nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒02‒18
thirteen papers chosen by
Marc Klemp
University of Copenhagen

  1. Firm Entry and Exit and Aggregate Growth By Asturias, Jose; Hur, Sewon; Kehoe, Timothy J.; Ruhl, Kim J.
  2. Fading Stars By Germán Gutiérrez; Thomas Philippon
  3. Advertising, innovation and economic growth By Laurent Cavenaile; Pau Roldan
  4. The economic effects of big events: evidence from the Great Jubilee 2000 in Rome By Raffaello Bronzini; Sauro Mocetti; Matteo Mongardini
  5. The Hardware-Software Model: A New Conceptual Framework of Production, R&D, and Growth with AI By Jakub Growiec
  6. File-URL: Internal Habit Formation and Optimality By Mauro Bambi; Fausto Gozzi
  7. Phases of Imitation and Innovation in a North-South Endogenous Growth Model By Paschalis Arvanitidis; Christos Kollias; Paschalis Arvanitidis
  8. Fertility, Inequality and Income Growth By Masaya Shintani; Masaya Yasuoka
  9. Explaining the labor share: automation vs labor market institutions By Guimarães, Luis; Gil, Pedro
  10. Inequality Undermines Democracy and Growth By Thorvaldur Gylfason
  11. The relationship between trade openness and economic growth: Some new insights on the openness measurement issue By Marilyne Huchet; Chantal Le Mouel; Mariana Vijil
  12. The growth effect of trade openness on African countries: evidence from using an Instrumental Variable Panel Smooth Transition Model By Bonga-Bonga, Lumengo; Kinfack, Emilie
  13. Real Exchange Rate Misalignment and Economic Growth : An Update By Bulent Ulasan

  1. By: Asturias, Jose (Georgetown University Qatar); Hur, Sewon (Federal Reserve Bank of Cleveland); Kehoe, Timothy J. (Federal Reserve Bank of Minneapolis); Ruhl, Kim J. (University of Wisconsin)
    Abstract: Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
    Keywords: Entry; Exit; Productivity; Entry costs; Barriers to technology adoption;
    JEL: E22 O10 O38 O47
    Date: 2019–02–01
  2. By: Germán Gutiérrez; Thomas Philippon
    Abstract: We study the evolution of super star firms in the U.S. economy over the past 60 years. Contrary to common wisdom, super stars firms have not become larger, have not become more productive, and the contribution of star firms to aggregate U.S. productivity growth has fallen by more than one third since 2000.
    JEL: D2 E22 E24 G3 L1 O3 O4
    Date: 2019–02
  3. By: Laurent Cavenaile (University of Toronto); Pau Roldan (Banco de España)
    Abstract: This paper analyzes the implications of advertising for firm dynamics and economic growth through its interaction with R&D investment at the firm level. We develop a model of endogenous growth with firm heterogeneity that incorporates advertising decisions. We calibrate the model to match several empirical regularities across firm size using U.S. data. Through a novel interaction between R&D and advertising, our model provides microfoundations for the empirically observed negative relationship between both firm R&D intensity and growth, and firm size. Our model predicts substitutability between R&D and advertising at the firm level. Lower advertising costs are associated with lower R&D investment and slower economic growth. We provide empirical evidence supporting substitution between R&D and advertising using exogenous changes in the tax treatment of R&D expenditures across U.S. states. Finally, we find that R&D subsidies are more effective under an economy that includes advertising relative to one with no advertising.
    Keywords: endogenous growth, advertising, innovation, research and development, firm dynamics, policy
    JEL: E20 L10 M30 O31 O32 O33 O41
    Date: 2019–02
  4. By: Raffaello Bronzini (Banca d'Italia); Sauro Mocetti (Banca d'Italia); Matteo Mongardini (Banca d'Italia)
    Abstract: This paper assesses the short- and long-term economic impact of the Great Jubilee 2000 on the city of Rome’s economy; this is an important Catholic event that occurs every 25 years. By applying the synthetic control approach, we find that the value added per capita increases slightly in the short term while in the long term it is not significantly different from what it would have been if Rome had not hosted the Jubilee. However, we do find a significant effect on the employment rate. Consistently with these findings, we document a shift of the local economy towards less productive sectors, such as construction and services requiring a lower skill content, and an overall productivity loss for/in Rome with respect to the counterfactual scenario. The investment in infrastructure, facilities and urban requalification did not significantly affect tourism or house prices in the long run, with exception of peripheral residential areas which experienced an appreciation.
