nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒05‒22
sixteen papers chosen by
Marc Klemp
Brown University

  1. Temperature and Human Capital in the Short- and Long-Run By Joshua S. Graff Zivin; Solomon M. Hsiang; Matthew J. Neidell
  2. Geography, Cultural Remoteness and Economic Development: A Regional Analysis of the Economic Consequences of Insularity By C. S. Mastinu; M. Del Gatto
  3. Growth Cycles in a Two-country Model of Innovation By Kunihiko Konishi
  4. Declining trust in growing China: A dilemma between growth and socio-economic damage By Dai, Shuanping; Elsner, Wolfram
  5. Social Interactions, the Evolution of Trust, and Economic Growth By Dimitrios Varvarigos; Guangyi Xin
  6. Democracy, cognitive skill, and top 1% income share in the 21st century By Yamamura, Eiji
  7. Take-off, Persistence, and Sustainability : The Demographic Factor of Chinese Growth By Cai Fang, Lu Yang
  8. Cycles and chaos in the one-sector growth model with elastic labor supply By Gerhard Sorger
  9. Total Factor Productivity Growth and Export-led Strategies: Reviewing the Cross-country Evidence By Armando Castelar Pinheiro
  10. Productivity lessons for the Asian region By Jungsoo Park, Lawrence Lau
  11. Causality between credit depth and economic growth: Evidence from 24 OECD countries By Stolbov , Mikhail
  12. The Resource Curse: A Statistical Mirage? By Alexander James
  13. Endogenous growth, convexity of damage and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions By Simon Dietz; Nicholas Stern
  14. Why Do Cities Matter? Local Growth and Aggregate Growth By Hsieh, Chang-Tai; Moretti, Enrico
  15. Immigration and economic growth in the OECD countries 1986-2006 By Ekrame Boubtane; Jean-Christophe Dumont; Christophe Rault
  16. The relationship between Economic Growth, Exports and Government Expenditure: The case of Turkey By Fatih OKUR; Özgür Bayram SOYLU

  1. By: Joshua S. Graff Zivin; Solomon M. Hsiang; Matthew J. Neidell
    Abstract: We provide the first estimates of the potential impact of climate change on human capital, focusing on the impacts from both short-run weather and long-run climate. Exploiting the longitudinal structure of the NLSY79 and random fluctuations in weather across interviews, we identify the effect of temperature in models with child-specific fixed effects. We find that short-run changes in temperature lead to statistically significant decreases in cognitive performance on math (but not reading) beyond 26C (78.8F). In contrast, our long-run analysis, which relies upon long-difference and rich cross-sectional models, reveals no statistically significant relationship between climate and human capital. This finding is consistent with the notion that adaptation, particularly compensatory behavior, plays a significant role in limiting the long run impacts from short run weather shocks.
    JEL: H41 I0 Q5 Q54
    Date: 2015–05
  2. By: C. S. Mastinu; M. Del Gatto
    Abstract: We study the relationship between economic development, geography and “cultural remoteness” (i.e. distance from the technological frontier(s) driving economic development) at a regional level focusing on the role of “insularity”. The analysis covers all island regions worldwide and documents the presence of economic costs (measured in GDP per capita), due to insularity, in addition to those generally attributed to ‘geographical remoteness’. Cultural remoteness, either measured in terms of linguistic or ethnic distance, is not the only cause that explains these costs.
    Keywords: Insularity, geographic remoteness, economic development, cultural distance
    JEL: R58 R11 O21 O10
    Date: 2015
  3. By: Kunihiko Konishi (Graduate School of Economics, Osaka University)
    Abstract: This study examines growth cycles in a simple discrete-time two-country model of in- novation. In this setting, we find that there are two key driving forces that give rise to cycles. They are perfect international capital mobility and perfect international knowledge spillovers. In addition, this study shows that the opening of trade can create cycles in both countries, whereas pretrade equilibrium in each country initially jumps to the steady state. That is, our results are characteristic of an open-economy framework.
    Keywords: Two-country model, Cycles, Innovation
    JEL: E32 F44 O41
    Date: 2015–05
  4. By: Dai, Shuanping; Elsner, Wolfram
    Abstract: Declining general trust has become a serious social issue in China in recent years. This paper attempts to understand and analyze this social phenomenon from a social interaction perspective. Based on a repeated prisoners´ dilemma game on networks, it finds that the evolution of general trust is dependent on changes of the social interaction structure, and the increases of both social and spatial distance may explain a decrease of the levels of cooperation and general trust. In addition, we find that the traditional Chinese family and clan networks culture has an ambiguous effect on general trust, and simple reactive social "homing behavior" might be critical for China´s future economic development. In order to recover the general trust level, a major strategic option for China, and for fast growing countries in economic transition in general, is to (re-)develop appropriate network structures and properties, as our model indicates.
