nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒10‒03
twenty papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Isolated Capital Cities, Accountability, and Corruption: Evidence from US States By Filipe R. Campante; Quoc-Anh Do
  2. Fertility and Modernity By Enrico Spolaore; Romain Wacziarg
  3. Growth, Import Dependence and War By Roberto Bonfatti; Kevin Hjortshøj O’Rourke
  4. Endogenous Growth and Research Activity under Private Information By Oscar Mauricio Valencia
  5. Endogenous Business Cycles in OLG Economies with Multiple Consumption Goods By Carine Nourry; Alain Venditti
  6. There are several ways to incorporate evolutionary concepts into economic thinking. By Christian Cordes
  7. International Competition and Inequality: A Generalized Ricardian Model By Adolfo Figueroa
  8. Collaterals and Growth Cycles with Heterogeneous Agents By Stefano Bosi; Mohanad Ismaël; Alain Venditti
  9. ‘The Economic Impact of Prolonged Political Instability: A Case Study of Fiji’ By Xiaodong Gong; Maheshwar Rao
  10. Public spending and growth: the role of institutions By Atsuyoshi Morozumi; Francisco José Veiga
  11. Asia’s Little Divergence: State Capacity in China and Japan before 1850 By Sng, Tuan-Hwee; Moriguchi, Chiaki
  12. Finance-Led Growth in the OECD since the 19th century: How Does Financial Development Transmit To Growth? By Jakob B. MADSEN; James B. ANG
  13. Mismeasuring Long Run Growth: The Bias from Spliced National Accounts By Leandro Prados de la Escosura
  14. Manufacturing Fetishism: The Neo-Mercantilist Preoccupation with Protecting Manufacturing By Alecia Waite Cassidy; Edward Tower; Xiaolu Wang
  15. Spatial migration By Carmen Camacho
  16. Does the Composition of Government Expenditure Matter for Long-run GDP Levels? By Gemmell, Norman; Kneller, Richard; Sanz, Ismael
  17. Immigration, growth and unemployment: Panel VAR evidence from OECD countries By Ekrame Boubtane; Dramane Coulibaly; Christophe Rault
  18. The Composition of Government Expenditure and Economic Growth : The Case of Sri Lanka By R.A.Susantha Kumara Ranasinghe; Kumara Ranasinghe; Ichihashi Masaru
  19. Innovation and Regional Growth in Mexico: 2000-2010 By Andrés Rodríguez-Pose; Edna MaríaVillarreal Peralta
  20. The economics of secession. Analysing the economic impact of the collapse of the former Yugoslavia. By Andrés Rodríguez-Pose; Marko Stermšek

  1. By: Filipe R. Campante (Harvard University); Quoc-Anh Do (Département d'économie)
    Abstract: We show that isolated capital cities are robustly associated with greater levels of corruption across US states, in line with the view that this isolation reduces accountability. We then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms: newspapers cover state politics more when readers are closer to the capital, voters who live far from the capital are less knowledgeable and interested in state politics, and they turn out less in state elections. We also find that isolated capitals are associated with more money in state-level campaigns, and worse public good provision.
    JEL: D72 D73 H41 H83 K42 R23
    Date: 2014–08
  2. By: Enrico Spolaore; Romain Wacziarg
    Abstract: We investigate the historical dynamics of the decline in fertility in Europe and its relation to measures of cultural and ancestral distance. We test the hypothesis that the decline of fertility was associated with the diffusion of social and behavioral changes from France, in contrast with the spread of the Industrial Revolution, where England played a leading role. We argue that the diffusion of the fertility decline and the spread of industrialization followed different patterns because societies at different relative distances from the respective innovators (the French and the English) faced different barriers to imitation and adoption, and such barriers were lower for societies that were historically and culturally closer to the innovators. We provide a model of fertility choices in which the transition from higher to lower levels of fertility is the outcome of a process of social innovation and social influence, whereby late adopters observe and learn about the novel behaviors, norms and practices introduced by early adopters at the frontier. In the empirical analysis we study the determinants of marital fertility in a sample of European populations and regions from 1830 t0 1970, and successfully test our theoretical predictions using measures of genetic distance between European populations and a novel data set of ancestral linguistic distances between European regions.
    Date: 2014
  3. By: Roberto Bonfatti (University of Nottingham); Kevin Hjortshøj O’Rourke (All Souls College, Oxford)
    Abstract: Existing theories of pre-emptive war typically predict that the leading country may choose to launch a war on a follower who is catching up, since the follower cannot credibly commit to not use their increased power in the future. But it was Japan who launched a war against the West in 1941, not the West that pre-emptively attacked Japan. Similarly, many have argued that trade makes war less likely, yet World War I erupted at a time of unprecedented globalization. This paper develops a theoretical model of the relationship between trade and war which can help to explain both these observations. Dependence on strategic imports can lead follower nations to launch pre-emptive wars when they are potentially subject to blockade.
