nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒04‒11
nine papers chosen by
Marc Klemp
Brown University

  1. Appropriate Technology and the Labour Share By Miguel A. Leon-Ledesma; Mathan Satchi
  2. 'Threshold Effects of Inequality on the Process of Economic Growth' By Arshad Ali Bhatti; M. Emranul Haque; Denise R. Osborn
  3. Capital-Labor Substitution, Structural Change and the Labor Income Share By Alvarez-Cuadrado, Francisco; Long, Ngo Van; Poschke, Markus
  4. Capital-Labor Substitution, Structural Change and Growth By Alvarez-Cuadrado, Francisco; Long, Ngo Van; Poschke, Markus
  5. Wealth Distribution, Elasticity of Substitution, and Piketty: an anti-dual Pasinetti Economy. By Luca Zamparelli
  6. Economic Growth and Property Rights on Natural Resources By Kirill Borissov; Mikhail Pakhnin
  7. Is Islamic Banking Good for Growth? By Patrick IMAM; Kangni KPODAR
  8. Openness, Human Capital and Economic Growth in MENA: Theoretical foundations and application to Dynamic panel data By Mtiraoui, abderraouf
  9. Stuck in the Middle? Structural Change and Productivity Growth in Botswana By Brian McCaig; Margaret S. McMillan; Iñigo Verduzco-Gallo; Keith Jefferis

