nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒10‒17
nineteen papers chosen by
Marc Klemp
Brown University

  1. Modelling the interaction between flooding events and economic growth By Grames, Johanna; Prskawetz, Alexia; Grass, Dieter; Viglione, Alberto; Blöschl, Günter
  2. Civil conflicts in Africa: Climate, economic shocks, nighttime lights and spill-over effects By Achim Ahrens
  3. Economic Freedom and Economic Growth Across U.S. States: A Spatial Panel Data Analysis By Kaitlyn Harger; Brad R. Humphreys; Amanda Ross
  4. Deindustrialisation, structural change and sustainable economic growth By Tregenna F.
  5. Economic Growth and Evolution of Gender Equality By Tatiana Damjanovic; Geethanjali Selvaretnam
  6. Endogenous Sector-Biased Technological Change and Industrial Policy By Herrendorf, Berthold; Valentinyi, Akos
  7. Demographic structure and macroeconomic trends. By Yunus Aksoy; Ron P. Smith; Tobias Grasl; Henrique S. Basso
  8. Pollution, Infectious Disease, and Mortality: Evidence from the 1918 Spanish Influenza Pandemic By Clay, Karen; Lewis, Joshua; Severnini, Edson R.
  9. Wealth-income ratios in a small, late-industrializing, welfare-state economy: Sweden, 1810–2014 By Waldenström, Daniel
  10. The National Wealth of Sweden, 1810–2014 By Waldenström, Daniel
  11. Inequality in an Equal Society: Theory and Evidence By Jochen O. Mierau; James Rockey
  12. Industrialisation in Time and Space By Lavopa A.M.; Szirmai A.
  13. Immigration and Economic Growth in the OECD Countries 1986-2006 By Ekrame BOUBTANE; Jean-Christophe DUMONT; Christophe RAULT
  14. Remittances, finance and growth: does financial development foster remittances and their impact on economic growth By Izabela Sobiech
  15. Economic Development and Stage-Dependent IPR By Bharat Diwakar; Gilad Sorek
  16. Constitutional Bargaining, Eminent Domain, and the Quality of Contemporary African Institutions: A Test of the Incremental Reform Hypothesis By Roger D. Congleton; Dongwoo Yoo
  17. Revisiting the Lucas model By Skritek, Bernhard; Crespo Cuaresma, Jesús; Kryazhimskii, Arkadii V.; Prettner, Klaus; Prskawetz, Alexia; Rovenskaya, Elena
  18. The Structure of the Models of Structural Change and Kaldor's Facts: A Critical Survey By KUROSE, Kazuhiro
  19. Natural Gas Consumption and Economic Growth: The Role of Foreign Direct Investment, Capital Formation and Trade Openness in Malaysia By Solarin, Sakiru Adebola; Shahbaz, Muhammad

  1. By: Grames, Johanna; Prskawetz, Alexia; Grass, Dieter; Viglione, Alberto; Blöschl, Günter
    Abstract: Recently socio-hydrology models have been proposed to analyse the interplay of community risk-coping culture, flooding damage and economic growth. These models descriptively explain the feedbacks between socio-economic development and natural disasters such as floods. Complementary to these descriptive models, we develop a dynamic optimization model, where the inter-temporal decision of an economic agent interacts with the hydrological system. We assume a standard macro-economic growth model where agents derive utility from consumption and output depends on physical capital that can be accumulated through investment. To this framework we add the occurrence of flooding events which will destroy part of the capital. We identify two specific periodic long term solutions and denote them rich and poor economies. Whereas rich economies can afford to invest in flood defence and therefore avoid flood damage and develop high living standards, poor economies prefer consumption instead of investing in flood defence capital and end up facing flood damages every time the water level rises. Nevertheless, they manage to sustain at least a low level of physical capital. We identify optimal investment strategies and compare simulations with more frequent and more intense high water level events.
