nep-gro New Economics Papers
on Economic Growth
Issue of 2018‒09‒17
eighteen papers chosen by
Marc Klemp
University of Copenhagen

  1. Transition to Agriculture and First State Presence: A Global Analysis By Borcan, Oana; Olsson, Ola; Putterman, Louis
  2. Somatic Distance, Trust and Trade By Jacques Melitz; Farid Toubal
  3. From Convergence to Divergence: Portuguese Economic Growth, 1527-1850 By Nuno Palma; Jaime Reis
  4. Institutions vs. ‘first-nature’ geography: what drives economic growth in Europe's regions? By Ketterer, Tobias D.; Rodríguez-Pose, Andrés
  5. How top income inequality influences sustained growth? By Qi Pan
  6. Economics Uncertainty and Fertility Cycles: The Case of the Post-WWII Baby Boom By Bastien Chabé-Ferret; Paula Eugenia Gobbi
  7. Low-Level Equilibrium and Fractional Poverty Traps By Turvey, C.; Fu, H.
  8. Inequality in an OLG economy with heterogeneous cohorts and pension systems By Joanna Tyrowicz; Krzysztof Makarsk; Marcin Bielecki
  9. Partnership with Persistence By Joao Ramos; Tomasz Sadzik
  10. Dynamics in the Extended Neoclassical Growth Model By Luká? Re?ný
  11. Automation, Growth and Factor Shares By Joseba Martinez
  12. Migration and the Spatial Distribution of Economic Activity By Lorenzo Caliendo; Fernando Parro
  13. Reserve Accumulation, Foreign Direct Investment, and Economic Growth By Hidehiko Matsumoto
  14. International R&D Spillovers, Innovation by Learning from Abroad and Medium-Run Fluctuations By Toshihiro Okada
  15. The Middle Productivity Trap: Dynamics of Productivity Dispersion By Dany Bahar
  16. Political Myopia, Public Debt, and Economic Growth By Ohad Raveh; Yacov Tsur
  17. The Supply of Skill and Endogenous Technical Change: Evidence From a College Expansion Reform By Carneiro, Pedro; Liu, Kai; Salvanes, Kjell G.
  18. Long run analysis of trade openness on economic growth for Pakistan; Evidence from standard and optimal time series tests By Fahad Israr; Miguel Rocha de Sousa

  1. By: Borcan, Oana (School of Economics, University of East Anglia, Norwich NR4 7TJ, United Kingdom); Olsson, Ola (Department of Economics, School of Business, Economics and Law, Göteborg University); Putterman, Louis (Department of Economics, Brown University, Providence RI 02912, USA)
    Abstract: It has often been observed that the emergence of states in a region is typically preceded by an earlier transition to agricultural production. Using new data on the date of first state emergence within contemporary countries, we present a global scale analysis of the chronological relationship between the transition to agriculture and the subsequent emergence of states. We find statistically significant relationships between early reliance on agriculture and state age in all sub-samples. Our findings show that this relationship is not markedly different in cases where states were imposed from outside or when they emerged through internal origination.
    Keywords: agricultural transition; state
    JEL: N50 O43
    Date: 2018–09
  2. By: Jacques Melitz; Farid Toubal
    Abstract: Somatic distance, or differences in physical appearance, proves to be extremely important in the gravity model of bilateral trade in conformity with results in other areas of economics and outside in the social sciences. This is also true independently of survey evidence about bilateral trust. These findings are obtained in a sample of the 15 members of the European Economic Association in 1996. Robustness tests also show that somatic distance, as well as co-ancestry, has a more reliable influence on bilateral trade than the other cultural variables. The article finally discusses the interpretation and breadth of application of these results.
    Keywords: Somatic Distance;Cultural Interactions;Co-ancestry;Trust;Language;Bilateral Trade
    JEL: F10 F40 Z10
    Date: 2018–09
  3. By: Nuno Palma; Jaime Reis
    Date: 2018
  4. By: Ketterer, Tobias D.; Rodríguez-Pose, Andrés
    Abstract: The debate on whether institutions or geography prevail in driving economic growth has been rife (e.g., Sachs 2003 vs. Rodrik et al. 2004). Most of the empirical analyses delving into this debate have focused on world countries, whose geographical and institutional conditions differ widely. Subnational analyses considering groups of countries with, in principle, more similar institutional and geographical conditions have been limited and tended to highlight that geography is more important than institutions at subnational level. This paper aims to address whether this is the case by investigating how differences in institutional and ‘first-nature’ geographical conditions have affected economic growth in Europe's regions in the period 1995–2009. In the analysis we use a newly developed dataset including regional quality of government indicators and geographical charactersitics and employ two-stage least squares (2SLS) and instrumental variables-generalized method of moments (IV-GMM) estimation techniques with a number of regional historical variables as instruments. Our results indicate that at a regional level in Europe institutions rule. Regional institutional conditions – and, particularly, government effectiveness and the fight against corruption – play an important role in shaping regional economic growth prospects. This does not imply, however, that geography is irrelevant. There is evidence of geographical factors affecting regional growth, although their impact is dwarfed by the overriding influence of institutions.
