nep-gro New Economics Papers
on Economic Growth
Issue of 2015‒12‒08
twelve papers chosen by
Marc Klemp
Brown University

  1. Did Gender-Bias Matter in the Quantity-Quality Trade-off in the 19th Century France? By Claude Diebolt; Tapas Mishra; Faustine Perrin
  2. Cross-Country Analysis of Composition of Human Capital and Total Factor Productivity Growth depending on its Distance to Frontier By Sujata Basu
  3. Innovation, Product-Cycle Trade, and the Cross-Country Distribution of Income By Scott French
  4. Intergenerational Mobility, Human Capital Composition and Distance to Technological Frontier By Sujata Basu
  5. Endogenous Enforcement Institutions By Gani Aldashev; Giorgio Zanarone
  6. The rise of the middle class : Brazil (1839-1950) By María Gómez León
  7. Military Spending and economic growth in Greece and the Arms Race between Greece and Turkey By Dimitrios Paparas; Christian Richter
  8. Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model By Andreas Irmen; Amer Tabakovic
  9. Risk governance and performance of the Italian banks: an empirical analysis By Simone Marsiglio; Marco Tolotti
  10. R & D Sector Outsourcing, Human Capital Formation and Growth in the Context of Developed versus Developing Economies By Sujata Basu
  11. Complexity driven collapse of economic equilibria By Marco Bardoscia; Giacomo Livan; Matteo Marsili
  12. Unified Growth Theory Contradicted by the GDP/cap Data By Ron W Nielsen

  1. By: Claude Diebolt (BETA, University of Strasbourg Strasbourg, France); Tapas Mishra (Southampton Business School, University of Southampton, United-Kingdom); Faustine Perrin (Department of Economic History, Lund University)
    Date: 2015
  2. By: Sujata Basu (Centre for International Trade and Development,Jawaharlal Nehru University)
    Abstract: This paper empirically examines human capital's contribution to economy-wide technological progress and also on technical efficiency gain depending on its distance to frontier in a panel of 75 countries over the period 1970 - 2010. This study illustrates that only advanced economies rely on technological change while dependence on technical efficiency gain is high for middle and poor income countries. Using stochastic frontier analysis and system generalized method of moments (GMM), it is shown that skilled human capital is important for technical efficiency gain for rich income countries whereas middle and poor income countries rely on semi-skilled human capital for technical efficiency gain. This study also analyzes the impact of skilled-unskilled human capital on total factor productivity growth for both aggregate and multiple outputs. For aggregate output, the production function has been estimated with fixed effect panel regression. It shows that elasticity of capital is higher for rich income countries than middle or poor income countries whereas ranking of coefficient associated with labor is reverse. After that, the total factor productivity would be estimated by Solow residual. In the second stage, using system GMM, it is shown that skilled human capital is important for total factor productivity growth for rich and middle income countries and unskilled human capital is growth enhancing for poor income countries. For multiple outputs, the production function has been estimated by data envelopment analysis. In the second stage by using system GMM, same findings would be revealed as in the aggregate output for total factor productivity growth.
  3. By: Scott French (University of New South Wales)
    Abstract: This paper develops a quantitative, multi-country model of endogenous growth, international trade, and international knowledge flows in order to understand how access to both foreign products and technologies, together, influences innovation incentives and the world distribution of income. An endogenous product cycle arises in equilibrium, in which innovative countries engage in both horizontal and vertical research, while others far from the technological frontier specialize in learning about and applying research previously conducted abroad. The effect of trade barriers on the level and dispersion of income across countries is found to be larger than would be predicted by a static trade model, and the effect of access to international knowledge flows is also quantitatively important and dependent on trade flows. For instance, halving the cost of learning reduces income dispersion by 23%, while doing so after eliminating asymmetric international trade barriers reduces income dispersion by only 10%.