    Keywords: economic transition,growth and development,migration,trust,games on networks,China
    JEL: B52 C72 D01 D02 D30 E24 O17 O43 O53 P21 Z10
    Date: 2015
  5. By: Dimitrios Varvarigos; Guangyi Xin
    Abstract: We present a model where the dynamics of trust and the process of capital accumulation are jointly determined. Trust evolves intergenerationally, as the process of social interactions with people from different backgrounds creates experiences and forms opinions that are bequeathed to the next generation, thus shaping their level of trust. The provision of public goods and services is also a supporting factor towards the formation of trust. A key result is the possibility of social segregation if the level of trust is below a critical threshold. As a result, long-run equilibria are path-dependent. Both the current level of trust and the current stock of capital are important in determining the economy’s long-term prospects.
    Keywords: Trust, Cultural Externalities, Economic Growth
    JEL: O41 Z13
    Date: 2015–05
  6. By: Yamamura, Eiji
    Abstract: Studies to date have shown that income concentration for the top 1% income share, the super-rich, has increased conspicuously in the 21st century. However, there is insufficient knowledge on how political factors and types of human capital influence income concentration. Using cross-country data from this century, I provide empirical evidence that shows that democracy and cognitive skill are negatively correlated to the top 1% income share.
    Keywords: Democracy; Cognitive skill; Top 1% income share
    JEL: I24 P16
    Date: 2015–04–22
  7. By: Cai Fang, Lu Yang
    Abstract: With the reduction of the working-age population and the increase of the population dependency ratio as the main characteristics of the demographic dividend having disappeared, China’s potential growth rate decreases. And our results suggest that demographic dividend contributed to nearly one forth of the economic growth in China in the past three decades, while TFP growth explains another one third with the remainder mainly due to capital accumulation, explaining nearly half. China’s potential growth rate will slow down—from nearly 10 per cent in the past 30 years to 7.5 per cent on average during 2011-2015—due to the diminished demographic dividend, but reform measures are conductive to clearing the institutional barriers to the supply of factors and productivity, thereby slowing the declining trend of potential growth rate. The aggregate reform dividend (e.g., relax family planning policy, postpone the retirement age, improvement of education and training, tax cut, and improvement of TFP) could reach to 1-2 percentage points on average during 2016-2050.
    Keywords: potential growth rate, Demographic dividend, reform dividend, total factor productivity
    JEL: O47 J21 C53
    Date: 2015–04
  8. By: Gerhard Sorger
    Abstract: It is shown that the discrete-time version of the neoclassical one-sector optimal growth model with endogenous labor supply and standard assumptions on technology and preferences admits periodic solutions of any period as well as chaotic solutions. Solutions with period 2 are possible for any time-preference factor between 0 and 1, whereas the existence of periodic solutions with other periods and the existence of chaotic solutions are only demon- strated by means of a specic example involving strong time-preference. The results are derived via constructive proofs that use Cobb-Douglas production functions.
    JEL: C61 O41
    Date: 2015–05
  9. By: Armando Castelar Pinheiro
    Abstract: In this paper we review, examine and comment the empirical li terature that relies on cross-country statistical analyses to show that export orientation has a positive and significant impact on total factor productivity growth. We comment the work reviewed along four lines. First, we address the question of properly identifying the degree of export bias of an economy and the ways by which exports and growth are related. Second, we consider the sensitivity of the results to sample and period selection. Third, we review the evidence with respect to the direct íon of causali ty between export and output growth. Finally, we extend the analysis beyond the single-equation cross-country regression model to see the relevance of specification problems. Our main conclusion is that, although adequate to search for stylized facts, the cross-country model is not the best way to examine the association between total factor productivity growth and trade orientation.
    Date: 2015–01
  10. By: Jungsoo Park, Lawrence Lau
    Abstract: This study investigates how the patterns of productivity growth have changed over the past few decades for the Asian economies in comparison with the advanced economies. The findings indicate that the Asian economies are in the process of transition in terms of pattern of growth. It seems that the 4 NIEs have already transitioned from input-based growth to productivity-based growth, and the remaining Asian economies are starting to show signs of transition in the past decade. Scrutinizing the recent trends in human capital, R&D, patent statistics, and inward FDIs, they all indicate that the productivity growth will be stronger in the Asian region than before and will constitute the major basis for growth.