    Keywords: regional economic growth; institutions; geography; quality of government; NUTS 2 regions; Europe
    JEL: N0
    Date: 2018–03–01
  5. By: Qi Pan (Tsinghua University)
    Abstract: While the relationship between inequality and economic growth has been studied since last century providing a general picture of the income distribution's influence on economic growth, it hides the relationship's complexity by merely using a single and general inequality statistic. Recently, the consequence of top income inequality has been broadly discussed after the financial crisis and related social movement. Research covering series on top income share has emerged in an international and historical perspective. Some researchers present the relationship between top income and growth recession. But rather than focusing on the short period of stagnation, it is more meaningful to explore what top income performs consistently long time ahead that causes economic growth to a halt. This study fills this gap by a quantitative research of 31 countries from 1950 to 2014, studying top income's relation with the duration of growth spells - periods of high, healthy, per capita growth - indicating sustained growth based on Berg, Ostry and Zettelmeyer (2012) research.Studies show that taken other standard determinants into consideration, income distribution equality is robustly associated with longer growth spells. Thus, will top income inequality has the same influence on growth duration? Will top income's influence change in different stage of growth spells? These are the questions we try to answer.This paper redefines growth spells using Bai and Perron's (1998, 2003, 2006) methodology of structural breaks with improved economic criteria and applies duration analysis to explore the role of top income influencing the duration of growth spells. We find that top inequality is significantly associated with growth duration, and the top inequality's effect changes within growth spells. Results show the initial level of top 1% income share is positively associated with the length of growth spells while its change within spells shortened the length of growth spell. But top income initial's positive effect is relatively more than the negative effect of the change within spells. This study sheds light on top income's role in economic sustained growth, offering a potential solution in avoiding the middle-income trap. At the start of growth spells, top income's larger share can enhance the possibility the economy maintains growing. But as the growth continues, top income's adverse effect begins to show. The government should make the best use of the top income's positive effect at the take-off stage and avoid its adverse effect as the growth continues.
    Keywords: top income inequality, sustained growth, duration analysis
    Date: 2018–06
  6. By: Bastien Chabé-Ferret; Paula Eugenia Gobbi
    Abstract: Using the US Census waves 1940-1990 and CPS 1990-2010, we look at how economic uncertainty affected fertility cycles over the course of the XXth century. We use cross-state and cross-cohort variation in the volatility of income growth to identify the causal link running from uncertainty to fertility. We find that economic uncertainty has a large and robust negative effect on completed fertility. We hypothesize that a greater economic uncertainty increases the risk of large consumption swings, which individuals mitigate by postponing fertility and ultimately decreasing their completed fertility. Differences in volatility account for between 45% and 61% of the one child variation observed during the post WWII baby boom
    Keywords: baby boom, baby bust, fertility, economic uncertainty
    Date: 2018–07
  7. By: Turvey, C.; Fu, H.
    Abstract: For more than 200 years development and agricultural economists have sought to understand the dynamic relationships between population growth, land utilization, and agricultural productivity. Originating with Malthus, numerous scholars have pushed representations of low and high-level equilibrium traps. More recently the literature has explored asset dynamics and fractal poverty traps. In this paper we advance these models by introducing risk into a dynamic growth model using the stochastic calculus and Ito’s Lemma. This approach does two important things. First it moves the discussion away from the idea of a stable short run equilibrium, to one in which the long-run economic attractor is an unknowable point in probability space. On this latter point we are able to show, via Monte Carlo simulation, that population growth is fractional and persistent with Hurst coefficient of around 7.0, while other measures such as output per capita are dynamically fractional with Hurst coefficients in the neighborhood of 0.3 to 0.4. This leads us to believe that poverty traps ought not be measured in a small time scale, but rather a longer time scale reflecting the frequency, duration, and intensity of below-subsistence excursion patterns. We make our case by simulating the Chines agricultural economy between about 1400 and 1900.