    Date: 2015
  4. By: Sujata Basu (Centre for International Trade and Development,Jawaharlal Nehru University)
    Abstract: An endogenous skilled biased growth model has been considered to show that along the growth path wage gap widened and both upward and downward mobility fall. This implies that education becomes more correlated with initial conditions and less related with the cognitive ability. Growth occurs through the twin channels of technology - imitating from the world technology frontier and innovating on its own technology level - innovation being more skilled-intensive than imitation. An imperfect capital market has been considered where individual's education decision depends on the cognitive ability as well as on the parental income. Moreover, it is shown that growth enhancing education policy leads to absolute convergence of all the economies to the world technology frontier. In the imitation-innovation regime, life time utility gap within skilled as well as unskilled human capital rise due to parental income differences. Furthermore, life time utility gap within skilled human capital rises due to cognitive ability differences.
  5. By: Gani Aldashev; Giorgio Zanarone
    Abstract: Better legal institutions favor economic development, but only in States withsufficiently constrained executive power. We document this novel pattern acrossdeveloping countries, and build a simple model that illustrates how power, and theinstitutions that constrain or complement it, may affect development. We show that thereis a tradeoff between the two facets of power—enforcement and expropriation. As aruler’s power grows, his temptation not to enforce diminishes while the temptation toexpropriate grows. As a consequence, private enforcement optimally evolves into Stateenforcement, and legal institutions, which relax the ruler’s incentive constraint onenforcement, lose economic importance vis-à-vis political institutions, which limit theexecutive’s ability to expropriate. Our results are consistent with the observed crosscountrypatterns, as well as with historical evidence on the transition from the “LawMerchant” private enforcement system to the State.
    Keywords: coercive power; expropriation; enforcement; state
    JEL: H11 K42 P48
    Date: 2015–10
  6. By: María Gómez León
    Abstract: This article investigates the rise of the middle class in Brazil between the mid-nineteenth and mid-twentieth centuries and its connection with inequality. To this purpose Brazil's income distribution is explored from two dimensions: inequality and polarisation. A new middle class index (MCI), based on polarisation methods, is used to assess the evolution of the middle class in terms of both income and status. Results suggest that during the nineteenth century low income levels prevented the achievement of high inequality values and the emergence of a middle class. Then in the early twentieth century Brazil experienced a process of economic growth accompanied by increasing inequality in a Kuznetsian sense in which the middle class arose. Yet, despite rapid economic growth during the following decades, the continued increase of inequality, especially between 1930 and 1950, impeded the consolidation of the middle class and the reduction of poverty.
    Keywords: middle class , inequality , polarisation , Brazil
    JEL: D31 D63 N16 N36 O15
    Date: 2015–11
  7. By: Dimitrios Paparas (Land, Farm and Agribusiness Management Department, Harper Adams University); Christian Richter (Faculty of Management Technology, The German University in Cairo)
    Abstract: In this paper we empirically test the relationship between military spending and economic growth for Greece and Turkey during 1957-2013, and examine the validity of arms race hypothesis between the two countries.
    Keywords: National Government Expenditures, National Security and War, Arms race, Greece, Turkey, Economic Growth, ADF, VAR
    JEL: H5 H56 O40 E62
    Date: 2015–10
  8. By: Andreas Irmen (CREA, Université de Luxembourg); Amer Tabakovic (CREA, Université de Luxembourg)
    Abstract: The determinants of the direction of technical change and their implications for economic growth and economic policy are studied in the one-sector neoclassical growth model of Ramsey, Cass, and Koopmans extended to allow for endogenous capital- and labor-augmenting technical change. We develop a novel micro-foundation for the competitive production sector that rests on the idea that the fabrication of output 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 and sustains long-run growth. We show that the equilibrium allocation is not Pareto-efficient since both forms of technical change give rise to an inter-temporal knowledge externality. An appropriate policy of investment subsidies may implement
    Keywords: the efficient allocation.
