nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒01‒03
twenty papers chosen by
Marc Klemp
Brown University

  1. The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality By Hemous, David; Olsen, Morten
  2. Country of Origin and Immigrant Earnings, 1960-2000: A Human Capital Investment Perspective By Duleep, Harriet; Liu, Xingfei; Regets, Mark
  3. Beauty, Polygyny, and Fertility: Theory and Evidence. By Paul Cahu; Falilou Fall; Roland Pongou
  4. Malthus living in a slum: Urban concentration, infrastructures and economic growth By David Castells-Quintana; Vicente Royuela
  5. How Democracy could foster Economic Growth: The Last 200 Years By Carol S. Leonard; Daniel Shestakov; Konstantin Yanovskiy
  6. Gary Becker on the Quantity and Quality of Children By Doepke, Matthias
  7. Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions By Amit Batabyal; Peter Nijkamp
  8. Stochastic Stability of Endogenous Growth: The AK Case By Raouf Boucekkine; Benteng Zou
  9. From Riches to Rags, and Back? Institutional Change, Financial Development and Economic Growth in Argentina since the 1890s By Campos, Nauro F; Karanasos, Menelaos G.; Tan, Bin
  10. On the Causal Relationship between Public Debt and GDP Growth Rates in Panel Data Models By Josip Tica; Vladimir Arčabić; Junsoo Lee; Robert J. Sonora
  11. Innovation and Regional Growth in Mexico: 2000-2010 By Rodriguez-Pose, Andres; Villarreal Peralta, Edna Maria
  12. Human capital development, knowledge spillovers and local growth: Is there a quality effect of university efficiency? By Zotti, Roberto; Barra, Cristian
  13. Measuring the Effects of Decollectivization on China's Agricultural Growth: A Panel GMM Approach, 1970-1987 By Shengmin Sun; Qiang Chen
  14. Assessing the inclusiveness of growth in Africa: Evidence from Cameroon, Senegal, and Tanzania By Houngbonon, Georges Vivien; Bauer, Arthur; Ndiaye, Abdoulaye; Champagne, Clara; Yokossi, Tite
  15. Regional productivity growth in Europe: a Schumpeterian perspective By Roberto Basile
  16. Economic Growth, Financial and Trade Globalization in the Philippines: A Vector Autoregressive Analysis By Deluna, Roperto Jr; Chelly, Antiquisa
  17. Immigration and Economic Growth in the OECD Countries, 1986-2006 By Boubtane, Ekrame; Dumont, Jean-Christophe; Rault, Christophe
  18. Growth and Mitigation Policies with Uncertain Climate Damage By Lucas Bretschger; Alexandra Vinogradova
  19. Aid, political business cycles and growth in Africa By Chiripanhura, Blessing M.; Nino-Zarazua, Miguel
  20. Does Inflation Slow Long-Run Growth in India? By Kamiar Mohaddes; Mehdi Raissi

  1. By: Hemous, David; Olsen, Morten
    Abstract: We construct an endogenous growth model of directed technical change with automation (the introduction of machines which replace low-skill labor and complement high-skill labor) and horizontal innovation (the introduction of new products, which increases demand for both types of labor). Such an economy endogenously follows three phases. First, low-skill wages are low, which induces little automation, such that income inequality and labor's share of GDP are constant. Second, as low-skill wages increase, investment in automation is stimulated, which depresses the future growth rate of low-skill wages (potentially to negative), and reduces the total labor share. Finally, the share of automated products stabilizes and the economy moves toward an asymptotic steady state, where low-skill wages grow but at a lower rate than high-skill wages. This model therefore delivers persistently increasing wage inequality and stagnating real wages for low skill workers for an extended period of time, features of modern labor markets which have been difficult to reconcile with the theoretical literature on economic growth. We further include middle-skill workers, which allows the model to generate a phase of wage polarization after one where labor income inequality increases uniformly. Finally, we show that an endogenous labor supply response in this framework can quantitatively account for the evolution of the skill premium, the skill ratio and the labor share in the US since the 1960s.
