nep-gro New Economics Papers
on Economic Growth
Issue of 2014‒12‒19
fifteen papers chosen by
Marc Klemp
Brown University

  1. A Schumpeterian Model of Top Income Inequality By Charles I. Jones; Jihee Kim
  2. Polanyi's Paradox and the Shape of Employment Growth By David Autor
  3. Does culture matter for development ? By Lopez-Claros, Augusto; Perotti, Valeria
  4. Economic Growth By David de la CROIX
  5. Optimal public investment, growth, and consumption: Fresh evidence from African countries By Kwasi Fosu A.; Getachew Y.Y.; Ziesemer T.H.W.
  6. The Resource Curse: A Statistical Mirage? By Alexander James
  7. Consequences of a universal European demographic transition on regional and global population distributions By Vegard Skirbekk; Marcin Stonawski; Guido Alfani
  8. Productivity in services in Latin America and the Caribbean By Arias Ortiz E.; Crespi G.A.; Rasteletti A.; Vargas F.
  9. Does Development Reduce Migration? By Clemens, Michael A.
  10. A Quality of Growth Index for Developing Countries: A Proposal By Montfort Mlachila; Rene Tapsoba; Sampawende J.-A. Tapsoba
  11. Public Investment as an Engine of Growth By Andrew M. Warner
  12. Effects of taxation by economic functions on economic growth in the European Union By Szarowska, Irena
  13. Pension and the Family By Komura, Mizuki; Ogawa, Hikaru
  14. Labor Shares and Income Inequality By Loukas Karabarbounis; Brent Neiman; Jonathan Adams
  15. Green Growth in Mexico, Brazil and Chile: Policy strategies and future prospects By Nicole Grunewald; Inmaculada Martínez-Zarzoso

  1. By: Charles I. Jones; Jihee Kim
    Abstract: Top income inequality rose sharply in the United States over the last 35 years but increased only slightly in economies like France and Japan. Why? This paper explores a model in which heterogeneous entrepreneurs, broadly interpreted, exert effort to generate exponential growth in their incomes. On its own, this force leads to rising inequality. Creative destruction by outside innovators restrains this expansion and induces top incomes to obey a Pareto distribution. The development of the world wide web, a reduction in top tax rates, and a decline in misallocation are examples of changes that raise the growth rate of entrepreneurial incomes and therefore increase Pareto inequality. In contrast, policies that stimulate creative destruction reduce top inequality. Examples include research subsidies or a decline in the extent to which incumbent firms can block new innovation. Differences in these considerations across countries and over time, perhaps associated with globalization, may explain the varied patterns of top income inequality that we see in the data.
    JEL: E2 J3 O4
    Date: 2014–10
  2. By: David Autor
    Abstract: In 1966, the philosopher Michael Polanyi observed, "We can know more than we can tell... The skill of a driver cannot be replaced by a thorough schooling in the theory of the motorcar; the knowledge I have of my own body differs altogether from the knowledge of its physiology." Polanyi's observation largely predates the computer era, but the paradox he identified--that our tacit knowledge of how the world works often exceeds our explicit understanding--foretells much of the history of computerization over the past five decades. This paper offers a conceptual and empirical overview of this evolution. I begin by sketching the historical thinking about machine displacement of human labor, and then consider the contemporary incarnation of this displacement--labor market polarization, meaning the simultaneous growth of high-education, high-wage and low-education, low-wages jobs--a manifestation of Polanyi's paradox. I discuss both the explanatory power of the polarization phenomenon and some key puzzles that confront it. I then reflect on how recent advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities. The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense. Contemporary computer science seeks to overcome Polanyi's paradox by building machines that learn from human examples, thus inferring the rules that we tacitly apply but do not explicitly understand.