    JEL: O31 O33 O41
    Date: 2015
  9. By: Simone Marsiglio (School of Accounting, Economics and Finance, University of Wollongong); Marco Tolotti (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: We analyze the implications of innovation and social interactions on economic growth in a stylized endogenous growth model with heterogenous research firms. A large number of research firms decide whether to innovate or not, by taking into account what competitors (i.e., other firms) do. This is due to the fact that their profits partly depend on an externality related to the share of firms which actively engage in research activities. Such a share of innovative firms also determines the evolution of technology in the macroeconomy, which ultimately drives economic growth. We show that when the externality effect is strong enough multiple BGP equilibria may exist. In such a framework, the economy may face a low growth trap suggesting that it may end up in a situation of slow long run growth; however, such an outcome may be fully solved by government intervention. We also show that whenever multiple BGP exist, the economy may cyclically fluctuate between the low and high BGP as a result of shocks affecting the individual behavior of research firms.
    Keywords: Economic Growth, Innovation; Firms Interaction; Low Growth Trap; Fluctuations
    JEL: C60 D70 O40
    Date: 2015–11
  10. By: Sujata Basu (Centre for International Trade and Development,Jawaharlal Nehru University)
    Abstract: A skill-biased endogenous growth has model has been considered where Research and Development (R & D) producer of the advanced economy outsource its R & D activity to a relatively technologically backward economy. R & D producer of the advanced economy endogenously determines the equilibrium proportion of R & D activity which takes an intermediate value. An advanced economy relies on the innovation activity for its technology improvement. Whereas a backward economy depends on both the imitation and the innovation activities - innovation being more skilled-intensive than imitation. This paper theoretically examines the impact of R & D outsourcing from an economy which is in the innovation-only regime to an economy which is in the imitation-innovation regime. It shows that dependence on the imitation activities rises and as a consequence of which proportion of skilled human capital falls and both skilled and unskilled human capital shift away from the innovation to the imitation activities in the backward economy. This also leads to a higher wage rate of both skilled and unskilled human capital in the backward economy. As a result proportion of outsourcing from advanced economy to backward economy falls. However, growth rate of the backward economy initially rises and eventually declines as time progresses. In the long run backward economy will get into a low equilibrium trap and gap from the world technology frontier widens.
  11. By: Marco Bardoscia; Giacomo Livan; Matteo Marsili
    Abstract: In the pursuit of ever increasing efficiency and growth, our economies have evolved to remarkable degrees of complexity, with nested production processes feeding each other in order to create products of greater sophistication from less sophisticated ones, down to raw materials. The engine of such an expansion have been competitive markets that, according to General Equilibrium Theory (GET), achieve efficient allocations under specific conditions. We study large random economies within the GET framework, as models of complex economies, and we find that a non-trivial phase transition occurs: when the fraction of non-primary goods, i.e.goods that result as an output of a production process, exceeds a critical threshold, the economy freezes in a state where all production processes collapse. As in other examples of phase transitions in large random systems, this is an unintended consequence of the growth in complexity. This suggests that the Industrial Revolution can indeed be regarded as a sharp transition between different phases, but it also implies that well developed economies can collapse if too many intermediate goods are introduced.
    Date: 2015–11
  12. By: Ron W Nielsen
    Abstract: Mathematical properties of the historical GDP/cap distributions are discussed and explained. These distributions are frequently incorrectly interpreted and the Unified Growth Theory is an outstanding example of such common misconceptions. It is shown here that the fundamental postulates of this theory are contradicted by the data used in its formulation. The postulated three regimes of growth did not exist and there was no takeoff at any time. It is demonstrated that features interpreted as three regimes of growth represent just mathematical properties of a single, monotonically-increasing distribution, indicating that a single mechanism should be used to explain the historical economic growth. It is shown that using different socio-economic conditions for different perceived parts of the historical GDP/cap data is irrelevant and scientifically unjustified. The GDP/cap growth was indeed increasing slowly over a long time and fast over a short time but these features represent a single, uniform and uninterrupted growth process, which should be interpreted as whole using a single mechanism of growth.
    Date: 2015–09

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.