    Date: 2014–09–08
  4. By: Oscar Mauricio Valencia
    Abstract: This paper examines an endogenous growth model with occupational choice in which innovators produce ideas. Each innovator has private knowledge of their production costs. Developers offer innovators non-linear contract schemes that affect the number of active innovators and the economic growth rate. Two main results are obtained. First, the equilibrium contract under asymmetric information leads to the selection of highly-talented workers in R&D activities and higher profits for developers. Second, the efficiency-rent extraction tradeoff lowers the economic growth rate with respect to the full information case. Classification JEL: 031, 033, D82.
    Date: 2014–09
  5. By: Carine Nourry (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & Institut Universitaire de France); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)
    Abstract: We consider an OLG economy with two consumption goods. There are two sectors that produce a pure consumption good and a mixed good which can be either consumed or used as capital. We prove that the existence of Pareto optimal expectations-driven fluctuations is compatible with standard sectoral technologies if the share of the pure consumption good is low enough. Following Reichlin's (1986, Journal of Economic Theory, 40, 89-102) influential conclusion, this result suggests that some fiscal policy rules can prevent the existence of business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as it is announced.
    Keywords: Two-sector OLG model, multiple consumption goods, dynamic efficiency, Endogenous fluctuations, local indeterminacy
    JEL: C62 E32 O41
    Date: 2014–06
  6. By: Christian Cordes (University of Bremen)
    Abstract: This article reviews the most important transfers of this kind into evolutionary economics. It broadly differentiates between approaches that draw on an analogy construction to the biological sphere, those that make metaphorical use of Darwinian ideas, and avenues that are based on the fact that other forms of – cultural – evolution rest upon foundations laid before by natural selection. It is shown that an evolutionary approach within economics informed by insights from cognitive science, evolutionary biology, and anthropology contributes to more realistic models of human behavior in economic contexts.
    Keywords: evolutionary economics, human behavior, biological evolution, cultural evolution, generalized Darwinism, continuity hypothesis, Neo-Schumpeterians, American Institutionalism, competition
    JEL: B15 B25 B52 D03 Z1
    Date: 2014–09–02
  7. By: Adolfo Figueroa (Departamento de Economía de la PUC del Perú)
    Abstract: Why does the gap in real wage rates persist between the First World and the Third World after so many years of increasing globalization? The standard neoclassical trade model predicts that real wage rates will be equalized with international trade, whereas the standard Ricardian trade model does not. Facts are thus consistent with the Ricardian model. However, this model leaves undetermined income distribution. The objective of this paper is to fill this gap by developing a generalized Ricardian model, in which labor productivity levels across countries are endogenous and the initial inequality of countries is the exogenous variable. The model is able to explain the observed country differences in labor productivity levels, real wage rates, and patterns of trade. Thus, the model suggests that the initial inequality of countries plays a significant role in international competition. JEL Classification-JEL: F10, F16, F66
    Keywords: International competition, Labor productivity, Real wage rate, initial inequality, income distribution, Ricardian trade model.
    Date: 2014
  8. By: Stefano Bosi (EPEE - Université d'Evry-Val d'Essonne); Mohanad Ismaël (University of Birzeit - University of Birzeit); Alain Venditti (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), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie)
    Abstract: We investigate the effects of collaterals and monetary policy on growth rate dynamics in a Ramsey economy where agents have heterogeneous discount factors. We focus on the existence of business-cycle fluctuations based on self-fulfilling prophecies and on the occurrence of deterministic cycles through bifurcations. We introduce liquidity constraints in segmented markets where impatient (poor) agents without collaterals have limited access to credit. We find that an expansionary monetary policy may promote economic growth while making endogenous fluctuations more likely. Conversely, a regulation reinforcing the role of collaterals and reducing the financial market imperfections may enhance the economic growth and stabilize the economy.