    Keywords: flood,socio-hydrology,dynamic optimization,investment strategy
    Date: 2015
  2. By: Achim Ahrens (Heriot-Watt University)
    Abstract: This study examines the relationship between weather conditions, economic shocks and civil conflicts in Africa. While most studies rely on country-level data sets, this study exploits a panel data set of African first-order administrative units covering 1992-2010. Since sub-national gross domestic product for Africa is either unavailable or of poor quality, nighttime light data from satellites is exploited to predict economic growth at the sub-national level. In addition to IV/GMM estimation, the Lasso estimator is employed in order to generate optimal instruments for economic growth from rainfall and temperature variables. It is demonstrated that the Lasso estimator successfully addresses the challenges arising from non-linearities, heterogeneity across climate regions and weak identification. Furthermore, spatial econometric methods account for conflict spill-overs via political, geographical and ethnic ties. Estimation results provide no evidence that economic growth shocks have a significant causal impact on violence, but prices of capital-intensive commodities seem to be associated with civil conflicts.
    Keywords: Civil conflict; Africa; economic growth; nighttime lights; spatial econometrics; Lasso; many instruments;
    JEL: C23 C26 Q34 D74 C52
    Date: 2015
  3. By: Kaitlyn Harger (Florida Gulf Coast University); Brad R. Humphreys (West Virginia University, Department of Economics); Amanda Ross (West Virginia University, Department of Economics)
    Abstract: There is a substantial literature estimating the effect of economic freedom on economic growth. Most studies examine the relationship between freedom and growth for countries, while a few examine the relationship for U.S. states. Absent in the state{level literature is consideration of the presence of spatial spillovers affecting the freedom{growth relationship. Neglecting to account for spatial autocorrelation can bias estimation results and therefore inferences drawn. We find evidence of a spatial pattern in real per-capita GSP that affects non-spatial estimates of the freedom{growth relationship. Taking into account the direct and indirect effects of economic freedom on GSP, we find a 10 percent increase in economic freedom is associated with a 4.2 percent increase in GSP.
    Keywords: spatial panel data model, spatial econometrics, economic freedom
    Date: 2015–07
  4. By: Tregenna F. (UNU-MERIT)
    Abstract: This paper reviews the literature and empirical evidence on deindustrialisation, with a focus on premature deindustrialisation. Structural change and industrialisation have long been considered important for developing countries to catch up. However, there has been widespread deindustrialisation over the past few decades, which is setting in at lower levels of income per capita and lower shares of manufacturing in the employment or GDP than earlier. Premature deindustrialisation can be defined as deindustrialisation that begins at a lower level of GDP per capita and/or at a lower level of manufacturing as a share of total employment and GDP, than is typically the case internationally. Many of the cases of premature deindustrialisation are in sub-Saharan Africa, in some instances taking the form of pre-industrialisation deindustrialisation. It is argued here that premature deindustrialisation is likely to have especially negative effects on growth. In addition to being influenced by the level of income per capita and share of manufacturing in the economy when deindustrialisation begins, the effects of deindustrialisation on growth are also expected to depend on whether or not it is policy induced and the nature of the activities that are relatively contracting and expanding. The paper concludes by exploring the implications for policymakers facing deindustrialisation.
    Keywords: Labor Force and Employment, Size, and Structure; Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices; Industrialization; Manufacturing and Service Industries; Choice of Technology; Industrial Policy;
    JEL: L16 J21 O14 O25
    Date: 2015
  5. By: Tatiana Damjanovic; Geethanjali Selvaretnam
    Abstract: We put forward a theoretical growth model where the degree of gender equality evolves towards the value maximising social output. It follows that a womans bargaining power positively depends on her relative productivity. When an economy is less developed, physical strength is quite important for production and therefore the total output is bigger when the man has larger share of the reward. As society develops and accumulates physical and human capital, the woman becomes more productive, which drives social norms towards gender equality. By endogenising gender balance of power we can explain why it di¤ers across societies and how it evolves over the time.
    Keywords: gender inequality, economic growth, female bargaining power, human capital, natural resources
    JEL: C72 C73 D13 J16 O41 O43
    Date: 2015–10
  6. By: Herrendorf, Berthold; Valentinyi, Akos
    Abstract: We build a model of structural transformation with endogenous sector-biased technological change. We show that if the return to specialisation is larger in the goods sector than in the service sector, then the equilibrium has the following properties: aggregate growth is balanced; structural transformation takes place from goods to services; the service sector receives more innovation but the goods sector has more productivity growth. We show that compared to the efficient allocation the laissez-faire equilibrium has too much labor in the goods sector. This suggests that optimal industrial policy should aim to increase the pace of structural transformation.
