nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒02‒11
twenty-two papers chosen by
Marc Klemp
Brown University

  1. The Inequality-Growth Plateau By Henderson, Daniel J.; Qian, Junhui; Wang, Le
  2. International endogenous growth, macro anomalies, and asset prices By Grüning, Patrick
  3. A Colonial Legacy of African Gender Inequality? Evidence from Christian Kampala, 1895-2011 By Meier zu Selhausen, Felix; Weisdorf, Jacob
  4. THE WAGES OF WOMEN IN ENGLAND,1260-1850 By Humphries, Jane; Weisdorf, Jacob
  5. The limits to wage-led growth in a low-income economy By Razmi, Arslan
  6. Institutions, Volatility and Investment By Besley, Timothy J.; Mueller, Hannes Felix
  7. Entrepreneurship,Growth, Regional Growth Regimes By Michael Fritsch; Sandra Kublina
  8. The political economy of inclusive rural growth By Michael Carter; John Morrow
  9. Quo Vadis? Energy Consumption and Technological Innovation in China's Economic Growth By Wei Jin; ZhongXiang Zhang
  10. Railroads and Economic Growth in the Antebellum United States By Rui M. Pereira; William J. Hausman; Alfredo Marvão Pereira
  11. Human capital and growth in japan since 1970: converging to the steady state in a 1% world By Theodore R. Breton
  12. Pure Rent Taxation and Growth in a Two-Sector Open Economy By Alberto Petrucci
  13. Government spending in education and economic growth in Cameroon. A Vector error Correction Model approach By Douanla Tayo, Lionel; AbomoFouda, Marcel Olivier
  14. The impact of ‘clean innovation’ on economic growth: evidence from the transport and energy industries By Ralf Martin; Romesh Vaitilingam
  15. Spatial Aid Spillovers During Transition By Zohid Askarov; Hristos Doucouliagos
  16. Changes in the Effect of Capital and TFP on Output in Penn World Tables 7 and 8: Improvement or Error? By Theodore R. Breton
  17. Regional growth and national development: transition in Central and Eastern Europe and the regional Kuznets curve in the East and the West By Vassilis Monastiriotis
  18. Sector-level tests of the feasibility of green growth: Carbon intensity versus economic and productivity growth indicators By Ardjan Gazheli; Miklós Antal; Jeroen van den Bergh
  19. Do upcoming “Smart cities” need to provide smart distribution of higher urban economic growth? Evidence from Urban India By Tripathi, Sabyasachi
  20. From Energy-intensive to Innovation-led Growth: On the Transition Dynamics of China’s Economy By Wei Jin; ZhongXiang Zhang
  21. Economic Growth, Safe Drinking Water and Ground Water Storage: Examining Environmental Kuznets Curve (EKC) in Indian Context By Hauff, Michael von; Mistri, Avijit
  22. Adaptation to climate change and economic growth in developing countries By Antony Millner; Simon Dietz

  1. By: Henderson, Daniel J. (University of Alabama); Qian, Junhui (Shanghai Jiao Tong University); Wang, Le (University of Alabama)
    Abstract: We examine the (potentially nonlinear) relationship between inequality and growth using a method which does not require an a priori assumption on the underlying functional form. This approach reveals a plateau completely missed by commonly used (nonlinear) parametric approaches - the economy first expands rapidly with a large decline in inequality, plateaus when inequality remains relatively stable, and then decreases rapidly with a large increase in inequality. This novel finding helps reconcile the conflicting results in the literature (using different parametric assumptions and datasets) and has important policy implications.
