nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒01‒07
thirteen papers chosen by
Marc Klemp
University of Copenhagen

  1. Can Kings Create Towns that Thrive? The long-run implications of new town foundations By Cermeño, Alexandra; Enflo, Kerstin
  2. Threshold Regressions for the Resource Curse By Nicolas Clootens; Djamel Kirat
  3. Without coal in the age of steam and dams in the age of electricity: An explanation for the failure of Portugal to industrialize before the Second World War By Teives Henriques, Sofia; Sharp, Paul
  4. Non-Balanced Endogenous Growth and Structural Change: When Romer Meets Kaldor and Kuznets By Christian Ghiglino; Kazuo Nishimura; Alain Venditti
  5. Power in Economics: Growth, Inequality and Politics By Ramón E. López
  6. Parental Altruism, Missing Credit Markets and Growth By Hatcher, Michael; Pourpourides, Panayiotis M.
  7. Population Growth and Economic Development in Bangladesh: Revisited Malthus By Chowdhury, Md Niaz Murshed; Hossain, Md Mobarak
  8. International Capital Flows in Club of Convergence By Hung Ly-Dai
  9. A Policy of Credit Disruption: The Punjab Land Alienation Act of 1900 By Latika Chaudhary; Anand V. Swamy
  10. Does aid enhance growth? By Yahyaoui, Ismahen; Bouchoucha, Najeh
  11. Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy By Takeo Hori; Noritaka Maebayashi; Keiichi Morimoto
  12. A Simple Combinatorial Model of World Economic History By Roger Koppl; Abigail Devereaux; Jim Herriot; Stuart Kauffman
  13. Dynamic Growth Rate of U.S. Economy By Hossain, Md. Mobarak

  1. By: Cermeño, Alexandra; Enflo, Kerstin
    Abstract: Town foundations have been at the core of urban planning since the onset of civilization. This paper describes the long-run impact of an urbanization place-based policy that was considered a failure by contemporary policymakers. We test the impact of founded towns using a series of town foundations that took place between 1570 and 1810, when the Swedish Crown conferred monopoly market rights to trade upon 31 previously rural ordinary parishes. We show that towns were founded in locations with little natural potential, evident in their limited impact on agricultural surplus in the surrounding hinterlands. However, the new foundations drove extensive growth in terms of population and created positive spillover effects up to 40-50 km around the settlements. Still, the founded towns remained extraordinarily small by the end of the policy period. It was not until the Industrial Revolution that these towns began to thrive. We suggest that trading rights and sunk investments initially served to coordinate expectations about future growth. Once the towns started to grow, agglomeration effects generated persistence in the long term.
    Keywords: agricultural surplus; Economic Geography; economic history; path dependency; Urbanization
    JEL: N74 N93 O18 R12 R5
    Date: 2018–12
  2. By: Nicolas Clootens (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE & Univ. Orléans, CNRS, LEO); Djamel Kirat (Univ. Orléans, CNRS, LEO)
    Abstract: This paper analyzes the behavior of cross-country growth rates with respect to resource abundance and dependence. We reject the linear model that is commonly-used in growth regressions in favor of a multiple-regime alternative. Using a formal sample-splitting method, we find that countries exhibit different behaviors with respect to natural resources depending on their initial level of development. In high-income countries, natural resources play only a minor role in explaining the differences in national growth rates. On the contrary, in low-income countries abundance seems to be a blessing but dependence restricts growth.
    Keywords: non-renewable resources, growth, resource curse, threshold regressions
    JEL: O11 O13 Q33
    Date: 2018–11
  3. By: Teives Henriques, Sofia (Department of Economic History, Lund University); Sharp, Paul (University of Southern Denmark)
    Abstract: We provide a natural resource explanation for the divergence of the Portuguese economy relative to other European countries before the Second World War, based on a considerable body of contemporary sources. First, we demonstrate that a lack of domestic resources meant that Portugal experienced limited and unbalanced growth during the age of steam. Imports of coal were prohibitively expensive for inland areas, which failed to industrialize. Coastal areas developed through steam, but were constrained by limited demand from the interior. Second, we show that after the First World War, when other coal-poor countries turned to hydro-power, Portugal relied on coal-based thermal-power, creating a vicious circle of high energy prices and labor-intensive industrialization. We argue that this was the result of (i) water resources which were relatively expensive to exploit; and (ii) path-dependency, whereby the failure to develop earlier meant that there was a lack of capital and demand from industry.