    Keywords: endogenous sector-biased technological change; horizontal innovation; industrial policy; structural transformation
    JEL: O11 O14 O31 O33
    Date: 2015–10
  7. By: Yunus Aksoy (University of London); Ron P. Smith (University of London); Tobias Grasl (University of London); Henrique S. Basso (Banco de España)
    Abstract: The effect of changes in demographic structure on medium-run trends of key macroeconomic variables is estimated using a panel VAR of 21 OECD economies. The panel data variability assists the identication of direct effects of demographics, while the dynamic structure uncovers long-term effects. Young and old dependants are found to have a negative impact while workers contribute positively. We propose a theoretical model, highlighting the relationship between demographics, innovation and growth, whose simulations match our empirical findings. The current trend of population aging and reduced fertility is found to reduce output growth and real interest rates across OECD countries
    Keywords: population age profile, medium-term, output growth, innovation, lifecycle
    JEL: E32 J11
    Date: 2015–10
  8. By: Clay, Karen (Carnegie Mellon University); Lewis, Joshua (University of Montreal); Severnini, Edson R. (Carnegie Mellon University)
    Abstract: This paper uses the 1918 influenza pandemic as a natural experiment to examine whether air pollution affects susceptibility to infectious disease. The empirical analysis combines the sharp timing of the pandemic with large cross-city differences in baseline pollution measures based on coal-fired electricity generating capacity for a sample 183 American cities. The findings suggest that air pollution exacerbated the impact of the pandemic. Proximity to World War I military bases and baseline city health conditions also contributed to pandemic severity. The effects of air pollution are quantitatively important. Had coal-fired capacity in above-median cities been reduced to the median level, 3,400-5,860 pandemic-related infant deaths and 15,575-23,686 pandemic-related all-age deaths would have been averted. These results highlight the complementarity between air pollution and infectious disease on health, and suggest that there may be large co-benefits associated with pollution abatement policies.
    Keywords: pollution, infectious disease, mortality, 1918 influenza pandemic
    JEL: N32 N52 I15 I18 Q53 Q56 Q58
    Date: 2015–10
  9. By: Waldenström, Daniel (Uppsala Center for Fiscal Studies)
    Abstract: This paper uses new data on Swedish national wealth over a period of two hundred years to study whether the patterns in wealth-income ratios previously found by Piketty and Zucman (2014) for some very rich and large Western economies extend to smaller countries that were historically backward and developed a different set of political and economic institutions during the twentieth century. The findings point to both similarities and differences. In the pre-industrial era, Sweden had much lower wealth levels than the rest of Europe, and the main explanation is that the Swedes were too poor to save their income. Over the twentieth century, Swedish aggregate trends and levels are much more similar to those of the rest of Europe, but the structure of national wealth differs. In Sweden, government wealth grew much faster and became more important, not least through its relatively large public pension system. This suggests an explicit role of historical economic and political institutions for the long-run evolution of wealth-income ratios.
    Keywords: Wealth-income ratios; National wealth; Household portfolios; Pension wealth; Welfare state; Institutions; Economic history
    JEL: D30 E01 E02 N30
    Date: 2015–10–07
  10. By: Waldenström, Daniel (Department of Economics, Uppsala University)
    Abstract: This study presents a new database, the Swedish National Wealth Database (SNWD), which contains annual data on private, public and national wealth and sectoral saving rates in Sweden over the past two centuries. The paper reviews previous investigations of national wealth, compares their estimates with the new ones and discusses method approaches and measurement problems. Then the main data series are presented for assets and liabilities and their subcomponents, for the private and public domestic and foreign sectors. Complementing the traditional focus on economic flow variables in the past literature on long-run economic developments, this new database offers potentially new perspectives of a number of important issues in the modern economic history of Sweden.
    Keywords: National wealth; Household portfolios; Saving; Pension wealth; Economic history
    JEL: E21 H31 N33 N34
    Date: 2015–10–07
  11. By: Jochen O. Mierau; James Rockey
    Abstract: We consider empirically the degree of wealth and income inequality that would prevail in a society in which, other than differences in age, everyone was equal. Theory suggests that life-cycle factors will still lead to substantial ‘natural’ inequality. Analysing cross-national data from the recently collected National Transfer Accounts we find that societies with no other source of inequality will exhibit substantial concentrations of income and wealth – Gini coefficients of circa 0.45 are common for income, purely due to these life-cycle effects. Using a modified Gini coefficient we find a substantial fraction of extant inequality can be attributed to this natural inequality. Finally, we show that if relative cohort sizes were equal to their long run values inequality would increase further.
