40 Z12
    Date: 2014–07–07
  3. By: Giuliano, Paola; Nunn, Nathan
    Abstract: We provide evidence that a tradition of village democracy is associated with the presence of national democracy today. We also show that a tradition of local democracy is associated with attitudes which are more supportive of democracy, with better quality institutions and with higher levels of economic development. Our findings indicate persistence in democratic institutions over time, and suggest the importance of traditional local institutions for well-functioning national-level institutions.
    Date: 2013
  4. By: Denis Cogneau (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IRD - Institut de Recherche pour le Développement - Institut de Recherche pour le Développement); Yannick Dupraz (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In their paper "Pre-Colonial Ethnic Institutions and Contemporary African Development" [Econometrica 81(1): 113-152], Stelios Michalopoulos and Elias Papaioannou claim that they document a strong relationship between pre-colonial political centralization and regional development, by combining Murdock's ethnographic atlas (1967) with light density at night measures at the local level. We argue that their estimates do not properly take into account population effects. Among lowly populated areas, luminosity is dominated by noise, so that with linear specifications the coefficient of population density is biased downwards. We reveal that the identification of the effect of ethnic centralization very much relies on these areas. We implement a variety of models where the effect of population density is non-linear, and/or where the bounded or truncated nature of luminosity is taken into account. We conclude that the impact of ethnic-level political centralization on development is all contained in its long-term correlation with population density. We also abstract from the luminosity-population nexus by analyzing survey data for 33 countries. We show that individual-level outcomes like access to utilities, education, asset ownership etc. are not correlated with ethnic-level political centralization.
    Keywords: Institutions ; Africa ; Population ; Development ; Light intensity at night
    Date: 2014–06
  5. By: LaPorta, Rafael; Shleifer, Andrei
    Abstract: We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life. These five facts are most consistent with dual models of informality and economic development.
    Date: 2014
  6. By: Proto, Eugenio (University of Warwick); Oswald, Andrew J. (University of Warwick)
    Abstract: This paper examines a famous puzzle in social science. Why do some nations report such high happiness? Denmark, for instance, regularly tops the league table of rich nations' well-being; Great Britain and the US enter further down; France and Italy do relatively poorly. Yet the explanation for this ranking – one that holds even after adjustment for GDP and socio-economic and cultural variables – remains unknown. We explore a new avenue. Using data on 131 countries, we document a range of evidence consistent with the hypothesis that certain nations may have a genetic advantage in well-being.
    Keywords: well-being, international, happiness, genes, GDP
    JEL: I30 I31
    Date: 2014–07
  7. By: Beata Bal-Domanska (Wroc³aw University of Economics, Poland); Michal Bernard Pietrzak (Nicolaus Copernicus University, Poland)
    Abstract: The objective of the article is to identify and evaluate spatial relations in terms of economic determinants for the regions of Central and Eastern European countries (in accordance with Eurostat methodology NUTS-2 stands for the corresponding level) having applied the construction of an augmented, neoclassical Mankiw-Romer-Weil growth model. The study covered the period of three years: 2000, 2005 and 2010. The obtained results confirmed the significance of spatial relations, in the evaluation of relations combining growth factors, for the level of economic growth. The statistically significant impact, however, was observed only in case of the factor illustrating human capital.
    Keywords: augmented Mankiw-Romer-Weil growth model, spatial econometrics, Central and Eastern European regions
    JEL: C21 O11 R11
    Date: 2014–03
  8. By: Fang Yang; John Bailey Jones
    Abstract: We document the growth in higher education costs and tuition over the past 50 years. To explain these trends, we develop a general equilibrium model with skill- and sector-biased technical change. Finding the model’s parameters through a combination of estimation and calibration, we show that it can explain the rise in college costs between 1961 and 2009, along with the increase in college attainment and the change in the relative earnings of college graduates. The model predicts that if college costs had ceased to grow after 1961, enrollment in 2010 would be 3 to 6 percent higher.
  9. By: Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
    Abstract: The Solow [1957] implies that the TFP is the core factor of economic growth. If the economy bases merely on capital accumulation without technological progress, the diminishing returns on capital accumulation will eventually de- presses economic growth to zero. Accordingly, Solowian supporters attribute the miracle economic growths in Newly Industrialized Economies (NIEs) in sec- ond half of 20th century to adoption of technologies previously developed by more advanced economies. Pack [1992] suggests "the source of growth in a few Asian economies was their ability to extract relevant technological knowledge from industrial economies and utilize it productively within domestic economy".
    Date: 2014–07–15
  10. By: Rangan Gupta (Department of Economics, University of Pretoria); Lardo Stander (Department of Economics, University of Pretoria)
    Abstract: This paper develops a monetary endogenous growth overlapping generations model characterized by production lags - specifically lagged capital inputs - and an infl ation targeting monetary authority, and analyses the growth dynamics that emerge from this framework. The growth process is endogenized by allowing productive government expenditure on infrastructure, complementing the lagged private capital input. Following the extant literature, money is introduced by imposing a cash reserve requirement on an otherwise competitive banking sector. Given this framework, we show that multiple equilibria emerge along different growth paths, with the low-growth (high-growth) equilibrium being unstable (stable) and locally determinate (locally indeterminate). In addition, we show that convergent or divergent endogenous fl uctuations and even topological chaos could emerge around the high-growth equilibrium in the growth path where the monetary authority follows a high infl ation targeting regime. Conversely, when the monetary authority follows a low infl ation targeting regime, oscillations do not occur around either the low-growth or high-growth equilibrium.