    Keywords: automation; capital-skill complementarity; directed technical change; factor share; horizontal innovation; Income inequality; wage polarization
    JEL: E23 E25 O31 O33 O41
    Date: 2014–11
  2. By: Duleep, Harriet (College of William and Mary); Liu, Xingfei (IZA); Regets, Mark (National Science Foundation)
    Abstract: Using microdata from the 1960-2000 decennial censuses, this paper explores how large initial differences in immigrant earnings by country of origin change with duration in the United States. One analysis reveals that country of origin adds less to the explanation of earnings, among working-age adult male immigrants, the longer they reside in the United States. Another discovers that the earnings dispersion of demographically comparable immigrants across countries of origin diminishes with time in the United States. Both indicate convergence in immigrant earnings by country of origin. To probe the sensitivity of these results to immigrant emigration, we pursue a theoretical analysis, which gauges how hypothetical patterns of selective emigration affect the convergence results, and an empirical analysis, which could be more broadly applied as a test for emigration bias. Both suggest that immigrant earnings convergence by country of origin is not an artifact of emigration. The convergence has methodological ramifications for the measurement of immigrant economic assimilation – in studies that follow cohorts and in studies that follow individuals with longitudinal data – and more generally for the study of any process in which unmeasured variables jointly affect initial conditions and subsequent growth.
    Keywords: immigrant economic assimilation, human capital investment, country of origin, immigrant earnings convergence
    JEL: J1 J2 J3
    Date: 2014–11
  3. By: Paul Cahu (European Investment Bank); Falilou Fall (Centre d'Economie de la Sorbonne); Roland Pongou (Department of Economics - University of Ottawa)
    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; (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: A13 C78 J12 J13 Z10
    Date: 2014–09
  4. By: David Castells-Quintana; Vicente Royuela
    Abstract: Today more than half of the 7 billion inhabitants of the planet live in urban areas, with this share expected to keep rising. Whereas in developed countries urbanisation has been a long and slow process, in developing countries this process is now characterised by a really fast pace and a high degree of urban concentration, with urban population tending to concentrate in one or few large metropolitan areas of disproportionate size. While urbanisation has been long recognised as a fundamental element of the process of economic development, sustainable urbanisation has become one of the main and more pressing challenges for developing countries, where millions live lacking adequate access to basic services like electricity, clean water and sanitation. Building on previous evidence on urban concentration and economic growth, in this paper we analyse differentiated effects of urban concentration on national economic performance. In order to do so, we rely on panel data from 1960 to 2010 and perform several estimation techniques including System GMM and IV estimations (using rainfall data in the instrumentalisation strategy). We contribute to the literature by providing empirical evidence on how different characteristics of the urban environment - in particular the quality of urban infrastructure - strongly determine the growth-enhancing benefits of urban concentration (something that previous studies on urban concentration and economic growth have not considered empirically). We analyse several measures of urban infrastructure and look at different world regions, taking a special focus on Sub-Saharan African countries, where find that urban concentration has been in most cases associated with lower growth due to significant deficiencies in terms of urban infrastructure.
    Keywords: Agglomeration; urbanisation; urban concentration; infrastructure; congestion diseconomies; growth; Sub-Sahara Africa
    JEL: O1 O4 R1
    Date: 2014–11
  5. By: Carol S. Leonard; Daniel Shestakov (RANEPA); Konstantin Yanovskiy (Gaidar Institute for Economic Policy)
    Abstract: In this paper we explore current understandings of the influence of political rights, among historical legacies, on economic development. We construct variables for selected political regimes for 1811-2010. We find significant association between individual rights and economic growth. We argue that current understanding of political regimes supportive of growth (Acemoglu, etc), should parse the concept of property rights to include the protection of the individual in their focus on private property rights protection, alone, respected in various forms of government, are insufficient; what matters is the security of individuals from arbitrary arrest, regardless of “type of regime”. Discretionary rights of rulers or democratic governments to arrest citizens undermines the protection of private property rights and other attributes classically given to democratic foundations of economic growth, for example, free press, freedom of the exercise of religious belief. We suggest, as a research agenda, that the power of the politically competitive system therefore comes from weakening discretionary authority over law enforcement
    Keywords: Rule of Law, Rule of Force, Personal Rights, Private Property Protection, Economic Growth
    JEL: P16 P50 N40 O40
    Date: 2014
  6. By: Doepke, Matthias (Northwestern University)
    Abstract: This paper reviews Gary Becker's contributions to the economic analysis of fertility, from his 1960 paper introducing the quantity-quality tradeoff to later work linking the economics of fertility to the theory of economic growth.
