nep-gro New Economics Papers
on Economic Growth
Issue of 2018‒01‒22
eleven papers chosen by
Marc Klemp
University of Copenhagen

  1. Distrust and Political Turnover By Nathan Nunn; Nancy Qian; Jaya Wen
  2. The Diffusion of New Institutions: Evidence from Renaissance Venice's Patent System By Stefano Comino; Alberto Galasso; Clara Graziano
  3. Population control policies and fertility convergence By de Silva, Tiloka; Tenreyroa, Silvana
  4. Is necessity the mother of disruption? By Preißner, Stephanie; Raasch, Christina; Schweisfurth, Tim
  5. Financial Development, Growth, and Crisis: Is There a Trade-Off? By Norman Loayza; Amine Ouazad; Romain Ranciere
  6. Endogenous Production Networks By Daron Acemoglu; Pablo D. Azar
  7. Falling Behind and Catching up : India’s Transition from a Colonial Economy By Gupta, Bishnupriya
  8. Does Country Size Affect the Relationship between Population Density and Labour Productivity? Theory and Evidence for Europe By José Pedro Pontes; Patrícia Melo
  9. The Importance of Education and Skill Development for Economic Growth in the Information Era By Charles R. Hulten
  10. Electricity Consumption And Economic Growth: New Evidence From Twelve Countries By Chirwa, Themba G; Odhiambo, Nicholas M.
  11. Weak States: Causes and Consequences of the Sicilian Mafia By Daron Acemoglu; Giuseppe De Feo; Giacomo De Luca

  1. By: Nathan Nunn; Nancy Qian; Jaya Wen
    Abstract: We present findings that document one way in which a society's culture can affect political outcomes. Examining an annual panel of democratic countries over six decades, we show that severe economic downturns are more likely to cause political turnover in countries that have lower levels of generalized trust. The relationship is only found among democracies and for regular leader turnover, which suggests that the underlying mechanism works through leader accountability and the electoral process. Moreover, we find that the effects of trust on turnover are greatest during years with regularly-scheduled elections, and within democracies with a parliamentary system, a fully free media, and greater stability. The estimates suggest that generalized trust affects political institutions by influencing the extent to which citizens attribute economic downturns to the mistakes of politicians.
    JEL: D72 P16 P51
    Date: 2018–01
  2. By: Stefano Comino; Alberto Galasso; Clara Graziano
    Abstract: What factors affect the diffusion of new economic institutions? This paper examines this question by exploiting the introduction of the first regularized patent system, which appeared in the Venetian Republic in 1474. We begin by developing a model that links patenting activity of craft guilds with provisions in their statutes. The model predicts that guild statutes that are more effective at preventing outsiders' entry and at mitigating price competition lead to less patenting. We test this prediction on a new dataset that combines detailed information on craft guilds and patents in the Venetian Republic during the Renaissance. We find a negative association between patenting activity and guild statutory norms that strongly restrict entry and price competition. We show that guilds that originated from medieval religious confraternities were more likely to regulate entry and competition, and that the effect on patenting is robust to instrumenting guild statutes with their quasi-exogenous religious origin. We also find that patenting was more widespread among guilds geographically distant from Venice, and among guilds in cities with lower political connections, which we measure by exploiting a new database of noble families and their marriages with members of the great council. Our analysis suggests that local economic and political conditions may have a substantial impact on the diffusion of new economic institutions.
    JEL: K23 N23 O33 O34
    Date: 2017–12
  3. By: de Silva, Tiloka; Tenreyroa, Silvana
    Abstract: The rapid population growth in developing countries in the middle of the 20th century led to fears of a population explosion and motivated the inception of what effectively became a global population-control program. The initiative, propelled in its beginnings by intellectual elites in the United States, Sweden, and some developing countries, mobilized resources to enact policies aimed at reducing fertility by widening contraception provision and changing family-size norms. In the following five decades, fertility rates fell dramatically, with a majority of countries converging to a fertility rate just above two children per woman, despite large cross-country differences in economic variables such as GDP per capita, education levels, urbanization, and female labour force participation. The fast decline in fertility rates in developing economies stands in sharp contrast with the gradual decline experienced earlier by more mature economies. In this paper, we argue that populationcontrol policies are likely to have played a central role in the global decline in fertility rates in recent decades and can explain some patterns of that fertility decline that are not well accounted for by other socioeconomic factors.
    Keywords: fertility rates; birth rate; convergence; macro-development; Malthusian growth; population; population-control policies. growth; population.
