nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒10‒04
fifteen papers chosen by
Marc Klemp
Brown University

  1. Islam, Inequality and Pre-Industrial Comparative Development By Michalopoulos, Stelios; Naghavi, Alireza; Prarolo, Giovanni
  2. New media, competition and growth: European cities after Gutenberg By Jeremiah Dittmar
  3. Human Capital Persistence and Development By Claudio Ferraz; Rodrigo Reis Soares; Rudi Rocha
  4. Entrepreneurship, institutions and growth in European regions : a uniform mechanism By K. Bruns; N.S. Bosma; M.W.J.L. Sanders; M.C. Schramm
  5. Precolonial centralisation, foreign aid and modern state capacity in Africa By Broich T.; Szirmai A.; Thomsson K.M.
  6. A ’Jump’ in the Stochasticity of the Solow-Swan Growth Model. By Claude Diebolt; Tapas Mishra; Mamata Parhi
  7. Growth and Cultural Preference for Education By Chu, Angus C.; Furukawa, Yuichi; Zhu, Dongming
  8. Was there a ‘Little Convergence’ in inequality? Italy and the Low Countries compared, ca. 1500-1800 By Guido Alfani; Wouter Ryckbosch
  9. Are We Approaching an Economic Singularity? Information Technology and the Future of Economic Growth By William D. Nordhaus
  10. Structural Change with Long-run Income and Price Effects By Diego A. Comin; Danial Lashkari; Martí Mestieri
  11. Critical Capital Stock in a Continuous-Time Growth Model with a Convex-Concave Production Function By Ken-Ichi Akao; Takashi Kamihigashi; Kazuo Nishimura
  12. What type of finance matters for growth? Bayesian model averaging evidence By Hasan, Iftekhar; Horvath, Roman; Mares , Jan
  13. Growth and Trade: A Structural Estimation Framework By Yoto Yotov; Mario Larch; James Anderson
  14. Liquidity, Innovation, and Endogenous Growth By Malamud, Semyon; Zucchi, Francesca
  15. Does Unemployment Significantly Impact on the Economic Growth of Nigeria? By Onwachukwu, Chinedu Increase

  1. By: Michalopoulos, Stelios; Naghavi, Alireza; Prarolo, Giovanni
    Abstract: This study explores the interaction between trade and geography in shaping the Islamic economic doctrine. We build a model where an unequal distribution of land quality in presence of trade opportunities conferred differential gains from trade across regions, fostering predatory behavior by groups residing in the poorly endowed territories. We show that in such an environment it was mutually beneficial to institute an economic system of income redistribution featuring income transfers in return for safe passage to conduct trade. A commitment problem, however, rendered a merely static redistribution scheme unsustainable. Islam developed a set of dynamic redistributive rules that were self-enforcing, in regions where arid lands dominated the landscape. While such principles fostered the expansion of trade within the Muslim world they limited the accumulation of wealth by the commercial elite, shaping the economic trajectory of Islamic lands in the pre-industrial era.
    Keywords: conflict; geography; inequality and land quality; Islam; public good investment; religion; trade; wealth accumulation
    JEL: F10 O10 O13 O16 O17 O18 Z12
    Date: 2015–09
  2. By: Jeremiah Dittmar
    Abstract: This research studies how variations in competition and in media content characterized the use and impact of Gutenberg's printing press technology during the European Renaissance. The research constructs annual firm-level panel data on the publications produced by 7,000+ printing firms operating in over 300 European cities 1454- 1600. Evidence on the timing of the premature deaths of firm owner-managers is used to isolate shocks to competition. Firms where owner-managers died experienced large negative shocks to output. However, at the citylevel deaths of incumbent managers were associated with significant increases in entrance and with a positive and persistent impact on competition and city output. Variations in city supply induced by heterogeneous manager deaths are used to study the relationship between the diffusion of ideas in print and city growth. A uniquely strong relationship is observed between the new business education literature and local growth. This is consistent with historical research on the transformative impact business education ideas had on commercial practices and European capitalism.
