nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒11‒22
eighteen papers chosen by
Marc Patrick Brag Klemp
Brown University

  1. Diagnosing Deep Roots of Development: Genetic, Disease and Environmental Factors By Johannes W. Fedderke, Robert E. Klitgaard, James P. MacMurray, Valerio Napolioni
  2. Beauty, Polygyny, and Fertility: Theory and Evidence By Cahu, Paul; Fall, Falilou; Pongou, Roland
  3. Endogenous Growth and Demographic Transition in a model of Cultural Transmission By Zakharenko, Roman
  4. Economic Growth Evens-Out Happiness: Evidence from Six Surveys By Andrew E. Clark; Sarah Flèche; Claudia Senik
  5. Convergence and growth. Labour productivity dynamics in the European Union. By Roberto Martino
  6. Land-abundance, frontier expansion and the hypothesis of appropriability revisited from an historical perspective: settler economies during the First Globalization By Henry Willebald
  7. Trade, Sectorial Reallocation, and Growth By Wang, Pengfei; Xie, Danyang
  8. Transmission of preferences and beliefs about female labor market participation : direct evidence on the role of mothers By Jesús M. Carro; Matilde P. Machado; Ricardo Mora
  9. The dilemma of international capital tax competition in the presence of public capital and endogenous growth By Stauvermann, Peter J.; Kumar, Ronald R.
  10. Cross-Country Interactions, the Great Moderation and the Role of Output Volatility in Growth By Steven Trypsteen
  11. R & D sector outsourcing, human capital formation and growth in the context of developed versus developing economies By Basu, Sujata
  12. Legitimacy and the Cost of Government By Berggren, Niclas; Bjørnskov, Christian; Lipka, David
  13. Enhancing Growth and Welfare through debt-financed Education By Stauvermann, Peter Josef; Kumar, Ronald
  14. Labor Unions, Directed Technical Change and Cross-Country Income Inequality By Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi
  15. Optimal Public Investment, Growth, and Consumption: Fresh Evidence from African Countries By Augustin Kwasi Fosu; Yoseph Getachew; Thomas H.W. Ziesemer
  16. Growth Diagnostic of Cape Verdean Economy By Brito, Joao
  17. The Piketty Curve and the Elasticity of Substitution By McCain, Roger
  18. Does Intelligence Affect Economic Diversification ? By Oasis, Kodila-Tedika; Simplice A, Asongu

  1. By: Johannes W. Fedderke, Robert E. Klitgaard, James P. MacMurray, Valerio Napolioni
    Abstract: We examine the association between indicators of real GDP per capita and the ACP1 genetic adaptation to disease and ultraviolet radiation environment. We find a strong impact that varies across the A, B, and C alleles. The result is robust to controlling for reversal of fortunes, migration, and potential endogeneity of the genetic adaptation. It is also robust to controlling for other potential deep roots of development, geography, early adoption of technology, the population proportion that is European, and genetic diversity, as well as a range of factors held to be relevant by the economic growth literature. Policy prescriptions point to the importance of protection against ultraviolet radiation, control of tropical diseases, and the possible use of folic acid therapy and nutrient supplements in clearly identifiable geographic areas.
    Keywords: deep roots of development, acid phosphate locus 1, economic growth
    JEL: O1 O4 I15 I18
    Date: 2014
  2. By: Cahu, Paul; Fall, Falilou; Pongou, Roland
    Abstract: We propose a simple model of a mating economy in both monogamous and polygynous cultures, and derive implications for how polygyny affects individual and aggregate fertility. We find that an attractive woman is more likely to find a high-status husband. However, when polygyny is allowed, high-status husbands naturally attract other women; this implies that female beauty increases the likelihood of entering into a polygynous relationship. A woman in a polygynous relationship produces fewer children than a woman in a monogamous relationship as long as the preference for reproduction relative to consumption is not too strong. However, the societal practice of polygyny increases aggregate fertility through two distinct channels: (1) by increasing the number of marriages; and (2) by triggering fertility contagion: a woman, whether involved in a monogamous or polygynous relationship, produces more children as polygyny becomes more prevalent in her neighborhood. We empirically validate each of the model's key predictions.