    Keywords: inequality, growth, panel data, semiparametric
    JEL: C5 C14 O4
    Date: 2015–01
  2. By: Grüning, Patrick
    Abstract: This paper studies a two-country production economy with complete and frictionless financial markets and international trade of final goods in which competition in R&D leads to endogenous new firm creation and economic growth. Current monopolists ("incumbents") and potential new firms ("entrants") compete in developing patents domestically. I find that this induces negative spillover in consumption, i.e. home country's consumption decreases in response to positive productivity shocks in the foreign country. Second, there is positive spillover in R&D expenditures, i.e. home country's R&D expenditures increase in response to positive foreign productivity shocks, which is consistent with empirical evidence on international technology diffusion. Furthermore, the stylized fact in international macroeconomics that the cross-country correlation of consumption growth is significantly lower than the one of output growth is explained by the model. Fourth, net exports are negatively correlated with output as in the data. Fifth, the model matches the high comovement of the risk-free rates and stock returns across countries. Finally, the model produces a positive value premium.
    Keywords: Innovation,Product Market Competition,Endogenous Growth,Long-run Risk,International Finance
    JEL: E22 F31 G12 O30 O41
    Date: 2015
  3. By: Meier zu Selhausen, Felix; Weisdorf, Jacob
    Abstract: The colonial legacy of African underdevelopment is widely debated but hard to document. We use occupational statistics from Protestant marriage registers of historical Kampala to investigate the hypothesis that African gender inequality and female disempowerment are rooted in colonial times. We find that the arrival of Europeans in Uganda ignited a century-long transformation of Kampala involving a gender Kuznets curve. Men rapidly acquired literacy and quickly found their way into white-collar (high-status) employment in the wage economy built by the Europeans. Women took somewhat longer to obtain literacy and considerably longer to enter into white-collar and waged work. This led to increased gender inequality during the first half of the colonial period. But gender inequality gradually declined during the latter half of the colonial era, and after Uganda’s independence in 1962 its level was not significantly different from that of pre-colonial times. Our data also support Boserup’s view that gender inequality was rooted in indigenous social norms: daughters of African men who worked in the traditional, informal economy were less well educated, less frequently employed in formal work, and more often subjected to marital gender inequality than daughters of men employed in the modernized, formal economy created by the Europeans.
    Keywords: Africa; church books; colonialism; development; female disempowerment; gender discrimination; gender inequality; missionaries; Uganda
    JEL: J12 J16 N37
    Date: 2015–01
  4. By: Humphries, Jane (Oxford University); Weisdorf, Jacob (Odense and CEPR)
    Abstract: This paper presents two wage series for unskilled English women workers from 1260 to 1850, the first based on daily wages and the second on the remuneration per day implied in annual service contracts. These two series are compared and the series for women’s daily wages is also compared with evidence for men, revealing interesting trends in the gender gap. These comparisons inform several recent debates first whether or not “the golden age of the English peasantry” included women; and, second whether or not protoindustrialization and early industrialization provided women with greater opportunities. Our contributions to these debates have implications for wider analyses of growth and wellbeing. For example, historians have argued that the rise in wages that followed the Black Death enticed female servants to delay marriage so contributing to a European Marriage Pattern, a demographic regime believed to enable modern economic growth. However, our findings suggest that servants did not benefit much in the post-plague era and so offers little in support of a ‘girl-powered’ economic breakthrough in England. Similarly, historians have hypothesized that high wages in the eighteenth century explain the labour-saving technological changes which kick-started the industrial revolution and, recently, that women shared in these high wages. Again our findings suggest a less rosy scenario with women who were unable to commit to full-time work losing ground relative to men and to their less constrained peers; such women fell increasingly adrift from any High Wage Economy.
    Keywords: Black Death; England; gender wage gap; industrial revolution; wages; women.
    Date: 2015
  5. By: Razmi, Arslan (The University of Massachusetts at Amherst)
    Abstract: Neo-Kaleckian literature has actively debated whether growth is wage- or profit-led in capitalist economies. However, existing studies tend to ignore the non-tradable sector and heterogeneity within the tradable sector. This paper shows that incorporating these features renders wage-led growth in an open developing economy unfeasible in the traditional (Kaleckian) sense of the term. This result -- which follows even if one sets aside the competitiveness considerations generally seen as impeding such growth -- occurs due to the presence of a homogeneous goods-producing tradable sector that sets the ceiling to steady state growth. A corollary, in light of findings from the "new new trade theory" literature, is that increasing South-South trade may tend to narrow room for wage-led growth regardless of the other desirable effects of higher wages.
