nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒02‒16
twenty-one papers chosen by
Marc Klemp
Brown University

  1. "Is Industrialization Conducive to Long-Run Prosperity?" By Raphael Franck; Oded Galor
  2. Development Policies when Accounting for the Extensive Margin of Fertility By Thomas BAUDIN; David de la CROIX; Paula GOBBI
  3. Economic inequality and poverty in the very long run: The case of the Florentine State By Guido Alfani; Francesco Ammannati
  4. Religions, Fertility and Growth in South-East Asia By David de la Croix; Clara Delavallade
  5. Gender inequality and growth: the case of rich vs. poor countries By Amin, Mohammad; Kuntchev, Veselin; Schmidt, Martin
  6. History and the sizes of cities By Bleakley, Hoyt; Lin, Jeffrey
  7. Hyperbolical Discounting and Endogenous Growth By Strulik, Holger
  8. The Impact of UN and US Economic Sanctions on GDP Growth By Matthias Neuenkirch; Florian Neumeier
  9. Economic Development, Structural Change and Women’s Labor Force Participation A Reexamination of the Feminization U Hypothesis By Isis Gaddis; Stephan Klasen
  10. The Effect of Demand-Driven Structural Transformations on Growth and Technological Change By Andre Lorentz; Tommaso Ciarli; Maria Savona; Marco Valente
  11. Latin American Inequality: Colonial Origins, Commodity Booms, or a Missed 20th Century Leveling? By Jeffrey G. Williamson
  12. Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model By Tabakovic, Amer; Irmen, Andreas
  13. Agriculture in African Development: A Review of Theories and Strategies By Stefan Dercon; Douglas Gollin
  14. `Love of Wealth' and Economic Growth By Rehme, Günther
  15. The Growth Drag of Pollution By Schäfer, Andreas
  16. Growth, Growth Accelerations and the Poor: Lessons from Indonesia By Sambit Bhattacharyya; Budy P. Resosudarmo
  17. Taxes and Economic Growth in Developing Countries : A Dynamic Panel Approach By NANTOB, N'Yilimon
  18. Climate Change, Green Growth and Aid Allocation to Poor Countries By Stefan Dercon
  19. The EU, a Growth Engine? The Impact of European Integration on Economic Growth in Central Eastern Europe By Katja Mann
  20. Financial Development and Output Growth in Developing Asia and Latin America: A Comparative Sectoral Analysis By Joshua Aizenman; Yothin Jinjarak; Donghyun Park
  21. Self-Similar Measures in Multi-Sector Endogenous Growth Models. By Davide La Torre; Simone, Marsiglio; Mendivil, Franklin; Privileggi, Fabio

  1. By: Raphael Franck; Oded Galor
    Abstract: This research explores the long-run effect of industrialization on the process of development. In contrast to conventional wisdom that views industrial development as a catalyst for economic growth, highlighting its persistent effect on economic prosperity, the study establishes that while the adoption of industrial technology was initially conducive to economic development, it has had a detrimental effect on standards of living in the long-run. Exploiting exogenous source of regional variation in the adoption of steam engines during the French industrial revolution, the research establishes that regions which industrialized earlier experienced an increase in literacy rates more swiftly and generated higher income per capita in the subsequent decades. Nevertheless, early industrialization had an adverse effect on income per capita, employment and equality by the turn of the 21st century. This adverse effect reflects neither higher unionization and wage rates nor trade protection, but rather underinvestment in human capital and lower employment in skilled-intensive occupations. These findings suggest that the characteristics that permitted the onset of industrialization, rather than the adoption of industrial technology per se, have been the source of prosperity among the currently developed economies that experienced an early industrialization.
    Keywords: Economic Growth, Industrialization, Steam Engine bounded rationality.
