nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒11‒12
twenty papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Does Religion Affect Economic Growth and Happiness? Evidence from Ramadan By Campante, Filipe; Yanagizawa-Drott, David
  2. Islam, Inequality and Pre-Industrial Comparative Development By S. Michalopoulos; A. Naghavi; G. Prarolo
  3. Intergenerational mobility, composition of human capital and distance to frontier By Basu, Suajta
  4. Interest rates and endogenous population growth: joint age-dependent dynamics By Brito, Paulo
  5. Family Size as a Social Leveller for Children in the Second Demographic Transition By Tony Fahey
  6. Directed Technical Change With Capital-Embodied Technologies: Implications For Climate Policy By James A. Lennox; Jan Witajewski
  7. A patentability requirement and industries targeted by R&D By Keiichi Kishi
  8. Is the information technology revolution over? By Stephen D. Oliner; Daniel E. Sichel; David M. Byrne
  9. Does military spending stimulate growth? An empirical investigation in Italy By d'Agostino, Giorgio; Daddi, Pierluigi; Pieroni, Luca; Steinbrueck, Eric
  10. Living standards and rural-urban height gap during the early stages of modern economic growth in Spain By José M. Martínez-Carrión; Pedro M. Pérez-Castroviejo; Javier Puche-Gil; Josep M. Ramon-Muñoz
  11. Optimal Public Investment, Growth, and Consumption: Fresh Evidence from African Countries By Augustin Kwasi Fosu, Yoseph Getachew, Thomas H.W. Ziesemer
  12. Has the income share of the middle and upper-middle been stable over time, or is its current homogeneity across the world the outcome of a process of convergence? The 'Palma Ratio' revisited By José Gabriel Palma
  13. Unionised labour market, efficiency wage and endogenous growth By Bhattacharyya, Chandril; Gupta, Manash Ranjan
  14. On the intergenerational nature of criminal behavior By Bethencourt, Carlos; Kunze, Lars
  15. Does trade openness affect manufacturing growth at the Indian state level? By Ghosh Dastidar, Sayantan; Veeramani, C
  16. Financial Integration and Economic Growth By Juraev, Nosirjon
  17. Temporal causal relationship between stock market capitalization, trade openness and real GDP: evidence from Thailand By Jiranyakul, Komain
  18. The Viet Nam National Innovation System: A Diagnostic Review By Nguyen, Anh; Nguyen, Mai; Doan, Hung
  19. Causality and Cointegration between Economic Growth and Energy Consumption: Econometric Evidence from Jordan By Shahateet, Mohammed Issa; Al-Majali, Khalid Ali; Al-Hahabashneh, Fedel
  20. "Economic Growth and the Natural World" By Wesson, Joseph

  1. By: Campante, Filipe (Harvard University); Yanagizawa-Drott, David (Harvard University)
    Abstract: We study the economic effects of religious practices in the context of the observance of Ramadan fasting, one of the central tenets of Islam. To establish causality, we exploit variation in the length of the fasting period due to the rotating Islamic calendar. We report two key, quantitatively meaningful results: 1) longer Ramadan fasting has a negative effect on output growth in Muslim countries, and 2) it increases subjective well-being among Muslims. We then examine labor market outcomes, and find that these results cannot be primarily explained by a direct reduction in labor productivity due to fasting. Instead, the evidence indicates that Ramadan affects Muslims' relative preferences regarding work and religiosity, suggesting that the mechanism operates at least partly by changing beliefs and values that influence labor supply and occupational choices beyond the month of Ramadan itself. Together, our results indicate that religious practices can affect labor supply choices in ways that have negative implications for economic performance, but that nevertheless increase subjective well-being among followers.
