nep-gro New Economics Papers
on Economic Growth
Issue of 2017‒04‒30
eighteen papers chosen by
Marc Klemp
Brown University

  1. Roots of Autocracy By Oded Galor; Marc Klemp
  2. Structural Change and the Fertility Transition in the American South By Ager, Philipp; Brueckner, Markus; Herz, Benedikt
  3. China's GDP Growth May be Understated By Hunter Clark; Maxim Pinkovskiy; Xavier Sala-i-Martin
  4. The Economic Impact of Political Instability and Mass Civil Protest By Samer Matta; Simon Appleton; Michael Bleaney
  5. Historical Prevalence of Infectious Diseases, Cultural Values, and the Origins of Economic Institutions By Nikolaev, Boris; Salahodjaev, Raufhon
  6. Measuring Economic Growth from Outer Space: A Comment By Berliant, Marcus; Weiss, Adam
  7. Democracy Versus Dictatorship? The Political Determinants of Growth Episodes By Sen, Kunal; Pritchett, Lant; Kar, Sabyasachi; Raihan, Selim
  8. Accounting for Growth in the Age of the Internet: The Importance of Output-Saving Technical Change By Charles Hulten; Leonard Nakamura
  9. Endogenous growth and structural change through vertical and horizontal innovations By Anton Bondarev; Alfred Greiner
  10. The inequality-growth relationship: An empirical reassessment By Kolev, Galina V.; Niehues, Judith
  11. Surfing a wave of economic growth By Thomas McGregor; Samuel Wills
  12. The biofuel-development nexus: A meta-analysis By Johanna CHOUMERT; Pascale COMBES MOTEL; Charlain GUEGANG DJIMELI
  13. The Nexus of Economic Growth, Military Expenditures, and Income Inequality By Unal Tongur; Adem Yavuz Elveren
  14. Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia By Coscia, Michelle; Cheston, Timothy; Hausmann, Ricardo
  15. Income Inequality and Growth: New Insights from Italy By Njindan Iyke, Bernard; Ho, Sin-Yu
  16. Comparative Determinants of Quality of Growth in Developing Countries By Simplice Asongu; Ndemaze Asongu
  17. The Rise of Services and Balanced Growth in Theory and Data By Miguel Leon-Ledesma; Alessio Moro
  18. How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms By Alan J. Auerbach; Kerwin K. Charles; Courtney C. Coile; William Gale; Dana Goldman; Ronald Lee; Charles M. Lucas; Peter R. Orszag; Louise M. Sheiner; Bryan Tysinger; David N. Weil; Justin Wolfers; Rebeca Wong

  1. By: Oded Galor; Marc Klemp
    Abstract: Exploiting a novel geo-referenced data set of population diversity across ethnic groups, this research advances the hypothesis and empirically establishes that variation in population diversity across human societies, as determined in the course of the exodus of human from Africa tens of thousands of years ago, contributed to the differential formation of pre-colonial autocratic institutions within ethnic groups and the emergence of autocratic institutions across countries. Diversity has amplified the importance of institutions in mitigating the adverse effects of non-cohesiveness on productivity, while contributing to the scope for domination, leading to the formation of institutions of the autocratic type.
    JEL: O10 O43 Z1
    Date: 2017–03
  2. By: Ager, Philipp (Department of Business and Economics); Brueckner, Markus (Australian National University); Herz, Benedikt (European Commission)
    Abstract: This paper provides new insights on the link between structural change and the fertility transition. In the early 1890s agricultural production in the American South was severely impaired by the spread of an agricultural pest, the boll weevil. We use this plausibly exogenous variation in agricultural production to establish a causal link between changes in earnings opportunities in agriculture and fertility. Our estimates show that lower earnings opportunities in agriculture lead to fewer children. We identify two channels: households staying in agriculture reduced fertility because children are a normal good, and households switching to manufacturing faced higher opportunity costs of raising children. The rather bleak outlook for unskilled agricultural workers also increased the demand for human capital, which reinforced the fertility decline that occurred in the American South during the late 19th and early 20th centuries.
    Keywords: Fertility transition; structural change; industrialization; agricultural income
    JEL: J13 N31 O15
    Date: 2017–04–24
  3. By: Hunter Clark; Maxim Pinkovskiy; Xavier Sala-i-Martin
    Abstract: Concerns about the quality of China’s official GDP statistics have been a perennial question in understanding its economic dynamics. We use data on satellite-recorded nighttime lights as an independent benchmark for comparing various published indicators of the state of the Chinese economy. Using the methodology of Pinkovskiy and Sala-i-Martin (2016a and b), we exploit nighttime lights to compute the optimal weights for various Chinese economic indicators in a best unbiased predictor of Chinese growth rates. Our computations of Chinese growth based on optimal weightings of various combinations of economic indicators provide evidence against the hypothesis that the Chinese economy contracted precipitously in late 2015, and are consistent with the rate of Chinese growth being higher than is reported in the official statistics.