    Date: 2015
  2. By: Thomas BAUDIN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Centre de Recherche en Démographie et Sociétés and UNIVERSITE DE LILLE 3, EQUIPPE); David de la CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE)); Paula GOBBI (National Fund for Scientific Research (FNRS) and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Beyond natural sterility, there are two main types of childlessness: one driven by poverty and another by the high opportunity cost to child-rearing. We argue that taking childlessness and its causes into account matters for assessing the impact of development policies on fertility. We measure the importance of the components of childlessness with a structural model of fertility and marriage. Deep parameters are identified using census data from 36 developing countries. On average, one more year of education decreases poverty-driven childlessness by 0.75 percentage points, but increases opportunity-cost-driven childlessness by 0.57 percentage points from the 9th year of schooling onwards. Neglecting the endogenous response of marriage and childlessness leads to overestimating the effectiveness of family planning policies, except where highly educated mothers are also heavily affected by unwanted births, and to underestimating the effect of promoting gender equality on fertility, except in countries where poverty-driven childlessness is high.
    Keywords: Poverty, Childlessness, Marriage, Inequality, Fertility, Unwanted Births, Structural Estimation
    JEL: J11 O11 O40
  3. By: Guido Alfani; Francesco Ammannati
    Abstract: This paper provides an overview of economic inequality in the Florentine State (Tuscany) from the late fourteenth to the late eighteenth century. Regional studies of this kind are rare, and this is only the second-ever attempt at covering such a long period. Consistent with recent research conducted on other European areas, during the Early Modern period we find clear indications of a tendency for economic inequality to grow continually, a finding that for Tuscany cannot be explained as the consequence of economic growth. Furthermore, the exceptionally old sources we use allow us to demonstrate that a phase of declining inequality, lasting about one century, was triggered by the Black Death from 1348 to 1349. This finding challenges earlier scholarship and significantly alters our understanding of the economic consequences of the Black Death. We also take into account other important topics, such as the change over time of the patrimony of the Church and of poverty. Particular attention is paid to the latter, and estimates of the prevalence of the poor in time and space are provided and discussed, also taking into account the definition and perception of the poor.
    Keywords: Economic inequality; social inequality; wealth concentration; middle ages; early modern period; Tuscany; Florentine State; Italy; plague; Black Death; Church property; poverty; Florence; Prato; Arezzo; San Gimignano
    Date: 2014–12
  4. By: David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE)); Clara Delavallade (International Policy Research Institute (IFPRI))
    Abstract: Through indirect inference, we investigate the extent to which religions’supposed pronatalism is detrimental to growth via the fertility/education channel. Using censuses from South-East Asia, we first estimate an empirical model of fertility and show that having a religious affiliation significantly raises fertility. This effect is stronger for couples with intermediate to high education levels. We next use these estimates to identify the parameters of a structural model of fertility choice. On average, Catholicism is the most pro-child religion (increasing spending on children), followed by Buddhism, while Islam has a strong pro-birth component (redirecting spending from quality to quantity). We show that pro-child religions depress growth in the early stages by lowering saving, physical capital, and labor supply. These effects account for 10% to 50% of the actual growth gaps between countries over 1950-1980. At later stages of growth, pro-birth religions lower human capital accumulation, explaining between 10% and 20% of the gap between Muslim and Buddhist countries over 1980-2010.
    Keywords: Quality-quantity tradeoff, Catholicism, Buddhism, Islam, Education, Saving
    JEL: J13 Z13 O11
  5. By: Amin, Mohammad; Kuntchev, Veselin; Schmidt, Martin
    Abstract: This paper uses cross-section data for 107 countries to explore the relationship between gender inequality and economic growth. The paper departs from the literature by using a broad measure of gender inequality that goes well beyond gender inequality in education, which has been the focus of most studies. Another novelty of the paper lies in exploring heterogeneity in the growth-gender inequality relationship. The results confirm that greater gender inequality is strongly associated with lower economic growth. However, this negative relationship between gender inequality and growth is entirely due to the relatively poor countries, with the relatively rich countries showing no such relationship. The findings have important implications for the design and targeting of gender-specific policies.