    Keywords: Agricultural and Food Policy, Food Security and Poverty
    Date: 2018–07
  8. By: Joanna Tyrowicz (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University); Krzysztof Makarsk (Warsaw School of Economics); Marcin Bielecki (University of Warsaw)
    Abstract: We analyze the consumption and wealth inequality in an OLG model with mandatory pension systems. Our framework features within cohort heterogeneity of endowments and heterogeneity of preferences. We allow for population aging and gradual decline in TFP growth. We show four main results. First, increasing longevity translates to substantial increases in aggregate consumption inequality and wealth inequality. Second, a pension system reform from a defined benefit to a defined contribution works to reinforce consump- tion inequality and reduce wealth inequality. Third, minimum pension benefits are able to partially counteract an increase in inequality introduced by the defined contribution system, at a fiscal cost. Fourth the minimum pension benefit guarantee mostly addresses the sources of inequality which stem from differentiated endowments rather than those which stem from heterogeneous preferences.
    Keywords: consumption, wealth, inequality, longevity, defined contribution, defined benefit
    JEL: H55 E17 C60 C68 E21 D63
    Date: 2018–08
  9. By: Joao Ramos (University of Southern California); Tomasz Sadzik (UCLA)
    Abstract: In this paper we analyze a continuous-time model of partnership with persistence. In the model, agents exert private efforts affecting persistent internal capital, which drives the profitability of the partnership. We characterize the optimal equilibrium with a novel Hamilton-Jacobi-Bellmann equation. It describes the maximal incentives for the partners, as a function of continuation values net of the internal capital. We show that imperfect monitoring of the internal capital discontinuously helps the agents. Even a partnership with high level of internal capital may unravel as a consequence of a short spell of bad outcomes. Good profit outcomes increase effort when partnership is doing badly, but decrease effort when partnership is doing well.
    Date: 2018
  10. By: Luká? Re?ný (University of Hradec Králové)
    Abstract: Presentation deals with the expansion of the Neoclassical model of economic growth with the energy sector. Firstly, the current problems presented by declining quality and limited quantity of the fossil fuels together with the properties of the new renewable energy sources are presented within the framework of EROEI (Energy Returned On Energy Invested). Next, the relationship between economic growth and energy consumption is introduced. Follows a brief description of the used modelling method, system dynamics and its advantages for an extension and analysis of economic models. The main content of this contribution is the description of the proposed expansion of the Neoclassical model of economic growth with the energy sector. The impact of the varied quality of renewable energy sources (EROEI) on the future economic performance is being studied with the use of sensitivity analysis within the proposed model which covers the time period of 1965-2065.
    Keywords: Neoclassical model of economic growth; Energy sector; EROEI; System Dynamics
    JEL: O44 Q01 Q40
    Date: 2018–07
  11. By: Joseba Martinez (New York University)
    Abstract: This paper investigates the extent to which automation can explain the observed fall in labor's share of income in the United States in the last 30 years. I model the production process as a set of tasks that can be performed by labor or automated machinery (capital). Aggregating over firms that operate capital with differing degrees of automation, total output of the economy is given by a Constant Elasticity of Substitution (CES) function, but with parameters determined endogenously by the distribution of automation technology across firms. This model of the aggregate production function can reconcile three important empirical findings on US production and growth that the canonical CES model cannot: declining labor shares, aggregate capital-labor complementarity, and capital-biased technical progress. Using industry-level data, including a novel measure of aggregate task inputs into production, I find evidence that automation was a significant driving force of the US labor share between 1972-2010.
    Date: 2018
  12. By: Lorenzo Caliendo (Yale University); Fernando Parro (Johns Hopkins University)
    Abstract: In this paper we propose a model that endogenizes the mechanism by which an economy changes its productive structure. The channel that fosters growth is the increase in productivity in the urban sector that encourages agents from the rural sector to migrate. They do so in order to have access to better opportunities, however they need to accumulate human capital before migrating, which is costly, and this generates a selection of agents that migrate. We are able to characterize the equilibrium of the economy and test its quantitative implications concluding that opening the economy to new technologies together with a relative increase in the marginal return on urban specific human capital are sufficient to make countries start changing their productive structure.
    Date: 2018
  13. By: Hidehiko Matsumoto (University of Maryland)
    Abstract: This paper develops a quantitative small-open-economy model to assess the optimal pace of foreign reserve accumulation by developing countries. The model features endogenous growth with foreign direct investment (FDI) entry and sudden stops of capital inflows to incorporate benefits of reserve accumulation. Reserve accumulation depreciates the real exchange rate and attracts FDI, which endogenously promotes productivity growth. When a sudden stop happens, the government uses accumulated reserves to prevent a severe economic downturn. The calibrated model shows that two factors are the key determinants of the optimal pace of reserve accumulation: the elasticity of the foreign borrowing spread with respect to debt, and the entry cost for FDI. The model suggests that these two factors can explain a substantial amount of the cross-country variation in the observed pace of reserve accumulation.
