nep-gro New Economics Papers
on Economic Growth
Issue of 2016‒01‒03
twenty-one papers chosen by
Marc Klemp
Brown University

  1. Diamonds Are Forever: Long-Run Effects of Mining Institutions in Brazil By Marcelo Sacchi de Carvalho
  2. Test Scores, Noncognitive Skills and Economic Growth By Balart, Pau; Oosterveen, Matthijs; Webbink, Dinand
  3. Ethnic Diversity and Trust: New Evidence from Australian Data By Mendolia, Silvia; Tosh, Alex; Yerokhin, Oleg
  4. Destructive intergenerational altruism By Asheim, Geir B.; Nesje, Frikk
  5. The Political Economy of Growth, Inequality, the Size and Composition of Government Spending By Klaus Schmidt-Hebbel; José Carlos Tello
  6. A vision of the growth process in a technologically progressive economy: the United States, 1899-1941 By Gerben Bakker; Nicholas Crafts; Pieter Woltjer
  7. Height and Industrialisation in a City in Catalonia during the Nineteenth Century By Ramon Ramon-Muñoz; Josep-Maria Ramon-Muñoz
  8. Extractive Institutional Structure and Economic Development: Evidence from Nigeria By Khan, Karim
  9. Quantifying human capital accumulation in rural Ireland in the nineteenth century By Blum, Matthias; Colvin, Christopher L.; McAtackney, Laura; McLaughlin, Eoin
  10. The Paradox of Civilization: Pre-Institutional Sources of Security and Prosperity By Ernesto Dal Bó; Pablo Hernández; Sebastián Mazzuca
  11. Autonomous demand and economic growth:some empirical evidence By Daniele Girardi; Riccarco Pariboni
  12. Capital Shares and Income inequality: Evidence from the Long Run By Bengtsson, Erik; Waldenström, Daniel
  13. Environmental Kuznets Curve: The Case of Russia By Sergei Mihalischev; Yulia Raskina
  14. Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities By Takashi Kamihigashi
  15. Resource Conservation across Generations in a Ramsey-Chichilnisky Model By Asheim, Geir B.; Ekeland, Ivar
  16. Ramsey Equilibrium with Liberal Borrowing By Robert A. Becker; Kirill Borissov; Ram Sewak Dubey
  17. Financial Integration and Growth in a Risky World By Coeurdacier, Nicolas; Rey, Hélène; Winant, Pablo
  18. Can endogenous technology choices explain wage inequality dynamics? By Jan Witajewski-Baltvilks
  19. A CGE model with ICT and R&D-driven endogenous growth: A detailed model description By Martin Aarøe Christensen
  20. A Green Lewis Development Model By Guilherme de Oliveira; Gilberto Tadeu Lima
  21. Capital shares and income inequality: Evidence from the long run By Bengtsson, Erik; Waldenström, Daniel

  1. By: Marcelo Sacchi de Carvalho
    Abstract: This paper uses a regression discontinuity approach to investigate whether a set of colonial policies adopted in the Diamond District of colonial Brazil have long-run impacts on development. Results regarding household income are still inconclusive. On the other hand, the estimated effects on adult literacy and light density from satellite images are positive. I also try to explore potential channels through which this historical event might influence the present. Using a geospatial road location database, I find that observations inside the District’s historical boundaries have denser road networks. Additionally I use microdata from the 1830s to show that slavery was more intense in untreated villages, which has been related in the literature to underdevelopment.
    Keywords: Institutions; Development; Colonial Brazil
    JEL: O43 O13 N56
    Date: 2015–12–03
  2. By: Balart, Pau (University of the Balearic Islands); Oosterveen, Matthijs (Erasmus University Rotterdam); Webbink, Dinand (Erasmus University Rotterdam)
    Abstract: Many studies have found a strong association between economic outcomes of nations and their performance on international cognitive tests. This association is often interpreted as evidence for the importance of cognitive skills for economic growth. However, noncognitive skills, such as motivation and perseverance, are also important for the performance on cognitive tests. This study decomposes the performance on an international test (PISA) into two components that differ with respect to their underlying skills: the starting level and the decline in performance during the test. The first component can be interpreted as a measure of cognitive skills, whereas the second component captures noncognitive skills. We find that countries differ in the starting level and in the decline in performance, and that these differences are stable over time. Both components have a positive and statistically significant association with economic growth, and the estimated effects are quite similar. This suggests that noncognitive skills are important for explaining the relationship between test scores and economic growth.
