nep-gro New Economics Papers
on Economic Growth
Issue of 2018‒11‒26
eight papers chosen by
Marc Klemp
University of Copenhagen

  1. An Horizontal Innovation Growth Model with Endogenous Time Allocation and Non-Stable Demography By Manuel Guerra; João Pereira; Miguel St. Aubyn
  2. Growth without Expectations:The Original Sin of Neoclassical Growth Models By Michaël Assous; Muriel Dal Pont Legrand
  4. Corruption and Economic Development By SULE AKKOYUNLU; Debora Ramella
  5. Human Capital Accumulation, Income Distribution and Economic Growth: A Neo-Kaleckian Analytical Framework By Gilberto Tadeu Lima; Laura Carvalho, Gustavo Pereira Serra
  6. Continuous vs Discrete Time Modelling in Growth and Business Cycle Theory By Omar Licandro; Luis A. Puch; Jesús Ruiz
  7. Growth, inequality and poverty: A robust relationship? By Gustavo A. Marrero; Luis Servén
  8. Health and economic growth in Vista countries: An ARDL bounds test approach By Khobai, Hlalefang; Mbeki, Zizipho Mihlali

  1. By: Manuel Guerra; João Pereira; Miguel St. Aubyn
    Abstract: We propose a decentralized endogenous growth model in order to study the transitional dynamics associated with the process of population aging in a small open economy, that has endogenous time allocation and two growth engines: R&D and human capital accumulation. Growth of per capita output is affected negatively by the difference in the rates of growth of labor force and of the total population in the period where the weight of the labor force decreases to a new and lower level. The biggest impact on per capita output growth should be during the period where labor force grows at a lower rate than the popu- lation unless it is compensated by some other effect. Under some assumptions, a decrease in the corporate tax improves growth.
    Keywords: Endogenous Growth; Demographic Changes; Time Allocation; Human Capital; R&D
    JEL: O41 O33 J11 J22 J24
    Date: 2018–11
  2. By: Michaël Assous (Université Lyon 2, CNRS, Triangle); Muriel Dal Pont Legrand (Université Côte d'Azur, CNRS, GREDEG, France)
    Abstract: Early developments of growth theory are seen widely as the result of a two-step process – the first represented by Harrod's Essay in Dynaamic Theory, and the second by Solow's 1956 model. Harrod is considered to be the first to highlight the pervasive instability in macrodynamics, which Solow showed disappeared with the inclusion of flexible-coefficient production functions. It has been recognized since that this is a misreading (Besomi 1995, 1998, Bruno and Dal-Pont Legrand 2014). Hoover and Halsmayer (2016) examined how this "culture of misunderstanding" guided both Solow's modelling work and his reading of Harrod. Our paper pays attention to the specific issue of the introduction of an (independent) investment function in those early growth models. Using new archival material, we examine this complex issue and show how macroeconomists of that period dealt with problems related to incorporating expectations, an a priori unavoidable step in order to build robust investment functions. Those elements were indeed discussed at length, in the early 1960s, by economists such as Sen, Samuelson and Solow as shown in his correspondence with Hahn. Our paper sheds light on some hidden foundations of growth models and examines the nature of the break Solow’s model introduced in the growth research program as initially defined by Harrod.
    Keywords: : growth, expectations, investment function, (in-)stability
    JEL: B2 B22 E1
    Date: 2018–11
  3. By: Groznykh Rogneda (Ural Federal University); Igor Drapkin (Ural Federal University); Oleg Mariev (Ural Federal University)
    Abstract: In the modern literature there is no consensus on the effects arising in countries as a result of hosting major sports events, namely the Olympic Games, FIFA World Cup and UEFA European Championship. This paper focuses on two aspects of the major sports events effects in the hosting country: on economic growth and foreign direct investment inflows. The estimated database includes indicators for all countries that hosted major sport events during 1970?2015. This paper confirms the hypotheses of positive effects both on economic growth and foreign direct investment in the hosting countries. Positive significant effects are found not only during the period of preparation to the event, but (what is more important) during the 4 to 12 year period after the event.
    Keywords: major sports events, economic growth, foreign direct investment inflows, the Olympic Games, FIFA World Cup, UEFA European Championship, effects of hosting major sports events, Solow model
    JEL: L83 O11 O19
    Date: 2018–10
  4. By: SULE AKKOYUNLU (METU - ANKARA); Debora Ramella (Università degli Studi di Torino)
    Abstract: This study investigates the impact of openness to trade and corruption on economic development for a cross-section of 143 countries for the year 2000 by analysing the effects of trade openness and corruption on income, productivity, innovation, and income inequality. Institutional, cultural and geographical factors, and country size are controlled for in the analysis. An instrumental variable approach has been adopted in order to address the endogeneity of corruption and openness to trade. The age of democracy and gravity-based predictors are chosen as the instruments for corruption and openness to trade, respectively. The estimates show that corruption negatively affects income per capita, productivity, and innovation, while it does not significantly impact income inequality (Gini). The control of corruption and the openness to trade affect output per worker through the total factor productivity. Both the control of corruption and openness to trade are statistically significant determinants of the 90/10 income gap. Landlockedness affects Gini Index directly, even after controlling for trade and corruption. These findings have important policy implications. For example, on the basis of the estimates, if Botswana improved its control of corruption to reach the level of Finland, its per capita income would rise by 2.7 times.
    Keywords: Coruption Economic DevelopmentTrade
