nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒08‒09
23 papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence From 6,700 Cyclones By Solomon M. Hsiang; Amir S. Jina
  2. Engineers, Innovative Capacity and Development in the Americas By William F. Maloney; Felipe Valencia Caicedo
  3. Do Modern-Time Wars Make States? Panel Data Evidence By Mauricio Cárdenas; Marcela Eslava; Santiago Ramírez
  4. Looking beyond the R&D effects on innovation: The contribution of non-R&D activities to total factor productivity growth in the EU By Lopez-Rodriguez, Jesus; Martinez, Diego
  5. The dark side of Chinese growth: Explaining decreasing well-being in times of economic boom. By Bartolini, Stefano; Sarracino, Francesco
  6. Gibrat's Law and the British industrial revolution By Alexander Klein; Tim Leunig
  7. Education and Cross-Country Productivity Differences By Alok Kumar; Brianne Kober
  8. How does income distribution affect economic growth? @@@@@--Evidence from Japanese prefectural data-- By Masako Oyama
  9. Why don’t Poor Countries do R&D? By Edwin Goñi; William F. Maloney
  10. The effect of climate change on economic growth: Evidence from Sub-Saharan Africa By Alagidede, Paul; Adu, George; Frimpong, Prince Boakye
  11. Innovation as Growth Policy: the challenge for Europe By Mariana Mazzucato; Carlota Perez
  12. Aggregate Production Functions and Neoclassical Properties: An Empirical Verification By Stefano Zambelli
  13. Human Capital Outflow and Economic Misery:Fresh Evidence for Pakistan By Ali, Amjad; Mujahid, Noreen; Rashid, Yahya; Shahbaz, Muhammad
  14. World Total Factor Productivity Growth and the Steady-State Rate in the 20th Century By Theodore R. Breton
  15. Insurance and the Macroeconomic Environment By Casper Christophersen; Petr Jakubik
  16. Gender Discrimination and Common Property Resources: a Model By Casari, Marco; Lisciandra, Maurizio
  17. Economic Geography, Endogenous Fertility, and Agglomeration By MORITA Tadashi; YAMAMOTO Kazuhiro
  18. Development Aid and Growth in Transition Economies By Zohid Askarov; Hristos Doucouliagos
  19. Effort Elicitation, Wage Differentials and Income Distribution in a Wage-led Growth Regime By Jaylson Jair da Silveira; Gilberto Tadeu Lima
  20. To Battle Income Inequality, Focus on Military Expenditures: Lesson from Pakistan By Raza, Syed Ali; Shahbaz, Muhammad
  21. A Human Capital Theory of Growth: New Evidence for an Old Idea By Theodore R. Breton
  22. Institutions and Economic Growth in the MENA Countries: An Empirical Investigation by Using Panel data model By Becherair, Amrane
  23. Economic Convergence and Structural Change: the Role of Transition and EU Accession By Rumen Dobrinsky; Peter Havlik

  1. By: Solomon M. Hsiang; Amir S. Jina
    Abstract: Does the environment have a causal effect on economic development? Using meteorological data, we reconstruct every country's exposure to the universe of tropical cyclones during 1950-2008. We exploit random within-country year-to-year variation in cyclone strikes to identify the causal effect of environmental disasters on long-run growth. We compare each country's growth rate to itself in the years immediately before and after exposure, accounting for the distribution of cyclones in preceding years. The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster. Linking these results to projections of future cyclone activity, we estimate that under conservative discounting assumptions the present discounted cost of "business as usual" climate change is roughly $9.7 trillion larger than previously thought.
    JEL: H87 O11 O44 Q51 Q54 R11
    Date: 2014–07
  2. By: William F. Maloney; Felipe Valencia Caicedo
    Abstract: Using newly collected national and sub-national data and historical case studies, this paper argues that differences in innovative capacity, captured by the density of engineers at the dawn of the Second Industrial Revolution, are important to explaining present in come differences, and, in particular, the poor performance of Latin America relative to North America. This remains the case after controlling for literacy, other higher order human capital, such as lawyers, as well as demand side elements that might be confounded with engineering. The analysis then finds that agglomeration, certain geographical fundamentals, and extractive institutions such as slavery affect innovative capacity. However, a large effect associated with being a Spanish colony remains suggesting important inherited factors.