    Keywords: Gender and Development,Achieving Shared Growth,Inequality,Gender and Law,Economic Theory&Research
    Date: 2015–01–01
  6. By: Bleakley, Hoyt (University of Michigan); Lin, Jeffrey (Federal Reserve Bank of Philadelphia)
    Abstract: We contrast evidence of urban path dependence with efforts to analyze calibrated models of city sizes. Recent evidence of persistent city sizes following the obsolescence of historical advantages suggests that path dependence cannot be understood as the medium-run effect of legacy capital but instead as the long-run effect of equilibrium selection. In contrast, a different, recent literature uses stylized models in which fundamentals uniquely determine city size. We show that a commonly used model is inconsistent with evidence of long-run persistence in city sizes and propose several modifications that might allow for multiplicity and thus historical path dependence.
    Keywords: Multiple equilibria; Locational fundamentals; Path dependence
    JEL: F12 N90 R12
    Date: 2015–01–12
  7. By: Strulik, Holger
    Abstract: This paper provides the exact analytical solution for the standard model of endogenous growth when consumers have present-biased preferences and make time-inconsistent savings plans, which they revise continuously. It is shown that long-run growth is not necessarily lower under present-biased preferences. In fact, an equivalence result holds. If hyperbolical discounting provides the same present value of a constant infinite income stream as standard exponential discounting, then the equilibrium rate of economic growth is also the same under both discounting methods. In this sense present-bias and the entailed time-inconsistency of savings plans are harmless for economic growth. The result is robust to the introduction of non-homothetic utility and a variable elasticity of intertemporal substitution in consumption.
    JEL: O40 D91 E21
    Date: 2014
  8. By: Matthias Neuenkirch; Florian Neumeier
    Abstract: In this paper, we empirically assess how economic sanctions imposed by the UN and the US affect the target states’ GDP growth. Our sample includes 68 countries and covers the period 1976–2012. We find, first, that sanctions imposed by the UN have a statistically and economically significant influence on economic growth. On average, the imposition of UN sanctions decreases the target state’s real per capita GDP growth rate by 2.3–3.5 percentage points (pp). These adverse effects last for a period of 10 years. Comprehensive UN economic sanctions, that is, embargoes affecting nearly all economic activity, trigger a reduction in GDP growth by more than 5 pp. Second, the effect of US sanctions is much smaller and less distinct. The imposition of US sanctions decreases GDP growth in the target state over a period of 7 years and, on average, by 0.5–0.9 pp.
    Keywords: Economic growth, economic sanctions, United Nations, United States.
    JEL: F43 F51 F52 F53
    Date: 2015–01
  9. By: Isis Gaddis (University of Göttingen, Department of Economics); Stephan Klasen (University of Göttingen, Department of Economics)
    Abstract: A sizable literature claims that female labor force participation (FLFP) follows a U-shaped trend as countries develop due to structural change, education and fertility dynamics. We show that empirical support for this secular trend is feeble and depends on the data sources used, especially underlying GDP estimates. The U also tends to vanish under dynamic panel estimations. Moreover, cross-country differences in levels of FLFP related to historical contingencies are much more important than the muted U patterns found in some specifications. Given the large error margins in international GDP estimates and the sensitivity of the Urelationship we propose a more direct approach to explore the effect of structural change on FLFP using sector-specific growth rates. The results suggest that structural change affects FLFP consistent with a U-shaped pattern but the effects are small. We conclude that the feminization U hypothesis as an overarching secular trend driving FLFP in the development process has little empirical support.