    Keywords: Mating Economy, Monogamy, Polygyny, Beauty, Status, Fertility, Contagion, Networks
    JEL: A1 A13 C7 C78 J1 J12 J13 Z1 Z10
    Date: 2014–09–01
  3. By: Zakharenko, Roman
    Abstract: Demographic transition theory is developed highlighting cultural transmission pattern as key driver. Individuals maximize cultural fitness, i.e. rate of own cultural type absorbtion by future generations. With low population density, one's culture can be picked up only by own children, thus cultural fitness equals genetic fitness, individuals allocate all energy surplus to reproduction, and Malthusian regime occurs. With rising population density, cultural transmission between non-relatives accelerates; knowledge production by an individual makes her culture more attractive. Individuals reallocate some of energy surplus from reproduction to knowledge production, causing technological growth. The model fits observed demographic transition patterns.
    Keywords: Endogenous growth, Cultural transmission, Demographic transition
    JEL: J11 O44 Z19
    Date: 2014
  4. By: Andrew E. Clark; Sarah Flèche; Claudia Senik
    Abstract: In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has fallen in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the "very unhappy" and the "perfectly happy". Lower happiness inequality is found both between and within countries, and between and within individuals. Our cross-country regression results argue that the extension of various public goods helps to explain this greater happiness homogeneity. This new stylised fact arguably comes as a bonus to the Easterlin paradox, offering a somewhat brighter perspective for developing countries.
    Keywords: Happiness, inequality, economic growth, development, Easterlin paradox
    JEL: D31 D6 I3 O15
    Date: 2014–10
  5. By: Roberto Martino
    Abstract: This paper investigates labour productivity dynamics for 1263 regional economies of the European Union during 1991-2007. Despite convergence is usually found to occur conditionally to economy-wide factors, this study reveals a clear process of unconditional convergence for nancial and business-related market services. Indeed this sector is more likely to be characterised by standardized technologies of production. Such an evidence is not found for manufacturing and aggregate productivity, for which long run distribution dynamics are characterized by bimodality. The decomposition of the growth rate of aggregate labour productivity reveals that pure productivity gains drive growth. Structural change plays a minor role in the process, however it halves the contribution of the manufacturing sector for the richest regions, while it enhances the weight of nancial market services.
    Keywords: labour productivity, convergence, distribution dynamics, non parametric methods, structural change.
    JEL: C14 O11 O40 O47
    Date: 2014
  6. By: Henry Willebald (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Settler economies are characterized for the abundance of natural resources. However, natural capital is not homogeneous and it induces differences in terms of economic performance. I discuss the effect of agricultural natural resources on production and income distribution in the agriculture in the tradition of the curse (and blessing) of the natural resources hypothesis, from the mid-19th century to WWI. I consider the interaction between natural resources that a country posses, the type of land according to the agricultural aptitude and the quality of its institutions in terms of the concept of appropriability of a resource. I propose two approaches. One of them is based on the estimation of the statistical relationship between economic performance, natural resources and institutions. The other one is based on the historical description of the distribution of land rights in the River Plate and Australasia. In the first one, I reject the curse of the abundance of natural resources on the agricultural production but I do not reject it as regards income distribution. Nor technical neither institutional dimension of appropriability hypothesis work for agricultural production but both operate in terms of inequality; i.e. expanding the frontier by the best lands makes worse income distribution but the action of institutional quality on high land aptitude improve equality. The second approach proposes to give historical context to my analysis. I consider the institutional arrangements related to the land property, and they seemed suitable for obtaining high levels of income but inadequate to promote more egalitarian societies. Therefore, appropriability problems were more intense for Hispanic ex-colonies than for British ex-colonies which, in addition, enjoyed institutions more favourable for reducing inequality.
