nep-gro New Economics Papers
on Economic Growth
Issue of 2017‒05‒07
fifteen papers chosen by
Marc Klemp
Brown University

  1. Are Individualistic Societies Less Equal? Evidence from the Parasite Stress Theory of Values By Nikolaev, Boris; Boudreaux, Christopher; Salahodjaev, Raufhon
  2. Unreal Wages? Real Income and Economic Growth in England, 1260-1850 By Humphries, Jane; Weisdorf, Jacob
  3. The Love for Children Hypothesis and the Multiplicity of Fertility Rates By Paolo Melindi Ghidi; Thomas Seegmuller
  4. Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence By Desmet, Klaus; Greif, Avner; Parente, Stephen L.
  5. Railroads, Technology Adoption, and Modern Economic Development: Evidence from Japan By Junichi Yamasaki
  6. Takeoffs, Landing, and Economic Growth By Pakrashi, Debayan; Frijters, Paul
  7. Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers By El-Anshasy, Amany; Mohaddes, Kamiar; Nugent, Jeffrey B.
  8. Capital Income Tax, Linear R&D Technology, and Economic Growth By Tenryu, Yohei
  9. Is planet Earth as a whole likely to be wage-led? By Arslan Razmi
  10. Exchange Rate Misalignment and Growth: A Myth? By Carlos Eduardo Gonçalves; Mauro Rodrigues
  11. Growing, Shrinking, and Long Run Economic Performance: Historical Perspectives on Economic Development By Stephen Broadberry; John Joseph Wallis
  12. Urban Productivity in the Developing World By Edward L. Glaeser; Wentao Xiong
  13. Transitioning from Low-Income Growth to High-Income Growth: Is there a Middle-Income Trap? By Bulman, David; Eden, Maya; Nguyen, Ha
  14. Agricultural Returns to Labor and the Origins of Work Ethics By Fouka, Vasiliki; Schlaepfer, Alain
  15. Does Corruption Affect Total Factor Productivity? An Empirical Analysis By Keita Kouramoudou

  1. By: Nikolaev, Boris; Boudreaux, Christopher; Salahodjaev, Raufhon
    Abstract: It is widely believed that individualistic societies, which emphasize personal freedom, award social status for accomplishment, and favor minimal government intervention, are more prone to higher levels of income inequality compared to more collectivist societies, which value conformity, loyalty, and tradition and favor more interventionist policies. The results in this paper, however, challenge this conventional view. Drawing on a rich literature in biology and evolutionary psychology, we test the provocative Parasite Stress Theory of Values, which suggests a possible link between the historical prevalence of infectious diseases, the cultural dimension of individualism-collectivism and differences in income inequality across countries. Specifically, in a two-stage least squares analysis, we use the historical prevalence of infectious diseases as an instrument for individualistic values, which, in the next stage, predict the level of income inequality, measured by the net GINI coefficient from the Standardized World Income Inequality Database (SWIID). Our findings suggest that societies with more individualistic values have significantly lower net income inequality. The results are robust even after controlling for a number of confounding factors such as economic development, legal origins, religion, human capital, other cultural values, economic institutions, and geographical controls.
    Keywords: Inequality, Individualism-Collectivism, Two-Stage Least Squares
    JEL: D63 O1 O17
    Date: 2017
  2. By: Humphries, Jane; Weisdorf, Jacob
    Abstract: Existing accounts of workers' earnings in the past suffer from the fundamental problem that annual incomes are inferred from day wages without knowing the length of the working year. We circumvent this problem by presenting a novel income series for male workers employed on annual contracts. We use evidence of labour market arbitrage to argue that existing estimates of annual incomes in England are badly off target, because they overestimate the medieval working year but underestimate the working year during the industrial revolution. Our revised income estimates suggests that modern economic growth began more than two centuries earlier than commonly thought and was driven by an early and continuing "Industrious Revolution".
    Keywords: England; Industrial Revolution; Industrious Revolution; Labour Supply; Living standards; Malthusian Model; Real Wages
    JEL: J3 J4 J5 J6 J7 J8 N33
    Date: 2017–04
  3. By: Paolo Melindi Ghidi (BETA, University of Strasbourg); Thomas Seegmuller (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille)
    Abstract: As illustrated by some French departments, how can we explain the existence of equilibria with different fertility and growth rates in economies with the same fundamentals, preferences, technologies and initial conditions? To answer this question we develop an endogenous growth model with altruism and love for children. We show that independently from the type of altruism, a multiplicity of equilibria might emerge if the degree of love for children is high enough. We refer to this condition as the love for children hypothesis. Then, the fertility rate is determined by expectations on the future growth rate and the dynamics are not path-dependent. Our model is able to reproduce different fertility behaviours in a context of completed demographic transition independently from fundamentals, preferences, technologies and initial conditions.