    Keywords: Endogenous fl uctuations, in flation targeting, chaos, production lags, indeterminacy
    JEL: C62 E32 O42
    Date: 2014–06
  11. By: James B. ANG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: The importance of the length of state history for understanding variations in income levels, growth rates, quality of institutions and income distribution across countries has received a lot of attention in the recent literature on long-run comparative development. The literature, however, is silent about its deep historical origins. Against this backdrop, this paper makes the first attempt to explore the determinants of statehood by considering the potential roles of an early transition to fully-fledged agricultural production, the adoption of state-of-the-art military innovations, and the opportunity for economic interaction with the regional economic leader. The results demonstrate that only the association between economic interaction and the rise and development of the state is statistically robust.
    Keywords: state antiquity; nation formation; long-run comparative economic development
    JEL: H70 O10 O40
    Date: 2014–05
  12. By: Karsten Wasiluk (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper analyzes the effect of imitation on the rate of technological progress in an endogenous growth model. Quality leaders protect themselves from imitation by secondary development, which increases technological progress. Nevertheless, lower intellectual property rights protection reduces the incentives to enter the research sector which reduces innovation by outsiders. Simulations show that the net effect of increased imitation on the growth rate is ambiguous - it can be positive, negative, or inversely U-shaped, depending on the productivity of secondary research. Lower patent protection also reduces the degree of market power in the economy so that output, the wage rate, and welfare is typically increased.
    Keywords: Innovation, Intellectual Property Rights, Market Power
    JEL: L12
    Date: 2014–06–30
  13. By: Giang Ho; Paolo Mauro
    Abstract: Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the baseline forecasts are more optimistic than warranted by past international growth experience. Further, by comparing the IMF’s World Economic Outlook forecasts with actual growth outcomes, we show that optimism bias is greater the longer the forecast horizon.
    Date: 2014–07–02
  14. By: Lopes da Veiga, José; Ferreira-Lopes, Alexandra; Sequeira, Tiago
    Abstract: We analyse the implications of public debt on economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt affect economic growth and exhibit negatively, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. The highest average rates of real and per capita growth are achieved when public debt reaches 60% of the real GDP and an average inflation rate of 8.2%. When this ratio falls between 60-90%, the average rate of economic growth drops by up to 1.32 p.p. and continues dropping by up to 1.64 p.p. when the ratio exceeds 90%. Briefly, the high levels of public debt are reflected in reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the GDP and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. Identical behaviour of the GDP growth rates and inflation also appears in Sub-Saharan countries until the third interval (60-90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30-60%). For SADC countries, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. The high level of public debt is reflected in reduced rates of economic Growth and increasing inflation rates.
    Keywords: Public Debt; Economic Growth; Inflation; African Countries
    JEL: E31 E62 H63 O40
    Date: 2014–07–17
  15. By: Laurent Gheeraert (Université Libre de Bruxelles); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: This study evaluates whether the development of Islamic banking influences macroeconomic efficiency. Thus, we contribute to the analysis of the relation between Islamic finance and economic growth by applying the stochastic frontier approach to estimate technical efficiency at the country level for a sample of 70 countries. We use a unique hand-collected database that covers Islamic banks worldwide over the period 2000-2005, finding evidence that Islamic banking development favours macroeconomic efficiency. Furthermore, we have support for a non-linear relation with efficiency for Islamic banking development, which is measured by credit or by deposits. Although increasing the development of Islamic banking enhances efficiency up to a certain point, the expansion of Islamic banking becomes detrimental for efficiency beyond this point.
    Keywords: Islamic finance, financial development, aggregate productivity, efficiency, economic growth
    JEL: G21 O16 O47
    Date: 2014
  16. By: Natacha Raffin (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense, Climate Economics Chair - University Paris Dauphine); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: This paper presents an overlapping generations model where pollution, private and public healths are all determinants of longevity. Public expenditure, financed through labour taxation, provide both public health and abatement. We study the complementarity between the three components of longevity on welfare and economic stability. At the steady state, we show that an appropriate fiscal policy may enhance welfare. However, when pollution is heavily harmful for longevity, the economy might experience aggregate instability or endogenous cycles. Nonetheless, a fiscal policy, which raises the share of public spending devoted to health, may display stabilizing virtues and rule out cycles. This allows us to recommend the design of the public policy that may comply with the dynamic and welfare objectives.
    Keywords: longevity; pollution; welfare; complex dynamics
    Date: 2014–07
  17. By: Lionel Kesztenbaum (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, INED - Institut National d'Etudes Démographiques Paris - INED); Jean-Laurent Rosenthal (HSS CALTECH - Division of the Humanities and Social Sciences - California Institute of Technology)
    Abstract: After 1850, mortality began its long-term fall in most industrialized countries, a process that has been linked to rising incomes and improved water infrastructure. The problem, however, is that these contribution are jointly determined and feedback into each other. Here we estimate their impact using a longitudinal data set on mortality and income for each of Paris' 80 neighborhoods. Income and sanitation both contributed to the decrease in mortality, a standard deviation increase in either variable produces a two years gain in life expectancy. These results give insights on the determinants of the health transition but also on the long-term evolution of health inequality.
    Keywords: Differential mortality ; Wealth ; Urbanization ; Paris ; Sanitation
    Date: 2014–06

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