nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒02‒05
fifteen papers chosen by
Marc Klemp
Brown University

  1. Anonymity, Efficiency Wages and Technological Progress By Broadberry, Stephen; Ghosal, Sayantan; Proto, Eugenio
  2. Institutions Do Not Rule: Reassessing the Driving Forces of Economic Development By Wen, Yi; Luo, Jinfeng
  3. Weather and Income: Lessons from the main European regions By García-León, David
  4. Volatility and Political Institutions: Theory and Application to Economic Growth By Besley, Timothy J.; Mueller, Hannes Felix
  5. The importance of cognitive skills in macroeconomic models of growth and development By Eddie Gerba; Emmanuel V. Pikoulakis
  6. National identity and ethnic diversity By Paolo Masella
  7. On the Interaction Between Economic Growth and Business Cycles By Ivan Mendieta-Muñoz
  8. Equilibrium Technology Diffusion, Trade, and Growth By Jesse Perla; Christopher Tonetti; Michael E. Waugh
  9. Finite-length Patents and Functional Differential Equations in a Non-scale R&D-based Growth Model By Lin, Hwan C.; Shampine, L.F.
  10. Inequality, Debt Servicing, and the Sustainability of Steady State Growth By Mark Setterfield; Yun K. Kim; Jeremy Rees
  11. Explaining cross-country differences in productivity: is it efficiency or factor endowments? By Eddie Gerba; Emmanuel V. Pikoulakis
  12. Rising Income Inequality, Increased Household Indebtedness, and Post Keynesian Macrodynamics By Mark Setterfield
  13. Dynamic selection: an idea flows theory of entry, trade and growth By Thomas Sampson
  14. 'Financial Development and Economic Growth: The Role of Financial Liberalization' By Zeeshan Atiq; M. Emranul Haque
  15. Taxation and Economic Growth : An Empirical Analysis on Dynamic Panel Data of WAEMU Countries By NANTOB, N'Yilimon

  1. By: Broadberry, Stephen (London School of Economics); Ghosal, Sayantan (University of Glasgow); Proto, Eugenio (University of Warwick)
    Abstract: Although the Industrial Revolution is often characterized as the culmination of a process of commercialisation, the precise nature of such a link remains unclear. This paper models and analyzes such link: the role of commercialisation in raising efficiency wages as impersonal and anonymous labour market transactions replace personalized customary relations. In the presence of an aggregate capital externality, we show that the resulting shift in relative factor prices leads to higher capital-intensity in the production technology, resulting in a faster rate of technological progress. We provide historical evidence using European data to show that England was among the most urbanized and the highest wage countries at the onset of the Industrial Revolution. We finally calibrate the model to quantify the impact of a higher degree of anonymity on industrial production growth in England between 1300 and 1800.
    Keywords: efficiency wages, anonymity, industrial revolution, commercialisation, learning by doing
    JEL: N13 O14 O43
    Date: 2015–01
  2. By: Wen, Yi (Federal Reserve Bank of St. Louis); Luo, Jinfeng (Tsinghua University)
    Abstract: We use cross-country data and instrumental variables widely used in the literature to show that (i) institutions (such as property rights and the rule of law) do not explain industrialization and (ii) agrarian countries and industrial countries have entirely different determinants for income levels. In particular, geography, rather than institutions, explains the income differences among agrarian countries, while institutions appear to matter only for income variations in industrial economies. Moreover, we find it is the stage of economic development (or the absence/presence of industrialization) that explains a country’s quality of institutions rather than vice versa. The finding that institutions do not explain industrialization but are instead explained by industrialization lends support to the well-received view among prominent economic historians—that institutional changes in 17th and 18th century England did not cause the Industrial Revolution.
    Keywords: geography; institutions; development; income gaps; industrialization
    JEL: O11 P16 P51
    Date: 2015–01–16
  3. By: García-León, David
    Abstract: Some recent papers by Dell et al. (2009) and Dell et al. (2012) (DJO) relating weather and economic outcomes, have delivered meaningful messages with clear implications to the effects of a changing climate. In a nutshell, the authors claim that a 1°C increase in global average temperatures would harm both the level and growth capacities of relatively poor countries, leaving rich countries basically unaffected. In this study, we make use of a detailed weather and economic dataset covering the main regions of the five largest economies in the Euro area in an attempt to refute the previous affirmation. In particular, we find in our sample that global warming affects, although in a modest manner, all regions within well-developed countries in the long-term (level effect). As in DJO, the level effect in poor regions is exacerbated. The latter regions also suffer from a slight negative short-term effect (growth effect). We claim also that the larger short-time response of these regions to a climate shock is partially adapted in the long-run.