    Keywords: curse of the natural resources, appropriability hypothesis, settler economies, first globalization
    JEL: N50 O13 Q15
    Date: 2014–10
  7. By: Wang, Pengfei; Xie, Danyang
    Abstract: This paper introduces sectorial heterogeneity in TFPs in a growth model to generate new insights on trade, sectorial reallocation, and economic growth. The rate of overall economic growth in this model is a simple average of sectorial growth in a closed economy, but will depend on trade parameters in an open economy as openness to trade shifts resources toward fast-growing sectors. We find that the overall growth rate is unambiguously higher as the number of trading partners increases. These conclusions survive even after trade cost is introduced. Nevertheless, trade share and growth rate may not move in the same direction as trade liberalization is pursued or as the number of trading partners increases. This finding may explain why the existing empirical evidence concerning this relationship between growth and trade share remains inconclusive.
    Keywords: Heterogeneous Sectors, International Trade, Growth
    JEL: F12 R13
    Date: 2014–09
  8. By: Jesús M. Carro; Matilde P. Machado; Ricardo Mora
    Abstract: Recently, economists have established that culture—defined as a common set of preferences and beliefs —affects economic outcomes, including the levels of female labor force participation. Although this literature has argued that culture is transmitted from parents to children, it has also recognized the difficulty in empirically disentangling the parental transmission of preferences and/or beliefs from other confounding factors, such as technological change or investment in education. Using church registry data from the 18th and 19th centuries, our primary contribution is to interpret the effect of a mother’s labor participation status on that of her daughter as the mother-to-daughter transmission of preferences and/or beliefs that are isolated from confounding effects. Because our data are characterized by abundant non-ignorable missing information, we estimate the participation model and the missing process jointly by maximum likelihood. Our results reveal that the mother’s working status has a large and statistically significant positive effect on the daughter’s probability of working. These findings suggest that intergenerational family transmission of preferences and/or beliefs played a decisive role in the substantial increases in female labor force participation that occurred later.
    Keywords: Female labor market participation, Intergenerational transmission of preferences and/or beliefs, Historical family data, Church registry data, Non-ignorable missingness, Econometric methods for missing data
    JEL: J22 J24 J16 J12
    Date: 2014–10
  9. By: Stauvermann, Peter J.; Kumar, Ronald R.
    Abstract: Using an OLG-model with endogenous growth and public capital we show, that an international capital tax competition leads to inefficiently low tax rates, and as a consequence to lower welfare levels and growth rates. Each national government has an incentive to reduce the capital income tax rates in its effort to ensure that this policy measure increases the domestic private capital stock, domestic income and domestic economic growth. This effort is justified as long as only one country applies this policy. However, if all countries follow this path then all countries will be made worse off in the long run.
    Keywords: capital tax competition, OLG model, endogenous growth, public capital
    JEL: H21 H54 O41
    Date: 2014–09
  10. By: Steven Trypsteen
    Abstract: This paper investigates the effect of output volatility and the great moderation on growth in a model that simultaneously accounts for cross-country interactions, structural breaks and heterogeneous effects. This is done by augmenting the univariate GARCH-M model of growth for each G7 country with cross-country weighted averages of growth and shift dummies. I find that volatility affects growth positively, that there is a great moderation in five of the G7 countries and that the great moderation has a negative effect on growth in all G7 countries. A simulation exercise shows that cross-country interactions are important in estimating the volatility effect.
    Keywords: Cross-country interactions, Volatility, Growth, GARCH-M, The great moderation.