    JEL: J1
    Date: 2017–04
  4. By: Preißner, Stephanie; Raasch, Christina; Schweisfurth, Tim
    Abstract: This study investigates the origins of disruptive innovation. According to the canonical model, disruptive innovations do not originate from existing customers - in contrast with what the user innovation literature would predict. We compiled a unique historical and content-analytic dataset based on 62 cases identified from the disruptive innovation literature. We found that 44% of the disruptive innovations in this sample were originally developed by users. Disruptive innovations are more likely to originate from users (producers) if the environment is characterized by high levels of turbulence in customer preferences (technology). Disruptive innovations involving high functional (technological) novelty, tend to be developed by users (producers). Users are also more likely to be the source of disruptive process innovations, and to innovate in weaker appropriability environments. Our paper is among the first to link the disruptive and user innovation literatures. We contribute to both and offer guidance to managers on the likely source of disruptive threats.
    Keywords: user innovation,disruptive innovation,market orientation,radical innovation,environmental turbulence
    JEL: D83 L17 M19 O31 O34
    Date: 2017
  5. By: Norman Loayza (The World Bank); Amine Ouazad (HEC Montreal); Romain Ranciere (University of Southern California)
    Abstract: This paper reviews the evolving literature that links financial development, financial crises, and economic growth in the past 20 years. The initial disconnect—with one literature focusing on the effect of financial deepening on long-run growth and another studying its impact on volatility and crisis—has given way to a more nuanced approach that analyzes the two phenomena in an integrated framework. The main finding of this literature is that financial deepening leads to a trade-off between higher economic growth and higher crisis risk; and its main conclusion is that, for at least middle-income countries, the positive growth effects outweigh the negative crisis risk impact. This balanced view has been revisited recently for advanced economies, where an emerging and controversial literature supports the notion of "too much finance," suggesting that there might be a threshold beyond which financial depth becomes detrimental for economic growth by crowding out other productive activities and misallocating resources. Nevertheless, the growth/crisis trade-off is alive and strong for a large share of the world economy. Recognizing the intrinsic trade-offs of financial development can provide a useful framework to design policies targeting financial deepening, diversity, and inclusion. In particular, acknowledging the trade-offs can highlight the need for complementary policies to mitigate the risks, from financial macroprudential policies to monetary policy frameworks that monitor the growth of credit and asset prices.
    Keywords: Finance, Financial Deepening, Development, Growth, Productivity, Crisis, Volatility, Risk, Macroprudential Policies
    JEL: E44 O40 G00 G01 G32 H12
    Date: 2017–12
  6. By: Daron Acemoglu; Pablo D. Azar
    Abstract: We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity. Markets are “contestable” in the sense that production technologies are available to a large number of potential producers. We establish the existence and uniqueness of an equilibrium with an endogenous production network and provide comparative static results on how prices and endogenous technology choices (and thus the production network) respond to changes in parameters. These results show that improvements in technology (or reductions in distortions) spread throughout the economy via input-output linkages and reduce all prices, and under reasonable restrictions on the menu of production technologies, also lead to a denser production network. Using a dynamic version of the model, we show that the endogenous evolution of the production network could be a powerful force towards sustained economic growth. At the root of this result is the fact that the arrival of a few new products expands the set of technological possibilities of all existing industries by a large amount — that is, if there are n products, the arrival of one more new product increases the combinations of inputs that each existing product can use from 2 n-1 to 2 n , thus enabling significantly more pronounced cost reductions from the choice of optimal technology combinations. These cost reductions then spread to other industries that benefit from lower input prices and are further incentivized to adopt additional inputs.
    JEL: C67 E10 E23 L23 O41
    Date: 2017–12
  7. By: Gupta, Bishnupriya (University of Warwick)
    Abstract: India fell behind during colonial rule. The absolute and relative decline of Indian GDP per capita with respect to Britain began before colonization and coincided with the rising textile trade with Europe in the 18th century. The decline of traditional industries was not the main driver Indian decline and stagnation. Inadequate investment in agriculture and consequent decline in yield per acre stalled economic growth. Modern industries emerged and grew relatively fast. The falling behind was reversed after independence. Policies of industrialization and a green revolution in agriculture increased productivity growth in agriculture and industry, but Indian growth has been led by services. A strong focus on higher education under colonial policy had created an advantage for the service sector, which today has a high concentration of human capital. However, the slow expansion in primary education was a disadvantage in comparison with the high growth East Asian economies
    Date: 2018
  8. By: José Pedro Pontes; Patrícia Melo
    Abstract: The empirical literature on the relationship between labour productivity and urbanisation economies has considered the presence of variable returns to density, but it has not investigated the existence of a heterogeneous relationship according to country size. This paper proposes a theoretical model which can explain why the relationship between regional labour productivity and population density may differ in strength between small and large countries. To test the proposed theory, we carry out an empirical regression analysis using NUTS2-level data on GDP per capita and population density for the EU28 countries. The results from the empirical analysis corroborate the theoretical model and indicate the relationship is linear and stronger for regions in small countries compared to large countries.