    Keywords: Wage-led growth, non-tradables, neo-Kaleckian models, development, output heterogeneity.
    JEL: F43 O41 E12
    Date: 2015
  6. By: Besley, Timothy J.; Mueller, Hannes Felix
    Abstract: Countries with strong executive constraints have lower growth volatility but similar average growth to those with weak constraints. This paper argues that this may explain a strong reduced-form correlation between executive constraints and inflows of foreign investment. It uses a novel dataset of Dutch sector-level investments between 1983 and 2010 to explore this issue. It formulates an economic model of investment and uses data on the mean and variance of productivity growth to explain the relationship between investment inflows and executive constraints. The model can account for the aggregate change in inflows when strong executive constraints are adopted in terms of the reduction in the volatility in productivity growth. The data and model together suggest a natural way of thinking about country-specific heterogeneity in investment inflows following the adoption of strong executive constraints.
    Keywords: democracy; executive constraints; foreign investment; political risk; volatility
    JEL: F21 F23 O43
    Date: 2015–01
  7. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Sandra Kublina (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: We distinguish four types of regional growth regimes based on the type of relationship between new business formation and economic development. The distinguishing characteristics of these regime types are analyzed in order to identify the reasons for different growth performance. Although growth regimes are highly persistent over time, typical transition patterns between regime types can be identified. We explain these patterns and draw conclusions for policy. The evidence clearly suggests that entrepreneurship is a key driver of economic development, and one that has long-run effects.
    Keywords: Entrepreneurship, new business formation, economic development, regional growth regimes
    JEL: L26 R11 O11
    Date: 2015–01–26
  8. By: Michael Carter; John Morrow
    Abstract: Abstract Commentators on the `East Asian Miracle' of inclusive growth have often pointed toward shared rural growth policies. But why were these policies not chosen elsewhere? This paper models voters who invest in either subsistence or a complex technology in which public goods complement private capital. Investment and technology choices vary with wealth and the level of public goods enforced by political lobbies. Outcomes depend on the strength of the incipient middle class who bolster political incentives through contributions. Economies with a stronger middle class due to lower inequality or lower risk may thereby sustain higher productivity through public good provision.
    Keywords: Poverty traps; political economy; inequality; lobby formation
    JEL: D2 H4 O1 Q1
    Date: 2014–02
  9. By: Wei Jin (School of Public Policy, Zhejiang University); ZhongXiang Zhang (School of Economics, Fudan University)
    Abstract: There is a growing body of literature mentioning the slow pace of energy technological progress as compared to other technologies like information technology (IT), but the reasons why energy sector is perplexed by slow innovation remain unexplained. Based on a variety-expanding endogenous technological change model, this paper provides a rigorous economic exposition of the mechanism that underlies the slow progress of energy technological innovation. We show that in decentralized market equilibrium the growth rate of energy technology variety is lower than that of IT variety. This stems from both market fundamentals where the homogeneity of end-use energy goods is less likely to harness the pecuniary externality embedded in the householdÕs love-for-variety preference, and technology fundamentals where the capital-intensiveness of energy technology inhibits the non-pecuniary technological externality due to knowledge spillovers. We further show that a social planner solution can promote energy technological progress, yet still cannot achieve an outcome in which energy technology variety grows faster than IT variety. By targeting subsidies on energy technology R&D and the use of intermediate primary energy inputs by secondary energy producers, the decentralized market equilibrium can achieve an outcome in which energy technology grows faster than IT.