    Keywords: Female Labor Force Participation, Economic Development, Structural Change, Panel, GMM
    JEL: J16 J21 J22 O11 O15
    Date: 2013–04
  10. By: Andre Lorentz (BETA (UMR-CNRS 7522) & Universite de Technologie de Belfort-Montbeliard, Departement des Humanites, FR); Tommaso Ciarli (SPRU, University of Sussex, UK); Maria Savona (SPRU, University of Sussex, UK); Marco Valente (University of L’Aquila, & LEM, Sant’Anna School for Advanced Studies, Pisa, IT)
    Abstract: The paper analyses the effect of the dynamics of consumption preferences on the dynamics of macro–economic growth. We endogenously derive micro–dynamics of consumption behaviour as a result of the increase in the number of income classes. The different degrees of inertia in the adjustment of consumption levels to income changes affect firm selection and the dynamics of market structure, which is ultimately responsible for different regimes of macro–economic growth. We find, firstly, that higher heterogeneity in consumption preferences amplifies and accelerates market dynamics, leading to a swift shift from a Malthusian to a Kaldorian growth pattern. Secondly, consumption smoothing mainly affects the timing of such a take–off. Inertia in consumption delays the occurrence of a Kaldorian engine for growth.
    Date: 2015–01
  11. By: Jeffrey G. Williamson
    Abstract: Most analysts of the modern Latin American economy have held the pessimistic belief in historical persistence -- they believe that Latin America has always had very high levels of inequality, and that it’s the Iberian colonists’ fault. Thus, modern analysts see today a more unequal Latin America compared with Asia and most rich post-industrial nations and assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. The recent leveling of inequality in the region since the 1990s seems to have done little to erode that pessimism. It is important, therefore, to stress that this alleged persistence is based on an historical literature which has made little or no effort to be comparative, and it matters. Compared with the rest of the world, inequality was not high in the century following 1492, and it was not even high in the post-independence decades just prior Latin America’s belle époque and start with industrialization. It only became high during the commodity boom 1870-1913, by the end of which it had joined the rich country unequal club that included the US and the UK. Latin America only became relatively high between 1913 and the 1970s when it missed the Great Egalitarian Leveling which took place almost everywhere else. That Latin American inequality has its roots in its colonial past is a myth.
    JEL: D3 N16 N36 O15
    Date: 2015–01
  12. By: Tabakovic, Amer; Irmen, Andreas
    Abstract: The determinants of the direction of technical change and the implications for economic growth are studied in the one-sector neoclassical growth model of Ramsey (1928), Cass (1965), and Koopmans (1965) extended to allow for endogenous capital- and labor-augmenting technical change. For this purpose, we develop a novel micro-foundation for the competitive production sector. It rests upon the idea that the fabrication of the final good requires tasks to be performed by capital and labor. Firms may engage in innovation investments that increase the productivity of capital and labor in the performance of their respective tasks. These investments are associated with new technological knowledge that accumulates over time. We analyze a version of the model with only labor-augmenting and one with capital- and labor-augmenting technical change. When only labor-augmenting technical change is allowed for we find that steady-state growth depends on the efficient capital intensity and, thus, on household preferences. When it is included, capital-augmenting technical change must vanish in the steady state. Moreover, the mere feasibility of capital-augmenting technical change drastically changes the comparative-static properties of the steady state, e.\,g., household preferences loose their effect on steady-state growth.
    JEL: O31 O33 O41
    Date: 2014
  13. By: Stefan Dercon; Douglas Gollin
    Abstract: Agriculture is the largest sector in most sub-Saharan economies in terms of employment, and it plays an important role in supplying food and export earnings.  Rural poverty rates remain high, and labor productivity is strikingly low.  This paper asks how these factors shape the role of agriculture in African development strategies.  Is agricultural growth a prerequisite for growth in other sectors?  Or will urbanization and non-agricultural export markets ultimately be the forces that pull the rural economy into higher productivity?  We argue that agricultural development strategies will vary widely because of heterogeneity across and within countries.
