nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒11‒07
sixteen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. A Dissection of Trading Capital: Cultural persistence of trade in the aftermath of the fall of the Iron Curtain By Beestermöller, Matthias; Rauch, Ferdinand
  2. Trade Partner Diversification and Growth: How Trade Links Matter By Onder, Ali Sina; Yilmazkuday, Hakan
  3. The Distribution of Natural Resource Rents and the Dutch Disease By Richard Chisik; Bill Battaile; Harun Onder
  4. World Interest Rates, Inequality and Growth: an Empirical Analysis of the Galor-Zeira Model By Michele Battisti; Tamara Fioroni; Andrea Mario Lavezzi
  5. Inequality and trust: new evidence from panel data By Guglielmo Barone; Sauro Mocetti
  6. Transition to Modern Growth: the Role of Technological Progress and Adult Mortality By Davide Fiaschi; Tamara Fioroni
  7. Income Distribution and Economic Growth in a Multi-Sectoral Kaleckian Model By Hiroshi Nishi
  8. The Role of Government Debt in Economic Growth By António Afonso; José Alves
  9. Growth and Inequality in Public Good Games By Simon Gaechter; Friederike Mengel; Elias Tsakas; Alexander Vostroknutov
  10. Let's Get This Right: Swiss GDP and Value Added by Industry from 1851 to 2008 By Christian Stohr
  11. Growth, deforestation and the efficiency of the REDD mechanism By Helene Ollivier
  12. The Public Finance and the Economic Growth in the First Portuguese Republic By Nuno Ferraz; António Portugal Duarte
  13. Long term care and capital accumulation: the impact of the State, the market and the family By Canta, Chiara; Pestieau, Pierre; Thibault, Emmanuel
  14. Social capital and economic growth in Europe: nonlinear trends and heterogeneous regional effects By Jesús Peiró-Palomino
  15. Structural Change Accounting with Labor Market Distortions By Wenbiao Cai
  16. Energy use and Economic Growth in Africa: A Panel Granger-Causality Investigation By Mohamed El Hedi Arouri; Adel Ben Youssef; Hatem M'Henni; Christophe Rault

  1. By: Beestermöller, Matthias; Rauch, Ferdinand
    Abstract: We show that the countries of the former Austro-Hungarian monarchy trade significantly more with one another in the aftermath of the collapse of the Iron Curtain than predicted by a standard gravity model. This trade surplus declines linearly and monotonically over time. We argue that these findings suggest that decaying cultural forces explain a significant part of trading capital. We document the rate of decay of these cultural forces.
    Keywords: Trade; Gravity; Culture; Borders; Habsburg Empire; Persistence
    JEL: F14 F15 N33 N34 N94
    Date: 2014–09–11
  2. By: Onder, Ali Sina (University of Bayreuth); Yilmazkuday, Hakan (Florida International University)
    Abstract: We use network centrality measures to capture the trade partner diversification (TPD) of countries as revealed by their position in the international trade network. These measures are shown to enter long-run growth regressions positively and significantly, on top of trade openness and other control variables. Historical evidence based on threshold analyses shows that countries can use their trade networks to compensate for their low levels of financial depth, high levels of inflation, and low levels of human capital. This result is important especially for developing economies where, on average, financial depth is low, inflation is high, and human capital is low. Therefore, globalization of international trade is important as far as gaining access into better trade networks through multilateral free trade agreements is rather essential for developing countries.
    JEL: F13 G20 O19
    Date: 2014–09–01
  3. By: Richard Chisik (Department of Economics, Ryerson University, Toronto, Canada); Bill Battaile (The World Bank); Harun Onder (The World Bank)
    Abstract: We show that the Dutch disease can arise solely because of the distribution of the natural resource rents. In particular, a less equal distribution of the natural resource rents can generate manufacturing sector stagnation and lower long-run growth even for a country with a smaller resource base and (initially) higher manufacturing productivity. In our framework the Dutch disease arises through a shift in demand. The new found wealth from the resource find increases demand for non-tradable luxury consumption services. Labor that could be used to develop the manufacturing sector is pulled into the service sector. Manufactured goods are more likely to be imported and the learning and production process improvements accrue to the foreign exporters. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate or further intensify the Dutch disease dynamics within this framework.