  1. By: Miguel A. Leon-Ledesma; Mathan Satchi
    Abstract: We provide a general theoretical characterization of how technology choice affects the long-run elasticity of substitution between capital and labour. While the shape of the technology frontier determines the long-run growth path and the long-run elasticity, adjustment costs in technology choice allow capital labour complementarity in the short run. We develop a class of production functions that are consistent with balanced growth even in the presence of permanent investment-specific or other kinds of biased technical progress but where, consistent with empirical evidence, short-run dynamics are characterized by complementarity. Importantly, the approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of the new production technology provides a good match for the short and medium run behavior of the US labour share.
    Keywords: Balanced growth; appropriate technology; elasticity of substitution
    JEL: E25 O33 O40
    Date: 2015–03
  2. By: Arshad Ali Bhatti; M. Emranul Haque; Denise R. Osborn
    Abstract: This paper explores the relationship between inequality and growth in the context of a unified empirical approach suggested by the theoretical model of Galor and Moav (2004). Based on the model’s prediction, we construct a measure of human capital-to-physical capital ratio in order to investigate the threshold effects of inequality on economic growth. Using data of 82 countries for the period 1965–2003, our results are twofold: first, there exist significant thresholds of human-to-physical capital ratio below which the effect of inequality on growth is positive, whereas it is negative above it; second, human capital drives growth only when the human-to-physical capital ratio is above its threshold level. Our results are generally robust to using different measures of human capital and different data on inequality. These results are consistent with the predictions of Galor and Moav (2004).
    Date: 2015
  3. By: Alvarez-Cuadrado, Francisco (McGill University); Long, Ngo Van (McGill University); Poschke, Markus (McGill University)
    Abstract: Recent work has documented declines in the labor income share in the United States and beyond. This paper documents that these trends differ between manufacturing and services in the U.S. and in a broad set of other industrialized economies, and shows that a model where the degree of capital-labor substitutability differs across sectors is consistent with these trends. We calibrate the model exploiting additional information on the pace of structural change from manufacturing to services, on which the model also has predictions. We then conduct a decomposition to establish the relative importance of several potential drivers of changes in factor income shares and structural change that have been proposed in the literature. This exercise reveals that differences in productivity growth across sectors, combined with differences in substitution possibilities, have been the main driver of both changes in the labor income share and structural change.
    Keywords: structural change, labor income share, capital-labor substitution
    JEL: O40 O30
    Date: 2015–03
  4. By: Alvarez-Cuadrado, Francisco (McGill University); Long, Ngo Van (McGill University); Poschke, Markus (McGill University)
    Abstract: There is a growing interest in multi-sector models that combine aggregate balanced growth, consistent with the well-known Kaldor facts, with systematic changes in the sectoral allocation of resources, consistent with the Kuznets facts. Although variations in the income elasticity of demand across goods played an important role in initial approaches, recent models stress the role of supply-side factors in this process of structural change, in particular sector-specific technical change and sectoral differences in factor proportions. We explore a general framework that features an additional supply-side mechanism and also encompasses, as special cases, these two known mechanisms. Our model shows that sectoral differences in the degree of capital-labor substitutability – a new mechanism – are a driving force for structural change. When the flexibility to combine capital and labor differs across sectors, a factor rebalancing effect is operative. It tends to make production in the more flexible sector more intensive in the input that becomes more abundant. As a result, growth rates of sectoral capital-labor ratios can differ and, if this effect dominates, shares of each factor used in a given sector can move in different directions. We identify conditions under which this occurs and analyze the dynamics of such a case. We also provide some suggestive evidence consistent with this new mechanism.
    Keywords: capital-labor substitution, balanced growth, structural change
    JEL: O40 O30
    Date: 2015–03
  5. By: Luca Zamparelli (Sapienza, University of Rome)
    Abstract: This paper examines the evolution of wealth distribution between workers and capitalists. It shows that under competitive conditions, and when factors elasticity of substitution is high enough to ensure endogenous growth, capitalists' share of total wealth asymptotically tends to one if they have a higher propensity to save than workers. It is also shown that a tax on capital income shifts wealth distribution in workers' favor and makes any level of wealth concentration feasible.
    Keywords: Wealth distribution, elasticity of substitution, Pasinetti two-class equilibrium, Piketty
    JEL: E12 E13 E25
    Date: 2015–01
  6. By: Kirill Borissov; Mikhail Pakhnin
    Abstract: We consider two models of economic growth with exhaustible natural resources, exogenous technical progress and agents heterogeneous in their time preferences. In the first model we assume private ownership of natural resources. We show that every competitive equilibrium in this model converges to a balanced-growth equilibrium. The long-run extraction rate and the rate of growth are determined by the discount factor of the most patient agents. The second model assumes public ownership of natural resources. The resource revenue is equally distributed among agents, who choose the resource extraction rate by voting. We define an intertemporal voting equilibrium and show that it also converges to a balanced-growth equilibrium. The long-run voting equilibrium extraction rate and the rate of growth are determined by the median discount factor. Our results suggest that, other things being equal, the growth rate in the case of private ownership is higher than that of public ownership if the most patient agents do not constitute the majority in population; otherwise there is no difference in the growth rates between the two regimes. However, in the long run private ownership leads to a higher level of inequality than public ownership. If we take into account the detrimental effect of inequality on economic growth, then the public property regime will likely result in a higher long-run rate of growth compared to the private property regime.
    Keywords: economic growth, exhaustible resources, heterogeneous agents, voting
    JEL: Q32 E13 D91 O40
    Date: 2014–12–31
  7. By: Patrick IMAM (FERDI); Kangni KPODAR (International Monetary Fund (IMF))
    Abstract: The rapid growth of Islamic banking has attracted much attention lately in the economic literature. At the same time, a mature body of the literature has shown that financial development is broadly conducive to economic growth, which raises the question as to whether a similar conclusion holds for Islamic banking. Against this backdrop, this paper investigates the relationship between Islamic banking development and economic growth in a sample of low and middle income countries, using data over the period 1990-2010. The results show that, notwithstanding its relatively small size compared to the economy and the overall size of the financial system, Islamic banking is positively associated with economic growth even after controlling for various determinants, including the level of financial depth. The results are robust across across different specifications, sample composition and time periods.
    JEL: G0 G21 O10
    Date: 2015–04
  8. By: Mtiraoui, abderraouf
    Abstract: Several econometrical recent studies carried on international comparison data puts into question the opinion according to which education as a human capital indicator would encourage growth. This result comes in a context of opening to the outside. The evaluations are made on data of dynamic panel with the generalized moment's method GMM, with a tertiary schooling rate as indicator reflecting the human capital. This human capital coefficient varies stochastically from a country to the other according to national features. Several among them permit to explain these differences of quality: educational infrastructures, capacity to provide education in an equal way, initial endowment in human capital in case of opening. We introduce several variables related to the structural, institutional features and to the development of the human capital to test their effects on growth in the M.E.N.A zone during the period 1994-2006. Most of the found results show the existence of a relation between the policies of opening, structural, institutional, human capital factors and the growth in these countries.
    Keywords: Human Capital, Growth, Opening to the outside, GMM, MENA
    JEL: F1 F10
    Date: 2015–01–22
  9. By: Brian McCaig; Margaret S. McMillan; Iñigo Verduzco-Gallo; Keith Jefferis
    Abstract: This paper decomposes Botswana’s growth from the late 1960s through 2010 into a within-sector and a between-sector (structural change) component. We find that during the 70s and 80s Botswana’s rapid economic growth was characterized by significant structural change with the share of the labor force employed in agriculture dropping from more than 80 percent to around 40 percent. Between 1990 and 2010 growth was also rapid, but structural change detracted from growth. We hypothesize that this is one of the reasons for persistent poverty and very high income inequality in Botswana today. This leaves us with the following puzzle: why is it that a country with such an impressive track record marked by good governance and prudent macroeconomic and fiscal policy is having so much trouble diversifying its economy?
    JEL: O5 O55
    Date: 2015–03

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