    Keywords: economic growth, weather, Ricardian analysis, developed economies, climate change, adaptation, NUTS
    JEL: O1 O4 Q51 Q54 Q59 R11
    Date: 2015–01
  4. By: Besley, Timothy J.; Mueller, Hannes Felix
    Abstract: This paper develops a model where an institutional constraint limits incumbent discretion to prevent adverse policy outcomes. We show that, in this framework, executive constraints have an impact on the mean and variance of policy. This allows us to interpret the empirical observation that growth volatility is lower in countries with strong executive constraints. We ?t the model to growth data and use our estimates to describe the heterogeneity in performance of weak and strong executive constraints across countries. This is used to illustrate the heterogeneous output response to the adoption of strong executive constraints. We then use the fitted values to consider the benefits of strong executive constraints in income terms.
    Keywords: executive constraints; growth; robust control
    JEL: O43 P16
    Date: 2015–01
  5. By: Eddie Gerba; Emmanuel V. Pikoulakis
    Abstract: In a highly influential and thought provoking study, Hanushek, E.A., and Woessmann, L., (NBER Working Paper No.14633, 2009) provide evidence in favor of a strong causal effect of cognitive skills on growth. To quote: “… the simple premise that improving the schools can produce benefits in national growth rates is strongly supported”. Whilst we concur with this premise, we are rather sceptical whether the Mincerian approach followed by Hanushek and Woessmann (op.cit.) can sufficiently account for the contribution of cognitive skills on national growth rates. To further explore the importance of cognitive skills on growth and development we revisit macroeconomic models where cognitive skills are the key determinant of the path of human capital and its rate of accumulation. Our empirical results strongly support the workings of a “learning-by-doing” hypothesis where cognitive skills together with physical capital determine the paths of human capital, of output per worker, and growth.
    JEL: O15 O41 O47
    Date: 2014–06–04
  6. By: Paolo Masella
    Abstract: In countries with high levels of ethnic diversity, “nation building” has been proposed as a mechanism for integration and conflict reduction. We find no evidence of lower intensity of national sentiment in more ethnically fragmented countries or in minority groups. National feelings in a minority can be higher or lower than in a majority, depending on the degree of ethnic diversity of a country. On the one hand, in countries with high ethnic diversity, nationalist feelings are less strong in minority groups than in the majorities; on the other hand, in countries with low ethnic diversity, the reverse is true.
    Keywords: identity; ethnic diversity; nation building
    JEL: A14 J15 Z10
    Date: 2013–04
  7. By: Ivan Mendieta-Muñoz
    Abstract: The present paper studies the interaction between short-run fluctuations and economic growth by presenting empirical evidence of the impact of business cycle fluctuations on the rate of growth consistent with a constant unemployment rate in 13 Latin American and 18 OECD countries during the period 1981-2011. The results of both parametric (OLS and a panel estimator that allows for parameter heterogeneity and cross section dependence) and non-parametric (a penalized regression spline estimator) econometric techniques show that this measure of potential output experiences positive (negative) changes in periods of high (low) growth in the majority of countries, and, hence, that business cycles fluctuations have statistically significant effects on potential output. However, in contrast to the sample of OECD countries, less than half of the sample of Latin American countries experience statistically significant changes of this measure of potential output in periods of low growth.
    Keywords: growth and cycles; potential rate of growth; rate of growth consistent with a constant unemployment rate
    JEL: E32 O40 O51 O54
    Date: 2014–12
  8. By: Jesse Perla; Christopher Tonetti; Michael E. Waugh
    Abstract: This paper develops a dynamic model of trade and growth that we use to study how openness affects economic growth. In our model, heterogeneous firms choose to either produce with their existing technology or search within the domestic economy to adopt a better technology. These choices determine the productivity distribution from which firms can acquire new technologies and, hence, the equilibrium rate of technological diffusion. Opening to trade changes the relative profitability between high and low productivity firms through expanded export opportunities and foreign competition. These reallocation effects change the timing of when firms adopt new technologies and, thus, the rate of technological diffusion. This results in growth effects from openness via within-firm productivity improvements.
    JEL: A1 E1 F00 F43 O4
    Date: 2015–01
  9. By: Lin, Hwan C.; Shampine, L.F.
    Abstract: The statutory patent length is 20 years in most countries. R&D-based endogenous growth models, however, often presume an infinite patent length. In this paper, finite-length patents are embedded in a non-scale R&D-based growth model, but any patent’s effective life may be terminated prematurely at any moment, subject to two idiosyncratic hazards of imitation and innovation. This gives rise to an autonomous system of mixed-type functional differential equations (FDEs). Its dynamics are driven by current, delayed and advanced states. We present an algorithm to solve the FDEs by solving a sequence of standard BVPs (boundary value problems) for systems of ODEs (ordinary differential equations). We use this algorithm to simulate a calibrated U.S. economy’s transitional dynamics by making discrete changes from the baseline 20 years patent length. We find that if transitional impacts are taken into account, optimizing the patent length incurs a welfare loss, albeit rather small. This suggests that fine-tuning the world’s patent systems may not be a worthwhile effort.