    Keywords: economic growth, structural transformation, sub-Saharan Africa, rural development
    JEL: O10 O13 O55 O1 O18
    Date: 2014–06–04
  14. By: Rehme, Günther
    Abstract: This paper complements research on how {\em love of wealth} bears on key variables in a Ramsey-Cass-Koopmans growth framework. It is shown that for an optimum the social planner cannot have an excessive {\em love of wealth}. If the planner has the `right' {\em love of wealth} an optimum exists and implies higher long-run per capita capital, income and consumption relative to the standard optimal growth model. The optimum implies dynamic efficiency with the possibility to get arbitrarily close to the Golden Rule where long-run per capita consumption is maximal. It is shown that the optimal path is attaining its steady state more slowly. Thus, the beneficial effects of {\em love of wealth} materialize later than in the standard model. Furthermore, the economy can be decentralized as a competitive private ownership economy. One can then identify {\em love of wealth} with the ``spirit of capitalism''. The paper, hence, implies that one needs a 'right' level of the ``spirit of capitalism'' to realize any beneficial effects for the long run.
    JEL: O40 P40 A10
    Date: 2014
  15. By: Schäfer, Andreas
    Abstract: Higher child mortality reduces the willingness of parents to invest in children's education and increases their desired level of fertility. In this context, economic inequality is not only decisive for human capital investments and the emergence of differential fertility, but also for agents' exposure to environmental pollution because wealthier households live in cleaner areas. This is the key mechanism through which environmental conditions may impose a growth drag on the economy. In addition, preferred levels of tax-financed abatement measures differ between population groups with different exposures to pollutants, in the sense that the least affected population group prefers the lowest tax rate. Thus, the adverse effect of inequality and pollution on economic growth is amplified, if the population group that is least affected decides about the level of tax-financed abatement measures.
    JEL: O10 Q50 I10
    Date: 2014
  16. By: Sambit Bhattacharyya; Budy P. Resosudarmo
    Abstract: We study the impact of growth and growth accelerations on poverty and inequality in Indonesia using a new panel dataset covering 26 provinces over the period 1977-2010.  This new dataset allows us to distinguish between mining and non-mining sectors of the economy.  We find that growth in non-mining significantly reduces poverty and inequality.  In contrast, overall growth and growth in mining appears to have no effect on poverty and inequality.  We also identify growth acceleration episodes defined by at least four consecutive years of positive growth in GDP per capita.  Growth acceleration in non-mining reduces poverty and inequality whereas growth acceleration in mining increases poverty.  We expect that the degree of forward and backward linkages of mining and non-mining sectors explain the asymmetric result.  Our results are robust to state and year fixed effects, state specific trends, and instrumental variable estimation with rainfall and humidity as instruments.
    Keywords: growth, growth accelerations, mining, non-mining, poverty, inequality
    JEL: I32 N15 O11 O13 O49
    Date: 2013–10–02
  17. By: NANTOB, N'Yilimon
    Abstract: This paper looks at the effects of taxes increase on economic growth of 47 developing countries. In developing countries, there is no magic tax strategy to encourage economic growth. Some countries with high tax burdens have high growth rates and some countries with low tax burdens have low growth rates. Despite much theoretical and empirical inquiry as well as political and policy controversy, no simple answer exists concerning the relationship of taxes on economic growth in developing countries. The research takes an empirical approach to analyze the effects of four types of taxes namely taxes revenue, taxes on goods and services, taxes on income, profits, and capital gains and taxes on international trade on economic growth. Mobilizing a dynamic panel data over the period 2000–2012 and using the system GMM estimator to address endogeneity issues, the econometric results yield that (i) there is a non-linear relationship between taxes revenue and economic growth, specifically, these taxes increase economic growth at short run and this effect then increases over time as these taxes increase, and (ii) there is a non-linear (U-shaped) relationship between taxes on income, profits and capital gains, taxes on international trade and economic growth, specifically, these taxes lower economic growth at short run and these effects then diminish over time as these taxes increase.