    Keywords: Gary Becker, fertility, quantity-quality model, demographic transition
    JEL: J13 O10 O40
    Date: 2014–11
  7. By: Amit Batabyal; Peter Nijkamp
    Abstract: We use a dynamic model to study the effects of technology and learning on the long run economic growth rates of a leading and a lagging region. New technologies are developed in the leading region but technological improvements in the lagging region are the result of learning from the leading region's technologies. Our analysis sheds light on four salient questions. First, we determine the long run growth rate of output per human capital unit in the leading region. Second, we define a lagging to leading region technology ratio, study its stability properties, and then use this ratio to ascertain the long run growth rate of output per human capital unit in the lagging region. Third, for specific parameter values, we analyze the ratio of output per human capital unit in the lagging region to output per human capital unit in the leading region when both regions have converged to their balanced growth paths. Finally, we discuss the policy implications of our analysis and then offer suggestions for extending the research described here.
    Keywords: Economic Growth; Lagging Region; Leading Region; Learning; Technology
    JEL: R11 R58 O33
    Date: 2014–11
  8. By: Raouf Boucekkine (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, senior member, Institut universitaire de France); Benteng Zou (CREA, University of Luxembourg)
    Abstract: This note studies the stochastic stability of the standard AK growth model under uncertain output technology. Capital accumulation follows a stochastic linear homogenous differential equation. It's shown that exponential balanced paths, which characterize optimal trajectories in the absence of uncertainty, are not robust to uncertainty. Precisely, it's demonstrated that the economy almost surely collapses at exponential speed even though productivity is initially arbitrarily high.
    Keywords: optimal growth, AK model, Ito stochastic differential equation, balanced growth paths, stochastic stability
    Date: 2014–12
  9. By: Campos, Nauro F (Brunel University); Karanasos, Menelaos G. (Brunel University); Tan, Bin (Southwest Jiaotong University)
    Abstract: Argentina is the only country in the world that was "developed" in 1900 and "developing" in 2000. The various competing explanations highlight, mainly, the roles of trade openness, political institutions, financial integration, financial development, and macroeconomic instability. Yet no study has, to the best of our knowledge, attempted a quantitative assessment of the relative importance of each of these competing explanations. This paper tries to fill this gap. It investigates their individual effects on economic growth and volatility using the power-ARCH framework with annual data since the 1890s. The results indicate that financial development and institutional change are the two main factors that help understand the extraordinary growth trajectory of Argentina over the last century.
    Keywords: economic growth, financial development, volatility, institutions, political instability, power-GARCH
    JEL: C14 O40 E23 D72
    Date: 2014–11
  10. By: Josip Tica (Faculty of Economics and Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb); Junsoo Lee (Department of Economics, Finance & Legal Studies, University of Alabama); Robert J. Sonora (Department of Economics, Fort Lewis College)
    Abstract: The influential and controversial paper by Reinhart and Rogoff (2010) triggered a debate on the effects of public debt on economic growth. Subsequent papers provide more convincing results. However, one of the key assumptions implied in these studies is that lower economic growth is spurred by high debt. If the reverse causality holds, the usual estimation of the model can yield biased estimators because of a feedback effect. We formally examine the causal relationship between public debt and economic growth in the panel VAR model using Granger causality test. Results show that the inter-temporal causal relationship is bi-directional. These findings provide a warning regarding the estimation results in many previous studies that might have ignored the role of the feedback effect.