    Keywords: collaterals; heterogeneous agents; balanced growth; endogenous fluctuations; stabilization policies
    Date: 2014–02
  9. By: Xiaodong Gong; Maheshwar Rao (The National Centre for Social and Economic Modelling, Institute of Governance and Policy Analysis (NATSEM-IGPA), University of Canberra)
    Abstract: It has been long believed that prolonged political instability harms economic growth and development. This paper contributes to this growing empirical literature by studying the case in Fiji, which has faced a long period of political instability underpinned by a series of coups, military administrations and frequent changes in government since 1987. The impact of political instability on growth is hard to identify empirically because the counterfactual is unobserved and it is difficult to find valid comparisons. To solve this problem, we use the recently developed Synthetic Control Method to construct a counterfactual (or synthetic Fiji) that predicts the growth of a politically stable Fiji. The difference in per capita growth trajectories of the synthetic and the actual Fiji can thus be attributed as the impacts of political instability. Our findings show that the political instability caused by a series of coups since 1987 has indeed led Fiji onto a lower growth path, and that the accumulated effect is getting larger.
    Keywords: political instability, economic growth, Synthetic Control Method, Fiji
    Date: 2014–09
  10. By: Atsuyoshi Morozumi (School of Economics & CFCM, University of Nottingham); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: This paper examines the role of institutions in the nexus between public spending and economic growth. Using a newly assembled dataset of 80 countries over the 1970-2010 period with disaggregated public spending, we show that only when institutions prompt governments to be accountable to the general public, does the capital component of public spending significantly promote growth, especially when financed by a fall in current spending or by increased revenues. Meanwhile, a rise in current spending does not show robust growth-promoting potential, regardless of the level of government accountability. Our interpretation of these findings is that, while capital spending innately has a larger growth-fostering effect than current spending, inefficiencies inherent in the former type of spending, caused by officeholders’ rent-seeking behavior under unaccountable governments, mitigate its fostering effect.
    Keywords: Public spending, Economic growth, Institutions
    JEL: O43 H50 O11
    Date: 2014
  11. By: Sng, Tuan-Hwee; Moriguchi, Chiaki
    Abstract: This paper explores the role of state capacity in the comparative economic development of China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the geographical size of a domain. In a large domain, the ruler's inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler's finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To test these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate's tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the transition from stagnation to growth.
    Keywords: Comparative Institutional Analysis, Geography, Principal-Agent Problem, Institutions and Growth
    JEL: D73 N15 N40 O43 P52
    Date: 2014–08
  12. By: Jakob B. MADSEN (Department of Economics, Monash University.); James B. ANG (Division of Economics, Nanyang Technological University)
    Abstract: It is well established in the literature that financial development (FD) is conducive to growth, and yet the channels through which FD affects growth are not well understood. Using a unique new panel data set for 21 OECD countries over the past 140 years, this paper examines the extent to which FD transmits to growth through ideas production, savings, fixed investment, and schooling. Unionization and agricultural share are used as instruments for FD. The empirical results show that FD influences growth through all four channels. In particular, ideas production is found to be the most important channel through which FD impacts on growth.
    Keywords: ideas production; savings; investment; schooling; growth; financial development.
    JEL: O16 O30 O40 O53
    Date: 2014–08
  13. By: Leandro Prados de la Escosura (Universidad Carlos III, CEPR and CAGE)
    Abstract: Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates. Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.
    Keywords: growth measurement, splicing GDP, historical national accounts, Spain
    Date: 2014
  14. By: Alecia Waite Cassidy (University of Michigan); Edward Tower (Duke University); Xiaolu Wang (Cornell University)
    Abstract: Two common views are that a country cannot develop without a strong manufacturing base and that trade restrictions are essential to facilitate the development of that strong manufacturing base and thus spur economic growth. We ask: Does a strong manufacturing share of GDP facilitate economic growth? Do trade restrictions ensure the development of a strong manufacturing base? How can governance affect manufacturing share? And are the relationships we find robust across regions? We find the manufacturing share is not significantly correlated with a higher standard of living. Nor is it related significantly and consistently to economic growth. We also find that trade restrictions both at home and abroad shrink the manufacturing base and smother economic growth. A better way than protectionism and subsidies specific to industry to enhance economic growth is to improve governance effectiveness and the quality of regulation.
    Keywords: manufacturing share, economic growth, trade restrictions
    JEL: F13
  15. By: Carmen Camacho (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: We develop a model economy adapting Hotelling's migration law to make individuals react to the gradient of their indirect utility. In a first version, individuals respond uniquely to utility differences. In a second phase, we insert our migration law as a dynamic constraint in a spatial model of economic growth in which a policy maker maximizes overall welfare. In both cases we prove the existence of a unique solution under certain assumptions and for each initial distribution of human capital. We illustrate some extremely interesting properties of the economy and the associated population dynamics through numerical simulations. In the decentralized case in which a region enjoys a temporal technological advantage, an agglomeration in human capital emerges in the central area, which does not coincide with the technologically advanced area. In the complete model, initial differences in human capital can trigger everlasting inequalities in physical capital.