    JEL: E20 J20 O40 O43 Z12
    Date: 2013–12
  2. By: S. Michalopoulos; A. Naghavi; G. Prarolo
    Abstract: This study explores the interaction between trade and geography in shaping the Islamic economic doctrine and in turn the comparative development of the Muslim world. We build a model where an unequal distribution of land quality in presence of trade opportunities conferred differential gains from trade across regions, fostering predatory behavior from the poorly endowed ones. We show that in such an environment it was mutually beneficial to institute an economic system of income redistribution featuring direct income transfers in return for safe passage to conduct trade. A commitment problem, however, rendered a merely static redistribution system unsustainable. Islam added a set of dynamic redistributive rules that were self-enforcing under large gains from trade and high proportions of arid land. While such principles fostered the expansion of trade within the Muslim world they limited the accumulation of wealth by the commercial elite, shaping the economic trajectory of Islamic lands in the preindustrial era.
    JEL: O10 O13 O16 O17 O18 F10 Z12
    Date: 2014–10
  3. By: Basu, Suajta
    Abstract: An economy can improve its technology level through two channels -- imitating from the world technology frontier and innovating on its own technology level -- innovation being more skilled-intensive than imitation. I develop a growth model based on the endogenous ability-driven skill acquisition decision of an individual in an imperfect credit market. It is shown that there exists a constant level of skilled and unskilled human capital in the imitation-only and innovation-only regimes. In the imitation-innovation regime stock of skilled human capital rises whereas that of unskilled human capital falls in the imitation-innovation regime. Also, both skilled and unskilled human capital shift from imitation to the innovation activity as an economy progresses. Moreover, growth rate falls in the imitation-only regime. But in the diversified regime growth rate rises even if it falls initially and there exists constant level of growth rate in the innovation-only regime. In the long run all the economies will converge to the world technology frontier and grow at a same rate. In the imitation-only and innovation-only regimes, there exists constant level of upward and downward mobility. However, in the diversified regime both upward and downward mobility falls as an economy progresses to the frontier. Along with that, I show that wage rate and average income of both skilled and unskilled human capital falls in the imitation-only regime and the same rises in the innovation-only regime. However, wage rate and average income of skilled human capital rises and unskilled human capital falls in the diversified regime. Also, there exists constant level of between group income inequality in the imitation-only and innovation-only regimes. However, wage and income inequality between skilled and unskilled human capital rises as an economy bridges its gap from the world technology frontier. There exists constant level of income inequality within skilled and unskilled human capital due to parental income differences and due to difference in cognitive ability, in the imitation-only and innovation-only regime. On the other hand, income inequality within skilled and unskilled human capital rises due to parental income differences and due to difference in cognitive ability, in the imitation-innovation regime.
    Keywords: Intergenerational Mobility, Inequality, Economic Growth, Imitation-Innovation, Convergence
    JEL: I24 I25 O1 O15 O43
    Date: 2014–10–06
  4. By: Brito, Paulo
    Abstract: This paper presents a uncertain-lifetime overlapping-generations continuous time model for an Arrow-Debreu economy with endogenous fertility, in which age-dependent variables are explicitly introduced. The general equilibrium paths for the discount factor and newborns are derived from a system of two coupled forward-backward integral equations. The forward mechanism is related to aggregation between cohorts and the backward mechanism to life-cycle decisions. We study changes in the age-dependent profiles of age-dependent distributions for productivity and time use. We show that high maximum ages of productivity and child-rearing fitness increase the long run interest and growth rates, and low maximum ages can lead to asset pricing bubbles and negative population growth rates.
    Keywords: OLG, endogenous fertility, Arrow-Debreu, integral equations
    JEL: C6 E2 J1
    Date: 2014–03–27
  5. By: Tony Fahey (School of Applied Social Science, University College Dublin)
    Abstract: Steep socio-economic gradients in family size were a major source of disparities for children in the early 20th century and prompted much social research and public commentary. By the 1960s, a scholarly consensus was emerging that SES differentials in women’s fertility in western countries were tending to narrow but developments since then have received limited attention and a children’s perspective relating to the distinct question of sibling numbers (or ‘sibsize’) has been lacking. Drawing mainly on data from the United States but with some comparative information for other western countries, this paper finds that a sharp reduction in social disparities in sibsize occurred in the final third of the twentieth century and acted as an important (though in the US case, incomplete) social leveller for children. This development is significant as a counter to other aspects of socio-demographic change in the same period which have been found to widen social inequalities for children. A key implication is that until we pay closer attention to sibsize patterns, our picture of how socio-demographic change has affected social inequalities among children in recent decades may be both incomplete and unduly negative.