    JEL: J23 J24 J31 O3
    Date: 2014–09
  3. By: Lopez-Claros, Augusto; Perotti, Valeria
    Abstract: Economists have either avoided or struggled with the concept of culture and its role in economic development. Although a few theoretical works -- and even fewer empirical studies -- have appeared in the past decades, this paper tries to build on a multidisciplinary approach to review the evidence on whether and how culture matters for development. First, the paper reviews available definitions of culture and illustrates ways in which culture can change and create favorable conditions for economic development. Second, the paper discusses the challenges of separating the effect of culture from other drivers of human behavior such as incentives, the availability of information, or climate. Finally, the paper argues that globalization has led to the emergence of a set of progressive values that are common cultural traits of all developed economies.
    Keywords: Cultural Policy,Cultural Heritage&Preservation,Environmental Economics&Policies,Anthropology,Economic Theory&Research
    Date: 2014–11–01
  4. By: David de la CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Abstract: The first challenge for economic growth theory is to understand the transition from stagnation to growth at the time of the Industrial Revolution and in particular to identify the main factor(s) that triggered the take-off. Doing so also helps to understand why there are poor and rich countries today, and whether the poorest ones will ultimately catch-up. This chapter reviews the main theories of growth, including the Malthus model (useful to understand stagnation), the neo-classical model where technical progress is the engine of growth, the endogenous growth model where growth is self-sustained and policy is of particular importance for the long-run, and unified growth theory, providing the big picture and linking the growth take-off to the demographic transition.
    Keywords: Stagnation, Capital, Fertility, Mortality, Education, Human Capital, Convergence, Poverty trap, Technical Progress, Decline, Inequality
    JEL: O40
    Date: 2014–10–31
  5. By: Kwasi Fosu A.; Getachew Y.Y.; Ziesemer T.H.W. (UNU-MERIT)
    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 81 percent and 96 percent of GDP. Compared with the observed end-of-panel mean value of no more than 726 percent, these estimates suggest that there has been significant public under-investment in Africa.
    Keywords: Public Goods; Macroeconomic Analyses of Economic Development; One, Two, and Multisector Growth Models; Economywide Country Studies: Africa;
    JEL: O11 O41 O55 H41
    Date: 2014
  6. By: Alexander James (Department of Economics and Public Policy, University of Alaska Anchorage)
    Abstract: A surprising feature of resource-rich economies is slow growth. It is often argued that natural-resource production impedes development by creating market or institutional failures. This paper establishes an alternative explanation - a slow-growing resource sector. A declining resource sector is disproportionally reflected in resource-dependent countries but appears to have little affect on the rest of the economy. More generally, this paper illustrates the importance of considering industry composition in cross-country growth regressions.
    Keywords: Resource Dependence, Economic Growth, Resource Curse
    JEL: Q2 Q3 O1
    Date: 2014–09
  7. By: Vegard Skirbekk; Marcin Stonawski; Guido Alfani
    Abstract: During the demographic transition that in Europe tended to take place from the early 19th to the end of the 20th century, the population in European countries and its overseas offshoots increased by a factor of five or less, which is low compared to the increase now taking place in most other regions of the world. This study provides simulations showing what global and regional population sizes would be if the rest of the world experienced similar population growth patterns as were observed in Europe. European culture distinguished itself through choices that led to the European marriage pattern, characterized by late marriage, significant shares not marrying, low levels of extramarital childbearing, and comparatively low fertility. One important consequence was the relatively low population growth characterizing the cultures, religions, and ethno-linguistic groups where the European marriage pattern was dominant.
    Keywords: Demographic transition; demographic simulations; European marriage pattern; Europe; fertility; transition multiplier; nineteenth century; twentieth century; historical demography
    Date: 2014–11
  8. By: Arias Ortiz E.; Crespi G.A.; Rasteletti A.; Vargas F. (UNU-MERIT)
    Abstract: This paper studies productivity in Latin America and the Caribbean, with an emphasis on the service sector. It shows that the low levels of productivity observed in the region are not only a consequence of low productivity at the firm level, but also of misallocation of workers across firms. These problems are more severe in services than in manufacturing. We also found that the determinants of productivity and employment growth at the firm level are different in manufacturing and services. Furthermore, results suggest that institutional factors might be important for determining productivity growth and resource allocation, as there are large differences across countries in the region in the effect of productivity on employment growth as well as on the speed at which less productive firms can close their productivity gaps.
