nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒03‒04
fourteen papers chosen by
Marc Klemp
University of Copenhagen

  1. Higher Education Subsidy Policy and R&D-based Growth By Takaaki Morimoto; Ken Tabata
  2. Natural resources, economic growth and geography By González-Val, Rafael; Pueyo, Fernando
  3. The Origins of Creativity: The Case of the Arts in the United States since 1850 By Borowiecki, Karol Jan
  4. What stunts economic growth and causes the poverty trap? By Mizushima, Atsue
  5. Neither the elite, nor the mass. The rise of intermediate human capital during the French industrialization process. By Claude Diebolt; Charlotte Le Chapelain; Audrey Rose Menard
  6. Conflict, growth and human development. An empirical analysis of Pakistan By Syed Muhammad Rizvi; Marie-Ange Veganzones-Varoudakis
  7. Temperature Volatility Risk By Michael Donadelli; Marcus Jüppner; Antonio Paradiso; Christian Schlag
  8. Digital Abundance and Scarce Genius: Implications for Wages, Interest Rates, and Growth By Seth G. Benzell; Erik Brynjolfsson
  9. Did the Arab Spring Reduce MENA Countries' Growth? By Arayssi, Mahmoud; Fakih, Ali; Haimoun, Nathir
  10. Natural resources volatility and economic growth: evidence from the resource-rich region By Hayat, Arshad; Tahir, Muhammad
  11. Optimal Capital Taxation in an Economy with Innovation-Driven Growth By Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong
  12. Population Aging and the Possibility of a Middle-Income Trap in Asia By Ha, Joonkyung; Lee , Sang-Hyop
  13. The Role of Total Factor Productivity Growth in Middle-Income Countries By Kim, Jungsuk; Park , Jungsoo
  14. Productivity Panics – Polemics and Realities By Auerbach, Paul

  1. By: Takaaki Morimoto (Graduate School of Economics, Osaka University,Institute of Social and Economic Research, Osaka University, Japan); Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: We examine how a subsidy policy for encouraging more individuals to pursue higher education affects economic growth in an overlapping generations model of R&D-based growth, including both product development and process innovation. We show that such a policy may have a negative effect on the long-run economic growth rate. When the market structure adjusts partially in the short run, the effect of an education subsidy on economic growth is ambiguous and depends on the values of the parameters. However, when the market structure adjusts fully in the long run, the education subsidy expands the number of firms but reduces economic growth. These unfavorable predictions of an education subsidy on economic growth are partly consistent with the empirical findings that mass higher education does not necessarily lead to higher economic growth.
    Keywords: Higher Education, Occupational Choice, R&D, Product Development, Process Innovation
    Date: 2018–02
  2. By: González-Val, Rafael; Pueyo, Fernando
    Abstract: Worldwide materials extraction increased by a factor of 8.4 over the course of the 20th century. In the meantime, global GDP and population increased by factors of about 22 and 4, respectively. This reveals that one of the key factors driving the increase in the exploitation of the resources was the growth in world population, although mitigated by the reduction in the intensity in the use of the resources in production. In this paper, we present a model that combines the theory of endogenous growth and the economy of natural resources, but taking into account the geographical distribution of economic activity. Indeed, the New Economic Geography provides insights about two elements that, although speeding up GDP growth, can curb the pressure on natural resources, namely the reduction in transports costs and a boost to pace of innovation.
    Keywords: industrial location, endogenous growth, renewable resource, geography
    JEL: F43 O30 Q20 R12
    Date: 2019–02
  3. By: Borowiecki, Karol Jan (Department of Business and Economics)
    Abstract: This research illuminates the historical development of creative activity in the United States. Census data is used to identify creative occupations (i.e., artists, musicians, authors, actors) and data on prominent creatives, as listed in a comprehensive biographical compendium. The analysis first sheds light on the socio-economic background of creative people and how it has changed since 1850. The results indicate that the proportion of female creatives is relatively high, time constraints can be a hindrance for taking up a creative occupation, racial inequality is present and tends to change only slowly, and education plays a significant role for taking up a creative occupation. Second, the study systematically documents and quantifies the geography of creative clusters in the United States and explains how these have evolved over time and across creative domains. Third, it investigates the importance of outstanding talent in a discipline for the local growth of an artistic cluster.