    Keywords: Children, Family, Social inequality, Social stratification
    Date: 2014–10–23
  6. By: James A. Lennox (Fondazione Eni Enrico Mattei (FEEM)); Jan Witajewski (Fondazione Eni Enrico Mattei (FEEM))
    Abstract: We develop a theoretical model of directed technical change in which clean (zero emissions) and dirty (emissions-intensive) technologies are embodied in long-lived capital. We show how obsolescence costs generated by technological embodiment create inertia in a transition to clean growth. Optimal policies involve higher and longer-lasting clean R&D subsidies than when technologies are disembodied. From a low level, emissions taxes are initially increased rapidly, so they are higher in the long run. There is more warming. Introducing spillovers from an exogenous technological frontier representing non-energy-intensive technologies reduces mitigation costs. Optimal taxes and subsidies are lower and there is less warming.
    Keywords: Climate Change Mitigation, Directed Technical Change, Capital-Embodiment, Investment-Specific Technological Change, Obsolescence
    JEL: O33 O44 Q54 Q55 Q58
    Date: 2014–08
  7. By: Keiichi Kishi (Graduate School of Economics, Osaka University)
    Abstract: We introduce into a Schumpeterian growth model an inventive step, which is a minimum innovation size required for patents, and thus a patentability requirement. We show that in order to satisfy an inventive step requirement, each R&D firm targets only industries in which the incumbentfs technology is sufficiently obsolete. This is because the technological gap between innovator and incumbent is larger in industries that use older technologies. Although strengthening an inventive step requirement reduces the number of industries targeted by R&D, it also increases the amount of R&D investment directed at the targeted industries. Consequently, introducing an inventive step has either a nonmonotonic or a negative effect on the aggregate flow of innovations, which has some empirical support. Furthermore, by deriving the endogenous long-run distribution of innovation size, we show that strengthening an inventive step reduces innovation size on average, which also has empirical support. This implies that even if the patent office only grants patents for superior innovations, compared with prior art references, this causes innovators to produce inferior-quality innovations on average.
    Keywords: Technological progress, Innovations, Intellectual property rights
    JEL: O31 O34 O41
    Date: 2014–10
  8. By: Stephen D. Oliner (American Enterprise Institute); Daniel E. Sichel (American Enterprise Institute); David M. Byrne (American Enterprise Institute)
    Abstract: Given the slow growth of labor productivity in recent years, some have argued that the boost from information technology may have run its course.� Our analysis points to a less pessimistic conclusion.� While projections of economic developments are always difficult, our judgment is that "No, the IT revolution is not over."
    Keywords: information technology, AEI Economic Policy Working Paper Series, productivity growth
    JEL: A
    Date: 2013–03
  9. By: d'Agostino, Giorgio; Daddi, Pierluigi; Pieroni, Luca; Steinbrueck, Eric
    Abstract: This paper investigates the effect of military burden on economic growth and extends previous works on the optimal size of government expenditure by exploring how external threat affects the preferences of the households and, in turn, economic growth. Post World War II Italian data are used to estimate non-linear growth models using time-series semi-parametric methods. The estimates show that total government and civilian burdens are productive, whereas military burden has significant effects on economic growth through the expenditure for peacekeeping missions which reduces the insecurity in the home country. This may justify economically the current not negligible budget devoted to peacekeeping and humanitarian missions.