    Keywords: cognitive skills, noncognitive skills, long run economic growth
    JEL: J24
    Date: 2015–12
  3. By: Mendolia, Silvia (University of Wollongong); Tosh, Alex; Yerokhin, Oleg (University of Wollongong)
    Abstract: This paper investigates the relationship between neighbourhood ethnic and linguistic heterogeneity and the formation of an individual's local and general trust. A wide literature across economics and sociology has recognised the importance of trust in facilitating economic growth and development and it is therefore important to investigate elements of social organisation that encourage or inhibit the development of trust. We use fixed effects and instrumental variable regression and control for a wide set of individual and local area characteristics to identify the effect of heterogeneity on trust formation. Our results show that increasing neighbourhood ethnic and linguistic fractionalisation is associated with a decrease in local trust of about 12% of a standard deviation in the model with fixed effects, while we do not find any significant relationship between neighbourhood heterogeneity and general trust.
    Keywords: trust, social capital, ethnic fractionalization, ethnic heterogeneity, HILDA
    JEL: J15 Z10
    Date: 2015–12
  4. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Nesje, Frikk (Dept. of Economics, University of Oslo)
    Abstract: Are the probable future negative effects of climate change an argument for decreasing the discount rate to promote the interests of future generations? The analysis of the present paper suggests that such stronger intergenerational altruism might undermine future wellbeing if not complemented by collective climate action. In the standard one-sector model of economic growth normatively attractive outcomes will be implemented if each generation has sufficient altruism for its descendants. This conclusion is radically changed in a two-sector model where one form of capital is more productive than the other, but leads to negative atmospheric externalities. In fact, the model shows that, if each dynasty is trying to get ahead in a world threatened by climate change by increasing its intergenerational altruism, then long-term wellbeing will be seriously undermined.
    Keywords: Intergenerational altruism; climate change.
    JEL: D63 D64 D71 Q01 Q54
    Date: 2015–12–17
  5. By: Klaus Schmidt-Hebbel; José Carlos Tello
    Abstract: This paper develops a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers (valued by households), as well as productive government services (complementing private capital in an endogenous-growth technology). Inequality is reflected by a discrete distribution of infinitely-lived agents that differ by their initial capital holdings. In contrast to the previous literature that derives monotonic (typically negative) relations between inequality and growth in one-dimensional voting environments, this paper establishes conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained. This more general result – that inequality and growth could be negatively or positively related – could be consistent with the ambiguous or inconclusive results documented in the empirical literature on the inequality-growth nexus. The paper also shows that the political-economy equilibrium obtained under multi-dimensional voting for the initial period is time-consistent.
    JEL: D72 E62 H11 H31
    Date: 2014
  6. By: Gerben Bakker; Nicholas Crafts; Pieter Woltjer
    Abstract: We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better measured labor quality, and show TFP-growth was lower than previously thought, broadly based across sectors, strongly variant intertemporally, and consistent with many diverse sources of innovation. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four leading sectors. Third, TFP-growth was not caused by a ‘yeast process’ originating in a dominant technology such as electricity.
    Keywords: Harberger diagram; mushrooms; productivity growth; total factor productivity; yeast
    JEL: N0
    Date: 2015–12
  7. By: Ramon Ramon-Muñoz (Universitat de Barcelona); Josep-Maria Ramon-Muñoz (Universidad de Murcia)
    Abstract: Drawing on anthropometric information, this article investigates the evolution of the biological standard of living in nineteenth-century Catalonia. We focus on the city of Igualada, one of Catalonia’s main textile centres in the early part of the century. The results show a decline in the height of males born between the 1830s and the 1860s, the period in which factory-based industrialisation emerged and became consolidated. The article also suggests that height inequality rose during the third quarter of the nineteenth century. The empirical evidence gathered provides further support for the pessimistic view of the evolution of the standard of living during the early stages of industrialisation.
    Keywords: Biological Standard of Living, Inequality, Industry, Urbanization, Southern Europe.
    JEL: I12 I14 I31 N33 N63
    Date: 2015
  8. By: Khan, Karim
    Abstract: The institutional perspective of cross-country differences in economic outcomes gives contrasting explanations on the persistence of extractive institutions in developing countries. Colonization, social fragmentation and the existence and use of natural resources are the most frequently discussed causes in the available literature. In this study, we analyze all the three explanations together by providing a case study of Nigeria. Nigeria is characterized by colonial legacy, social divide revealed by ethnicity and religion, and huge windfalls from oil. Based on our analysis, we argue that the lack and incoherence of formal institutional order is the main factor for Nigerian underdevelopment. Ethnic politics has shaped the formal institutional framework as a central stage for the disbursement of patronage and other types of the largesse. Colonial legacy has reinforced the effect of ethnicity by failing to provide a national ideology; and instead, providing a regional structure to rule. Similarly, the windfalls from oil have intensified the effect of ethnicity by invoking civil conflicts, arising mainly from the distribution of common pool. Thus, no single factor on its own can explain the persistence of extractive institutions; rather, it is the combination of exogenous and endogenous factors that collectively shape institutions.
