nep-gro New Economics Papers
on Economic Growth
Issue of 2017‒09‒03
ten papers chosen by
Marc Klemp
Brown University

  1. Instrumental Variables in the Long Run By Gregory Casey; Marc Klemp
  2. Economic Origins of Cultural Norms: The Case of Animal Husbandry and Bastardy By Eder, Christoph; Halla, Martin
  3. Are Ideas Getting Harder to Find? By Michael Webb; John Van Reenen; Charles Jones; Nicholas Bloom
  4. Nationalism and economic openness: The cross-country evidence revisited By Vishesh Agarwal; Sadia Arfin; Robert Breunig; Samuel Weldeegzie; Tong Zhang
  5. The Role of Entrepreneurial Human Capital as a Driver of Endogenous Economic Growth By Isaac Ehrlich; Dunli Li; Zhiqiang Liu
  6. The postwar growth slowdown and the path of economic development By Huang, Kaixing
  7. Competition, Banking Stability and Growth: Evidence from the dual banking system in OIC countries By Azmi, Wajahat; Ali Abdul Manap, Turkhan
  8. The Three-Way Linkages between Export, Import and Economic Growth: New Evidence from Tunisia By Bakari, Sayef
  9. Dynamic Status Effects, Savings, and Income Inequality By Evangelos V. Dioikitopoulos; Stephen J. Turnovsky; Roland Wendner
  10. Russia’s Informal Economic Growth: 1960–1990 By Shida, Yoshisada