    Keywords: Military burden, Italian defense sector, endogenous growth models, Non-linear time series
    JEL: H50 O41 O47
    Date: 2014–08–31
  10. By: José M. Martínez-Carrión; Pedro M. Pérez-Castroviejo; Javier Puche-Gil; Josep M. Ramon-Muñoz
    Abstract: This paper examines the urban-rural differences of the height during the early stages of modern economic growth and industrialization in Spain. Its aim is to explore the extent of the urban penalty, and the changes of biological welfare in the cities and villages, in the rural and urban areas. We use height data of military recruitment records between 1857 and 1936, that provide information on the health and net nutrition of cohorts 1837-1915. We note that previous studies reported higher penalty in rural areas than in cities, and that the height deteriorated in the most industrialized cities due to unhealthy environments, child labor and spread of infections. The new data shows that in some rural areas had better nutritional status that in urban areas with better care resources, so the rural-urban gap was more diverse than we thought, not only by environmental factors but institutions. Data suggests more research on height by social classes in the diverse Spanish geography.
    Keywords: Rural-Urban Gap, Height, Biological Well-being, Living Standard, Spanish industrialization
    JEL: N33 D63 I12 I31
    Date: 2014–10
  11. By: Augustin Kwasi Fosu, Yoseph Getachew, Thomas H.W. Ziesemer
    Abstract: This paper develops a model positing a nonlinear relationship between public investment and growth. The model is then applied to a panel of African countries using nonlinear estimating procedures. The growth-maximizing level of public investment is estimated at about 10 percent of GDP based on System GMM estimation. The paper further runs simulations, obtaining the constant optimal public investment share that maximizes the sum of discounted consumption as between 8:1 percent and 9:6 percent of GDP. Compared with the observed end-of-panel mean value of no more than 7:26 percent, these estimates suggest that there has been significant public under-investment in Africa.
    Keywords: Public Investment and Growth, Africa
    JEL: D3 E1 O4
    Date: 2014
  12. By: José Gabriel Palma
    Abstract: In an article published in Development and Change in 2011, I suggested an alternative measure of inequality to the Gini - a "19th Century statistic" - which has subsequently become known as the ´Palma Ratio'. In this new article, I revisit the argument for such a measure. Using new data, I examine whether the current remarkable homogeneity in the income share of the middle and upper-middle around the world - the foundation of the so-called 'Palma Ratio' - is an historically stable stylised fact, or whether it is a new phenomenon, the outcome of a process of convergence towards the current '50/50 Rule' (a state of affairs in which half of the population in each country located within deciles 5 to 9 tends to appropriate about 50 per cent of the national income). Although partly written in response to a comment on my 2011 paper, this article has evolved to become a further attempt at contributing to the literature on inequality and the statistics to measure it. As in my 2011 paper, in this one I also conclude that if we want to understand why inequality is so unequal across the world we have little choice but to keep reminding ourselves of what I believe to be the most crucial of all distributional stylisedfacts (highlighted by the sub-title of that article): "The share of the rich is what it's all about." The logic of the 'Palma Ratio' is precisely to emphasise this fact - as well as to draw attention to the increasingly artificial (i.e., self-constructed) foundations of growing inequality (as opposed to Piketty, I believe that 'r' is currently so much greater than 'g' as a direct result of human agency, and not as a supposed inevitable outcome of the workings of the invisible hand…). And if one not only wants to understand why inequality is so unequal across the world, but also get closer to understanding why growth is also so diverse, what we should write in our noticeboards is: "It's all about the share of the rich, and what they do with it". This is particularly important to understand if we really want to do something about inequality (and growth), because as someone rightly said long ago, philosophers have only interpreted the world in various ways; the point now is to change it.
    Keywords: income distribution; inequality; 'Palma Ratio'; homogeneous middle and upper- middle; convergence; institutional persistence; ideology; neo-liberalism; 'new left'; Latin America; Africa; Brazil; Chile; South Africa; United States.