    Date: 2014–10
  4. By: Michele Battisti; Tamara Fioroni; Andrea Mario Lavezzi
    Abstract: Following Galor and Zeira (1993), we study the effect of the world interest rate on inequality and growth for the period 1985-2005, char- acterized by falling world interest rates and cross-country income po- larization. We argue that the two phenomena are related on the basis of the following findings, which are in accordance with the predictions of the Galor and Zeira model: 1) a reduction of the world interest rates increases inequality in rich countries and decreases inequality in poor countries; 2) inequality has a negative (and significant) effect on hu- man capital accumulation in rich countries and a positive (but mostly not significant) effect in poor countries; 3) human capital positively affects GDP in both group of countries, in particular with a higher marginal effect in poor countries. The overall effect of these facts is polarization in the world income distribution.
    Keywords: Inequality, Human Capital, Economic Growth, Multiple Equilibria, World Interest Rates.
    JEL: C33 O15 O16 O47
    Date: 2014–09–01
  5. By: Guglielmo Barone (Bank of Italy); Sauro Mocetti (Bank of Italy)
    Abstract: The relationship between inequality and trust has attracted the interest of many scholars who have found a negative relationship between the two variables. However, the causal link from inequality to trust is far from being identified and the existing empirical evidence admittedly remains weak, as the omitted variable bias, reverse causation and/or measurement error might be at work. In this paper, we reconsider the country-level evidence to address this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time-invariant variables. Second, we provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, income inequality significantly and negatively affects generalised trust. However, this result only holds for developed countries. We also explore new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality – such as the Gini index and top income shares – and dynamic inequality – proxied by intergenerational income mobility.
    Keywords: trust, inequality, top incomes, intergenerational mobility
    JEL: D31 O15 Z13
    Date: 2014–09
  6. By: Davide Fiaschi; Tamara Fioroni
    Abstract: This paper presents a model inspired by the Unified Growth Theory, where reductions in adult mortality together with improvements in technological progress are the deep causes of the transition from a Traditional (Malthusian) Regime to a Pre-Modern Regime, characterized by the accumulation of fixed capital only, and finally, to a Modern Regime, characterized by the joint accumulation of both fixed and human capital. A calibrated version of the model is able to reproduce the dynamics of the UK economy in the period 1541-1914, matching both the periods of transition and the pattern of main macroeconomic variables. UK growth before the mid-nineteen th century ap- pears to be mainly due to technological progress, while thereafter, the decline in adult mortality and factors accumulation played the major role. Finally, fertility decline during the nineteenth century has only a marginal impact on growth because it is more than balanced by the increase in adult survival.
    Keywords: Unified Growth Theory, Human Capital, Adult mortality, Nonlinear Dynamics, Endogenous Fertility, Industrial Revolution.
    JEL: O10 O40 I20
    Date: 2014–09–01
  7. By: Hiroshi Nishi
    Abstract: This study builds an income distribution and growth model within a simple multi-sectoral Kaleckian framework. The model has heterogeneous features in each sector in that the responses of saving and investment to changes in macroeconomic performance differ sectorally, and there are also different sectoral shares of saving and investment. We consider the determinants that establish the economic growth regime (i.e. wage-led and profit-led) and the stable output growth rate adjustment within this framework. By doing so, we reveal the sectoral composition of saving and investment and that elasticity of saving and investment matter for the formation of a growth regime and the stability of the output growth rate at the aggregate level.
    Keywords: Multi-sectoral Kaleckian model; Income distribution; Sectoral heterogeneity
    JEL: B50 E12 O41
    Date: 2014–10
  8. By: António Afonso; José Alves
    Abstract: We study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries from 1970 until 2012. We also consider debt-to-GDP ratio interactions with monetary, public finance, institutional and macroeconomic variables. Our results show a negative impact of -0.01% for each 1% increment of public debt, although debt service has a 10 times worse effect on growth. In addition, we find average debt ratio thresholds of around 75%. Belonging to the Eurozone has a detrimental effect of at least -0.5% for real per capita GDP, and the banking crisis is the most harmful crisis for growth.