    Keywords: Public debt; Feedback Effect, Reverse Causality, Panel VAR models
    JEL: O13 C22
    Date: 2014–12–18
  11. By: Rodriguez-Pose, Andres; Villarreal Peralta, Edna Maria
    Abstract: This paper looks at the factors driving regional growth in Mexico, paying special attention to the potentially growth-enhancing role of innovation and innovation policy. The analysis combines innovation variables with indicators linked to the formation of adequate social conditions for innovation (the social filter), and spillovers for 31 Mexican states and the Mexico City capital district (the Distrito Federal) during the period 2000-2010. The results indicate that regional economic growth across Mexican states stems from direct investment in R&D in areas with favorable social filters and which can benefit not only from knowledge spillovers, but also from being surrounded by rich neighbors with good social conditions. The results stress that, although Mexican innovation policy has been relatively well targeted in order to generate greater economic growth, its relatively modest size may have undermined the attainment of its main objectives.
    Keywords: economic growth; innovation; Mexico; regional convergence; socio-economic conditions
    JEL: O32 O33 R11 R12
    Date: 2014–09
  12. By: Zotti, Roberto; Barra, Cristian
    Abstract: In this paper, we test whether economic growth depends on human capital development using data disaggregated at territorial level and propose the use of efficiency estimates, measured using a non-parametric technique, as an alternative quality measure of higher education institutions (HEIs). The nature of knowledge spillovers is also taken into account to examine the existence of geographically localized spillovers, from the presence of efficient universities, on local growth. Results show that the efficiency of universities has a positive and significant effect on GDP per worker. Moreover, we find evidence that productivity gains are larger in areas in which the most efficient universities are located, suggesting that investment in tertiary education may affect geographical distribution of economic activity as well as its level.
    Keywords: Human capital; Higher education; Knowledge spillovers; Local economic development; Non-parametric technique.
    JEL: C14 C67 I21 I23
    Date: 2014–10
  13. By: Shengmin Sun (Center for Economic Research, Shandong University); Qiang Chen (School of Economics, Shandong University)
    Abstract: The mainstream view that decollectivization significantly contributed to China's agricultural growth has recently been challenged by revisionists, who emphasize the positive effects of the socialist legacy, such as irrigation and mechanization. This study contributes to this debate by explicitly recognizing the endogeneity of institutional changes and uses lagged weather shocks as valid instruments. With improved data on irrigation and mechanization in a provincial-level dataset covering the1970-1987 period, the results of panel GMM estimations reveal that the Household Responsibility System had a significantly positive effect on China's agricultural growth, which is larger than that indicated by OLS estimates..
    Keywords: Decollectivization, Household Responsibility System, Agricultural Growth, China
    JEL: O13 O43 Q15 N55
    Date: 2014–10
  14. By: Houngbonon, Georges Vivien; Bauer, Arthur; Ndiaye, Abdoulaye; Champagne, Clara; Yokossi, Tite
    Abstract: In this study, we assess the inclusiveness of growth by tracking the yearly percentage change in the household consumption of individuals over different growth spells in Cameroon, Senegal, and Tanzania. With cross-sectional data, we track the consumption
    Keywords: inclusive growth, Africa, poverty, inequality
    Date: 2014
  15. By: Roberto Basile (Facoltà di Economia (Faculty of Economics), Seconda Università degli Studi di Napoli (Naples Second University))
    Abstract: Using data for the European regions at NUTS-2 level, we test the predictions of a microfounded Schumpeterian growth model with technological interdependence recently developed by Ertur and Koch (2011, EK11). Spatial interdependence is identified by means ofa semiparametric geoadditive spatial autoregressive model which permits us to disentanglethe effect of nonlinearities, spatial heterogeneity and spatial dependence. A control function approach is applied to estimate this particular SAR-type model using the spatial lag of the quality of regional governance and of its components (corruption, rule of law, government effectiveness and accountability) as instrumental variables for the endogenous term Wy. The results corroborate the predictions of EK11’s model: R&D investments and R&D spillovers are important divers of regional growth in Europe. However, spillover effects are much lower after controlling for spatial unobserved heterogeneity. Moreover, important nonlinearities in the effect of physical capital investments emerge, putting into question the strong homogeneity assumption and suggesting a threshold effect in growth behavior.