    Keywords: Information technology; IO; media; growth; history; business education
    JEL: L1 N9 N93 O11 O18 O33
    Date: 2015–08
  3. By: Claudio Ferraz (Department of Economics PUC-Rio); Rodrigo Reis Soares (São Paulo School of Economics); Rudi Rocha (UFRJ - Instituto de Economia)
    Abstract: This paper examines the role of human capital persistence in explaining long-term development. We exploit variation induced by a state-sponsored settlement policy that attracted a pool of immigrants with higher levels of schooling to particular regions of Brazil in the late 19th and early 20th century. We show that municipalities that received settlements experienced increases in schooling that persisted over time. One century after the policy, localities that received state-sponsored settlements had higher levels of schooling and income per capita. We provide evidence that long-run effects were driven by persistently higher supply and use of educational inputs and shifts in the structure of occupations towards skill-intensive sectors.
    Date: 2015–06
  4. By: K. Bruns; N.S. Bosma; M.W.J.L. Sanders; M.C. Schramm
    Abstract: In this paper we present an alternative empirical strategy that sheds light on the importance of institutional quality for regional economic growth. The fundamental problem in this type of research is that institutional quality cannot be measured directly. Existing proxies are typically highly correlated with and endogenous to our dependent variable. We therefore propose a method that is akin to growth accounting, where we refer to the unexplained residual of a production function as total factor productivity. First we run a standard growth regression, including the usual suspects, on 90 European NUTS-2 and 3 regions. The residual variation in regional growth then includes the effect of the fundamentally latent variable that is institutional quality. If this is the case, then variables for which we may assume the effect on growth is strongly moderated through institutional quality, should have a different marginal effect on residual growth at the aggregation levels at which institutions operate. Theory and preliminary empirical evidence suggests that the effect of entrepreneurial activity is strongly moderated by institutional quality. We can thus test the hypothesis that the marginal effect of entrepreneurship on growth differs across regions and countries in our data. We indeed establish that entrepreneurial activity has a positive effect on growth. That is, entrepreneurial activity helps explain the residual variance in our standard growth regressions. However, this effect is not significant when we control for unobserved country differences in a multilevel analysis. We find that most of the cross regional variation is due to between country variation in average entrepreneurial activity, and that there is no longer an effect at the within-country regional level. In a latent class analysis, however, we do not find statistically significant differences in the coefficient across (groups of) regions after controlling for country effects. That is, our data suggests that country level institutional quality is most important for the effect of entrepreneurial activity on growth. After controlling for those differences, regions do not cluster in different classes. This also suggests that the difference between for example rural and urban regions in our sample is not significant, as such regions do not cluster in different groups. Before we draw strong conclusions, however, we note that this may be due to the administrative nature of our regional classification.
    Keywords: Institutions, Entrepreneurship, Regional Growth, Multilevel Model, Latent Class Model
    Date: 2015
  5. By: Broich T.; Szirmai A.; Thomsson K.M. (UNU-MERIT)
    Abstract: In this paper, we empirically explore the determinants of bureaucratic capacity in contemporary Africa. We connect the aid-governance literature with the historical, political economy and anthropological literature on African state formation. Our Ordinary Least Squares OLS results show that there is a positive and statistically significant relationship between precolonial centralisation and bureaucratic quality in Africa from the mid-1990s onwards. Before the mid-1990s there is no such relationship. We also find that the often negative and statistically significant effect of aid dependence on bureaucratic capacity disappears, once we control for precolonial centralisation. The OLS results survive a set of robustness tests, including the addition of several control variables and instrumental variable estimation using a variety of instruments suggested in previous research. As the colonial period is slowly fading, the influence of precolonial political institutions on modern state capacity is reasserting itself. Our results provide further evidence for the importance of precolonial centralisation in our understanding of present day economic and political developments on the continent.
