nep-gro New Economics Papers
on Economic Growth
Issue of 2018‒09‒10
seven papers chosen by
Marc Klemp
University of Copenhagen

  1. Flowers of Evil? Industrialization and Long Run Development By Franck, Raphaël; Galor, Oded
  2. Technology-Driven Unemployment By Gregory Casey
  3. A lab-equipment model of growth with heterogeneous firms and asymmetric countries By Takumi Naito
  4. Doing Business and Inclusive Human Development in Sub-Saharan Africa By Simplice Asongu; Nicholas Odhiambo
  6. Falling Behind and Catching up : India’s Transition from a Colonial Economy By Gupta, Bishnupriya
  7. Financing Ventures By Jeremy Greenwood; Juan Sanchez; Pengfei Han

  1. By: Franck, Raphaël (The Hebrew University of Jerusalem); Galor, Oded (Brown University)
    Abstract: This research explores the effect of industrialization on the process of development. In contrast to conventional wisdom that views industrial development as a catalyst for economic growth, the study establishes that while the adoption of industrial technology was conducive to economic development in the short-run, it has detrimental effects on the standard of living in the long-run. Exploiting exogenous geographic and climatic sources of variation in the diffusion and adoption of steam engines across French departments during the early phases of industrialization, the research establishes that intensive industrialization in the middle of the 19th century increased income per capita in the subsequent decades but diminished it by the turn of the 21st century. The analysis further suggests that the adverse effect of earlier industrialization on long-run prosperity can be attributed to the negative impact of the adoption of unskilled-intensive technologies in the early stages of industrialization on the long-run level of human capital and thus on the incentive to adopt skill-intensive technologies in the contemporary era. Preferences and educational choices of second generation migrants within France indicate that industrialization has triggered a dual techno-cultural lock-in characterized by a reinforcing interaction between technological inertia, reflected by the persistence predominance of low-skilled-intensive industries, and cultural inertia, in the form of a lower predisposition towards investment in human capital. These findings suggest that the characteristics that permitted the onset of industrialization, rather than the adoption of industrial technology per se, have been the source of prosperity among the currently developed economies that experienced an early industrialization. Thus, developing economies may benefit from the allocation of resources towards human capital formation and skilled intensive sectors rather than toward the promotion of traditional unskilled-intensive industrial sectors.
    Keywords: economic growth, human capital, industrialization, steam engine, cultural inertia
    JEL: N33 N34 O14 O33
    Date: 2018–07
  2. By: Gregory Casey (Brown University)
    Abstract: To examine the relationship between technological progress and unemployment, I study a model that features putty-clay production, directed technical change, and wage bargaining. The first goal of this project is to understand the forces that deliver a constant steady state unemployment rate in the presence of labor-saving technical change. Labor-saving technical change increases unemployment, which lowers wages and creates incentives for future investment in labor-using technologies. In the long run, this interaction generates a balanced growth path that is observationally equivalent to that of the standard neoclassical growth model, except that is also incorporates a positive steady state level of unemployment. The second goal is to understand the effects of technological breakthroughs that permanently lower the cost of creating new labor-saving technologies. Breakthroughs lead to faster growth in output per worker and wages, but also yield higher long-run unemployment and a lower labor share of income. Despite increasing the speed of technological progress, breakthroughs also slow economic growth in the short-run.
    Date: 2018
  3. By: Takumi Naito (Vanderbilt University and Waseda University)
    Abstract: To examine the effects of asymmetric trade liberalization on countries' long-run growth and welfare through intraindustry reallocations, we extend the Rivera-Batiz--Romer lab-equipment model of growth with expanding input varieties to include both heterogeneous firms and asymmetric countries. We first derive extended ACR (Arkolakis--Costinot--Rodriguez-Clare) formulas for long-run growth and welfare changes even with asymmetric countries. In our baseline calculation, the total long-run welfare effect of greater openness (expressed in flow terms) is about four times as large as the static counterpart. Finally, we show that even unilateral trade liberalization always raises both countries' long-run growth and welfare.
    JEL: F1
    Date: 2018–08–24
  4. By: Simplice Asongu (Yaoundé/Cameroun); Nicholas Odhiambo (Pretoria, South Africa)
    Abstract: Purpose- This study examines how doing business affects inclusive human development in 48 sub-Saharan Africa for the period 2000-2012. Design/methodology/approach- The measurement of inclusive human development encompasses both absolute pro-poor and relative pro-poor concepts of inclusive development. Three doing business variables are used, namely: the number of start-up procedures required to register a business; time required to start a business; and time to prepare and pay taxes. The empirical evidence is based on Fixed Effects and Generalised Method of Moments regressions. Findings- The findings show that increasing constraints to the doing of business have a negative effect on inclusive human development. Originality/value- The study is timely and very relevant to the post-2015 Sustainable Development agenda for two fundamental reasons: (i) Exclusive development is a critical policy syndrome in Africa because about 50% of countries in the continent did not attain the MDG extreme poverty target despite enjoying more than two decades of growth resurgence. (ii) Growth in Africa is primarily driven by large extractive industries and with the population of the continent expected to double in about 30 years, scholarship on entrepreneurship for inclusive development is very welcome. This is essentially because studies have shown that the increase in unemployment (resulting from the underlying demographic change) would be accommodated by the private sector, not the public sector.
    Keywords: Doing Business; Inclusive Development; Entrepreneurship; Africa
    JEL: M20 I30 O10 O30 O55
    Date: 2018–01
  5. By: Jingong Huang (University of Melbourne)
    Abstract: This paper develops a multi-sector endogenous growth model which embeds a technology network that captures heterogeneous intersectoral knowledge spillovers. Each sector serves both as a distributor and a consumer of knowledge: the former depends on a sector's position in the network; the latter depends on its efficiency in utilising knowledge. The interaction of these forces influences long-run economic growth, sectoral shares and the firm size distribution. The sparsity of the network imposes an upper bound on the impact of knowledge spillovers. In this model, sectors converge to the same growth rate if they belong to the same irreducible network. However, their contributions to economic growth differ substantially, depending on their positions in the technology network and their efficiency in conducting innovation. Consequently, the model has implications for the allocation of innovation subsidies. The gain in economic growth derived from promoting innovation in the sector that utilises knowledge most efficiently is over 10,000 times larger than gain derived from promoting innovation in the least efficient sector.
    Date: 2018
  6. By: Gupta, Bishnupriya
    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
    Keywords: Financial Economics
    Date: 2018–01–01
  7. By: Jeremy Greenwood (University of Pennsylvania); Juan Sanchez (Federal Reserve Bank of St. Louis); Pengfei Han (University of Pennsylvania)
    Abstract: The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of fi nancing, venture capitalists evaluate the viability of startups. If viable, VCs provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. Raising capital gains taxation reduces growth and welfare.
    Date: 2018

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