    Keywords: energy technological innovation; product homogeneity; knowledge spillovers; love-for-variety effect
    JEL: Q55 Q58 Q41 Q43 Q48 O31
    Date: 2015–01
  10. By: Rui M. Pereira (Department of Economics, The College of William and Mary); William J. Hausman (Department of Economics, The College of William and Mary); Alfredo Marvão Pereira (Department of Economics, The College of William and Mary)
    Abstract: We measure the overall impact of railroad investment on economic growth in the antebellum period in the United States using a bivariate dynamic time series methodological approach, based on the use of a vector autoregressive (VAR) model. We find bidirectional causality between railroad infrastructure investment and GDP. Our estimates suggest that railroad investment had a substantial impact on economic growth in the antebellum United States. The elasticity of output with respect to railroad investment is 0.048 with a corresponding marginal product of 4.2. The marginal product figure indicates that one dollar invested in railroads yields a $4.2 accumulated increase in GDP over the long-term. This corresponds to a 7.5% rate of return when considering a 20–year lifetime for railroad capital. While the bulk of the estimated effect of railroad infrastructure investment, nearly two thirds of the total, stems from supply side effects, the short run demand side effects of these investments are substantial.
    Keywords: Railroads, Economic Growth, Antebellum United States, Vector auto-regression
    JEL: H54 N71 R42
    Date: 2015–01–05
  11. By: Theodore R. Breton
    Abstract: Annual growth in GDP/adult in Japan has declined from over 10% in 1969 to an average of 1% since the financial crisis in 1991. I show that a dynamic Solow growth model, augmented with human capital, weekly labor-hours, and oil prices, explains Japan’s annual growth rates from 1969 to 2007 as conditional convergence to a steady-state rate of 1%/year. Each additional year of average adult schooling attainment raised GDP/adult directly and indirectly by 20 percent, and weekly hours worked had an output elasticity of 0.5. The marginal product of schooling was double the marginal product of physical capital.
    Keywords: Japan; Human Capital; Schooling; Productivity; Economic Growth; Convergence
    JEL: I25 O41 O53
    Date: 2014–11–20
  12. By: Alberto Petrucci (Department of Economics and Finance, LUISS Guido Carli University)
    Abstract: In this paper, the incidence of a tax on pure rent is analyzed in an OLG two-sector small open economy, in which one sector produces a capital good and one sector a consumer good. Contrary to what is obtained by Feldstein (1977) in a one-sector closed economy, a rent tax does not necessarily foster wealth accumulation and economic growth. The accommodating scheme for the government budget plays a crucial role for the effects of pure rent taxation. A rent tax stimulates nonhuman wealth if distortionary taxes on wealth or on income from nonland inputs are alleviated. The mechanism spurring capital formation is brought into action, instead, only when the rent tax is matched by a fall in capital taxation or, if the capital sector is capital intensive, by an increase in government spending on the capital good.
    Keywords: Land Rent Tax; Capital Good; Consumer Good; OLG; Wealth Accumulation.
    JEL: E62 H22 J22 O41
  13. By: Douanla Tayo, Lionel; AbomoFouda, Marcel Olivier
    Abstract: This study aims at assessing the effect of government spending in education on economic growth in Cameroon over the period 1980-2012 using a vector error correction model. The estimated results show that these expenditures had a significant and positive impact on economic growth both in short and long run. The estimated error correction model shows that an increase of 1% of the growth rate of private gross fixed capital formation and government education spending led to increases of 5.03% and 10.145 % respectively in the long-run on economic growth . Education spending thus appears as one of the main driving force of the economic growth process in Cameroon.
    Keywords: Economic growth, VECM.
    JEL: H5
    Date: 2016–02–04
  14. By: Ralf Martin; Romesh Vaitilingam
    Abstract: Policies on climate change that encourage 'clean innovation' while displacing 'dirty innovation' could have a positive impact on short-term economic growth while avoiding the potentially disastrous reduction in GDP that could result from climate change over the longer term.