    Keywords: Foreign Aid; Structure and Scope of Government: General; Economic History: Government, War, Law, International Relations, and Regulation: Africa; Oceania; Macroeconomic Analyses of Economic Development; Economywide Country Studies: Africa; Economic Sociology; Economic Anthropology; Social and Economic Stratification;
    JEL: F35 H10 N47 O11 O55 Z13
    Date: 2015
  6. By: Claude Diebolt; Tapas Mishra; Mamata Parhi
    Abstract: We characterize ’Solow-Swan’ economic growth model in a stochastic environment. Our interest basically lies in modelling arrival of uncommon or stochastic shocks in both physical capital and labour, introducing discontinuities in the growth of these variables. These characterizations are completed by employing a Jump process to the Solow-Swan model. Interesting dynamics of capital and labor growth emerge from our investigation.
    Keywords: Stochastic Solow-Swan growth, Brownian motion, Jump process.
    JEL: E13 C60 O41 L1 C1 D2
    Date: 2015
  7. By: Chu, Angus C.; Furukawa, Yuichi; Zhu, Dongming
    Abstract: In this note, we explore the implications of cultural preference for education in an innovation-driven growth model that features an interaction between endogenous human capital accumulation and technological progress. Parents invest in children's education partly due to the preference for their children to be educated. We consider a preference parameter that measures the degree of this parental or cultural preference for education. We find that a higher degree of parental preference for education increases human capital, which is conducive to innovation, but the increase in education investment also crowds out resources for R&D investment. As a result, a stronger cultural preference for education has an inverted-U effect on the steady-state equilibrium growth rate. We also analytically derive the complete transitional path of the equilibrium growth rate and find that an increase in the degree of education preference has an initial negative effect on economic growth.
    Keywords: economic growth, human capital, education, culture
    JEL: E24 O31 O41
    Date: 2015–09
  8. By: Guido Alfani; Wouter Ryckbosch
    Abstract: The question of how economic inequality changed during the centuries leading up to the industrial revolution has been attracting a growing amount of research effort. Nevertheless, a complete picture of the tendencies in economic inequality throughout pre-industrial Europe has remained out of our grasp. This paper begins to resolve this problem by comparing long-term changes in inequality between Central and Northern Italy on the one hand and the Southern and Northern Low Countries on the other hand. Based on new archival material, we reconstruct regional estimates of economic inequality between 1500 and 1800 and analyze them in the light of the Little Divergence debate, assessing the role of economic growth, urbanization, proletarianization, and political institutions. We argue that different explanations should be invoked to understand the early modern growth of inequality throughout Europe, since several factors conspired to make for a society in which it was much easier for inequality to rise than to fall. We also argue that although there was apparently a ‘Little Convergence’ in inequality, at least some parts of southern and northern Europe diverged in terms of inequality extraction ratios. Keywords Economic inequality; early modern period; Sabaudian State; Florentine State; Italy; Low Countries; Belgium; The Netherlands; inequality extraction; wealth concentration; fiscal state; proletarianization
    Date: 2015
  9. By: William D. Nordhaus (Cowles Foundation, Yale University)
    Abstract: What are the prospects for long-run economic growth?, the present study looks at a more recently launched hypothesis, which I label Singularity. The idea here is that rapid growth in computation and artificial intelligence will cross some boundary or Singularity after which economic growth will accelerate sharply as an ever-accelerating pace of improvements cascade through the economy. The paper develops a growth model that features Singularity and presents several tests of whether we are rapidly approaching Singularity. The key question for Singularity is the substitutability between information and conventional inputs. The tests suggest that the Singularity is not near.
    Keywords: Superintelligence, Artificial intelligence, Economic growth, Computers
    JEL: O4 O47 O31
    Date: 2015–09
  10. By: Diego A. Comin; Danial Lashkari; Martí Mestieri
    Abstract: We present a new multi-sector growth model that accommodates long-run demand and supply drivers of structural change. The model generates nonhomothetic Engel curves at all levels of development and is consistent with the decline in agriculture, the hump-shaped evolution of manufacturing and the rise of services over time. The economy converges to a constant aggregate growth rate that depends on sectoral income elasticities, capital intensities and rates of technological progress. We estimate the demand system derived from the model using historical data on sectoral employment shares from twenty-five countries and household survey data from the US. Our estimated model parsimoniously accounts for the broad patterns of sectoral reallocation observed among rich, miracle and developing economies in the post-war period. We find that income effects play a major role in generating structural change.