    Keywords: Labour Productivity; Population Density; Economic Development; Country Size
    JEL: O11 O14 O15 R11 R12
    Date: 2018–01
  9. By: Charles R. Hulten
    Abstract: The neoclassical growth accounting model used by the BLS to sort out the contributions of the various sources of growth in the U.S. economy accords a relatively small role to education. This result seems at variance with the revolution in information technology and the emergence of the “knowledge economy”, or with the increase in educational attainment and the growth in the wage premium for higher education. This paper revisits this result using “old fashioned” activity analysis, rather than the neoclassical production function, as the technology underlying economic growth. An important feature of this activity-based technology is that labor and capital are strong complements, and both inputs are therefore necessary for the operation of an activity. The composition of the activities in operation at any point in time is thus a strong determinant of the demand for labor skills, and changes in the composition driven by technical innovation are a source of the increase in the demand for more complex skills documented in the literature. A key result of this paper is that the empirical sources-of-growth results reported by BLS could equally have been generated by the activity-analysis model. This allows the BLS results to be interpreted in a very different way, one that assigns a greater importance to labor skills and education.
    JEL: J24 O47
    Date: 2017–12
  10. By: Chirwa, Themba G; Odhiambo, Nicholas M.
    Abstract: This paper examines the short- and long-run relationship between economic growth and electricity consumption as an additional factor of production where state and macroeconomic stability variables are included in a multivariate growth model. The study uses the Autoregressive Distributed Lag (ARDL) approach to cointegration to investigate this relationship in twelve countries during the period 1970-2014, selected from three continents, namely: Europe (Luxemborg, Norway, Denmark, Belgium), Asia (Singapore, Japan, Indonesia, India), and Africa (South Africa, Algeria, Egypt, Kenya), representing developed and developing countries. The study results reveal that electricity consumption is positively and significantly associated with economic growth in Luxemborg, Norway, Denmark, Belgium, Japan, Indonesia, India, South Africa, Algeria, and Egypt; and negatively associated with economic growth in Kenya in the long run. In the short run, the results reveal a positive and significant association between electricity consumption and economic growth in Luxemborg, Denmark, Singapore, Japan, Indonesia, India, South Africa, and Algeria; and negatively associated in Egypt. The study therefore concludes that electricity consumption is an important factor of production in the study countries. Therefore, policy makers in economies where energy use leads to economic growth should focus on growth-promoting energy policies that are supported by macroeconomic stability policies.
    Keywords: Electricity Consumption; Macroeconomic Stability; Exogenous Growth Models; Autoregressive Distributed Lag Model; Europe; Asia; Africa
    Date: 2018–01–11
  11. By: Daron Acemoglu; Giuseppe De Feo; Giacomo De Luca
    Abstract: We document that the spread of the Mafia in Sicily at the end of the 19th century was in part shaped by the rise of socialist Peasant Fasci organizations. In an environment with weak state presence, this socialist threat triggered landholders, estate managers and local politicians to turn to the Mafia to resist and combat peasant demands. We show that the location of the Peasant Fasci is significantly affected by an exceptionally severe drought in 1893, and using information on rainfall, we establish the causal effect of the Peasant Fasci on the location of the Mafia in 1900. We provide extensive evidence that rainfall before and after this critical period has no effect on the spread of the Mafia or various economic and political outcomes. In the second part of the paper, we use the source of variation in the location of the Mafia in 1900 to estimate its medium-term and long-term effects. We find significant and quantitatively large negative impacts of the Mafia on literacy and various public goods in the 1910s and 20s. We also show a sizable impact of the Mafia on political competition, which could be one of the channels via which it affected local economic outcomes. We document negative effects of the Mafia on longer-term outcomes (in the 1960s, 70s and 80s) as well, but these are in general weaker and often only marginally significant. One exception is its persistent and strong impact on political competition.
    JEL: H11 H75 K42 P16
    Date: 2017–12

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