    Keywords: fertility, love for children, expectations, endogenous growth, balanced growth path
    JEL: J13 O41 D11
    Date: 2017–03
  4. By: Desmet, Klaus; Greif, Avner; Parente, Stephen L.
    Abstract: Why do some countries industrialize much earlier than others? One widely-accepted answer is that markets need to be large enough for producers to find it profitable to bear the fixed cost of introducing modern technologies. This insight, however, has limited explanatory power, as illustrated by England having industrialized nearly two centuries before China. This paper argues that a market-size-only theory is insufficient because it ignores that many of the modern technologies associated with the Industrial Revolution were fiercely resisted by skilled craftsmen who expected a reduction in earnings. Once we take into account the incentives to resist by factor suppliers' organizations such as craft guilds, we theoretically show that industrialization no longer depends on market size, but on the degree of spatial competition between the guilds' jurisdictions. We substantiate the relevance of our theory for the timing of industrialization in England and China (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing that a model of our theory calibrated to historical data on spatial competition correctly predicts the timing of industrialization in both countries. The theory can therefore account for both the Industrial Revolution and the Great Divergence.
    Keywords: adoption of technology; craft guilds; endogenous institutions; Great Divergence; industrial revolution; innovation; inter-city competition; market size; spatial competition
    JEL: N10 O11 O14 O31 O43
    Date: 2017–04
  5. By: Junichi Yamasaki
    Abstract: Railroad access can accelerate the technological progress in the industrial sector and therefore induce structural change and urbanization, the two common features of modern economic growth. I examine this particular mechanism in the context of Japanese railroad network expansion and modern economic growth in the late 19th century and early 20th centuries. By digitizing a novel data set that measures the use of steam engines at the factory level, allowing me to directly observe the diffusion of steam power, I analyze the effect of railroad access on the adoption of steam power. To overcome the endogeneity prob- lem, I determine the cost-minimizing path between destinations, and use this to construct an instrument for railroad access. I find that railroad access led to an increased adoption of steam power by factories, which in turn reallocated labor from the agricultural to the industrial sector, thereby inducing structural change. Railroad network also broke mean reversion in population growth, eventually leading to urban- ization. My results support the view that railroad network construction was key to the modern economic growth in pre-First World War Japan.
    Date: 2017–04
  6. By: Pakrashi, Debayan (Asian Development Bank Institute); Frijters, Paul (Asian Development Bank Institute)
    Abstract: Economic growth in the East Asian economies was remarkable during the latter part of the 20th century, starting with Japan just after World War II, followed by the East Asian Tigers and “tiger cubs” and, most recently, the People’s Republic of China and India. The high, sustained economic growth of these economies during their boom period reduced the disparity between the West and these countries (in terms of standards of living). The source of such extraordinary growth has been a matter of great interest since then, but no attempt has been made so far to model the political economy of takeoffs and landings in the context of economic growth. We empirically define takeoffs and landings, and provide an overlapping generation model with technological change and skill formation to explain the relatively stable growth rates in the Asian economies for decades. The existence of a technology trap, meaning economies cannot afford available advanced technology, may explain why takeoffs are relatively rare, even when many underdeveloped economies are still waiting for their own growth miracle.
    Keywords: takeoff; landings; technology trap; economic growth; economic miracle; overlapping generation model; technological change; skill formation
    JEL: O31 O43 O57
    Date: 2017–01–19
  7. By: El-Anshasy, Amany (United Arab Emirates University); Mohaddes, Kamiar (University of Cambridge); Nugent, Jeffrey B. (University of Southern California)
    Abstract: This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961-2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.
    JEL: C23 E02 F43 O13 Q32
    Date: 2017–04–01
  8. By: Tenryu, Yohei
    Abstract: This paper shows that, in a R&D-based growth model in which vertical and horizontal innovations occur simultaneously, increasing the capital income tax leads to faster growth. For this result to hold, the production function for both vertical and horizontal innovations must have constant returns to scale.
    Keywords: Endogenous growth, Capital income tax, Vertical innovation, Horizontal Innovation, Scale effect.
    JEL: H20 J22 O31 O40
    Date: 2017–04–22
  9. By: Arslan Razmi (Department of Economics, University of Massachusetts Amherst)
    Abstract: Evidence regarding the relationship between distribution, demand, and growth in the short run has been mixed. Open economy models that create the possibility of beggar-thy-neighbor growth offer one theoretical explanation for why this may be expected. Several authors have argued recently, however, that even if demand and growth are profit-led in many individual countries, the global economy is likely to be wage-led since the planet as a whole runs balanced trade. This paper finds that this argument, although intuitively appealing, does not hold up to careful examination. Although the world economy as a whole is a closed system, it is not isomorphic to a closed economy, thanks to repercussion effects, relative price movements, and cross-country heterogeneity. The effects of global redistribution depend on the nature of its constituent economies.
    Keywords: Demand regime, income distribution, wage-led growth, neo-Kaleckian open economy models.
    JEL: F43 O41 O11 E12
    Date: 2017
  10. By: Carlos Eduardo Gonçalves; Mauro Rodrigues
    Abstract: The impact of real exchange rate movements on GDP growth is a hotly debated issue both in policy and academic circles. In this paper we provide evidence suggesting that there is not a robust statistical association between misalignment and growth for a broad panel of countries. Controlling for country fixed effects, time effects and initial GDP, a more depreciated currency is associated with higher growth. However, this positive association vanishes after controlling for the savings rate. We do not find such positive relationship either for large panel of countries or for a subsample of emerging economies.