    Keywords: Economic Growth and Aggregate Productivity: General; Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence; Economywide Country Studies: Latin America; Caribbean;
    JEL: O40 O47 O54
    Date: 2014
  9. By: Clemens, Michael A. (Center for Global Development)
    Abstract: The most basic economic theory suggests that rising incomes in developing countries will deter emigration from those countries, an idea that captivates policymakers in international aid and trade diplomacy. A lengthy literature and recent data suggest something quite different: that over the course of a "mobility transition", emigration generally rises with economic development until countries reach upper-middle income, and only thereafter falls. This note quantifies the shape of the mobility transition in every decade since 1960. It then briefly surveys 45 years of research, which has yielded six classes of theory to explain the mobility transition and numerous tests of its existence and characteristics in both macro- and micro-level data. The note concludes by suggesting five questions that require further study.
    Keywords: emigration, migration, mobility, development, growth, transition, hump, lifecycle, inequality, poverty, aid, demand, pressure
    JEL: F22 J61 O15
    Date: 2014–10
  10. By: Montfort Mlachila; Rene Tapsoba; Sampawende J.-A. Tapsoba
    Abstract: This paper proposes a new quality of growth index (QGI) for developing countries. The index encompasses both the intrinsic nature and social dimensions of growth, and is computed for over 90 countries for the period 1990-2011. The approach is premised on the fact that not all growth is created equal in terms of social outcomes, and that it does matter how one reaches from one level of income to another for various theoretical and empirical reasons. The paper finds that the quality of growth has been improving in the vast majority of developing countries over the past two decades, although the rate of convergence is relatively slow. At the same time, there are considerable cross-country variations across income levels and regions. Finally, emprirical investigations point to the fact that main factors of the quality of growth are political stability, public pro-poor spending, macroeconomic stability, financial development, institutional quality and external factors such as FDI.
    Keywords: Inclusive growth;Developing countries;Social indicators;Quality of growth, social indicators.
    Date: 2014–09–16
  11. By: Andrew M. Warner
    Abstract: This paper looks at the empirical record whether big infrastructure and public capital drives have succeeded in accelerating economic growth in low-income countries. It looks at big long-lasting drives in public capital spending, as these were arguably clear and exogenous policy decisions. On average the evidence shows only a weak positive association between investment spending and growth and only in the same year, as lagged impacts are not significant. Furthermore, there is little evidence of long term positive impacts. Some individual countries may be exceptions to this general result, as for example Ethiopia in recent years, as high public investment has coincided with high GDP growth, but it is probably too early to draw definitive conclusions. The fact that the positive association is largely instantaneous argues for the importance of either reverse causality, as capital spending tends to be cut in slumps and increased in booms, or Keynesian demand effects, as spending boosts output in the short run. It argues against the importance of long term productivity effects, as these are triggered by the completed investments (which take several years) and not by the mere spending on the investments. In fact a slump in growth rather than a boom has followed many public capital drives of the past. Case studies indicate that public investment drives tend eventually to be financed by borrowing and have been plagued by poor analytics at the time investment projects were chosen, incentive problems and interest-group-infested investment choices. These observations suggest that the current public investment drives will be more likely to succeed if governments do not behave as in the past, and instead take analytical issues seriously and safeguard their decision process against interests that distort public investment decisions.
