nep-gro New Economics Papers
on Economic Growth
Issue of 2017‒10‒08
eleven papers chosen by
Marc Klemp
Brown University

  1. Culture, Diffusion, and Economic Development: The Problem of Observational Equivalence By Ani Harutyunyan; Ömer Özak
  2. Less is More? The child quantity-quality trade-off in early 20th century England and Wales By Fernihough, Alan
  3. Fertility and Economic Development: Quantile Regression Evidence on the Inverse J-shaped Pattern By Maricruz Lacalle-Calderon; Manuel Perez-Trujillo; Isabel Neira
  4. The human capital and development. The Romanian case study By Elena Pelinescu
  5. How does inequality affect long-run growth? By Roxana Gutiérrez-Romero
  6. Does inequality foster or hinder the growth of entrepreneurship in the long-run? By Roxana Gutiérrez-Romero; Luciana Mendez-Errico
  7. On the Effects of the BRICS on World Economic Growth By Bosupeng, Mpho
  8. Credit Constraints and Economic Growth in a Dual Economy By Peter Skott; Leopoldo Gomez-Ramirez
  9. The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration By Grossman, Gene; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
  10. Quantity Measurement and Balanced Growth in Multi-Sector Growth Models By Duernecker, Georg; Herrendorf, Berthold; Valentinyi, Akos
  11. Investment-Specific Technical Change and Growth around the World By Samaniego, Roberto M; Yu Sun, Juliana