    Keywords: Innovative Capacity, Engineers, Technology Diffusion, Human Capital, Growth, Development, History
    JEL: O1 O31 O33 O4 N1
    Date: 2014–06–19
  3. By: Mauricio Cárdenas; Marcela Eslava; Santiago Ramírez
    Abstract: We re-examine the view that wars make strong states, taking advantage of panel data to address two of the most obvious endogeneity concerns that arise in this context: initial conditions and persistence of state capacity. Our main message is that, in modern times, there is no evidence that wars lead to strong states. In contrast to findings for earlier periods, our results show that external conflicts have displayed a negative correlation with traditional measures of state capacity in recent decades, which becomes insignificant after controlling for initial conditions and the persistence of state capacity. As in previous work, we find a negative capacity- internal conflict correlation, robust to controlling jointly for initial conditions and persistent effects.
    Keywords: State capacity, conflict, external war.
    JEL: O1 H1 H8
    Date: 2013–12–03
  4. By: Lopez-Rodriguez, Jesus; Martinez, Diego
    Abstract: Although non-R&D innovation activities account for a significant portion of innovation efforts carried out across very heterogeneous economies in Europe, how to incorporate them in to economic models is not always straightforward. For instance, the traditional macro approach to estimating the determinants of total factor productivity (TFP) does not handle them well. To counter these problems, this paper proposes applying an augmented macro-theoretical model to estimate the determinants of TFP by jointly considering the effects of R&D and the impact of non-R&D innovation activities on the productivity levels of firms. Estimations from a model of a sample of EU-26 countries covering the period 2004-2008 show that the distinction between R&D and non-R&D effects is significant for a number of different issues. First, the results show a sizeable impact on TFP growth, as the impact of R&D is twice that of non-R&D. Second, absorptive capacity is only linked to R&D endowments. And third, the two types of endowments cannot strictly been seen as complementary, at least for the case of countries with high R&D intensities or high non-R&D intensities.
    Keywords: TFP; R&D; non-R&D expenditures; EU countries
    JEL: O0 O3 O4
    Date: 2014–06
  5. By: Bartolini, Stefano; Sarracino, Francesco
    Abstract: The formidable economic growth of China in the past few decades led to outstanding improvements in virtually all objective indicators of standards of life. However, these objective records are in striking contrast with subjective ones. Between 1990 and 2007, Chinese average subjective well-being substantially declined. Using data from the World Values Survey, this paper identifies the predictors of the trend of life satisfaction in China between 1990 and 2007. Our findings suggest that subjective data capture something that objective data miss and that can explain the decrease in well-being: the increase in the importance of social comparisons and the decline of social capital. Moreover, economic growth resulted in higher well-being inequality: those in the lowest three income deciles and the middle-class experienced a significant reduction in well-being, whereas the latter increased among richer people. Differences in the erosion of social capital and in the impact of social comparisons seem to be the key to well-being differences among classes.
    Keywords: China; Easterlin paradox; GDP; economic growth; subjective well-being; life satisfaction; social capital; Oaxaca-Blinder decomposition; WVS
    JEL: I31 O12 O15
    Date: 2014–08–05
  6. By: Alexander Klein; Tim Leunig
    Abstract: This paper examines Gibrat’s law in England and Wales between 1801 and 1911 using a unique data set covering the entire settlement size distribution. We find that Gibrat’s law broadly holds even in the face of population doubling every fifty years, an industrial and transport revolution, and the absence of zoning laws to constrain growth. The result is strongest for the later period, and in counties most affected by the industrial revolution. The exception were villages in areas bypassed by the industrial revolution. We argue that agglomeration externalities balanced urban disamenities such as commuting costs and poor living conditions to ensure steady growth of many places, rather than exceptional growth of few.
    Keywords: Gibrat’s law; city-size distribution; industrial revolution
    JEL: I3
    Date: 2013–09
  7. By: Alok Kumar (Department of Economics, University of Victoria); Brianne Kober
    Abstract: In this paper, we study the effects of education on the total factor productivity (TFP) of a large number of countries. We estimate TFP using a variant of augmented Solow growth model in which health capital is one of the factors of production. We find that quantity of education significantly and positively affects TFP. This result is in contrast to the findings of the previous literature, that suggest that either the quantity of education does not matter for growth (e.g. Benhabib and Spiegel 1994, Caselli et al. 1996) or only the quality of education matters for growth (e.g. Hanushek and Kimko 2000). We also find that TFP differences explain about 1/3rd of per-capita real income differences across countries. This estimate is substantially lower than the existing estimates (e.g. Klenow and Rogriguez-Clare 1997, Hall and Jones 1999) which suggest that TFP differences are the dominant source of per-capita real income differences across countries.