    Keywords: Public investment;External borrowing;Mexico;Bolivia;Korea, Republic of;Taiwan Province of China;Philippines;Capital expenditure;Infrastructure;Economic growth;Cross country analysis;Public Investment; Infrastructure; Economic Growth; Public Capital; Big Push
    Date: 2014–08–11
  12. By: Szarowska, Irena
    Abstract: The complexity of today’s global economic environment increases importance of identifying and understanding the key factors affecting economic growth. This paper deals with effect of changes in tax burden on economic growth and provides direct empirical evidence in the European Union as financial and economic crisis has impacted also on tax systems. It is used the Eurostat´s definition to categorize tax burden by economic functions and implicit tax rates of consumption, labour and capital are investigated. The analysis is based on annual panel data of 24 EU member states in a period 1995-2010. Panel regression and Pairwise Granger Causality Tests are used as the main method of research. Results confirm, in line with the theory, statistically significant positive effect of consumption taxes and negative effect of labour taxes on GDP growth. In short-term, there is two-way causality between change of implicit tax rate of consumption and GDP growth and one-way causality between GDP growth and change of implicit tax rate of capital and implicit tax rate of labour.
    Keywords: tax burden, implicit tax rates, economic functions, economic growth, competitiveness
    JEL: E62 H21 H30
    Date: 2013
  13. By: Komura, Mizuki (Nagoya University); Ogawa, Hikaru (Nagoya University)
    Abstract: The effects of pension policies on fertility have been examined in the overlapping generations (OLG) model of unitary household in which no heterogeneity exists between the wife and the husband. This paper departs from the OLG model and focuses on the marital bargaining arising from the heterogeneity in a couple in a non-unitary model. Specifically, this paper examines how the pension policy affects the endogenous fertility of a bargaining couple who have different lifespans. The analysis finds out a new channel of pension policy on fertility decisions: an increase in pension size affects fertility not only via the changes in current and future income, but through a change in marital bargaining power. This channel leads a plausible argument that an increase in a pay-as-you-go (PAYG) pension further accelerates a decline in fertility through the empowerment of women.
    Keywords: pension, fertility, longevity, marital bargaining
    JEL: H55 J12 J13
    Date: 2014–09
  14. By: Loukas Karabarbounis (University of Chicago); Brent Neiman (University of Chicago); Jonathan Adams (University of Chicago)
    Abstract: The share of aggregate income paid as compensation to labor is frequently used as a proxy for income inequality. If capital holdings are very concentrated among high income individuals, increasing their share of GDP, all else equal, widens the gap with poorer workers. Indeed, two striking features over the last three decades of many advanced and developing economies are the declining labor shares in income and the rise in income inequality. The relationship between factor shares and inequality, however, is not so simple in a richer world with realistic features such as endogenous portfolio decisions and capital-skill complementarity. In such a world, total inequality will change with (i) the labor share, (ii) the amount of within-labor and within-capital income inequality, and (iii) the degree to which the highest wage earners are also those earning the highest capital incomes. Macroeconomic trends and shocks that impact any one of these three moments are likely to impact simultaneously all of them. We develop a framework where all these terms are jointly determined and estimate the model to clarify the roles of changing technology, policies, and factor proportions on labor shares and total income inequality around the globe.
    Date: 2014
  15. By: Nicole Grunewald; Inmaculada Martínez-Zarzoso (Georg-August-Universität Göttingen / Germany)
    Abstract: This research focuses on identifying the main policy strategies that could potentially contribute to the advance of three Latin American economies, namely Brazil, Chile and Mexico towards a green growth model that is social and inclusive, given the actual patterns of development of those economies. With this aim, we first identify and describe past and current policies in each country in terms of economic, social and environmental indicators. A detailed analysis follows for Brazil, Chile and Mexico, in which we propose a series of green growth indicators and choose a definition and classification of green growth sectors. We estimate an empirical model to explain the determinants of green house gas emissions and deforestation in Latin American countries. We broadly identify the sectors that contribute to its increase and describe the main green policies applied in each country. In turn we identify the sectors with higher potential for the future. Finally, we present policy recommendations and reflections for the future.
    Date: 2014–11–04

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