    JEL: D31 E11 E22 E24 E25 I32 J31 N16 N30 N36 O50 P16
    Date: 2014–10–15
  13. By: Bhattacharyya, Chandril; Gupta, Manash Ranjan
    Abstract: In this paper, we analyse the effect of unionisation on the growth of the economy in the presence of ‘Efficiency Wage Hypothesis’. We use both ‘Efficient Bargaining’ model and ‘Right to Manage’ model to solve the negotiation problem. Unionisation raises negotiated wage rate and the effort (efficiency) level of the worker. In the case of ‘efficient bargaining model’, unionisation reduces the negotiated number of workers but improves the effort level when the union is neutral in its orientation. As a result, effective employment is increased; and this leads to a rise in the growth rate and welfare level of the economy. However, in the ‘Right to manage model’ of bargaining, unionisation in the labour market raises the effort level of worker but lowers the number of workers irrespective of the orientation of the labour union; and raises effective employment, balanced growth rate and welfare level if the wage elasticity of efficiency is greater than the unemployment rate.
    Keywords: Labour union; Efficiency Wage Hypothesis; Endogenous growth; Efficient bargaining; Right to manage model
    JEL: J31 J51 O41
    Date: 2014–09–04
  14. By: Bethencourt, Carlos; Kunze, Lars
    Abstract: Empirical evidence suggests that family background and parental criminality are strong predictors of an individuals’ criminal behavior. The aim of this paper is to account for this intergenerational nature of criminal behavior within a simple theoretical model. Drawing on the literature of cultural transmission, we model the dynamics of moral norms of good conduct (honest behavior). Individuals’ criminal behavior and morality are strategic complementarities that reinforce each other. We establish the existence of multiple steady states and provide conditions on the socialization process under which both types - honest and dishonest - survive in the long run even though parents commit crime but at the same time agree that honesty is desirable. Our model provides a novel explanation of why crime is highly concentrated in specific areas and also why crime rates tend to be persistent over time. An empirical application reveals that our model can account for the differential reductions in property crime rates across US federal states since the 1980s.
    Keywords: crime, cultural transmission
    JEL: D91 H26 Z13
    Date: 2014–09–04
  15. By: Ghosh Dastidar, Sayantan; Veeramani, C
    Abstract: On the whole, manufacturing growth in India failed to accelerate in spite of widespread trade reforms undertaken since the early 1990s. However, the picture is mixed if we look at the sub-national level. This paper attempts to examine the determinants of manufacturing performance at the state-level in a panel model framework for the time period 1988-2007. One aspect, which makes this paper distinct from other empirical exercises in this field, is the consideration of trade openness of the states as one of the determinants of manufacturing performance in addition to the other usual control variables such as infrastructure, access to credit, human capital and labour market environment. Data on trade is not available at the Indian state level. We therefore construct two proxies for trade openness, one relating to exports volume and the other related to tariff barriers, for the Indian states in our sample. In line with the conventional view, trade barriers have a negative impact on manufacturing growth whereas trade volumes have a positive impact. However, openness has no impact on registered manufacturing in India. We argue that it is the flexibility of the unregistered sector (due to lack of rigid labour laws) which helps it take advantage of trade openness.
    Keywords: Manufacturing growth, Trade openness, Indian states, Panel data model
    JEL: F10 F13 O14 O24
    Date: 2014–09–26
  16. By: Juraev, Nosirjon
    Abstract: The following paper studies possible impacts of financial integration under different economic conditions, such as financial and equity market development and trade openness. It applies mixture of models, namely General Methods of Moments (GMM), Ordinary Least Squares (OLS), two-staged OLS, transformed OLS, and Panel data approach with 14 financial integration measures, including three new ones over 217 countries between 1970 and 2012. The results confirm that countries with high current account surplus are better off under financial integration, particularly with less inflation and less strict rule-of-law. Financial development damages economic growth in financial repressed markets, unless financial integration measures are practiced simultaneously. Stock market, although its existence brings positive outcomes, its development decreases economic gains under financial integration. Trade openness and unemployment rates are positively associated with growth under FI. Foreign bank presence, although positively correlated with financial development, effects negatively on economic growth, particularly under higher financial openness. International organization (World Trade Organization (WTO), Organization for Economic Cooperation and Development (OECD), and World Bank (WB)) membership presents negative relations to economic growth. We conjecture that organizational contracts once believed to give advantageous gains for both sides are no longer advantageous, because of the recent rapid developments in emerging and developing countries.