    Keywords: Patent Length, Innovation, Delay Differential Equation, Advance Differential Equation, Transitional Dynamics, Endogenous Growth
    JEL: C63 O31 O34
    Date: 2014–10
  10. By: Mark Setterfield (Department of Economics, New School for Social Research); Yun K. Kim (Department of Economics, University of Massachusetts, Boston); Jeremy Rees (Department of Economics, Trinity College)
    Abstract: We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A standard Kaleckian growth model is modified to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy’s macrodynamics.
    Keywords: Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth
    JEL: E12 E44 O41
    Date: 2014–12
  11. By: Eddie Gerba; Emmanuel V. Pikoulakis
    Abstract: In this paper we develop a two-sector growth model of optimizing agents and apply this model to the data for the purpose of addressing the two interrelated questions that preoccupy the literature on development and growth accounting, namely: (1) What determines sustained growth and (2) What explains the vast cross-country differences in labor productivity. Concerning the first questions our findings support the view that to some extend the growth in effective human capital is a by-product of learning-by-doing. On the second question we find that differences in factors of production explain twice as much of the difference in labor productivity between developed and developing countries than differences in efficiency.
    Keywords: two-sector growth model; effective human capital; education quality
    JEL: J24 O41 O47
    Date: 2013–10
  12. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: A Kaleckian growth model is modified to incorporate working households who borrow to finance some part of their consumption spending. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of increased income inequality in the US. The results show that the precise manner in which debtor households service their debts has important effects on the economy’s macrodynamics.
    Keywords: Consumer debt, emulation, income distribution, Golden Age growth regime, Neoliberal growth regime
    JEL: E12 E44 O41
    Date: 2014–12
  13. By: Thomas Sampson
    Abstract: This paper develops an idea flows theory of trade and growth with heterogeneous firms. New firms learn from incumbent firms, but the diffusion technology ensures entrants learn not only from frontier technologies, but from the entire technology distribution. By shifting the productivity distribution upwards, selection on productivity causes technology diffusion and this complementarity generates endogenous growth without scale effects. On the balanced growth path, the productivity distribution is a traveling wave with an increasing lower bound. Growth of the lower bound causes dynamic selection. Free entry mandates that trade liberalization increases the rates of technology diffusion and dynamic selection to offset the profits from new export opportunities. Consequently, trade integration raises long-run growth. The dynamic selection effect is a new source of gains from trade not found when firms are homogeneous. Calibrating the model implies that dynamic selection approximately triples the gains from trade relative to heterogeneous firm economies with static steady states.
    Keywords: International trade; firm heterogeneity; technology diffusion; endogenous growth
    JEL: F12 O41
    Date: 2014–08
  14. By: Zeeshan Atiq; M. Emranul Haque
    Abstract: This paper argues that excessive liberalisation causes financial development to lose its effectiveness in generating economic growth. We investigate the hypothesis through a dynamic panel analysis for 88 countries for the period of 1973 - 2005 using a comprehensive financial development indicator constructed through principal component analysis of five different indicators used in the literature. For financial liberalisation, we use an aggregate index and its seven disaggregated components. The results indicate that the positive effect of financial development on long-run growth continues to decline as the financial sector becomes more liberalised. Our results are robust to changes in the financial development indicators and the disaggregation of the financial liberalisation index.
    Date: 2015
  15. By: NANTOB, N'Yilimon
    Abstract: This paper studies the impact of taxation on economic growth of the eight WAEMU countries. Among the critiques addressed to the public sector, numerous are those that refer principally to the negative effects which entail high weight and increasing of taxation. The growth rate can be influenced by economic policy choice relative to taxation which has an effect on the decisions of economic agents and is due to the productive public expenditures. The reason is that high level of taxation can be distortionary and like this negatively influences economic growth while law weight of taxation can generate some returns which will be enclosed in production. In order to catch this phenomenon in the WAEMU countries, we have contrary to the more previous studies accounted a non-linear effect of taxation on economic growth. Mobilizing a dynamic panel data specification over the period 1989–2012, the econometric results suggest the absence of a non-linear relationship between taxation and economic growth of WAEMU. Specifically, weak and high rates respectively at short run and long run do not create distortions and hence affect positively economic growth of WAEMU and generate income. This effect on economic growth then increase over time as the fiscal revenue increase.
    Keywords: Economic growth, fiscal system, public policy, panel, WAEMU
    JEL: C33 H20 H21 H27 O40
    Date: 2014–04–22

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