    Keywords: total factor productivity, Asian economies, economic growth
    JEL: O47 O57
    Date: 2015–04
  11. By: Stolbov , Mikhail (BOFIT)
    Abstract: Causality between the ratio of domestic private credit to GDP and growth in real GDP per capita is investigated in a country-by-country time-series framework for 24 OECD economies over the period 1980–2013. The proposed threefold methodology to test for causal linkages integrates (i) lag-augmented VAR Granger causality tests, (ii) Breitung-Candelon causality tests in the frequency domain, and (iii) testing for causal inference based on a fully modified OLS (FMOLS) approach. For 12 of 24 countries in the sample, the three tests yield uniform results in terms of causality presence (absence) and direction. Causality running from credit depth to economic growth is found for the UK, Australia, Switzerland, and Greece. The findings lend no support to the view that financial development shifts from a supply-leading to demand-following pattern as economic development proceeds. The aggregate results mesh well with the current discussion on “too much finance” and disintermediation effects. However, idiosyncratic country determinants also appear significant.
    Keywords: causality; economic growth; financial development; FMOLS; frequency domain
    JEL: C22 E44 G21 O16
    Date: 2015–04–30
  12. By: Alexander James
    Abstract: A surprising feature of resource-rich economies is slow growth. It is often argued that natural-resource production impedes development by creating market or institutional failures. This paper establishes an alternative explanationa slow-growing resource sector.A declining resource sector is disproportionately reected in resource-dependent countries. Additionally, there is little evidence that resource dependence impedes growth in non-resource sectors. More generally, this paper illustrates the importance of considering industry composition in cross-country growth regressions.
    Keywords: Resource Dependence, Economic Growth Resource Curse
    JEL: Q2 Q3 O1
    Date: 2014
  13. By: Simon Dietz; Nicholas Stern
    Abstract: ‘To slow or not to slow’ (Nordhaus, 1991) was the first economic appraisal of greenhouse gas emissions abatement and founded a large literature on a topic of worldwide importance. We offer our assessment of the original article and trace its legacy, in particular Nordhaus's later series of ‘DICE’ models. From this work, many have drawn the conclusion that an efficient global emissions abatement policy comprises modest and modestly increasing controls. We use DICE itself to provide an initial illustration that, if the analysis is extended to take more strongly into account three essential elements of the climate problem – the endogeneity of growth, the convexity of damage and climate risk – optimal policy comprises strong controls.
    Keywords: climate change; climate sensitivity;damage fuction; endogenous growth; integrated assesment
    JEL: Q54
    Date: 2015–03
  14. By: Hsieh, Chang-Tai; Moretti, Enrico
    Abstract: We study how growth of cities determines the growth of nations. Using a spatial equilibrium model and data on 220 US metropolitan areas from 1964 to 2009, we first estimate the contribution of each U.S. city to national GDP growth. We show that the contribution of a city to aggregate growth can differ significantly from what one might naively infer from the growth of the city’s GDP. Despite some of the strongest rate of local growth, New York, San Francisco and San Jose were only responsible for a small fraction of U.S. growth in this period. By contrast, almost half of aggregate US growth was driven by growth of cities in the South. We then provide a normative analysis of potential growth. We show that the dispersion of the conditional average nominal wage across US cities doubled, indicating that worker productivity is increasingly different across cities. We calculate that this increased wage dispersion lowered aggregate U.S. GDP by 13.5%. Most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%. We conclude that the aggregate gains in output and welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor are housing supply constraints. These constraints limit the number of US workers who have access to the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers.
    Keywords: cities; economic growth
    JEL: E00 R1
    Date: 2015–05
  15. By: Ekrame Boubtane (Centre d'Economie de la Sorbonne et CERDI - Université d'Auvergne); Jean-Christophe Dumont (Organisation for Economic Cooperation and Development - OECD); Christophe Rault (LEO - Université d'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: 2013–02
  16. By: Fatih OKUR (Social Sciences); Özgür Bayram SOYLU (Social Sciences)
    Abstract: The aim of this study, to analyze the relationship between economic growth, exports and government expenditures in the period of 1980-2013; to test If export-led growth hypothesis holds in Turkey. In this analyze, ADF unit root, Johansen Co-integration and Granger Causality tests are used. According to ADF unit root test, all the variables are stationary in their first levels. Johansen Co-integration results show that there is a long-run relationship between economic growth, exports and government expenditure. Because there is co-integration between the variables, VECM is used to test causality. Empirical results show that there is a unidirectional causality which runs from export to economic growth in the short-run period. In the long-run period, While it is found that the causality runs as bidirectional between economic growth and government expenditure, there is a unidirectional causality which runs from export to economic growth and government expenditure.
    Keywords: Economic Growth, Export, Government Expenditure, VECM, Causality

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.