    Keywords: Innovation spill-overs; Climate Change; Growth; Patents; Clean technology; Optimal climate policy
    JEL: H23 O30 O38 Q54 Q55 Q58
    Date: 2014–11
  15. By: Zohid Askarov; Hristos Doucouliagos
    Abstract: We investigate whether development aid stimulates growth in transition economies, paying particular attention to the possibility of spatial spillovers arising from aid. We find that aid has a positive impact on growth of the recipient country. However, aid also appears to generate adverse growth spillovers on other nations. In contrast, we find that growth in one transition economy tends to spillover to bordering countries and there are significant positive spatial spillovers from good policies. Spillovers are an important part of the growth experience of transitional economies.
    Keywords: aid effectiveness, spatial spillovers, transition economies
    JEL: O4 O5 F35
    Date: 2015–01–20
  16. By: Theodore R. Breton
    Abstract: Lower ICP 2005 construction prices in developing countries increase the effect of capital on output in PWT 7.1 and 8.0 and cause negative world TFP growth during 1990-2010 in PWT 8.0. The investment data appear to be more accurate in PWT 6.3.
    Keywords: Penn World Table; Investment rates; Economic growth
    JEL: O4
    Date: 2015–01–19
  17. By: Vassilis Monastiriotis
    Abstract: Regional disparities in Central and Eastern Europe rose substantially since 1990. Still, prima facie evidence of beta-convergence is often found in the CEE data. To reconcile this seeming paradox, we sketch out and test empirically a hybrid model of regional growth that draws on the regional Kuznets curve and incorporates aspects of cumulative causation and neoclassical convergence. In both CEE and the ‘old’ EU15, regional convergence is strongly linked to the level of national development, non-linearly. But while in the EU15 convergence speeds-up at intermediate/high levels of development, in CEE we find divergence at intermediate levels of national development and no significant return to convergence thereafter. Although this may show that overall development levels are not sufficient yet to mobilise regional convergence, it is also possible that non-convergence is attributable to centripetal forces instigated by the process of transition.
    Keywords: Regional growth; convergence; regional Kuznets curve; Central and Eastern Europe
    JEL: O11 O18 R11 R15
    Date: 2014
  18. By: Ardjan Gazheli; Miklós Antal; Jeroen van den Bergh
    Abstract: In this paper we present a sector-based approach to investigate whether green growth – combining economic growth with environmental sustainability – is feasible. Our approach considers the relation between on the one hand carbon dioxide emissions per dollar of output (what we will call carbon intensity) and on the other growth in economic output and labor productivity, at the level of production sectors. Carbon intensity (CI) is calculated in two ways: as direct CO2 emissions from each sector, which can be seen to immediately result from the processes in the respective sector; and as total, direct plus indirect, emissions, by using environmentally-extended input-output tables. The analysis covers Denmark, Germany and Spain for the period 1995-2007. We calculate correlations over time between sectoral CIs and a range of economic indicators: sectoral total and relative output, final demand, value added, and so-called output and valued-added productivity indicators, and their change. The findings are similar for the two types of CI indicators. The bad news for green growth is that relatively clean sectors do not seem to be more productive than dirtier ones, and neither show higher productivity growth. Sectors associated with high carbon intensity grew more in absolute terms than those with low carbon intensity. The share of these sectors increased suggesting that green growth requires a very rapid pace of decarbonization, or the economy as a whole to shrink. Longer-term sectoral growth on the other hand, as expressed by a change in value added, does not seem to be positively correlated with carbon intensity.
    Keywords: CO2 emissions, Climate change, Green growth, Labor productivity, Production sectors, World Input-output Database
    Date: 2015–01
  19. By: Tripathi, Sabyasachi
    Abstract: The present paper tries to understand the causes behind the emergence of India‘s large agglomeration (or giant cities) and how these large agglomerations are linked with economic growth. In addition, the distribution of urban economic growth is measured by the estimation of poverty, inequality and pro-poorness. The paper suggests that the upcoming ―Smart cities‖ in India will emerge as a greater platform for future development of urban India, only if these cities surely ensure smart distribution of the fruits of urban economic growth to the poorer section of urban dwellers.