    Keywords: mega events, synthetic control method, urban economic growth, house prices
    JEL: R00 R11 R12 R58
    Date: 2019–02
  5. By: Jakub Growiec
    Abstract: The article proposes a new conceptual framework for capturing production, R&D, and economic growth in aggregative models which extend their horizon into the digital era. Two key factors of production are considered: hardware, including physical labor, traditional physical capital and programmable hardware, and software, encompassing human cognitive work, pre-programmed software, and artificial intelligence (AI). Hardware and software are complementary in production whereas their constituent components are mutually substitutable. The framework generalizes, among others, the standard model of production with capital and labor, models with capital–skill complementarity and skill-biased technical change, and unified growth theories embracing also the pre-industrial period. It offers a clear conceptual distinction between mechanization and automation as well as between robotization and the development of AI. It delivers sharp, economically intuitive predictions for long-run growth, the evolution of factor shares, and the direction of technical change
    Keywords: production function, R&D equation, technological progress, complementarity, automation, artificial intelligence.
    JEL: O30 O40 O41
    Date: 2019–02
  6. By: Mauro Bambi (Durham University Business School); Fausto Gozzi (Luiss University)
    Abstract: Carroll et al. [7] establish that in a model with internal habits, an increase in economic growth may cause a positive change in savings. The optimality of this result has been recently questioned by several contributions in the literature which have observed that the parametrization used in [7] implies a utility function not jointly concave in consumption and habits. In this short paper, we revisit this issue: firstly we explain that it can be solved only through advanced techniques in Dynamic Programming and then we prove, using them, how the candidate optimal control found in [7] is indeed the unique optimal control
    Keywords: Endogenous Growth; Habit Formation, Sufficient Conditions of Optimality, Dynamic Programming, Viscosity Solution.
    JEL: C61 D91 E21 O40
    Date: 2019–01
  7. By: Paschalis Arvanitidis; Christos Kollias (Department of Economics, University of Thessaly); Paschalis Arvanitidis (Department of Economics, University of Thessaly)
    Abstract: Military spending as a share of GDP, represents the resources used in the implementation of national defence policy. A convergence in terms of defence burdens would be an indication of a defence policy convergence in terms of inputs. This theme is examined here using SIPRI’s new consistent database that covers both the Cold War era as well as the post-bipolar period. The results reported herein point to a process of convergence only in the post-bipolar period possibly reflecting the emergence of defence policies that share similar characteristics at least in terms of the allocation of resources. However, this convergence pattern seems to be reversing in recent years.
    Keywords: North-South, growth model, innovation assimilation
    Date: 2018–03–01
  8. By: Masaya Shintani (Graduate School of Economics, Kobe University); Masaya Yasuoka (School of Economics, Kwansei Gakuin University)
    Abstract: This paper sets an endogenous fertility model with a two-sector model: one for the final goods sector and the other for child care service sector. Results of theoretical analysis indicate that the subsidy for children raises the labor share of the child care service sector and that it can increase fertility. An aging population reduces fertility and the labor share of the child care service sector. In addition to these results, we consider monetary policy effects on fertility. Results show that monetary policy can raise fertility and the labor share of the child care service sector by virtue of an increase in the pension benefit if a pay-as-you-go pension exists.
    Keywords: Aging Population, Fertility, Income Growth, Monetary Policy, Subsidy
    JEL: J11 J14 E31 H22
    Date: 2019–02
  9. By: Guimarães, Luis; Gil, Pedro
    Abstract: In this paper, we build a theoretical model to study the effects of automation and labor market institutions on the labor share. In our model, firms choose between two technologies: an automated technology and a manual technology. In this context, the labor share reflects both the average wage level (versus output) and the distribution of firms between the two technologies. Our model offers three main insights. First, automation-augmenting shocks reduce the labor share but increase employment and wages. Second, labor market institutions (relative to automation) play an almost insignificant role in explaining the labor share. Third, our model suggests that the US labor share only (clearly) falls after the late 1980’s because of a contemporaneous acceleration of automation’s productivity.