    Keywords: Augmented Solow Growth Model, TFP, Quantity and Quality of Education, Health
    JEL: F43 E23 N10 N30 O47
    Date: 2014–07–25
  8. By: Masako Oyama
    Abstract: This paper uses Japanese prefectural panel data to analyze how income distribution affects economic growth. In the fixed effects and the GMM estimations, the income share of the third quintile has positive and statistically significant effects on five-year economic growth rates. On the other hand, the Gini indices have positive and statistically significant effects on both of the five-year and ten-year economic growth rates in the fixed effects estimations, and negative effect on the five-year growth rate in the GMM once. These results can be explained with the modified median voter theory.
    Date: 2014–07
  9. By: Edwin Goñi; William F. Maloney
    Abstract: Using a global panel on research and development (R&D) expenditures, this paper documents that on average poor countries do far less R&D than rich as a share of GDP. This is arguably counter intuitive since the gains from doing the R&D required for technological catch up are thought to be very high and Griffith et al. (2oo4) have documented that in the OECD returns increase dramatically with distance from the frontier. Exploiting recent advances in instrumental variables in a varying coefficient context we find than the rates of return follow an inverted U: they rise with distance to the frontier and then fall thereafter, potentially turning negative for the poorest countries. The findings are consistent with the importance of factors complementary to R&D, such as education, the quality of scientific infrastructure and the overall functioning of the national innovation system, and the quality of the private sector, which become increasingly weak with distance from the frontier and the absence of which can offset the catch up effect. China’s and India’s explosive growth in R&D investment trajectories in spite of expected low returns may be justified by their importing the complementary factors in the form of multinational corporations who do most of the patentable research.
    Keywords: R&D, Technology Adoption, Development, Complementarities, Instrumental Variable Varying Coefficient Models.
    JEL: O1 O32 O33 O4
    Date: 2014–06–19
  10. By: Alagidede, Paul; Adu, George; Frimpong, Prince Boakye
    Abstract: This paper is a contribution to the empirics of climate change and its effect on sustainable economic growth in Sub-Saharan Africa. Using data on two climate variables, temperature and precipitation, and employing panel cointegration techniques, we estima
    Keywords: climate change, Sub-Saharan Africa, sustainable growth, panel cointegration
    Date: 2014
  11. By: Mariana Mazzucato (SPRU, University of Sussex, UK); Carlota Perez (SPRU, University of Sussex, UK; London School of Economics, UK; Nurkse Institute, Estonia)
    Keywords: Growth policy, innovation, green growth, inclusive growth, technological revolutions, role of government, mission-oriented investments, value creation, definancialisation, respecialisation
    Date: 2014–07
  12. By: Stefano Zambelli
    Abstract: Standard postulates concerning the aggregate production function are about marginal productivities - and the associated demand of labor and capital – which are to be negatively related to factor prices, namely the wage rate and the profit rate. The theoretical cases in which these neoclassical properties do not hold are regarded as anomalies. We compute the aggregate values for capital, production and labour and find that the neoclassical postulates do not hold for the whole dataset under consideration.
    Keywords: Aggregate Neoclassical Production Function, Cobb-Douglas, CES, Technological Change, Macroeconomics, Growth.
    JEL: C61 C63 C67 O47
    Date: 2014
  13. By: Ali, Amjad; Mujahid, Noreen; Rashid, Yahya; Shahbaz, Muhammad
    Abstract: This paper visits the impact of economic misery on human capital outflow using time series data over the period of 1975-2012. We have applied the combined cointegration tests and innovative accounting approach to examine long run and causal relationship between the variables. Our results affirm the presence of cointegration between the variables. We find that economic misery increases human capital outflow. Foreign remittances add in human capital outflow from Pakistan. The migration from Pakistan to rest of world is boosted by depreciation in local currency. Income inequality is also a major contributor to human capital outflow. The present study is comprehensive effort and may provide new insights to policy makers for handling the issue of human capital outflow by controlling economic misery in Pakistan.