    Keywords: government debt, economic growth, debt thresholds.
    JEL: E62 H63 O47
    Date: 2014–09
  9. By: Simon Gaechter (School of Economics, University of Nottingham); Friederike Mengel (University of Essex and Maastricht University); Elias Tsakas (Maastricht University); Alexander Vostroknutov (Maastricht University and European University at St.Petersburg)
    Abstract: In a novel experimental design we study public good games with dynamic interdependencies. More precisely, each agent's income at the end of a period serves as her endowment in the following period. In this setting growth and inequality arise endogenously allowing us to address new questions regarding their interplay and effect on cooperation levels. In stark contrast to standard public good experiments, we find that contributions are increasing over time even in the absence of punishment possibilities. In both treatments (with and w/o punishment) inequality and group income are positively correlated for poor groups (below median income), but negatively correlated for rich groups. There is very strong path dependence: inequality in early periods is strongly negatively correlated with group income in later periods. These results give new insights into why people cooperate and should make us rethink previous results from the literature on repeated public good games regarding the decay of cooperation in the absence of punishment.
  10. By: Christian Stohr
    Abstract: This paper combines various data sources on value added and GDP for Switzerland in order to construct long-¬â€term series from 1851 to 2008. I provide an extensive discussion of deflation methods and show that the recent update of the Swiss GDP per capita series in the Maddison database relies on a statistical artifact. This update suggests that Switzerland was already an extremely rich country in 1851 and that it was by far the richest economy in the world for practically the whole period between 1890 and 1980. Important relative price changes have occurred in Switzerland between 1945 and 1990. Double-¬â€deflated GDP estimates like those of the recent update are erroneous, when price indices are not regularly rebased, and even then, they do not account for gains and losses from relative price changes. In the case of Switzerland, this leads to significant underestimation of the growth rate and, since GDP is constructed backward from the 1990 benchmark, to a GDP level, which is between 40 and 70% too high for the whole period before 1945. I propose an alternative GDP series, which is deflated by the consumer price index. This series suggest that Switzerland was not all that rich. The contributions of this paper are three-¬â€fold. First, it provides a GDP series for Switzerland that builds on reliable sources and is very much in line with other types of evidence (international benchmark comparisons and international wage comparisons). Second, it points out a methodological problem of double deflation that might also be a source of error in the GDP series of other (small open) economies. Third, it throws a different light on the development trajectory of Switzerland shifting the accent from proto-¬â€industry and the first industrial revolution to the second industrial revolution and the post-¬â€WWII boom. This has also an incidence on the identification of the possible sources of Swiss growth shifting the focus from protestant immigration to market integration during the second half of the 19th century and the post-¬â€1945 boom. Limited openness might be responsible for the Swiss growth slack between 1973 and 2000.
    Keywords: economic history, Switzerland, national accounting, double deflation
    Date: 2014–09
  11. By: Helene Ollivier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: This paper assesses the long term impacts of an international transfer called the Reduced Emissions from Deforestation and Degradation (REDD) mechanism, which aims at preserving tropical forests of the recipient economy. This two-sector economy faces a dilemma between economic growth and deforestation. The rural sector can substitute reproducible capital for agricultural land whereas the manufacturing sector only requires capital. The model shows that the REDD mechanism has a non-monotonic effect on steady state welfares. For low transfer schemes, the agricultural output increases with the transfer even though less land is under cultivation. For high transfer schemes, the increase in the transfer may not offset the decrease in the agricultural output. The open-loop symmetric Nash equilibrium in a dynamic deforestation game predicts that redistributing the transfer among a finite number of producers is less efficient in reducing deforestation than in the social optimum.