    Keywords: Agglomeration, Economic growth, Poverty, Inequality, Urban India
    JEL: D63 O18 R11
    Date: 2015–01–10
  20. By: Wei Jin (School of Public Policy, Zhejiang University, Hangzhou, China); ZhongXiang Zhang (School of Economics, Fudan University, Shanghai, China)
    Abstract: Whether China continues its current energy-intensive growth path or adopts a sustainable development prospect has significant implication for energy and climate governance. Building on a Ramsey-Cass-Koopmans growth model incorporating the mechanism of endogenous technological change and its interaction with fossil energy use and economic growth, this paper contributes to an economic exposition of China’s potential transition from an energy-intensive to an innovation-led growth path. We find that in China’s initial growth period the small amount of capital stock creates higher dynamic benefits of capital investment and incentives of capital stock accumulation rather than R&D-related innovation. Accumulation of energy-consuming capital stock along this non-innovation-led growth path thus leads to an intensive use of fossil energy - an energy-intensive growth pattern. To avoid this undesirable outcome, China’s social planner should consider locating a transition point to an innovation-led balanced growth path (BGP). When the growth dynamics reaches that transition point, China’s economy would embark on investment in physical capital and R&D simultaneously, and make a transition into the innovation-led BGP along which consumption, capital investment, and R&D have a balanced share. Also in this innovation-led BGP, consumption, physical capital stock, and knowledge stock all grow, fossil energy uses decline.
    Keywords: Technological Innovation, Energy Consumption, Economic Growth Model
    JEL: Q55 Q58 Q43 Q48 O13 O31 O33 O44 F18
    Date: 2014–12
  21. By: Hauff, Michael von; Mistri, Avijit
    Abstract: The trade-off between economic growth and environmental sustainability is very tough to a faster growing developing country like India. The Environmental Kuznets Curve (EKC) hypothesis proposes, environmental degradation increases with income growth first, and then it declines with income rise. The present study is an endeavor to find out the EKC relation in the arena of access to safe drinking water, ground water development and utilisation, and waterborne diseases during 2001-2012 in 32 Indian States/Union Territories (UTs). The panel analysis results reveal that no EKC relationship is found in the Indian context and income growth has no significant effect on all of the indicators. Income growth in lower income States/UTs immensely helps to improve the access to safe drinking water compared to the higher income States/UTs. Rapid expansion of irrigated agriculture and obsoleted regulation related to the abstraction overexploit the ground water. Moreover, lack of proper technological investment or abatement measures and its implication in Indian industry deteriorate the indicators of environmental quality. The contribution of technological input and its progress infer the poor design of environmental policies and its implementation in India. Apart from these, climatic and geomorphological heterogeneity widely influence the distribution and utilisation of water resources. The huge population pressure also exerts a negative effect on the environment.
    Keywords: Environmental Kuznets Curve (EKC), Environmental Sustainability, Safe Drinking water, Ground Water, Waterborne diseases, Economic Growth.
    JEL: C12 Q53 Q56 Q58
    Date: 2015–01–27
  22. By: Antony Millner; Simon Dietz
    Abstract: Developing countries are vulnerable to the adverse effects of climate change, yet there is disagreement about what they should do to protect themselves from antic- ipated damages. In particular, it is unclear what the optimal balance is between investments in traditional productive capital (which increases output but is vulner- able to climate change), and investments in adaptive capital (which is unproductive in the absence of climate change, but ‘climate-proofs’ vulnerable capital). We show that, while it is unlikely that the optimal strategy involves no investment in adapta- tion, the scale and composition of optimal investments depends on empirical context. Our application to sub-Saharan Africa suggests, however, that in most contingencies it will be optimal to grow the adaptive sector more rapidly than the vulnerable sector over the coming decades, although it never exceeds 1% of the economy. Our sensi- tivity analysis goes well beyond the existing literature in evaluating the robustness of this finding.
    Keywords: economic growth; climate change; adaptation; development
    JEL: D61 O11 O40 Q54
    Date: 2014

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