    Keywords: Income Inequality, Wealth Inequality, National Transfer Accounts.
    JEL: D31 J10
    Date: 2015–10
  12. By: Lavopa A.M.; Szirmai A. (UNU-MERIT)
    Abstract: This paper analyses broad changes in the global structure of production in the last half century. The analysis is carried out along two dimensions sectoral and geographical. A novelty of the paper is the use of sector-specific PPPs to estimate the structure of production in current PPP international dollars. The analysis is based on a comprehensive dataset that covers 140 countries accounting for 98 of global GDP in 2012 for the period 1960-2012. Salient findings of the paper include the following. First, in current prices there was a process of global de-industrialisation. The manufacturing share in global GDP dropped from more than 20 in the early 1960s to 12 by the end of the period. This process, however, was not even across country-groups and regions. As expected, it was much more pronounced in the advanced economies. In developing countries there was an increase in the share of manufacturing, followed by a decline from the early 1990s onwards. However, in constant prices, the share of manufacturing remained more or less constant. This implies that prices of services have been increasing much more rapidly than those of manufactured goods, probably due to slower productivity growth in services. In geographic terms, the share of developing countries in world manufacturing value added has increased from 25 to more than 50. This phenomenon was clearly driven by the Asian developing economies. Finally, within manufacturing knowledge-intensive, high-tech industries and natural-resource intensive industries have increased their shares in global manufacturing value added.
    Keywords: Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices; Industry Studies: Manufacturing: General; Macroeconomic Analyses of Economic Development;
    JEL: L16 L60 O11
    Date: 2015
  13. By: Ekrame BOUBTANE; Jean-Christophe DUMONT; Christophe RAULT
    Date: 2015
  14. By: Izabela Sobiech
    Abstract: In this paper, I measure the importance of remittances and financial development for developing countries. I estimate an index of overall financial conditions and use it to determine the relevance of the financial sector as a transmission channel for remittances to affect economic growth. The index brings together information from existing measures, reflecting size, depth and efficiency of the financial sector. It is created by means of an unobserved components model. I show that the more financial development in a country, the smaller becomes the impact of remittances on economic growth and it can even turn negative. For countries with weaker financial markets there is a positive effect, but significant only at the earliest stages of financial development. The effect becomes negative in the third quartile of financial development. These results hold irrespective of the measure of financial development included, but are most profound in case of the created index. This means that estimates based on proxies might be slightly biased. I also show that countries with both low levels of remittances and financial development should first focus on developing the latter, while migrants' transfers become important for growth if the country has a moderate level of financial development.
    Keywords: remittances, economic growth, financial development, unobserved components model, dynamic panel data analysis
    JEL: F24 O11 O15 O16
    Date: 2015–10
  15. By: Bharat Diwakar; Gilad Sorek
    Abstract: We study growth-maximizing Intellectual Property Rights (IPR) policy for developing economy in a close Overlapping-Generations model. We first show that R&D-based growth in such economy is subject to threshold externalities and transitional dynamics. Then we show that the IPR policy that maximizes output growth rates is stage-dependent: in early phases of development weak IPR protection may be necessary to sustain and to fasten economic growth. This is because weaker IPR protection shifts income from the old to the young generation and thereby enhancing saving and investment, which otherwise are insu¢cient to initiate growth. However as the economy develops and growth sustains optimal IPR protection tightens.
    Keywords: Stage-Dependent IPR, OLG, Poverty Trap, Growth
    JEL: O31 O34
    Date: 2015–10
  16. By: Roger D. Congleton (West Virginia University, Department of Economics); Dongwoo Yoo (West Virginia University, Department of Economics)
    Abstract: According to the incremental reform hypothesis, constitutions are rarely adopted whole cloth; thus the starting point, scope for bargaining, and number of reforms, jointly determine the trajectory of constitutional history. We test the relevance of this theory for Africa by analyzing the formation and reform of the independence constitutions negotiated and adopted during the 1950s and early 1960s. We find historical evidence that independence occurred incrementally and that the African countries that experienced the fewest constitutional moments and narrowest domain of bargaining after independence have better contemporary institutions than states that began with less restrictive constitutional rules and experienced more constitutional moments.