    Keywords: Avoided deforestation; Growth; Aid efficiency
    Date: 2012–11
  12. By: Nuno Ferraz (Economic Advisor at the Portuguese Parliament and PhD Student at ISEG, Portugal); António Portugal Duarte (Faculty of Economics, Uniuversity of Coimbra and GEMF, Portugal)
    Abstract: The end of the 19th century was marked by several events which were extremely important to Portugal. The consequences of these events would later be responsible for the fall of the Monarchy and, thus, for the birth of the Republic. The first Republic was officially proclaimed on the 5th October 1910, and had a relatively short lifetime. This regime was later abolished by a military dictatorship. During most of its duration, the First Republic was marked by economic, financial, political and social instability. However, the Portuguese economic scenario started to change and improved by the end of this regime and, consequently, before the beginning of the Military Dictatorship, which ended up taking advantage of the ‘new’ and more favourable economic situation of the country. Additionally we find evidence that in the first two civil years of the Military Dictatorship, the real GDP grew sharply and above our prediction, and the public debt as percentage of GDP, had a more significant reduction then predicted.
    Keywords: Economic growth, First Republic, Public finance, Portugal.
    JEL: C01 H63 N13 O11
    Date: 2014–09
  13. By: Canta, Chiara; Pestieau, Pierre; Thibault, Emmanuel
    Abstract: The rising level of long-term care (LTC) expenditures and their financing sources are likely to impact savings and capital accumulation and henceforth the pattern of growth. This paper studies how the joint interaction of the family, the market and the State influences capital accumulation in a society in which the assistance the children give to dependent parents is triggered by a family norm. We find that, with a family norm in place, the dynamics of capital accumulation differ from the ones of a standard Diamond (1965) model with dependence. For instance, if the family help is sizeably more productive than the other LTC financing sources, a pay-as-you-go social insurance might be a complement to private insurance and foster capital accumulation.
    Date: 2014–09–24
  14. By: Jesús Peiró-Palomino (Department of Economics, University Jaume I, Castellón, Spain)
    Abstract: After two decades of academic debate on the social capital-growth nexus, discussion still remains open. Most of the literature so far, however, has followed the one-size-its-all approach, neglecting that the great disparities across geographical units might have implications in this relationship. This article analyzes the role of two social capital indicators on the growth of 237 European regions in the period 1995–2007 by implementing a set of both parametric and non- parametric regressions. Whereas the former impose a linear functional form for the parameters, the latter relax this assumption providing a flexible frame in which the functional form is given by the data. The technique also permits introducing parameter heterogeneity in the analysis by estimating individual regional effects. The results from the parametric analysis show that the sign and the magnitude of the effects hinge upon the indicator considered. In contrast, results from the nonparametric regressions suggest that, while both indicators are significant growth predictors, the effect departs from linearity. Moreover, not all regions benefit from social capital with the same intensity. The most notable difference lies in regions from Central and Eastern Europe countries, where social capital is mostly negative. Other regional conditions such as initial income levels, investment rates or the stock of human capital show a more limited influence.
    Keywords: Economic growth, European regions, nonparametric regression, social capital
    JEL: C14 R11 Z13
    Date: 2014
  15. By: Wenbiao Cai
    Abstract: This paper quantifies the relative importance of sectoral productivity and labor market distortions for structural change. I use a model in which labor productivity is the product of TFP and human capital in each sector, but distortions generate wedges in wage per efficiency worker across sectors. I calculate human capital by sector using micro census data, and use the model to infer TFP and distortions such that it replicates structural change in the US, India, Mexico and Brazil between 1960 and 2005. I find that (1) TFP growth in agriculture drives most of the decline in its share of labor; (2) the role of labor market distortions is limited.
    Date: 2014–10
  16. By: Mohamed El Hedi Arouri (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Adel Ben Youssef (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis (UNS)); Hatem M'Henni (LARIME - Laboratoire de Recherche Interdisciplinaire sur les Mutations des Economies et des Entreprises - Université de Tunis (TUNISIA)); Christophe Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans, CESifo - Center for Economic Studies and Ifo for Economic Research - CESifo Group Munich)
    Abstract: We make use of a bootstrap panel analysis of causality between energy use and economic growth for a sample of sixteen African countries over the period 1988-2010. Our results show that growth and energy use are strongly linked in Africa. However, African countries are heterogeneous and there is no "one way" recommendation about energy-growth relationship that may work for all countries in Africa.
    Keywords: energy use; growth; VAR
    Date: 2014–06–18

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