    JEL: F0
    Date: 2017–04
  4. By: Samer Matta; Simon Appleton; Michael Bleaney
    Abstract: Previous work has investigated whether political instability has a negative effect on economic growth, with mixed results, largely because political instability can take various forms. Using synthetic control methodology, which constructs a counterfactual in the absence of political instability, we estimate the output effect of 38 regime crises in the period 1970-2011. A crucial factor is whether crises are accompanied by mass civil protest. In the crises accompanied by mass civil protest, there is typically an immediate fall in output which is never recovered in the subsequent five years. In crises unaccompanied by protest, there are usually no significant effects.
    Keywords: Political Instability, Economic Recovery, Synthetic Control Method. JEL Classification: C23, F43, P16.
    Date: 2017
  5. By: Nikolaev, Boris; Salahodjaev, Raufhon
    Abstract: It is widely believed that economic institutions such as competitive markets, the banking system, and the structure of property rights are essential for economic development. But why economic institutions vary across countries and what are their deep origins is still a question that is widely debated in the developmental economics literature. In this study, we provide an empirical test for the provocative hypothesis that the prevalence of infectious diseases influenced the formation of personality traits, cultural values, and even morality at the regional level (the so called Parasite- Stress Theory of Values and Sociality), which then shaped economic institutions across countries. Using the prevalence of pathogens as an instrument for cultural traits such as individualism, we show in a two-stage least squares analysis that various economic institutions, measured by different areas of the index of Economic Freedom by the Heritage Foundation, have their deep origins in the historical prevalence of infectious diseases across countries. Our causal identification strategy suggests that cultural values affect economic institutions even after controlling for a number of confounding variables, geographic controls, and for different sub-samples of countries. We further show that the results are robust to four alternative measures of economic and political institutions.
    Keywords: economic institutions, cultural values, pathogens
    JEL: B00 O1 O17
    Date: 2017–02
  6. By: Berliant, Marcus; Weiss, Adam
    Abstract: We examine econometric and elementary economic theory issues arising from the model specification in Henderson, Storeygard and Weil (2012), that uses night light data to proxy for missing or unreliable GDP growth data. An alternative approach based on the expenditure function is outlined. It can accommodate prices as well as quantity information from other commodity markets.
    Keywords: GDP; Night light data; Omitted variable; Expenditure function; Spatial autocorrelation
    JEL: D11 D61 O47 O57
    Date: 2017–04–20
  7. By: Sen, Kunal (University of Manchester); Pritchett, Lant (Harvard University and Center for Global Development, Washington, DC); Kar, Sabyasachi (Institute of Economic Growth, University of Delhi); Raihan, Selim (University of Dhaka)
    Abstract: In contrast to previous literature, which looks at the effect of democracy on long-run growth or short-run volatility of growth, we examine the effect of political institutions on medium-term growth episodes. These are episodes of accelerations and decelerations that characterise the growth experience of most developing countries. We find that the effect of political institutions on growth is asymmetric across accelerations and decelerations, and that democracies do not necessarily outperform autocracies in a growth acceleration episode, though they are likely to prevent large growth collapses. When we disaggregate the type of autocracy, we find that party-based autocracies outperform democracies in growth acceleration episodes, though they do not limit the fall in the magnitude in growth deceleration episodes in comparison to democracies.
    Date: 2016–12
  8. By: Charles Hulten; Leonard Nakamura
    Abstract: We extend the conventional Solow growth accounting model to allow innovation to affect consumer welfare directly. Our model is based on Lancaster’s New Approach to Consumer Theory, in which there is a separate “consumption technology” that transforms the produced goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is “output-saving” technical change, in contrast to the Solow TFP “resource-saving” technical change. One implication of our model is that living standards can rise at a greater rate than real GDP growth.
    JEL: E01 O3 O4
    Date: 2017–04
  9. By: Anton Bondarev; Alfred Greiner (University of Basel)
    Abstract: This paper combines horizontal and vertical innovations to generate an endogenous growth model allowing for structural change as an endogenous phenomenon. Every industry is profitable only for a limited period of time, making the effective time of existence of the technology endogenous and finite. We find that in such an economy endogenous structural change is the source of ongoing economic growth. Further, the range of existing sectors stays constat as well as growth rates as long as the technologies are symmetric.