    Keywords: Economic misery, human capital outflow, Pakistan
    JEL: C0
    Date: 2014–07–27
  14. By: Theodore R. Breton
    Abstract: I estimate a Solow model augmented with human capital in 42 countries for 1910-2000. Estimated TFP growth is 0.3%/year, and the steady-state rate for GDP/capita is 1.0%/year. Implicitly for high-income countries maintaining growth above this rate will be increasingly difficult.
    JEL: O41 O47
    Date: 2013–03–02
  15. By: Casper Christophersen; Petr Jakubik (EIOPA)
    Abstract: Insurance companies play an important role in the financial sector and the availability of insurance products is an essential element of sustainable economic growth. This article analyses the relationship between growth in the insurance sector and key macroeconomic determinants using a European panel data set published by EIOPA. We focus on gross written premiums (GWP) to capture insurance market growth. Our empirical analysis reveals a high GWP persistence as well as a strong link between GWP and economic growth and unemployment. Moreover, the estimated model suggests a higher sensitivity to the macroeconomic environment for life compared to non-life insurance. Finally, there is also empirical evidence that insurers expand their international activities in periods when domestic growth opportunities are low. These findings can be used to underpin a quantitative financial stability framework to assess the potential impact of different macroeconomic scenarios on insurance market growth.
    Keywords: Gross written premiums, insurance, macroeconomic environment, quantitative financial stability framework
    JEL: G22 G28 E27
    Date: 2014–06
  16. By: Casari, Marco; Lisciandra, Maurizio
    Abstract: In an open economy with common property resources at the community level, marriage and migratory decisions crucially depend on inheritance rules on the commons. Motivated by the traditional management of the commons in the Italian Alps, we present a model that fits the evolution of property rights observed over six centuries. Women’s rights over the commons were progressively eroded from the Middle Ages until 1800, when there was an almost universal adoption of a patrilineal inheritance system. Communities switched from an egalitarian system to a patrilineal inheritance system in an attempt to protect the per capita endowment of common resources from outside immigration. The model shows that inheritance rules have clear-cut implications for marriage strategies, migratory flows, and fertility rates.
    Keywords: Inheritance; commons; migration; institutions; property rights
    JEL: D10 J12 J13 J16
    Date: 2014–08–01
  17. By: MORITA Tadashi; YAMAMOTO Kazuhiro
    Abstract: In this study, we construct an interregional trade model that includes endogenous fertility rates. The presented model shows that the agglomeration of manufacturing firms in a large region causes fertility rates to become lower than that in a small region. The agglomeration of firms in a region lowers the price of manufactured goods relative to child rearing costs, which reduces fertility rates. We also find that a decrease in transportation costs results in the agglomeration of manufacturing firms, which lowers fertility rates in both large and small regions. We then extend our two-region model to a multi-region model and find that the number of manufacturing firms in larger regions is always greater than that in smaller regions. Therefore, fertility rates in larger regions are always lower than in smaller regions.
    Date: 2014–07
  18. By: Zohid Askarov; Hristos Doucouliagos
    Abstract: Empirical studies normally analyze diverse and heterogeneous groups of countries, producing very mixed evidence on the effectiveness of development aid in promoting growth. We focus on whether aid promotes economic growth in transitional economies. We find that aid, on average, has had a positive impact on growth for this specific group of countries. This result is robust to samples, estimators, and the use of alternate instruments to address endogeneity. Aid effectiveness is not conditional on good policy and there is little evidence of non-linear growth effects arising from aid.
    Date: 2014–08–04
  19. By: Jaylson Jair da Silveira; Gilberto Tadeu Lima
    Abstract: Motivated by a considerable (experimental and empirical) evidence on endogenous labor effort and inter- and intra-industry wage differentials, this paper explores implications for income distribution, capacity utilization and economic growth of firms using different strategies to elicit effort (and hence productivity) from workers. The frequency distribution of effort-elicitation strategies in the population of firms is governed by a replicator dynamics that generates wage differential as a long-run, evolutionary equilibrium outcome. Although firms willing to elicit more labor effort have to compensate workers with a higher wage rate, a larger proportion of firms adopting such strategy will not necessarily produce a higher wage share in income and thereby higher rates of capacity utilization and economic growth. The intuition is that, depending on the accompanying rise in average labor productivity, the wage share in income (and hence the aggregate effective demand) may not vary positively with the proportion of firms paying higher wages. Therefore, endogenous labor productivity and wage differentials carry relevant theoretical and policy implications for a wage-led growth regime.