    Date: 2014
  11. By: Basu, Sujata
    Abstract: An advanced economy relies on innovation activity for its further technology improvement. On the other hand a backward economy depends on both imitation from the world technology frontier and innovation activities - innovation being more skilled-intensive than imitation. In this paper I theoretically examine the impact of R & D outsourcing from an economy which is in the innovation-only regime to an imitation-innovation regime. I show that dependence on imitation activities rises and as a consequence of which share of skilled human capital falls and both skilled and unskilled human capital shifts from innovation to imitation activities in the backward economy. As a result proportion of outsourcing from advanced economy to backward economy falls. Thus, growth rate of the backward economy declines as time progresses. In the long run backward economy will get into a trap and gap from the world technology frontier rises, even if it falls in the initial period.
    Keywords: R & D activity, outsourcing, economic growth, imitation-innovation, convergence
    JEL: I24 O3 O43
    Date: 2014–10–06
  12. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Bjørnskov, Christian (Department of Economics and Business); Lipka, David (School of International Relations and Diplomacy)
    Abstract: While previous research documents a negative relationship between government size and economic growth, suggesting an economic cost of big government, a given government size generally affects growth differently in different countries. As a possible explanation of this differential effect, we explore whether perceived government legitimacy (measured by satisfaction with the way democracy works) influences how a certain government size affects growth. On the positive side, a legitimate government may “get away” with being big since legitimacy can affect people’s behavioral response to, and therefore the economic growth cost of, taxation and government expenditures. On the negative side, legitimacy may make voters less prone to acquire information, which in turn facilitates interest-group oriented or populist policies that harm growth. A panel-data analysis of up to 30 developed countries, in which two different measures of the size of government are interacted with government legitimacy, reveals that legitimacy exacerbates a negative growth effect of government size in the long run. This could be interpreted as governments taking advantage of legitimacy in order to secure short-term support at a long-term cost to the economy.
    Keywords: Legitimacy; Economic growth; Size of government; Confidence; Trust
    JEL: E62 H11 H20 O43 Z13
    Date: 2014–10–30
  13. By: Stauvermann, Peter Josef; Kumar, Ronald
    Abstract: Using an over-lapping generations (OLG) model, we show how small open economies can enhance their growth through educational subsidies financed via public debt and reduce their fertility rate. We show that subsidizing education through public debt leads to a Pareto improvement of all generations. Even if a country is a net borrower in the international capital market, we show that this subsidy-policy can help, under certain conditions, to improve its net borrowing position. Especially, our analysis can be applied to less-developed countries.
    Keywords: fertility; human capital; education subsidy; government debt.
    JEL: H24 O1 O15 O41
    Date: 2014–06
  14. By: Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi
    Abstract: This study explores the macroeconomics effects of labor unions in a two-country model of directed technical change in which the market size of each country determines the incentives for innovation. We find that an increase in the bargaining power of a wage-oriented union leads to a decrease in employment in the domestic economy. This result has two important implications on innovation. First, it reduces the rates of innovation and economic growth. Second, it causes innovation to be directed to the foreign economy, which in turn causes a negative effect on domestic wages relative to foreign wages in the long run. We also calibrate our model to data in the US and the UK. We find that the degree of unions' wage preference must be stronger in the UK than in the US in order for the calibrated economies to replicate the simultaneous decrease in labor income share and unemployment in the two countries. We also explore the quantitative implications of labor unions on social welfare and relative wage across countries. In summary, our calibrated model is able to explain about half of the decrease in relative wage between the US and the UK from 1980 to 2007.
    Keywords: economic growth, R&D, labor unions, income inequality
    JEL: E24 J51 O30 O43
    Date: 2014–09
  15. By: Augustin Kwasi Fosu (Institute of Statistical, Social and Economic Research (ISSER), University of Ghana, Legon, Ghana; Faculty of Economic and Management Sciences, University of Pretoria, Pretoria 0002, South Africa); Yoseph Getachew (Department of Economics, Faculty of Economic and Management Sciences, University of Pre- toria, Pretoria 0002, South Africa); Thomas H.W. Ziesemer (Department of Economics and UNU-MERIT, Maastricht University, Maastricht, Netherlands.)