    Date: 2018
  14. By: Toshihiro Okada (School of Economics, Kwansei Gakuin University)
    Abstract: Many developed economies experienced large and correlated fluctuations in the medium run during the postwar period. A good number of industrialized countries experienced high productivity growth during the 1960s and low growth between the early 1970s and the early 1980s. This paper develops a model of medium-run fluctuations incorporating research and development (R&D)-based endogenous growth and international R&D spillovers from a technologically leading country to a technologically lagging country. An important feature of the model is that a key role of the lagging country's R&D is innovation by leaning (IBL) from abroad. After calibration using U.S. and Japanese data, the model shows that changes in U.S.R&D expenditure alone can substantially explain Japan's medium-run fluctuations.The paper argues that the diffusion of U.S. innovations (generated by U.S. R&D) to Japan plays an important role in determining Japan's medium-run fluctuations
    Keywords: International R&D spillovers, technology diffusion, endogenous growth, medium-run fluctuations.
    JEL: E32 O19 O33 O41
    Date: 2018–09
  15. By: Dany Bahar (Center for International Development at Harvard University)
    Abstract: Using a worldwide firm-level panel dataset I document a "U-shaped" relationship between productivity growth and baseline levels within each country and industry. That is, fast productivity growth is concentrated at both ends of the productivity distribution. This result serves as a potential explanation to two stylized facts documented in the economic literature: the rising productivity dispersion within narrowly defined sectors, and the increasing market share of few yet highly productive firms.
    Keywords: productivity, convergence, divergence, dispersion
    JEL: D2 O3 O4
    Date: 2017–09
  16. By: Ohad Raveh; Yacov Tsur
    Abstract: Can economic growth increase public debt? Previous studies on the debt-growth nexus focused on the effects of debt on growth. We present an opposite perspective by showing that growth can reinforce deficit spending. A political economy model of endogenous public debt indicates that the underlying cause is political short-sightedness induced by reelection prospects. Reelection yields accountability but at the same time shortens incumbents’ time horizon, giving rise to political myopia and the ensuing budget deficit bias. Our model shows that economic growth exacerbates this undesirable effect of reelection. We test the model’s predictions using a panel of U.S. states over the period 1963-2007. Our identification strategy rests on constitutionally-entrenched differences in gubernatorial term limits that provide plausibly exogenous cross-state variation in political time horizon, and aggregate national TFP shocks that are exogenous to individual states. Our more conservative estimates indicate that overa course of five years, a one standard deviation positive TFP shock induces an increase of approximately $494 in real per capita public debt in politically myopic states.
    Keywords: Economic growth, public debt, political myopia, term limits
    JEL: H63 C61 H74
    Date: 2017
  17. By: Carneiro, Pedro (University College London); Liu, Kai (University of Cambridge); Salvanes, Kjell G. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We examine the labor market consequences of an exogenous increase in the supply of skilled labor in several cities in Norway, resulting from the construction of new colleges in the 1970s. We find that skilled wages increased as a response, suggesting that along with an increase in the supply there was also an increase in demand for skill. We also show that college openings led to an increase in the productivity of skilled labor and investments in R&D. Our findings are consistent with models of endogenous technical change where an abundance of skilled workers may encourage firms to adopt skill-complementary technologies, leading to an upward-sloping long-run demand for skill.
    Keywords: Skilled labor; skilled wages; college expansion reform
    JEL: J23 J24
    Date: 2018–07–17
  18. By: Fahad Israr (Department of Economics, Universidade de Évora, Portugal); Miguel Rocha de Sousa (Department of Economics; Center for Research in Advanced Studies in Management and Economics (CEFAGE); Research Center in Political Science (CICP); Universidade de Évora, Portugal)
    Abstract: This study examines the long run effect of trade openness on economic growth for Pakistan using annual data for the period 1972-2016. The long run model is estimated using several standard and optimal single equation estimates. The standard long run elasticities provide significant positive long run effects of trade openness on economic growth. The autoregressive distributive lag model optimal estimate by accommodating structural break in the series validate the cointegration among variables providing weak or no support for the long run effect of trade openness on economic growth. The estimate of the model using generalized method of moments technique and its rolling window estimation overwhelms the evidence of weak or no support by providing significantly positive long run effects of trade openness on economic growth. The results appear to support the new growth theories for Pakistan in which increasing openness helps domestic economy to grow.
    Keywords: Trade openness; Economic growth; ARDL; Structural breaks; GMM
    JEL: F43 O11 O53
    Date: 2018

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