    Keywords: Endogenous Growth, Creative Destruction, Arrow Replacement Effect, Endogenous Structural Change, Horizontal Innovation, Endogenous Patents
    Date: 2017
  10. By: Kolev, Galina V.; Niehues, Judith
    Abstract: Recently, some influential empirical studies found evidence in favour of a negative relationship between income inequality and economic growth, implying the conclusion that inequality reducing policies will foster economic growth. The studies have in common that they all rely on the System GMM dynamic panel estimator. We argue that this estimator is most likely to suffer from a severe weak instrument problem in the inequality-growth setting because lagged differences of inequality have practically no explanatory power for current inequality levels. Thus, it is biased in the direction of OLS and fails to control for country heterogeneity. Using traditional Fixed Effects models or Difference GMM estimators yields positive coefficients on the inequality variable. Furthermore, we find evidence for a nonlinear relationship between inequality and growth when considering a sample of developed and developing economies. Thus, the effect of net income inequality on growth seems to be negative only for less-developed countries and for countries with high levels of inequality, and non-significant or rather positive otherwise.
    Keywords: Inequality,Economic Growth,Redistribution,System GMM
    JEL: O15 O47 H23
    Date: 2016
  11. By: Thomas McGregor; Samuel Wills
    Abstract: We investigate whether the geographic determinants of growth extend to natural amenities. We combine data on spatial and temporal variation in the quality of over 5000 surf breaks globally with data on local economic performance, proxied by night-time lights. We document a strong association between natural amenity quality and local economic development. Economic activity grows faster near good surf breaks; following the discovery of new breaks, or the technology needed to ride them; and during El Niño events that generate high-quality waves. The effects are concentrated in nearby towns and emerging economies, and population changes are consistent with tourism.
    Keywords: Natural amenities, economic growth, new economic geography, natural advantages, tourism, surfing, night-time lights
    JEL: O13 O44 O47 Q26 Q51 Q56 R11 R12
    Date: 2017–04
  12. By: Johanna CHOUMERT (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Pascale COMBES MOTEL (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Charlain GUEGANG DJIMELI
    Abstract: While the production of biofuels has expanded in recent years, findings in the literature on its impact on growth and development remain contradictory. This paper presents a meta-analysis of computable general equilibrium studies published between 2006 and 2014. Using 26 studies, we shed light on why their results differ. We investigate factors such as biofuel type, geographic area and the characteristics of models employed. Our results indicate that the outcomes of CGE simulations are sensitive to model parameters and also suggest heterogenous effects of biofuel expansion between developed / emerging countries and Sub-Saharan African countries. Our quantitative meta-analysis complements existing narrative surveys and confirms that results are sensitive to key hypotheses on essential parameters. Simulations on longer time periods and in multi-country studies lead to results that indicate higher impacts of biofuel expansion on growth and household income. Moreover, simulations with a shock in agricultural productivity indicate positive welfare gains, unlike simulations with a shock on land expansion. Lastly, we find that biodiesels lead to higher welfare gains than biofuels.
    Keywords: Biofuel, Bioethanol, Biodiesel, Energy, Development, Meta-regression, Computable General Equilibrium Model.
    JEL: C68 O13 Q16
    Date: 2017–04
  13. By: Unal Tongur (Akdeniz University, Department of Economics); Adem Yavuz Elveren (Fitchburg State University, Department of Economics, History and Political Science)
    Abstract: This paper examines the effect of military expenditures on economic growth by utilizing dynamic panel data analysis for 82 countries for the period of 1988-2008. Considering the possible effect of inequality on the military expenditures-economic growth nexus, this paper incorporates inequality along with its interaction with human capital into an augmented Solow growth model. The general finding is that military expenditures have a negative impact on economic growth, valid for several model specifications and sensitivity analyses. The negative impact holds when heterogeneity stemming from different country groups (e.g. development level, arms trade, fuel dependency) is considered. Also, the findings show that negative impact of military expenditure on growth for arms exporter and/or arms importer countries is weaker than those for other countries. Regarding income inequality and human capital, the findings suggest that human capital has a positive effect on growth, as expected. Income inequality on the other hand, has negative direct effect on economic growth. Considering these two variables together, the findings show that income inequality deteriorates growth for lower levels of human capital, whereas the impact of inequality on growth turns out to be positive for higher levels of human capital.