    Date: 2018–10
  5. By: Gilberto Tadeu Lima; Laura Carvalho, Gustavo Pereira Serra
    Abstract: This paper incorporates human capital accumulation through provision of universal public education by a balanced-budget government to a Neo-Kaleckian analytical framework of distribution and growth. Human capital accumulation positively impacts on workers’ productivity in output production and their bargaining power in wage negotiations. Differences in tax rates on wage and profit income have distributive implications for consumption and investment and so shape how effective demand varies with income distribution. In the long-run equilibrium, a rise in workers’ (capitalists’) bargaining power raises (lowers) the pre- and after-tax wage share, which raises (reduces) the rates of physical capital utilization, employment (which also measures the rate of human capital utilization) and output growth. Meanwhile, a rise in a uniform tax rate (which also denotes the share of tax spending in public education in output) lowers the long-run equilibrium values of the pre- and after-tax wage share and the rates of physical capital utilization, employment and output growth. Paradoxically, in the long-run equilibrium, a higher share of investment in human capital in output lowers the rate of human capital accumulation, with which output growth varies positively. A strengthening in the bargaining power of workers is output growth-enhancing in the long-run equilibrium, and it does so by raising the rates of accumulation of both physical and human capital.
    Keywords: Human capital; income distribution; economic growth; employment
    JEL: E12 E24 E25 O41
    Date: 2018–11–12
  6. By: Omar Licandro (University of Nottingham and Barcelona GSE .); Luis A. Puch (Universidad Complutense de Madrid and ICAE.); Jesús Ruiz (Universidad Complutense de Madrid and ICAE.)
    Abstract: Economists model time as continuous or discrete. For long, either alternative has brought about relevant economic issues, from the implementation of the basic Solow and Ramsey models of growth and the business cycle, towards the issue of equilibrium indeterminacy and endogenous cycles. In this paper, we introduce to some of those relevant issues in economic dynamics. First, we describe a baseline continuous vs discrete time modelling setting relevant for questions in growth and business cycle theory. Then we turn to the issue of local indeterminacy in a canonical model of economic growth with a pollution externality whose size is related to the model period. Finally, we propose a growth model with delays to show that a discrete time representation implicitly imposes a particular form of time–to–build to the continuous time representation. Our approach suggests that the recent literature on continuous time models with delays should help to bridge the gap between continuous and discrete time representations in economic dynamics.
    Keywords: Discrete Time, Continuous Time, Solow model, Ramsey model, Indeterminacy, Time–to–Build, Delay Differential Equations.
    JEL: O40 Q50 E10 E22
    Date: 2018–10
  7. By: Gustavo A. Marrero (Departamento de Economía, Contabilidad y Finanzas and Research Center of Social Inequality and Governance (CEDESOG), Universidad de La Laguna, Spain); Luis Servén (The World Bank (Washington DC, US))
    Abstract: An extensive literature on poverty traps suggests that high levels of poverty deter growth. However, a seemingly basic implication of the underlying theoretical models, namely that countries suffering from higher levels of poverty should grow less rapidly, has remained untested. A parallel literature has suggested a variety of mechanisms through which inequality may affect growth in opposing directions. Because inequality and poverty are different aspects of the income distribution, inequality can affect growth also through poverty, an indirect channel that has not been explicitly analyzed. This paper contributes to fill both gaps. Using a large cross-country panel dataset, we estimate a reduced-form growth equation adding both inequality and poverty to an otherwise standard set of growth determinants. Given inequality, the correlation of growth with poverty is consistently negative. In contrast, given poverty, the correlation of growth with inequality can be positive or negative, depending on the empirical specification and econometric approach used. Yet the indirect effect of inequality on growth through its correlation with poverty is robustly negative. Closer inspection shows that these results are driven by the sample observations featuring high (but not extremely high) poverty rates. Our empirical findings are consistent with the predictions from an analytical framework with learning-by-doing and knowledge spillovers, in which consumers cannot save and invest if their initial endowment is below a minimum consumption level.
    Keywords: Growth, Inequality, Poverty
    JEL: O40 O11 O15 E25
    Date: 2018–10
  8. By: Khobai, Hlalefang; Mbeki, Zizipho Mihlali
    Abstract: The present study examined the relationship between health and economic growth in the VISTA countries (Vietnam, Indonesia, South Africa, Turkey and Argentina). The study employed time series data covering the period between 1990 and 2016. Labor and capital were incorporated in the model to form a multivariate framework. The ARDL bounds test approach was used to determine the presence of the long run relationship among the variables. The findings posited that there is long run relationship between economic growth, health, capital and labour in all the countries except for Argentina. There were mix results in terms of the long run and short estimates. It was established that in Vietnam, Indonesia and South Africa, there is evidence of a long run positive and significant relationship between economic growth and health while in Turkey a negative relationship was established. Therefore, the findings of the study have different implications for the different countries.
    Keywords: Health; Economic growth; ARDL model; Vista countries
    JEL: C01 C1 C18 I0 I1 I10 I15
    Date: 2018–11–06

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