    JEL: E2 O11 O4 O5
    Date: 2015–09
  11. By: Ken-Ichi Akao (School of Social Sciences, Waseda University); Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kazuo Nishimura (Research Institute for Economics & Business Administration (RIEB), Kobe University, and KIER, Kyoto University)
    Abstract: The critical capital stock is a threshold that appears in a nonconcave aggregate growth model such that any optimal capital path from a stock level below the threshold converges to a lower steady state, whereas any optimal capital path from a stock level above the threshold converges to a higher steady state. Unlike a concave model with wealth effect, the threshold is not necessarily an optimal steady state, which makes its characterization difficult. In a continuous-time growth model with a convex-concave production function, we show that: a) the critical capital stock is continuous and strictly increasing in the discount rate; b) as the discount rate increases, it appears at the zero-stock level and disappears at a certain level between the stock levels of the maximum average productivity and the maximum marginal productivity; c) at this upper bound, it merges with the higher steady state; d) once the critical capital stock disappears, the higher steady state is no longer an optimal steady state; and e) the disappearing point can be arbitrarily close to either of the these stock levels, depending on the curvature of the utility function.
    Keywords: Continuous-time growth model, Convex-concave production function, Critical capital stock
    JEL: C61 D90 O41
    Date: 2015
  12. By: Hasan, Iftekhar (Fordham University and Bank of Finland); Horvath, Roman (Charles University, Prague); Mares , Jan (Czech Ministry of Finance and Charles University, Prague)
    Abstract: We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator – the efficiency of financial intermediaries – is robustly related to long-term growth.
    Keywords: finance; growth; Bayesian model averaging
    JEL: C11 G10 O40
    Date: 2015–06–08
  13. By: Yoto Yotov (Drexel University); Mario Larch (University of Bayreuth); James Anderson (Boston College)
    Abstract: We build and quantify a structural general equilibrium model of growth and trade. Trade affects growth through changes in consumer and producer prices that in turn stimulate or impede physical capital accumulation. At the same time, growth affects trade, directly through changes in country size and indirectly through altering the incidence of trade costs. The model combines structural gravity with a simple capital accumulation specification of the transition between steady states. An intuitive, self-sufficient econometric system results. Counterfactual experiments based on the estimated model give evidence for strong causal relationships between growth and trade.
    Date: 2015
  14. By: Malamud, Semyon; Zucchi, Francesca
    Abstract: We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that liquidity constraints unambiguously lead firms to decrease their production rate but, surprisingly, may spur investment in innovation (R&D). Using the model, we characterize which firms substitute production for innovation when constrained and thus display a non-monotonic relation between cash reserves and R&D. We embed our single-firm dynamics in a Schumpeterian model of endogenous growth and demonstrate that financing frictions have an ambiguous effect on economic growth.
    Keywords: Cash management; Creative destruction; Endogenous growth; Financial constraints; Innovation
    JEL: D21 G31 G32 G35 L11
    Date: 2015–09
  15. By: Onwachukwu, Chinedu Increase
    Abstract: This study examines the impact of unemployment on the economic growth of Nigeria from 1985 to 2010. The Ordinary Least Squares (OLS) and Augmented Dickey-Fuller methods are used to estimate the model of one dependent variable (Real GDP growth rate) and two explanatory variables (inflation and unemployment). It was found that unemployment does not have a significant impact on the economic growth of Nigeria. Inflation, however, was found to significantly impact on the economic growth of Nigeria. Recommendations are also made to help accelerate the rate of growth.
    Keywords: Economic Growth, Unemployment, Inflation
    JEL: O11 O4
    Date: 2015–09–27

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