    Keywords: Military expenditure, growth, income inequality, human capital, Solow growth model
    JEL: C22 H56 O11
    Date: 2016–04
  14. By: Coscia, Michelle (Harvard University and University of Namur); Cheston, Timothy (Harvard University); Hausmann, Ricardo (Harvard University)
    Abstract: Are regions poor because they have bad institutions or are they poor because they are disconnected from the social channels through which technology diffuses? This paper tests institutional and technological theories of economic convergence by looking at income convergence across Colombian municipalities. We use formal employment and wage data to estimate growth of income per capita at the municipal level. In Colombia, municipalities are organized into 32 departamentos or states. We use cellphone metadata to cluster municipalities into 32 communication clusters, defined as a set of municipalities that are densely connected through phone calls. We show that these two forms of grouping municipalities are very different. We study the effect on municipal income growth of the characteristics of both the state and the communication cluster to which the municipality belongs. We find that belonging to a richer communication cluster accelerates convergence, while belonging to a richer state does not. This result is robust to controlling for state fixed effects when studying the impact of communication clusters and vice versa. The results point to the importance of social interactions rather than formal institutions in the growth process.
    Date: 2017–02
  15. By: Njindan Iyke, Bernard; Ho, Sin-Yu
    Abstract: This paper investigates the impact of income inequality on economic growth in Italy during the period of 1967 to 2012. Specifically, using a technique that allows us to sort out long-run impacts from short-run impacts, we investigate whether income inequality benefits or harms growth, after controlling for human capital, labour, physical capital and inflation within an augmented growth model. Amid the existing debatable theoretical and empirical studies, our results suggest that income inequality has a negative and significant impact on growth in the long run. The negative impact of income inequality on growth still exist in the short run. However, the coefficient becomes insignificant. Overall, we gather that inequality hurts growth in the country. Based on this finding, we provide some policy implications.
    Keywords: Income inequality; Economic Growth; Italy.
    JEL: D63 O15 O47 O52
    Date: 2017–03
  16. By: Simplice Asongu (Yaoundé/Cameroun); Ndemaze Asongu (Yaoundé/Cameroun)
    Abstract: This study explores a new dataset in order to present the comparative determinants of growth quality in 93 developing countries for the period 1990-2011. We employ both cross-sectional and panel estimation techniques with contemporary and non-contemporary specifications. The determinants are quite heterogeneous in significance and magnitude with substantial inclinations to specifications and estimation techniques. We present and discuss the findings in increasing magnitude of significance so as to ease comparative readability. We also discuss how specificities in the modelling techniques are relevant for targeting growth quality. The results are timely and relevant for the post-2015 inclusive and sustainable development agenda.
    Keywords: Quality of growth; Development
    JEL: O40 O57 I10 I20 I32
    Date: 2017–01
  17. By: Miguel Leon-Ledesma (University of Kent); Alessio Moro (University of Cagliari; Centre for Macroeconomics (CFM))
    Abstract: When measured using NIPA conventions, a two-sector model of balanced growth and structural transformation can account for the mildly declining GDP growth rate, increasing share of services, and increasing real investment/GDP ratio observed in the post-war U.S. economy. These changes induce a decline of 36% in the marginal product of capital and of 5.4% in the real interest rate. By retaining the U.S. calibration, the process of structural transformation can also account, per-se, for cross-country differences in real investment/GDP ratios, which are comparable to those displayed by the U.S. along its growth path.
    Keywords: Structural transformation, Productivity of capital. Two-sector model
    JEL: E22 E24 E31 O41
    Date: 2017–04
  18. By: Alan J. Auerbach; Kerwin K. Charles; Courtney C. Coile; William Gale; Dana Goldman; Ronald Lee; Charles M. Lucas; Peter R. Orszag; Louise M. Sheiner; Bryan Tysinger; David N. Weil; Justin Wolfers; Rebeca Wong
    Abstract: Older Americans have experienced dramatic gains in life expectancy in recent decades, but an emerging literature reveals that these gains are accumulating mostly to those at the top of the income distribution. We explore how growing inequality in life expectancy affects lifetime benefits from Social Security, Medicare, and other programs and how this phenomenon interacts with possible program reforms. We first project that life expectancy at age 50 for males in the two highest income quintiles will rise by 7 to 8 years between the 1930 and 1960 birth cohorts, but that the two lowest income quintiles will experience little to no increase over that time period. This divergence in life expectancy will cause the gap between average lifetime program benefits received by men in the highest and lowest quintiles to widen by $130,000 (in $2009) over this period. Finally we simulate the effect of Social Security reforms such as raising the normal retirement age and changing the benefit formula to see whether they mitigate or enhance the reduced progressivity resulting from the widening gap in life expectancy.
    JEL: H50 J10
    Date: 2017–04

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