    Keywords: Industrial Revolution; natural resources; coal; electrification; energy prices
    JEL: N13 N14 N53 N54 O13 Q43
    Date: 2018–12–21
  4. By: Christian Ghiglino (Department of Economics, University of Essex - University of Essex); Kazuo Nishimura (RIEB, Kobe University - Kobe University); Alain Venditti (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, EDHEC - EDHEC Business School)
    Abstract: We propose a model of non-balanced endogenous growth in which the final good, which can be either consumed or used as capital, is produced using two intermediate inputs, one being "knowledge-intensive". Agents working in the knowledge-intensive sector need to accumulate technological knowledge and thus have to decide how to split their individual unit of time between accumulation of technological knowledge (research) and work. Agents working in the second sector do not need to accumulate knowledge and thus devote all their individual unit of time to work. Individual knowledge therefore becomes a labor-augmenting factor, and knowledge accumulation leads to an unbounded increase in TFP in the knowledge-intensive sector, and thus to endogenous capital deepening. The asymmetry in the growth rates of TFP leads to non-balanced growth. Labor (number of workers) reallocations across sectors occur, leading to a greater increase in output for the knowledge-intensive sector. We show that non-balanced growth is consistent with Kaldor facts, as the asymptotic equilibrium is above all characterized by a constant interest rate and capital share in national income. However, the economy follows a growth path converging to a particular level of wealth that depends on the initial price of capital and knowledge. As a consequence, countries with the same fundamentals but lower initial wealth will be characterized by lower asymptotic wealth. We therefore extend the Lucas [19] finding and prove the existence of non-convergence across countries in a framework with structural change.
    Keywords: two-sector model,technological knowledge,non-balanced endogenous growth,structural change,Kaldor and Kuznets facts
    Date: 2018–10
  5. By: Ramón E. López
    Abstract: We study the economy-wide implications of economic power. We examine the distribution of bargaining power between the owners of capital (“the capitalists”) and the owners of human capital (“the workers”) and its effects on fundamental economic variables, including economic growth, efficiency, and inequality. We introduce an integrated theory of distribution which combines the marginal and Nash theories of distribution, where factor returns are determined in a context of capital market imperfections. We show that all the fundamental economic variables, including economic power, are in fact dependent on political conditions. Explicit recognition of economic power as a key factor allows us to integrate economic and political conditions in a natural way, where economic power constitutes the fundamental linkage between politics and economics. Political conditions determine an equilibrium for the fundamental economic variables and these variables, in turn, affect the subsequent political equilibrium. We show that the performance of the economy is likely to be cyclical because of the cyclical behavior of the ppolitical conditions and vice versa, political cycles are in part originated in economic cycles.
    Date: 2018–12
  6. By: Hatcher, Michael (University of Southampton); Pourpourides, Panayiotis M. (Cardiff Business School)
    Abstract: Parental transfers towards the education of children are non-trivial, especially in countries, characterized by both imperfect credit markets and high economic growth rates. In this paper, we analyze the role of parental altruism on economic growth and dynamic efficiency, especially when credit markets for education loans are missing. We demonstrate conditions under which missing or imperfect credit markets increase economic growth and do not hinder dynamic efficiency. We also show that a newly constructed index of parental altruism, orthogonal to income effects, exhibits high cross-country correlations with model-implied measures of parental altruism at different levels of credit market development.
    Date: 2018–12
  7. By: Chowdhury, Md Niaz Murshed; Hossain, Md Mobarak
    Abstract: Bangladesh is the 2nd fastest growing country in the world in 2016 with 7.1% GDP growth. This study undertakes an econometric analysis to examine the relationship between population growth and economic development. This result indicates population growth adversely related to per capita GDP growth, which means rapid population growth is a real problem for the development of Bangladesh. Malthus’s prediction is that population increases so rapidly and outstrip the food supply due to the operation of the law of diminishing return, which is proven wrong because of technological improvement and agricultural advancement program, human capital development, and export skilled labor, promotes labor-intensive industries, encourage foreign investors, institution settings and political stability in Bangladesh. Bangladesh has reduced its population growth by about 67% between 1979 and 2017 using different preventive checks suggested by Malthus and Mill. Bangladesh has been suffering from environmental degradation, loss of arable land, loos of agricultural land biodiversity loss and deforestation. Bangladesh Economy is growing with improving living standard at the cost of environmental degradation.