    Keywords: Labor effort; wage differentials; income distribution; capacity utilization; economic growth.
    JEL: O11 O41 J31
    Date: 2014–07–21
  20. By: Raza, Syed Ali; Shahbaz, Muhammad
    Abstract: This study investigates the impact of military expenditures on income inequality in Pakistan using data over the period of 1972-2012. In doing so, we have applied the ARDL bounds testing cointegration approach which confirmed the presence of long run relationship between military expenditures and income inequality. Furthermore, empirical analysis indicates that military expenditures have positive impact on income inequality. The analysis of Granger causality, Toda and Yamamoto Modified Wald causality and variance decomposition approaches confirm the unidirectional causal relationship running from military expenditures to income inequality. The findings suggest that military expenditures would be a significant policy option to control income inequality and should be considered as a mean to improve income distribution in Pakistan.
    Keywords: Military Expenditures, Income Inequality, Economic Growth
    JEL: D31 F43 H55 H56
    Date: 2014–01–04
  21. By: Theodore R. Breton
    Abstract: In 1960 Theodore Schultz expounded a human capital theory of economic growth that includes three elements: 1) Countries without much human capital cannot manage physical capital effectively, 2) Economic growth can only proceed if physical capital and human capital rise together, and 3) Human capital is the factor most likely to limit growth. I specify Schultz’s theory mathematically and test it in periods when global financial capital was highly mobile. I find that in 1870, 1910, and 2000, the average schooling attainment of the adult population largely determined the stock of physical capital/capita and GDP/capita in 42 market economies.
    Keywords: Human Capital, Schooling, Capital Investment, Economic Growth, Solow Model, Market Economies
    JEL: E13 I21 O11 O15 O41
    Date: 2014–01–01
  22. By: Becherair, Amrane
    Abstract: This paper will investigate the impact of institution on economic growth rates in MENA nations, Using panel data model over the period 1995-2012. Within the framework of the neoclassical growth model, this study integrates a broad set of institutional variables such. Security of property rights, governance, political freedom and size of government are the indicators used in the study, facilitating identification of the most important institutions that account for the observed variations in economic growth rates among nations. We find that, The sign and significance of all of the variables are qualitatively similar to the results obtained by MRW (1992). We also find The human capital is highly significant at 99% with initial income and Investment Share in MENA countries. The Results indicate that the dummy variable for oil exporters is positive and significant, indicating that other things being equal, oil exporters would be expected to have higher economic growth rates in MENA Countries. Basic OLS results, as well as a variety of additional evidence, suggest that (a) security of property rights, is the most significant institutions that explain the variations in economic growth rates, (b) The significant and negative sign on the government consumption, indicating that smaller governments are "better" in MENA countries.
    Keywords: MENA Countries – Economic Growth – Institutions- Panel Data Model
    JEL: C23 C87 O4 O43 O53 O55
    Date: 2014–08–03
  23. By: Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary This paper analyses the speed and patterns of economic convergence in the new EU Member States of Central and Eastern Europe during transition and the first years of EU membership. After a brief discussion of measurement and data issues, the paper provides stylised facts on growth and convergence in Europe, and explores various convergence measures proposed in the growth literature. It employs several analytical approaches in order to reveal convergence speed and patterns univariate growth regressions, multivariate econometric analysis, including the testing of convergence models and running different growth regressions. The aim is to look at various aspects of convergence processes by using alternate approaches and then, by putting those together, to seek common and distinct features. We confirm that the one-off direct negative effects of the crisis on GDP growth were considerably stronger in the case of NMS. The growth patterns were interrupted and the convergence process slowed down. The paper underlines the significant, sometimes even increasing, heterogeneity of growth, pointing more generally to uneven economic convergence within the EU. This concerns not only the lasting differences between the NMS and the rest of the EU, but also significant dissimilarities between the growth patterns among individual countries within each of these subgroups.
    Keywords: economic growth, growth determinants, real convergence, European Union, Central and Eastern Europe
    JEL: C21 C23 O11 O40 O52 O57 F43
    Date: 2014–07

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