    Keywords: Extractive Institutions, Economic Development, Colonization, Social Fragmentation, Natural resources, Nigeria
    JEL: E0 E01 O43 O55
    Date: 2015–12
  9. By: Blum, Matthias; Colvin, Christopher L.; McAtackney, Laura; McLaughlin, Eoin
    Abstract: Geary and Stark find that Ireland´s Post-Famine per capita GDP converged with British levels, and that this convergence was due to TFP growth rather than mass emigration. We devise new long-run measurements of human capital accumulation in Ireland in order to facilitate an assessment of sources of this TFP growth, including the relative contribution of men and women. We do so by exploiting the frequency at which age data heap at round ages, a measure that has been widely interpreted as an indicator of a population´s basic numeracy skills. Because Földvári, Van Leeuwen and Van Leeuwen-Li find that gender-specific trends in this measure derived from census returns are biased by who is reporting and recording the age information, we correct any computed numeracy trends using data from prison and workhouse registers, sources in which women self-reported their age. We find that rural Irish women born early in the nineteenth century had substantially lower levels of human capital than uncorrected census data would otherwise suggest. Our results are large in magnitude and economically significant. The speed at which women converged is consistent with Geary and Stark´s interpretation of Irish economic history; Ireland likely graduated to Europe´s club of advanced economies thanks in part to rapid advances in female human capital.
    Keywords: age heaping,female numeracy,selection bias,prisons,workhouses,Ireland
    JEL: I25 N33 O47
    Date: 2015
  10. By: Ernesto Dal Bó; Pablo Hernández; Sebastián Mazzuca
    Abstract: The rise of civilizations involved the dual emergence of economies that could produce surplus (“prosperity”) and states that could protect surplus (“security”). But the joint achievement of security and prosperity had to escape a paradox: prosperity attracts predation, and higher insecurity discourages the investments that create prosperity. We study the trade-offs facing a proto-state on its path to civilization through a formal model informed by the anthropological and historical literatures on the origin of civilizations. We emphasize pre-institutional forces, such as physical aspects of the geographical environment, that shape productive and defense capabilities. The solution of the civilizational paradox relies on high defense capabilities, natural or manmade. We show that higher initial productivity and investments that yield prosperity exacerbate conflict when defense capability is fixed, but may allow for security and prosperity when defense capability is endogenous. Some economic shocks and military innovations deliver security and prosperity while others force societies back into a trap of conflict and stagnation. We illustrate the model by analyzing the rise of civilization in Sumeria and Egypt, the first two historical cases, and the civilizational collapse at the end of the Bronze Age.
    JEL: D74 N4 Z1
    Date: 2015–12
  11. By: Daniele Girardi; Riccarco Pariboni
    Abstract: According to the Sraffian supermultiplier model, economic growth is driven by the autonomous components of aggregate demand (exports, public spending and autonomous consumption). This paper tests empirically some major implications of the model. For this purpose, we calculate time-series of the autonomous components of aggregate demand and of the supermultiplier for the US, France, Germany, Italy and Spain and describe their patterns in recent decades. We observe that changes in output and in autonomous demand are tightly correlated, both in the long and in the short-run. The supermultiplier is substantially higher and more stable in the US, while in the European countries it is lower and strongly decreasing. Consistently with theory, we find that where the supermultiplier is reasonably stable - i.e., in the US since the 1960s - autonomous demand and output share a common long-run trend (i.e, they are cointegrated). The estimation of a Vector Error-Correction model (VECM) on US data suggests that autonomous demand exerts a long-run effect on GDP, but also that there is simultaneous causality between the two variables. We propose an explanation based on the idea that autonomous demand is socially and historically determined. We then estimate the multiplier of autonomous spending through a panel instrumental-variables approach, finding that a one dollar increase in autonomous demand raises output by 1.6 dollars over four years. A further implication of the model that we test against empirical evidence is that increases in autonomous demand growth tend to be followed by increases in the investment share. Through Granger-causality tests and instrumental variables analysis, we find that this is the case in all five countries. An additional 1% increase in autonomous demand raises the investment share by 0.57 percentage points of GDP in the long-run
    Keywords: Growth, Effective Demand, Supermultiplier
    JEL: E11 E12 B51 O41
    Date: 2015–08
  12. By: Bengtsson, Erik (Lund University); Waldenström, Daniel (Uppsala University)
    Abstract: This paper investigates the relationship between the capital share in national income and personal income inequality over the long run. Using a new historical cross-country database on capital shares in 19 countries and data from the World Wealth and Income Database, we find strong long-run links between the aggregate role of capital in the economy and the size distribution of income. Over time, this dependence varies; it was strong both before the Second World War and in the early interwar era, but has grown to its highest levels in the period since 1980. The correlation is particularly strong in Anglo-Saxon and Nordic countries, in the very top of the distribution and when we only consider top capital incomes. Replacing top income shares with a broader measure of inequality (Gini coefficient), the positive relationship re-mains but becomes somewhat weaker.