    Keywords: financial integration, financial liberalization, financial openness, capital market integration, economic growth, financial repression, financial autarky, economic slowdown
    JEL: F0 F20 F21 F30 F36
    Date: 2013–01–01
  17. By: Jiranyakul, Komain
    Abstract: This study examines both short-run and long-run causal relationship between stock market capitalization, trade openness and economic growth in Thailand. Quarterly data over the period from the first quarter of 1993 to the fourth quarter of 2013 are used in the analysis. The results from this study show that there exists a unidirectional long-run causality running from stock market capitalization and trade openness to real GDP. In the short run, an increase in stock market capitalization causes economic growth while an increase in trade openness decreases it and vice versa. Furthermore, there exist short-run bidirectional negative causations between economic growth and trade openness. However, the short-run phenomena are temporary. Based upon the results from this study, policymakers should pay attention to measures that are able to enhance stock market capitalization and trade openness if the long-run target is to achieve high economic growth rate.
    Keywords: Economic growth, market capitalization, trade openness, cointegration, causality
    JEL: C22 F41 O11
    Date: 2014–11
  18. By: Nguyen, Anh; Nguyen, Mai; Doan, Hung
    Abstract: National Innovation Systems (NIS) plays a crucial role in countries’ efforts to catch up with technological advances which are critical for the long-term sustainable economic growth and development of countries. This paper provides a diagnostic review of the NIS in Viet Nam such that appropriate policies could be devised and im - plemented. This paper provides an analysis of the institutions, policies and linkages that characterize Viet Nam’s national innovation system. It focuses on the strengths and weaknesses of the nation’s system of innovation that Viet Nam has put in place in order to promote technological innovation for economic growth and development. The first part provides an overview of Viet Nam’s 20 years of economic reform as the context within which innovation takes place. The remainder offers a deeper insight into Viet Nam’s NIS, starting with the legal framework and institutions, including laws on science and technology, legislative government bodies and other supporting agencies. The current funding of R&D activities in general and in different sectors is given along with government’s attempts to encourage investment or financial support for R&D. The key actors in Viet Nam’s NIS are identified and investigated. The conclusion is a summary of rooms for improvement in Viet Nam’s NIS
    Keywords: Vietnam, Innovation System
    JEL: O3 O31
    Date: 2013–05
  19. By: Shahateet, Mohammed Issa; Al-Majali, Khalid Ali; Al-Hahabashneh, Fedel
    Abstract: This paper aims at determining the relationship between economic growth and energy consumption in Jordan within the neo-classical productivity theory framework where capital, labour and energy are treated as separate production factors. It constructs an econometric model using annual time series data covering the period 1970– 2011. After estimating the parameters of the model, it uses causality tests to examine the existence and direction of causality between output growth and production factors including energy consumption. Empirical findings suggest that there exists Granger causality running from GDP to energy consumption, but there is no Granger causality running from energy consumption to GDP. The implication being that energy supply constraints could be introduced with little or no impact on economic growth. This unidirectional causality provides empirical evidence that Jordan is a less energy-dependent economy. Such findings undermine the theory of energy conservation policies and support the Government policies that aim at raising the prices of energy and reducing public demand for energy consumption mainly to reduce the deficit of government budget, foreign debt, and its services.
    Keywords: C33; O4; O13; Q43
    JEL: C32 C51 C54
    Date: 2014–10
  20. By: Wesson, Joseph
    Abstract: This is a survey of some ideas relating to the theory of economic growth and how economic growth impacts the natural world.
    Keywords: Growth environment population
    JEL: O1 O10 O3 O30 O33 O4 O47 Q01 Q56
    Date: 2014–10–20

This nep-gro issue is ©2014 by Marc Patrick Brag Klemp. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.