    Abstract: This paper develops a model positing a nonlinear relationship between pub- lic 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 con- sumption 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 signi?cant public under-investment in Africa.
    Date: 2014–10
  16. By: Brito, Joao
    Abstract: The main of this article is to analyse the evolution of Cape Verdean economy and find a binding constraint to economic growth, using the technique “growth diagnostic†proposed by Hausmann et al. (2005). The real GDP per capita in Cape Verde increased from US$ 806 in 1970 to US$ 2.830 in 2011, with average annual growth rate of 3.3%. The service sector was the main share in GDP production side. Cape Verdean economy presents great dependence of external capital and, despite the considerable growth, the unemployment rate remains high and public debt is high but sustainable. We found some factors that constitute constraints to economic growth, as weak financial intermediation, poor infrastructure, high costs in the inter-island connections and strong deviation between the human capital needs and areas of formation of secondary and tertiary education. Thus, government policies should be aimed at overcoming these barriers.
    Keywords: Economic growth, Country analysis, Growth diagnostic, Countries competitiveness, Cape Verde
    JEL: O10 O40 O55
    Date: 2013–10
  17. By: McCain, Roger (School of Economics Drexel University)
    Abstract: Thomas Piketty’s (2014) recent book has been the occasion of a good deal of discussion, much of it centered around his references to the elasticity of substitution between labor and capital. He presents evidence that suggests that capital’s share rises as the capital-labor ratio rises. In a very simple growth model, this would mean that the elasticity of substitution between capital and labor is greater than one. However, many economists probably concur with a criticism by Lawrence Summers: (2014) “I know of no study suggesting that … the elasticity of substitution is less than one, and I know of quite a few suggesting the contrary.” A number of such studies are reviewed in Leon-Ledesma et. al (2010, see esp. Table 1, p. 1335) and most do indeed estimate elasticities of substitution less than one; however, they also assume that technical progress is either Hicks-Neutral or factor-augmenting and, if factor-augmenting, that the rates of factor augmentation are exogenously given1. Piketty does not split definitional hairs, referring sometimes to capital claims and sometimes to the imputed competitive income of the capital input. As Summers notes, he abstracts from depreciation and, barring a few mostly negative comments, does not treat technical progress nor human capital as important determinants of the income shares. Thus, clearly, the studies referenced by Leon-Ledesma et. al do not apply to Piketty’s argument. On the other hand, there is some room for conjecture as to how Piketty’s thinking might be represented in mathematical economic models of economic growth. This paper will briefly sketch a model influenced by Stokey (1991), Romer (1986), and Duffy et al (2004). in which trends like those reported by Piketty can arise depending on the differences between the elasticities of substitution among physical capital, human-technological capital, and raw labor. For this model, “capital” will be understood in a strictly neoclassical way, as an index of an aggregate of heterogeneous durable produced means of production, treated “as if” a divisible and homogenous input. The paper will then reconsider the relation of Piketty’s writing to a model of this kind.
    Keywords: Piketty Curve; Elasticity of Substitution
    JEL: D24
    Date: 2014–08–21
  18. By: Oasis, Kodila-Tedika; Simplice A, Asongu
    Abstract: This paper extends the growing literature on knowledge economy by investigating the effect of intelligence on economic diversification. Using a battery of estimation techniques that are robust to endogeneity, we find that human capital has positive effects on export diversification, manufactured added value and export manufactures. This empirical evidence is based on a world sample for the period 2010. The findings have significant implications for the fight against the Dutch disease. In essence, investing in human capital could bring economic diversity and therefore dampen negative external shocks related to resource-dependence. Other knowledge-economy implications are discussed, notably: the need to boost college enrolment and research & development on the one hand; and the imperative for workers to adapt to challenging and changing conditions of technology within a lifelong learning policy framework.
    Keywords: Intelligence; Economic Diversification, human capital
    JEL: I2 O2 O4
    Date: 2014–10–20

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