    Keywords: wage share, top incomes, inequality, wealth, economic history
    JEL: D30 N30
    Date: 2015–12
  13. By: Sergei Mihalischev; Yulia Raskina
    Abstract: This paper investigates the relationship between economic development and environmental pollution among Russian regions based on the concept of Environmental Kuznets Curve. It shows how income inequality, growth of GRP and structure of regional economy affect emissions of three pollutants: carbon monoxide, nitrogen dioxide and sulfur dioxide. We estimate a panel data model using the Russian Statistical Agency's data for Russian regions in the period 2000–2013. It is shown that the majority of regions in Russia have not reached a turning point when economic growth leads to decrease in pollution. Growth of the non-manufacturing sector of GRP has either no statistically significant effect on the change in emissions or its impact is ambiguous. The increase in the level of economic inequality in the region is characterized by the decrease in emissions.
    Keywords: Environmental Kuznets Curve, regional development, pollution, structural changes in the economy
    JEL: Q56 P28 C23
    Date: 2015–11–28
  14. By: Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: This paper shows that regime-switching sunspot equilibria easily arise in a one-sector growth model with aggregate decreasing returns and arbitrarily small externalities. We construct a regime-switching sunspot equilibrium in the case where the utility function of consump-tion is linear. We also construct a stochastic optimal growth model whose optimal process is a regime-switching sunspot equilibrium of the original economy in the case where there is no capital externality. We illustrate our results with numerical examples.
    Date: 2015–12
  15. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Ekeland, Ivar (CEREMADE and Institute de Finance Universite de Paris-IX, Dauphine, Paris, France)
    Abstract: The Chichilnisky criterion is an explicit social welfare function that satisfies compelling conditions of intergenerational equity. However, it is time inconsistent and has no optimal solution in the Ramsey model. By investigating stationary Markov equilibria in the game that generations with Chichilnisky preferences play, this paper shows how nevertheless this criterion can be practically implemented in the Ramsey model, leading to attractive consequences. The time-discounted utilitarian optimum is the unique equilibrium path with a high-productive initial stock, implying that the weight on the in finite future in the Chichilnisky criterion plays no role. However, this part of the Chichilnisky criterion may lead to more stock conservation than the time-discounted utilitarian optimum with a low-productive initial stock. Based on the notion of von Neumann-Morgenstern abstract stability, we obtain uniqueness by assuming that each generation coordinates on an almost best equilibrium and takes into account that future generations will do as well.
    Keywords: Intertemporal decision making; Time inconsistency; Intergenerational equity
    JEL: C70 D63 D91 O41 Q01
    Date: 2015–10–13
  16. By: Robert A. Becker; Kirill Borissov; Ram Sewak Dubey
    Abstract: This paper considers a multi-agent one-sector Ramsey equilibrium growth model with borrowing constraints. The extreme borrowing constraint used in the classical version of the model, surveyed in Becker (2006), and the limited form of borrowing constraint examined in Borissov and Dubey (2015) are relaxed to allow more liberal borrowing by the households. A perfect foresight equilibrium is shown to exist in this economy. Each equilibrium’s aggregate capital stock sequence is eventually monotonic and is shown to converge to the unique stationary equilibrium capital stock and the impatient households are eventually in the maximum borrowing state and remain so for all subsequent periods, whereas the most patient household eventually owns the entire capital stock and the other households debts. This convergence result is unlike the possibility of non-convergent equilibrium capital stock sequences in the model with no borrowing and like the equilibrium outcomes in the model with limited borrowing. Here, the convergence theorem is independent of the production technology employed by the firms. As the borrowing regime is progressively liberalized, the Gini coefficient of steady state wealth distribution increases.