    Keywords: Decolonization, Independence, Constitutional Negotiations, Constitutional Bargaining, Post-Colonial Reform, Eminent Domain, Takings, Institutions, Africa
    JEL: O43 O55 K11 N47
    Date: 2015–07
  17. By: Skritek, Bernhard; Crespo Cuaresma, Jesús; Kryazhimskii, Arkadii V.; Prettner, Klaus; Prskawetz, Alexia; Rovenskaya, Elena
    Abstract: We revisit the influential economic growth model by Lucas (1988) ["On the mechanics of economic development." Journal of Monetary Economics, 22(1):3-42], assuming that households optimally allocate consumption and education over the life-cycle given an exogenous interest rate and exogenous wages. We show that in such a partial equilibrium setting, the original two-state (physical capital and human capital) optimization problem can be decomposed into two single-state optimal control models. This transformation allows us to rigorously prove the existence of a singular control describing the allocation of education time along a balanced growth path. We derive a constructive condition for a singular control to exist and show that under this condition infinitely many singular controls are optimal in the individual household problem. In contrast to the original general equilibrium framework in which an agent always chooses part-time education and part-time work, in our framework such an agent might find it optimal to allocate her whole available time to education at the beginning of her life and to focus on labor supply only when she is older.
    Keywords: optimal lifetime education,optimal control,singular control,economic growth,human capital
    JEL: C60 O41 I20
    Date: 2015
  18. By: KUROSE, Kazuhiro
    Abstract: Although structural analysis was one of the central subjects in economics, its importance fell by the wayside, especially after aggregate macroeconomic growth models became popular in the 20th century. However, structural analysis has been revived recently and a new research agenda has emerged: to examine whether structural change can be reconciled with Kaldor's facts. This is an interesting agenda from both the theoretical and empirical point of view. Since Kaldor's facts are thought of as a sort of balanced growth path, this concept is extended so as to reconcile structural change with Kaldor's facts. In this study, we review the multi-sectoral models in which structural change can be reconciled with Kaldor's facts. We demonstrate that the common feature of all reviewed multi-sectoral models of structural change is that they are regarded as natural extensions of the one-sector model of growth and then somehow transformed into the one-sector model. However, we assert that it is not an adequate treatment of multi-sectoral models when structural change is focused. The transformation of multi-sectoral models into the one-sector model assumes a homogeneous capital but capital consists of heterogeneous commodities in modern capitalist economies. It reminds us of the lessen of the Cambridge capital controversies that the properties obtained by the one-sector model do not necessarily hold in multi-sectoral models when capital consists of heterogeneous commodities and the choice of techniques is allowed. From the empirical point of view, it is one of the important characteristics that the change in the composition of physical capital is systematically related to income growth. However, the models in which only homogeneous capital is included cannot focus on the characteristic. Whether or not structural change can be reconciled with Kaldor's facts in the models with heterogeneous capital is still an open question.
    Keywords: structural change, Kaldor's facts, balanced growth path, Cambridge capital controversies, heterogeneous capital
    JEL: B24 E12 O14 O41
    Date: 2015–10–05
  19. By: Solarin, Sakiru Adebola; Shahbaz, Muhammad
    Abstract: The objective of this paper is to reinvestigate the relationship between natural gas consumption and economic growth by including foreign direct investment, capital and trade openness in Malaysia for the period of 1971-2012. The structural break unit root test is employed to investigate the stationary properties of the series. We have applied combined cointegration test to examine the relationship between the variables in the long run. For robustness sake, the ARDL bounds testing method is also employed to test for possible of long run relationship in the presence of structural breaks. We note the validity of cointegration between the variables. Natural gas consumption, foreign direct investment, capital formation and trade openness have positive influence on economic growth in Malaysia. The results support the presence of feedback hypothesis between natural gas consumption and economic growth, foreign direct investment and economic growth, and natural gas consumption and foreign direct investment. The policy implications of these results are provided.
    Keywords: Natural gas consumption, Economic growth, Causality
    JEL: C1
    Date: 2015–10–11

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