    Keywords: Population Growth, Economic Development, Environment, and Poverty
    JEL: E01 E02
    Date: 2018–10–29
  8. By: Hung Ly-Dai (VNU - Vietnam National University [Hanoï])
    Abstract: We explain U-shape pattern of international capital inflows by one multi-country OLG economy and one cross-section data sample. The theory proves that capital inflows are decreasing on distance to frontier, which is measured by ratio of domestic productivity level over United States' level. The evidences not only confirm the theory but also reveal that growth is decreasing on distance to frontier for club of convergence but increasing for club of unconvergence. Therefore, Neo-Classical growth model's implication, that capital inflows are positively correlated to growth, applies for club of convergence. However, Allocation puzzle, that capital inflows are negatively correlated to growth, works for club of unconvergence. The turning point of U-shape pattern is the productivity growth rate at world technology frontier.
    Keywords: International Capital Flows,Productivity Growth,Relative Convergence
    Date: 2018–07
  9. By: Latika Chaudhary (Naval Postgraduate School); Anand V. Swamy (Williams College)
    Abstract: If land is titled and transferable, it can be used as collateral against which money can be borrowed. The resulting increase in access to credit is usually expected to foster economic growth. We study a policy in colonial India that made land less available as collateral for debt. Using a panel dataset for Punjab districts from 1890 to 1910, we find that this reduced the availability of mortgage-backed credit, but did not hurt proxies for economic development such as acreage and cattle, at least in the short run.
    Date: 2018–10
  10. By: Yahyaoui, Ismahen; Bouchoucha, Najeh
    Abstract: In recent years, the volume of international aid has increased, from rich countries to poor countries. Despite the importance of this aid, developing countries have not even been able to catch up with emerging countries, contrary to the expectations of convergence theories. Thus, the purpose of this article is to examine the short and the long term impact of foreign aid on economic growth in the case of Tunisia. The paper opted to use a VECM model to examine the long-term relationship of foreign aid on growth. The data cover from the year 1980 to 2013 in the case of Tunisia. The results obtained through VECM model, three are statistically significant. The empirical results are showing that Official Developped Aid affects positively the Tunisian economic growth. On the other hand, there is a long-term relationship between the two variables. In addition, the effectiveness of aid in terms of economic growth is more important in the long term than in the short term.
    Keywords: economic growth, Official Developped Aid, effectiveness, long-term relationship, VECM
    JEL: F35
    Date: 2018–12–30
  11. By: Takeo Hori (Department of Industrial Engineering and Economics, Tokyo Institute of Technology); Noritaka Maebayashi (Faculty of Economics and Business Aminstration, The University of Kitakyushu); Keiichi Morimoto (Department of Economics, Meisei University)
    Abstract: We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant.
    Keywords: corporate income tax, tax evasion, growth, welfare
    JEL: H21 H26 O40
    Date: 2018–12
  12. By: Roger Koppl; Abigail Devereaux; Jim Herriot; Stuart Kauffman
    Abstract: We use a simple combinatorial model of technological change to explain the Industrial Revolution. The Industrial Revolution was a sudden large improvement in technology, which resulted in significant increases in human wealth and life spans. In our model, technological change is combining or modifying earlier goods to produce new goods. The underlying process, which has been the same for at least 200,000 years, was sure to produce a very long period of relatively slow change followed with probability one by a combinatorial explosion and sudden takeoff. Thus, in our model, after many millennia of relative quiescence in wealth and technology, a combinatorial explosion created the sudden takeoff of the Industrial Revolution.
    Date: 2018–11
  13. By: Hossain, Md. Mobarak
    Abstract: This paper reports the estimates of the dynamic growth rate of U.S. economy using exponential growth model, Cob-Douglas production function with a regression framework. The estimates indicates that 100% output growth is broken down into 58% technology growth, 19.10% labor growth, and 22.90% capital growth. Growth rates of U.S. production, capital, and employment are decreasing by 0.4%, 0.6%, and 0.01% respectively for each additional year regardless of recession while growth rate of technological changes in U.S. economy has been changing in a systematic way. It also shows that forecasted growth rate of U.S. output with restricted elasticity is lower than that with unrestricted elasticity.
    Keywords: Elasticity, Cobb-Douglas production function, exponential growth model.
    JEL: E62 E63
    Date: 2018–12–29

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