    Keywords: Taxes, Economic growth, Developing counties, Dynamic panel data
    JEL: C33 H20 H21 H27 O40
    Date: 2014–10–22
  18. By: Stefan Dercon
    Abstract: With serious impacts of climate change looming in a few decades, but currrent poverty still high in the developing word, we ask how to spend development aid earmarked for the poor.  Poverty reduction tends to be strongly linked to economic growth, but growth impacts the environment and increases CO2 emissions.  So can greener growth that is more climate-resilient and less environmentally damaging deliver large scale poverty reduction?  Can aid be used for effective poverty reduction now without affecting carbon emissions substantially?  We argue that there are bound to be trade-offs between emissions reductions and a greener growth on the  one hand, and growth that is most effective in poverty reduction.  We argue that development aid, earmarked for the poorest countries, should only selectively pay attention to climate change, and remain focused on fighting current poverty reduction, including via economic growth, not least as future resilience of these countries and their population will depend on their ability to create wealth and build up human capital now.  The only use for development aid within the poorest countries or explicit climate-related investment ought to be when the investments also contribute to poverty reduction now, including for increasing resilience to current impacts of environmental shocks, or when the investments done now have serious intertemporal 'lock-in' problems so that they have implications also for when climate change bites by 2050.  In our conclusions, we offer a series of concrete principles to judge development spending.
    Keywords: Green growth, poverty, environmental externalities
    Date: 2014–06–07
  19. By: Katja Mann
    Abstract: This paper investigates how the European integration process of central eastern European countries, which has been taking place since the 1990’s, affects their GDP growth. Based on an augmented Solow model, I estimate a convergence equation for a panel of ten countries over 16 years (1995-2010). In the regression, trade with the other European Union member states as a share of total trade serves as a measure of European integration. I find a small, but significant medium-run growth bonus from integration, which is robust to alternative specifications of the regression equation and of the variables of interest. The results are confirmed by a supplementary analysis at the industry level using a difference-in-difference type of estimation strategy. The paper thus provides an argument in favour of European integration.
    Keywords: European integration, central eastern Europe, economic growth, growth convergence
    JEL: C23 F43 O47 R11
    Date: 2015–01
  20. By: Joshua Aizenman; Yothin Jinjarak; Donghyun Park
    Abstract: We use data from the Groningen Growth and Development Centre (GGDC) database to perform preliminary empirical analysis of the interplay between quality and quantity of finance in accounting for the output growth of ten sectors. We review the existing literature and some salient open questions pertaining to the relationship between financial depth and output growth. Our analysis looks at the finance-growth nexus in 41 economies, including 11 East Asian and 9 Latin American economies for a comparison between two regions which are at similar income levels. We document large differences between the two regions in terms of the impact of financial depth on sectoral growth, and validate the negative impact of financial deepening on output growth in several sectors. Our results suggest that the impact of financial development on growth may be non-linear – i.e. it may promote growth only up to a point.
    JEL: G20 G30 O40 O47 O57
    Date: 2015–01
  21. By: Davide La Torre; Simone, Marsiglio; Mendivil, Franklin; Privileggi, Fabio (University of Turin)
    Abstract: We analyze two types of stochastic discrete time multi-sector endogenous growth models, namely a basic Lucas-Uzawa (1988) model and an extended three-sector version as in La Torre and Marsiglio (2010). As in the case of sustained growth the optimal dynamics of the state variables are not stationary, we focus on the dynamics of the capital ratio variables, and we show that, through appropriate log-transform ations, they can be converted into affine iterated function systems converging to an invariant distribution supported on some fractal set. This proves that also the steady state of endogenous growth models i.e., the stochastic balanced growth path equilibrium—might have a fractal nature. We also provide some sufficient conditions under which the associated self-similar measures turn out to be either singular or absolutely continuous (for the three-sector model we only consider the singularity).
    Date: 2015–02

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.