    Keywords: Automation; Labor Share; Technology Choice; Employment; Labor-Market Frictions
    JEL: E24 J64 L11 O33
    Date: 2019–01–20
  10. By: Thorvaldur Gylfason
    Abstract: Income equality and trust seem to go along with several other ingredients of social capital as determinants of economic growth across the globe. In a large sample of countries, equality in the distribution of income as measured by the World Bank and by The Standardized World Income Inequality Database are seen to be correlated with economic diversification, the rule of law, transparency as measured by the corruption perceptions index from Transparency International, trust as measured in the World Values Survey, and democracy, all of which are good for growth as reflected in the purchasing power of per capita national income.
    Keywords: inequality, social capital, democracy, growth
    JEL: O43 O15
    Date: 2019
  11. By: Marilyne Huchet (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRA - Institut National de la Recherche Agronomique - AGROCAMPUS OUEST); Chantal Le Mouel (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRA - Institut National de la Recherche Agronomique - AGROCAMPUS OUEST); Mariana Vijil (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRA - Institut National de la Recherche Agronomique - AGROCAMPUS OUEST)
    Abstract: Empirical results on the links between trade openness and economic growth often suggest that, in the long run, more outward-oriented countries register better economic growth. However, a similar level of trade openness can hide different types of trade structures. The aim of this paper is to enrich the way of measuring trade openness taking into account two different dimensions of countries' integration in world trade: export quality and export variety. Based on the estimation of an endogenous growth model on a panel of 169 countries between 1988 and 2014 using a Generalized Method of Moments estimator, our results confirm that countries exporting higher quality products and new varieties grow more rapidly. More importantly, we find a non-linear pattern between the export ratio and the quality of the export basket, suggesting that openness to trade may impact growth negatively for countries which are specialized in low quality products. A non-linear relationship between exports variety, the export ratio and growth is also found, suggesting that countries increasing their exports will grow more rapidly after reaching a certain degree of the extensive margin of exports.
    Keywords: GMM,dynamic panel model,growth,trade openness,quality,variety,extensive margin
    Date: 2018
  12. By: Bonga-Bonga, Lumengo; Kinfack, Emilie
    Abstract: This paper assesses the relationship between trade openness and economic growth in Africa by accounting for the heterogeneity of African countries. In addition, the paper contributes to the literature of trade openness and economic growth nexus by applying the instrumental variable panel smooth transition regression (IVPSTR), a methodology that accounts for nonlinearity and endogeneity in the relationship between the two variables. The results of the empirical analysis reveal that the level of investment is a channel through which trade openness affects economic growth in the African continent. In addition, the relationship between trade openness and economic growth varies according to the degree of a country’s development in Africa. For low-income countries, the study finds no significant relationship between openness and growth. Conversely, for middle and upper-income countries, the coefficients of trade indicators are positive and statistically significant. The results indicate that African countries are not homogenous, especially with regard to trade openness and economic growth nexus.
    Keywords: economic growth, trade openness, non-linearity, instrumental variable panel smooth transition
    JEL: C23 C26 F13 F14 F15
    Date: 2019
  13. By: Bulent Ulasan
    Abstract: This paper empirically examines the relationship between real exchange rate misalignment and economic growth by using an updated data set over the sample period 1990-2014 for a large number of countries. Our findings indicate that the measure of real exchange rate misalignment is positively associated with economic growth for the low and middle-income countries whereas no significant relationship between these two for richer countries, implying the more overvalued the currency is over the long run, the lower the long-run growth rate of per capita income in developing countries. A plausible interpretation of this finding is that following the financial liberalization, large capital inflows and lending boom lead to appreciation of real exchange rates in the majority of developing countries. Prolonged real appreciation may result in lower long-run growth because of two channels: first, by changing resource allocation in favour of nontraded-goods sector it may reduce the long-term growth prospects; and second, by promoting private debt denominated in foreign currency it makes economy more vulnerable to external shocks, that is due to contractionary balance-sheet effects, a sudden and sharp real depreciation, which often happens in the boost cycle, may have a negative effect on output and growth.
    Keywords: Economic growth, Real exchange rate, Cross-country growth regression
    JEL: F31 F43 C31 O11 O41 O47
    Date: 2018

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