    Keywords: Real exchange rate; growth; misalignment
    JEL: F31 F43 O47
    Date: 2017–04–27
  11. By: Stephen Broadberry; John Joseph Wallis
    Abstract: Using annual data from the thirteenth century to the present, we show that improved long run economic performance has occurred primarily through a decline in the rate and frequency of shrinking, rather than through an increase in the rate of growing. Indeed, as economic performance has improved over time, the short run rate of growing has typically declined rather than increased. Most analysis of the process of economic development has hitherto focused on increasing the rate of growing. Here, we focus on understanding the forces making for a reduction in the rate of shrinking, drawing a distinction between proximate and ultimate factors. The main proximate factors considered are (1) structural change (2) technological change (3) demographic change and (4) the changing incidence of warfare. We conclude with a consideration of institutional change as the key ultimate factor behind the reduction in shrinking.
    JEL: N0 N10 O0 O4 O43
    Date: 2017–04
  12. By: Edward L. Glaeser; Wentao Xiong
    Abstract: Africa is urbanizing rapidly, and this creates both opportunities and challenges. Labor productivity appears to be much higher in developing-world cities than in rural areas, and historically urbanization is strongly correlated with economic growth. Education seems to be a strong complement to urbanization, and entrepreneurial human capital correlates strongly with urban success. Immigrants provide a natural source of entrepreneurship, both in the U.S. and in Africa, which suggests that making African cities more livable can generate economic benefits by attracting talent. Reducing the negative externalities of urban life requires a combination of infrastructure, incentives, and institutions. Appropriate institutions can mean independent public authorities, public-private partnerships, and non-profit entities depending on the setting.
    JEL: L26 O18 R00
    Date: 2017–03
  13. By: Bulman, David (Asian Development Bank Institute); Eden, Maya (Asian Development Bank Institute); Nguyen, Ha (Asian Development Bank Institute)
    Abstract: Is there a “middle-income trap”? Theory suggests that the determinants of growth at low and high income levels may be different. If countries struggle to transition from growth strategies that are effective at low income levels to growth strategies that are effective at high income levels, they may stagnate at some middle income level; this phenomenon can be thought of as a “middle-income trap.” Defining income levels based on per capita gross domestic product relative to the United States, we do not find evidence for (unusual) stagnation at any particular middle income level. However, we do find evidence that the determinants of growth at low and high income levels differ. These findings suggest a mixed conclusion: middle-income countries may need to change growth strategies in order to transition smoothly to high income growth strategies, but this can be done smoothly and does not imply the existence of a middle-income trap.
    Keywords: economic growth; cross-country convergence; Middle Income Trap; economic transition; high income growth; low income growth
    JEL: O40 O47
    Date: 2017–01–26
  14. By: Fouka, Vasiliki; Schlaepfer, Alain
    Abstract: We examine the historical determinants of differences in preferences for work across societies today. Our hypothesis is that a society’s work ethic depends on the role that labor has played in it historically, as an input in agricultural production: societies that have for centuries depended on the cultivation of crops with high returns to labor effort will work longer hours and develop a preference for working hard. We formalize this prediction in the context of a model of endogenous preference formation, with altruistic parents that can invest in reducing their offsprings’ disutility from work. To empirically found our model, we construct an index of potential agricultural labor intensity, that captures the suitability of a location for the cultivation of crops with high estimated returns to labor in their production. We find that this index positively predicts work hours and attitudes towards work in contemporary European regions. We find support for the hypothesis of cultural transmission, by examining the correlation between potential labor intensity in the parents’ country of origin and hours worked by children of European immigrants in the US.
    Keywords: Agriculture, Labor Productivity, Hours of Work, Culture
    JEL: J22 J24 N30 N50 Z10
    Date: 2017–03
  15. By: Keita Kouramoudou (Faculty of Management, University of Tampere)
    Abstract: The negative role of corruption in the economies is strongly claimed in economic research. The fact that it undermines economic growth is beyond doubt. Still mixed evidences persist about how corruption reaches growth. This paper examines the effect of corruption on total factor productivity (TFP), also referred to as Solow residual, and assesses the impact related to the increase in tax rates on this effect. The motivation of this study is that volumes of research show that growth of output in a large extent results from growth in TFP. The results of the estimations unambiguously suggest that corruption, well as tax burden, has a negative effect on TFP. When both variables alongside with the lagged dependent variable are used for controlling TFP, the finding suggests that one-unit increase in corruption standard deviation is associated with a decrease of 0.01% in TFP, and the increase in tax burden in the same proportion leads to a decline in TFP of 0.13%. Furthermore, our findings highlight that, a tax rate increase would result an aggravation of the negative impact of corruption on TFP. These findings remain robust to the introduction of TFP determinant variables over alternative regressions.
    Keywords: Total factor productivity, Corruption, Tax evasion
    JEL: D73 O47 H26
    Date: 2017–02

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