  1. By: Ani Harutyunyan (LICOS - Centre for Institutions and Economic Performance at KU Leuven); Ömer Özak (Southern Methodist University)
    Abstract: This research explores the direct and barrier effects of culture on economic development. It shows both theoretically and empirically that whenever the technological frontier is at the top or bottom of the world distribution of a cultural value, there exists an observational equivalence between absolute cultural distances and cultural distances relative to the frontier, preventing the identification of its direct and barrier effects. Since the technological frontier usually has the ``right'' cultural values for development, it tends to be in the extremes of the distribution of cultural traits, generating observational equivalence and confounding the analysis. These results highlight the difficulty of disentangling the direct and barrier effects of culture. The empirical analysis finds suggestive evidence for direct effects of individualism and conformity with hierarchy, and barrier effects of hedonism.
    Keywords: Comparative economic development, cultural differences, barriers to technological diffusion, individualism, power distance, vertical hierarchy, hedonism, linguistic distance
    JEL: O10 O11 O20 O33 O40 O47 O57 Z10
    Date: 2017–04
  2. By: Fernihough, Alan
    Abstract: Whilst the child quantity-quality (QQ) model is theoretically well-established, the empirical literature offers only partial support. Motivated by the limited causal empirical evidence in both historic and contemporary societies, this study examines the relationship connecting fertility and child quality for individual families in England and Wales at the start of the 20th century. Using data from the 1911 census returns, I estimate whether reductions in family size reduce the probability of leaving school. To account for the endogenous nature of fertility decisions, I use the sex composition of the first two births in families with at least two children as an instrumental variable (IV) for family size. Overall, I find evidence in support of a child QQ effect, as children in the 13-15 age cohort born into smaller families were more likely remain in school. Whilst the IV results are very similar to the non-IV ones, one drawback is that the IV estimates are quite imprecise.
    Keywords: Quantity-Quality,Human Capital,Demographic Transition
    JEL: J10 N3 O10
    Date: 2017
  3. By: Maricruz Lacalle-Calderon (Department of Economics and Economic Development, School of Economics and Business, Universidad Autónoma de Madrid); Manuel Perez-Trujillo (Department of Economics and Instituto de Economía Aplicada Regional (IDEAR), Universidad Católica del Norte); Isabel Neira (Econometrics Department, Faculty of Economics and Business, Universidad de Santiago de Compostela)
    Abstract: This paper analyses empirically the relationship between economic development and fertility. Through a new sample selection and quantile regression, it investigates whether there is an inverse J-shaped pattern between these two variables, and, if so, whether it depends on development and fertility levels. Our results confirm that the inverse J-shaped pattern exists, but only when a certain level of economic development is attained. Results also suggest an innovative finding: the J-shape depends not only on the development but also on the fertility level. The higher the fertility rate, the higher the GDP per capita needed to reverse fertility decline, and the faster the negative and positive segments of the J-shape fall and grow.
    Keywords: J-shaped pattern, Fertility rate, Economic development, Quantile regression
    JEL: C21 J11 J13
  4. By: Elena Pelinescu (Institute for Economic Forecasting, Romanian Academy)
    Abstract: The human capital is the main driver of development and economic growth. This paper is focused on human capital and tries to show how the human capital, as an important economic factor contributes to the growth of the economy. Romer (1969) identified a positive relation between the initial level of literacy and its rate of growth and the increase of income per capita. Benhabib, and Spiegel (1994) showed that the growth rate of total factor productivity depends on the human capital stock level. Wilson and Briscoe (2004) in a literature review of relation between human capital and economic performance at macroeconomic level highlighted that the increases in economic growth across the EU are associated with increases in both education and training. This paper is focused on the relation between human capital and development in Romania and uses econometric techniques to highlight the role of human capital in increasing the country’s wealth.
    Keywords: human capital, development, inovation
    JEL: E24 J24 O15 O31
    Date: 2017–09
  5. By: Roxana Gutiérrez-Romero
    Abstract: This article shows that countries with higher historical levels of income inequality, dating back to the early 1800s, experienced lower rates of growth centuries after in terms of number of firms created, number of employees hired, firms’ output, value added and profit margin. To increase the understanding as the channels through which historical inequality deterred growth, the article exploits the differences across industries’ intensities in skilled labour, physical capital, dependence on external finance and written contracts across 28 sectors in 57 countries during the 1985–2010 period. It is shown that industries relatively more in need of external finance and contracts experienced lower firm creation growth in countries with higher levels of past inequality. Similarly, industries intensive in skilled labour and physical capital experienced lower rate of growth in the number of employees hired, firms’ output and real value in more unequal countries.
    Keywords: Inequality, Entrepreneurship, panel study
    JEL: O11 O47 C5
    Date: 2017–09
  6. By: Roxana Gutiérrez-Romero; Luciana Mendez-Errico
    Abstract: This article assesses the extent to which historical levels of inequality affect the creation and survival of businesses over time. To this end, we use the Global Entrepreneurship Monitor (GEM) survey across 66 countries over 2005–2011. We complement this survey with data on income inequality dating back to early 1800s and current institutional environment, such as the number of procedures to start a new business, countries’ degree of financial inclusion, corruption and political stability. We find that although inequality increases the number of firms created out of need, inequality reduces entrepreneurial activity as in net terms businesses are less likely to be created and survive over time. These findings are robust to using different measures of inequality across different points in time and regions, even if excluding Latin America the most unequal region in the world. Our evidence then supports theories that argue early conditions, crucially inequality, influence development path.
    Keywords: Inequality; entrepreneurship; panel data; instrumental variables.
    JEL: M2 O1 D3 C23
    Date: 2017–09
  7. By: Bosupeng, Mpho
    Abstract: The purpose of this empirical study is to examine the potential effects of the BRICS on other economies’ economic growth over the period 1960-2013. This investigation deploys the Saikkonen and Lu ̈tkepohl cointegration methodology to validate long run relations between Brazil and China’s economic growth and other nation’s output growth. The study further uses the Toda and Yamamoto approach to Granger causality to examine long run causal links between the BRICS economic growth. The results show that all countries exhibit long run relations with China and Brazil’s economic growth. In addition, the results prove that Brazil’s economic growth is induced by South Africa, China and India’s economic growth.
    Keywords: economic growth; BRICS; developing economies; economic integration.
    JEL: F02
    Date: 2017
  8. By: Peter Skott (University of Massachusetts - Amherst); Leopoldo Gomez-Ramirez (Universidad del Norte, Colombia)
    Abstract: Pervasive credit constraints have been seen as major sources of slow growth in developing economies. This paper clarifies a mechanism through which an inefficient financial system can reduce productivity growth. Using a two-sector model, second, we examine the implications for employment and the distribution of income. Both classical and Keynesian versions of the model are considered; saving decisions are central in the classical version while firms’ investment and pricing decisions take center stage in the Keynesian version. We find that, although boosting the asymptotic rate of growth, a relaxation of credit constraints may reduce the share of the formal sector, increase inequality and underemployment, and have little or no effect on the medium-run rate of growth.
    Keywords: credit constraints, productivity growth, dual economy, underemployment, income distribution
    JEL: O11 O41 E2
    Date: 2017
  9. By: Grossman, Gene; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
    Abstract: We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.
    Keywords: balanced growth; capital share; capital-skill complementarity; Labor Share; neoclassical growth; technological progress
    Date: 2017–09
  10. By: Duernecker, Georg; Herrendorf, Berthold; Valentinyi, Akos
    Abstract: Multi-sector models typically rely on a numeraire to aggregate quantities whereas NIPA uses the chain index. For three popular versions of the multi-sector growth model, we provide analytical expressions for the growth of aggregate quantities under both measurement methods and establish that the compound differences are sizeable over long horizons. We show that using the chain index captures more accurately the aggregate effects of secular changes in relative prices. For example, in a standard model of structural transformation, measuring GDP growth with the chain index captures that Baumol's disease reduces welfare growth, which using a numeraire misses.
    Keywords: Balanced Growth; Baumol Disease; Chain Indexes; Structural Change
    JEL: O41 O47 O51
    Date: 2017–09
  11. By: Samaniego, Roberto M (The George Washington University); Yu Sun, Juliana (School of Economics, Singapore Management University)
    Abstract: Investment-specific technical change (ISTC) contributes little to growth in most countries. This is because in many countries the investment process does not become notably more efficient over time. Still, cross-country differences in the contribution of ISTC to growth are significant. Differences in the rate of ISTC appear due to cross-country variation in the use of R&D intensive capital goods, as well as trade costs.
    Keywords: Price of capital; investment-specific technical change; growth accounting; sources of growth; natural resources; trade costs.
    JEL: F43 O11 O13 O16 O33 O41 O47
    Date: 2016–04–28

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