    Keywords: convergence, existence, Gini coefficient, growth, heterogeneous agent, liberal borrowing, turnpike property
    JEL: C61 D61 D90 O41
    Date: 2015–05–19
  17. By: Coeurdacier, Nicolas; Rey, Hélène; Winant, Pablo
    Abstract: We revisit the debate on the benefits of financial integration in a two-country neoclassical growth model with aggregate uncertainty. Our framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing---together with their interaction. In our general equilibrium model, risk sharing brought by financial integration has an effect on the steady-state itself, altering convergence gains from capital accumulation. Because we use global numerical methods, we are able to do meaningful welfare comparisons along the transition paths. Allowing for country asymmetries in terms of risk, capital scarcity and size, we find important differences in the effect of financial integration on output, direction of capital flows, consumption and welfare over time and across countries. This opens the door to a richer set of empirical implications than previously considered in the literature.
    Keywords: Growth; International capital flows; Risk sharing
    JEL: F21 F3 F43
    Date: 2015–12
  18. By: Jan Witajewski-Baltvilks
    Abstract: The paper studies the dynamics of college wage premium across OECD countries. It reports that countries which experienced college wage premium growth higher than that of other countries also witnessed a higher growth of the skills supply ten years earlier. Regression results suggest that this pattern could not be explained by the theory of global Directed Technological Change, increase in trade or the fall of trade-unions. However, it can be explained with the model of endogenous technology choices: the growth of skilled workers motivates firms to pick more skill-biased production methods. I calibrate the model using the results of the dynamic panel regression. Endogenous technology choices can explain one third of the total increase in wage inequality in the OECD. One implication is that any policy that affects the supply of skilled workforce at the country level will have an impact on the skill-bias of equilibrium technology and wage inequality dynamics.
    Keywords: technological change: choices and consequences skills, labor productivity
    JEL: J24 O33
    Date: 2015–09
  19. By: Martin Aarøe Christensen (European Commission – JRC - IPTS)
    Abstract: We present a multi-country, multi-sector dynamic general equilibrium model with ICT and R&D-driven endogenous growth. The model presented has been developed to study the economic effects of alternative ICT R&D funding policies in the European Union. It accommodates alternative policy instruments that could be used in an attempt to stimulate private ICT R&D expenditures, including general production grants, tax credit or subsidies targeted at specific inputs. The model is calibrated to data from four country blocs Germany, France, the Rest of the EU and the Rest of the World.
    Keywords: Economic Modelling, R&D, ICT, Endogenous Growth
    JEL: C68 O30 H20
    Date: 2015–12
  20. By: Guilherme de Oliveira; Gilberto Tadeu Lima
    Abstract: This paper develops an environmental extension of a Lewis dual economy model, in which the interaction between environmental quality and economic growth, in one of its several dimensions, is explicitly modeled to explore long-run effects of a pollution abatement rule in developing economies. The government requires the Modern sector to dedicate a fraction of its output to pollution abatement, with such profitability-reducing fraction being endogenous to the level of environmental quality. Meanwhile, the level of environmental quality positively affects labor productivity, profits and, therefore, savings, which has a positive impact on capital accumulation. It is shown that this pollution abatement requirement, by affecting profitability in the Modern sector both negatively and positively, makes for the emergence of an ecological development trap from which a developing dual economy, if left to the free play of its structural forces, never escapes. Fortunately, however, this economy can be released from such a trap not only through a standard Big Push, in the spirit of Rosenstein-Rodan, but also by means of what we call an Environmental Big Push.
    Keywords: Ecological development trap; Environmental Big Push; Economic development; Environmental quality.
    JEL: O11 O44 Q50
    Date: 2015–12–21
  21. By: Bengtsson, Erik; Waldenström, Daniel
    Abstract: This paper investigates the relationship between the capital share in national income and personal income inequality over the long run. Using a new historical cross-country database on capital shares in 19 countries and data from the World Top Income Database, we find strong long-run links between the aggregate role of capital in the economy and the size distribution of income. Over time, this dependence varies; it was strong both before the Second World War and in the early interwar era, but has grown to its highest levels in the period since 1980. The correlation is particularly strong in Anglo-Saxon and Nordic countries, in the very top of the distribution and when we only consider top capital incomes. Replacing top income shares with a broader measure of inequality (Gini coefficient), the positive relationship remains but becomes somewhat weaker.
    Keywords: Inequality; Top incomes; Wage share
    JEL: D30 N30
    Date: 2015–12

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