    Keywords: Regional growth, spatial dependence, nonlinearities, semiparametric models
    JEL: R11 R12 C14
    Date: 2014–11
  16. By: Deluna, Roperto Jr; Chelly, Antiquisa
    Abstract: This study was conducted to examine the relationship among Economic Growth, Financial and trade Globalization in the Philippines from 1980 to 2011. The study used the Vector Autoregressive VAR (1) model and Granger Causality test. It was found out that the current value of GDP is positively affected by the previous value of itself and trade openness. The estimation results suggested that growth in trade volumes accelerate economic growth. However, financial openness has no significant effect on the current value of GDP. This implies that the level of openness of the Philippine economy is not sufficient to obtain the potential benefits of financial globalization in enhancing economic growth.
    Keywords: VAR, Globalization, Economic Growth, Development
    JEL: C32 O1 O11 O4
    Date: 2014–08
  17. By: Boubtane, Ekrame (University Paris 1); Dumont, Jean-Christophe (OECD); Rault, Christophe (University of Orléans)
    Abstract: This paper offers a reappraisal of the impact of migration on economic growth for 22 OECD countries between 1986-2006 and relies on a unique data set we compiled that allows us to distinguish net migration of the native-born and foreign-born by skill level. Specifically, after introducing migration in an augmented Solow-Swan model, we estimate a dynamic panel model using a system of generalized method of moments (SYS-GMM) to deal with the risk of an endogeneity bias of the migration variables. Two important findings emerge from our analysis. First, there exists a positive impact of migrants' human capital on economic growth. And second, the contribution of immigrants to human capital accumulation tends to dominate the mechanical dilution effect while the net effect is fairly small. This conclusion holds even in countries with highly selective migration policies.
    Keywords: immigration, growth, human capital, generalized methods of moments
    JEL: C23 F22 J24 J61 O41 O47
    Date: 2014–11
  18. By: Lucas Bretschger; Alexandra Vinogradova
    Abstract: Climate physics predicts that the intensity of natural disasters will increase in the future due to climate change. One of the biggest challenges for economic modeling is the inherent uncertainty of climate events, which crucially aects consumption, investment,and abatement decisions. We present a stochastic model of a growing economy where natural disasters are multiple and random, with damages driven by the economy's polluting activity. We provide a closed-form solution and show that the optimal path is characterized by a constant growth rate of consumption and the capital stock untila shock arrives, triggering a downward jump in both variables. Optimum mitigation policy consists of spending a constant fraction of output on emissions abatement. This fraction is an increasing function of the arrival rate, polluting intensity of output, and the damage intensity of emissions. A sharp response of the optimum growth rate and the abatement share to changes in the arrival rate and the damage intensity justies more stringent climate policies as compared to the expectation-based scenario. We subsequently extend the baseline model by adding climate-induced uctuations around the growth trend and stock-pollution eects, demonstrating robustness of our results. In a quantitative assessment of our model we show that the optimal abatement expenditure at the global level may represent 0.9% of output, which is equivalent to a tax of $71 per ton carbon.
    Keywords: Climate policy, uncertainty, natural disasters, endogenoous growth
    JEL: O10 Q52 Q54
    Date: 2014
  19. By: Chiripanhura, Blessing M.; Nino-Zarazua, Miguel
    Abstract: This paper develops a model of opportunistic behaviour in which an incumbent government resort to expansionary fiscal and/or monetary stimuli to foster economic growth and thus, maximize the probability of re-election. Using a panel dataset of 51 African
    Keywords: aid, growth, institutional quality, political business cycles, Africa
    Date: 2014
  20. By: Kamiar Mohaddes; Mehdi Raissi
    Abstract: This paper examines the long-run relationship between consumer price index industrial workers (CPI-IW) inflation and GDP growth in India. We collect data on a sample of 14 Indian states over the period 1989-?2013, and use the cross-sectionally augmented distributed lag (CS-DL) approach of Chudik et al. (2013) as well as the standard panel ARDL method for estimation? to account for cross-state heterogeneity and dependence, dynamics and feedback effects. Our findings suggest that, on average, there is a negative long-run relationship between inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent. This suggests the need for the Reserve Bank of India to balance the short-term growth-inflation trade-off, in light of the long-term negative effects on growth of persistently-high inflation.
    Keywords: India, inflation, growth, threshold effects, cross-sectional heterogeneity and dependence.
    JEL: C23 E31 O40
    Date: 2014–11–28

This nep-gro issue is ©2015 by Marc 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.