    Keywords: Migration; spatial dynamics; economic growth; parabolic PDE; optimal control
    Date: 2013–02
  16. By: Gemmell, Norman; Kneller, Richard; Sanz, Ismael
    Abstract: We examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries. Our results provide strong evidence that reallocating total spending towards infrastructure and education would be positive for long-run income levels. Increasing the share of social welfare spending (and away from all others pro-rata) may be associated with, at most, modestly lower long-run GDP levels.
    Keywords: Government expenditure composition, Fiscal policy, GDP,
    Date: 2014
  17. By: Ekrame Boubtane (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Dramane Coulibaly (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Christophe Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
    Abstract: This paper examines empirically the interaction between immigration and host country economic conditions. We employ a panel VAR techniques to use a large annual dataset on 22 OECD countries over the period 1987-2009. The VAR approach allows to addresses the endogeneity problem by allowing the endogenous interaction between the variables in the system. Our results provide evidence of migration contribution to host economic prosperity (positive impact on GDP per capita and negative impact on aggregate unemployment, native-and foreign-born unemployment rates). We also find that migration is influenced by host economic conditions (migration responds positively to host GDP per capita and negatively to host total unemployment rate).
    Keywords: Immigration; growth; unemployment; panel VAR
    Date: 2013–02
  18. By: R.A.Susantha Kumara Ranasinghe (Graduate School for International Development and Cooperation, Hiroshima University); Kumara Ranasinghe (Graduate School for International Development and Cooperation, Hiroshima University); Ichihashi Masaru (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: Government expenditure is one of the key fiscal policy variables that can influence economic growth in any country. Empirical studies examining the impact of government expenditure on economic growth have been heavily debated in recent years, in both developed and developing countries, and most investigations provided mixed results. This study recommends policy implications based on results derived from the following objectives: (1) to investigate the impact of government size on economic growth and determine which government budget will provide the biggest impact on economic growth; (2) to investigate the impact of each component of government investment and government consumption on economic growth. This study employed the Ordinary Least Squares (OLS) regression technique. Data from the Central Bank of Sri Lanka and World Bank from 1960 to 2013 were employed for the aggregated and disaggregated analysis. This study confirms that government size is positively associated with economic growth in Sri Lanka, while government investment provides the biggest impact on growth. Government consumption in Agriculture, Health, and Welfare, and government investment in Education, Agriculture, and Transportation and Communication, have a positive and statistically significant impact on economic growth. However, government consumption in Education and Defense has a negative, but significant, impact on economic growth. Moreover, this study found that private investment and exports promote economic growth of Sri Lanka.
    Keywords: Government Expenditure, GDP, Economic Growth, Sri Lanka
    Date: 2014–09
  19. By: Andrés Rodríguez-Pose; Edna MaríaVillarreal Peralta
    Abstract: This paper looks at the factors driving regional growth in Mexico, paying special attention to the potentially growth-enhancing role of innovation and innovation policy. The analysis combines innovation variables with indicators linked to the formation of adequate social conditions for innovation (the social filter), and spillovers for 31 Mexican states and the Mexico City capital district (the Distrito Federal) during the period 2000-2010. The results indicate that regional economic growth across Mexican states stems from direct investment in R&D in areas with favorable social filters and which can benefit not only from knowledge spillovers, but also from being surrounded by rich neighbors with good social conditions. The results stress that, although Mexican innovation policy has been relatively well targeted in order to generate greater economic growth, its relatively modest size may have undermined the attainment of its main objectives.
    Keywords: economic growth, innovation, social economic conditions, regional convergence, Mexico
    JEL: R11 R12 O32 O33
    Date: 2014–08
  20. By: Andrés Rodríguez-Pose; Marko Stermšek
    Abstract: This paper looks at the economic impact of secession through the lens of the disintegration of the former Yugoslavia. It uses an econometric analysis covering the period between 1956 and 2011 – including a series of factors linked to the independence process, socioeconomic and structural controls, and the level of development – in order to assess whether a) breaking away from the former Yugoslavia delivered an ‘independence dividend’ to the newly independent countries and whether b) independence had a more favourable impact in richer, rather than poorer territories. The results of the analysis underline that there has been no favourable economic impact of secession and that how secession was achieved is key in understanding the subsequent economic performance of the newly independent countries. In cases of secession without conflict, independence did not have a noticeable impact on ensuing economic performance. Secession achieved by conflict, by contrast, seriously dented growth prospects.
    Keywords: secession, independence, economic growth, conflict, Yugoslavia, Europe.
    JEL: C01 O10 O52 P16
    Date: 2014–08

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