  1. By: Gregory Casey (Department of Economics, University of Copenhagen); Marc Klemp (Department of Economics and Population Studies and Training Center, Brown University)
    Abstract: In the study of long-run economic growth, it is common to use historical or geographical variables as instruments for contemporary endogenous regressors. We study the interpretation of these conventional instrumental variable (IV) regressions in a general, yet simple, framework. Our aim is to estimate the long-run causal effect of changes in the endogenous explanatory variable. We find that conventional IV regressions generally cannot recover this parameter of interest. To estimate this parameter, therefore, we develop an augmented IV estimator that combines the conventional regression with a separate regression estimating the degree of persistence in the endogenous regressor. Importantly, our estimator can overcome a particular violation of the exclusion restriction that can arise when there is a time gap between the instrument and the endogenous explanatory variable. We apply our results to estimate the long-run effect of institutions on economic performance and the long-run effect of Protestantism on human capital accumulation. In both cases, we find economically significant long-run effects that are smaller than those in the existing literature, demonstrating that our results have important quantitative implications for the field of long-run economic growth. We also use our framework to examine related empirical techniques. We find that two prominent regression methodologies - using gravity-based instruments for trade and including ancestry-adjusted variables in linear regression models - have related issues of interpretation. In the latter case, this problem can be overcome by including both unadjusted and adjusted measures in the regression model.
    Keywords: Long-Run Economic Growth, Instrumental Variable Regression
    JEL: C10 C30 O10 O40
    Date: 2017–08–24
  2. By: Eder, Christoph (University of Innsbruck); Halla, Martin (University of Innsbruck)
    Abstract: This paper explores the historical origins of the cultural norm regarding illegitimacy (formerly known as bastardy). We test the hypothesis that traditional agricultural production structures influenced the historical illegitimacy ratio, and have had a lasting effect until today. Based on data from the Austro-Hungarian Empire and modern Austria, we show that regions that focused on animal husbandry (as compared to crop farming) had significantly higher illegitimacy ratios in the past, and female descendants of these societies are still more likely to approve illegitimacy and give birth outside of marriage today. To establish causality, we exploit, within an IV approach, variation in the local agricultural suitability, which determined the historical dominance of animal husbandry. Since differences in the agricultural production structure are completely obsolete in today's economy, we suggest interpreting the persistence in revealed and stated preferences as a cultural norm. Complementary evidence from an 'epidemiological approach' suggests that this norm is passed down through generations, and the family is the most important transmission channel. Our findings point to a more general phenomenon that cultural norms can be shaped by economic conditions, and may persist, even if economic conditions become irrelevant.
    Keywords: cultural norms, persistence, animal husbandry, illegitimacy
    JEL: Z1 A13 J12 J13 J43 N33
    Date: 2017–08
  3. By: Michael Webb (Stanford University); John Van Reenen (Sloan School of Management, MIT); Charles Jones (Stanford University); Nicholas Bloom (Stanford)
    Abstract: In many growth models, economic growth arises from people creating ideas, and the long-run growth rate is the product of two terms: the effective number of researchers and the research productivity of these people. We present a wide range of evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore’s Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 75 times larger than the number required in the early 1970s. Across a broad range of case studies at various levels of (dis)aggregation, we find that ideas — and in particular the exponential growth they imply — are getting harder and harder to find. Exponential growth results from the large increases in research effort that offset its declining productivity.
    Date: 2017
  4. By: Vishesh Agarwal; Sadia Arfin; Robert Breunig; Samuel Weldeegzie; Tong Zhang
    Abstract: In this paper we examine the empirical relationship between economic openness and nationalism. We replicate and extend the cross-country analysis of Lan and Li (2015) using additional measures of nationalism and additional years of data from the World Values Survey. We fail to find the negative relationship between economic openness and nationalism that Lan and Li (2015) find, even when using the same data sources, years and sample of countries. When we expand the sample of countries and years of the data, we find no statistically significant relationship between economic openness and nationalism.
    Keywords: Nationalism, Economic Openness
    JEL: F14 F52 O17 O19 P26 P33
    Date: 2017–08
  5. By: Isaac Ehrlich; Dunli Li; Zhiqiang Liu
    Abstract: We model investment in entrepreneurial human capital (EHC) - the representative enterprise’s share of production capacity allocated to investment in innovative industrial and commercial knowledge – as a distinct channel through which firm-specific human capital drives endogenous growth. Our model suggests that institutional factors supporting free markets for goods and ideas, and higher educational attainments of entrepreneurs and workers, enhance endogenous economic growth by augmenting the efficiency of investment in EHC rather than exclusively by themselves. We test these implications using data from Global Entrepreneurship Monitor’s Adult Population Survey of 63 countries over 2002-2010 and find robust support for these hypotheses.
    JEL: L26 O31 O43
    Date: 2017–08
  6. By: Huang, Kaixing
    Abstract: Although the persistent slowdown in the growth of per capita output has been observed in virtually all industrialized countries since the early 1970s, no persuasive theoretical explanation for this phenomenon has been given. This paper constructs a modified endogenous growth model that indicates the slowdown is part of the natural process of economic development. Specifically, the model predicts that each economy develops along a path characterized by Malthusian stagnation, economic take-off, demographic transition, growth slowdown, and steady-state. The persistent slowdown in growth indicates that even the most developed countries are not in their steady-state yet, and their future growth could be slower.
    Keywords: Growth slowdown, ideas, human capital, population
    JEL: E27 O4
    Date: 2016–12–01
  7. By: Azmi, Wajahat (International Centre for Education in Islamic Finance (INCEIF); Ali Abdul Manap, Turkhan (The Islamic Research and Teaching Institute (IRTI))
    Abstract: This study tests the proposition that the Islamic banks are more stable and profitable, especially during the crisis period and tests the impact of competition on both the Islamic and conventional banks using array of measures including the recently developed Boone index in OIC countries. The results can be summarized as follows. First, increase in share of Islamic banks assets increases the overall stability of banking sector. Second, Islamic banks are more stable as compare to their conventional peers but the profitability measures shows that the both the banks are same. This finding is in sharp contradiction with the theoretical standing of Islamic banks being more profitable. This may be due to the significant divergence of Islamic banks from the theory as it is supposed to operate on the risk sharing arrangement. Third, competition has similar effects on stability and profitability on both the banks. Fourth, Islamic banks did better in terms of profitability during the crisis as compare to conventional banks. It also suggests that the Islamic banks were more stable during the crisis period. Finally, we provide evidence of complimentary effect of Islamic and conventional banks in influencing the income per capita suggesting that the co-existence of both the banking system is rewarding for the economies.
    Keywords: Competition; Boone Index; Stability; Islamic Banks; OIC Countries
    JEL: D40 G21 Z12
    Date: 2017–06–23
  8. By: Bakari, Sayef
    Abstract: This study investigates the nexus between exports, imports and economic growth in Tunisia using annual time series data for the period 1965 - 2016 by implementing cointegration analysis and vector error correction model. The empirical results show that in the long run (i) exports affect negatively on economic growth, (ii) imports have positive effect on economic growth, (iii) economic growth have positive effect on exports, and imports have positive effect on exports. However in the short run empirical results show that there is (i) bi-directional causal relationship between exports and economic growth, (ii) uni-directional causal relationship from exports to imports, (iii) uni-directional causal relationship from imports to economic growth. These results provide evidence that imports and exports are necessary in Tunisia's economy and are presented as an engine of growth since they cause economic growth in the short term. But exports are not carried out and treated with a solid and fair manner according to their negative effect on economic growth in the long run, which offer new insights into Tunisia’s openness policy for promoting economic growth.
    Keywords: Exports, Imports, Economic growth, Openness Policy, Tunisia.
    JEL: F0 F10 F11 F14 F43 O47 O55
    Date: 2017–08
  9. By: Evangelos V. Dioikitopoulos (King's College London, UK); Stephen J. Turnovsky (University of Washington, USA); Roland Wendner (University of Graz, Austria)
    Abstract: This paper advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society (endogenous dynamic status effect), in accordance with empirical evidence. Our behavioral driven theory is able to replicate the contradictory historical facts of an increasing saving rate along with declining returns on capital over time. As an implication of our hypothesis, we are able to provide a theoretical foundation for the observed dynamics on comparative development of income inequality across different countries. In particular, our theory implies that, as an economy develops, the saving rate increases during transition altering the speed of convergence relative to the standard neoclassical growth model. The initially lower and then increasing saving rate during the process of development benefits the wealthy households relative to poor ones, as the rate of interest on capital declines at a lower rate. Therefore, the endogenous dynamic status effect contributes to a rise in wealth inequality. Along the same lines, we analyze the behavior of inequality in response to changes in wealth (income) induced by productivity shocks. Under a positive productivity shock, in economies with a strong enough endogenous dynamic status effect, inequality increases - a fact that we experience in many countries around the globe.
    Keywords: Status preferences; Saving rate; Growth; Inequality
    JEL: D11 D31 O11
    Date: 2017–08
  10. By: Shida, Yoshisada
    Abstract: This paper studies the historical GDP of Russia from perspective informal economy. We re-estimate nominal and real informal GDP in the period 1960–1990, using the expenditure approach and declassified archival materials of household budget surveys. The main findings are as follows. First, previously estimated values of Russia’s nominal GDP were underestimated, on average, by about 12.6% for 1960–1990, due to ignoring informal GDP. Second, after including informal GDP, we find that economic growth is 15–39 percentage points lower during this period, which corresponds to differences in the annual growth rate in the range of 0.24–0.38 percentage points.
    Keywords: informal economy, historical statistics, Russia, USSR
    JEL: N14 O17 N24 N27
    Date: 2017–03

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