    Keywords: Creativity; artists; geographic clustering; agglomeration economies; urban history
    JEL: N33 R10 Z11
    Date: 2019–02–18
  4. By: Mizushima, Atsue
    Abstract: In spite of an identical initial condition, why are some parts of the world so rich and others so poor? To address this question, this paper constructs a simple theoretical model that incorporates human infrastructure and child labor The first part of the paper shows that the condition of bifurcation from an identical initial condition depends on the technology level. We also show that current dynamic trends highly depend on initial endowments and productivity. The second part of the paper examines the effect of development assistance in recipient countries. By analyzing two types of programs; the elimination of child labor and support to strengthen human infrastructure, we show that the former (latter) program is effective for middle- (low-) income countries.
    Keywords: Child labor, human infrastructure, human capital, divergence, poverty trap, development aid
    JEL: I00 J01 O11 O41
    Date: 2019–02–18
  5. By: Claude Diebolt; Charlotte Le Chapelain; Audrey Rose Menard
    Abstract: This paper investigates the development of intermediate human capital in nineteenth century France. We perform panel and cross-section regression analyses to compare the effect of technological change on basic vs. intermediate human capital accumulation. Our contribution reveals that a shift in the kind of skills required occurred in the second half of the nineteenth century. We show that steam technology adoption was conducive to the accumulation of intermediate human capital in the second half of the nineteenth century.
    Keywords: Cliometrics, Human Capital, Industrialization, France.
    JEL: N13 N33 N73 N93
    Date: 2019
  6. By: Syed Muhammad Rizvi (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Marie-Ange Veganzones-Varoudakis (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we use the Autoregressive Distributed Lag (ARDL) Bound Testing cointegration approach to study the long-term relationship between internal conflict, economic growth, and human development in Pakistan. We show that, by offering better opportunities and reducing radicalization, education could help reduce conflict in Pakistan. The government's spending on its defense budget, however, is high, and results in low social spending. We also show a positive contribution to conflict reduction by public order which justifies the government's anti-terrorist policy. It also appears that economic reforms and wealth do not help to reduce internal conflicts in Pakistan. This result is an illustration of a situation in which globalization is perceived as a threat, and economic growth fuels political and social unrest. Political rights and civil liberties do not seem to reduce conflict either, because periods of democracy have experienced a resurgence of violence. This finding suggests that, in a fragile country like Pakistan, respect for public order is a priority before restoring democracy. Pakistan seems to be caught in a low development trap in which conflict is the main variable to consider before seeing the benefits of reforming the economy.
    Keywords: Conflict,Economic growth,Human development,Pakistan.
    Date: 2019–02–14
  7. By: Michael Donadelli (Department of Economics, University Of Venice Cà Foscari); Marcus Jüppner (Deutsche Bundesbank; Faculty of Economics and Business Administration, Goethe University Frankfurt); Antonio Paradiso (Department of Economics, University Of Venice Cà Foscari); Christian Schlag (Faculty of Economics and Business Administration and Research Center SAFE, Goethe University Frankfurt)
    Abstract: We produce novel empirical evidence on the relevance of temperature volatility shocks for the dynamics of macro aggregates and asset prices. Using two centuries of UK temperature data, we document that the relationship between temperature volatility and the macroeconomy varies over time. First, the sign of the causality from temperature volatility to TFP growth is negative in the post-war period (i.e., 1950-2015) and positive before (i.e., 1800-1950). Second, over the pre-1950 (post-1950) period temperature volatility shocks positively (negatively) affect TFP growth. In the post-1950 period, temperature volatility shocks are also found to undermine equity valuations and other main macro aggregates. More importantly, temperature volatility shocks are priced in the cross section of returns and command a positive premium. We rationalize these findings within a production economy featuring long-run productivity and temperature volatility risk. In the model temperature volatility shocks generate non-negligible welfare costs. Such costs decrease (increase) when associated with immediate technology adaptation (capital depreciation).
    Keywords: Temperature volatility, TFP, asset prices, and welfare costs
    JEL: E30 G12 Q0
    Date: 2019
  8. By: Seth G. Benzell; Erik Brynjolfsson
    Abstract: Digital versions of labor and capital can be reproduced much more cheaply than their traditional forms. This increases the supply and reduces the marginal cost of both labor and capital. What then, if anything, is becoming scarcer? We posit a third factor, ‘genius’, that cannot be duplicated by digital technologies. Our approach resolves several macroeconomic puzzles. Over the last several decades, both real median wages and the real interest rate have been stagnant or falling in the United States and the World. Furthermore, shares of income paid to labor and capital (properly measured) have also decreased. And despite dramatic advances in digital technologies, the growth rate of measured output has not increased. No competitive neoclassical two-factor model can reconcile these trends. We show that when increasingly digitized capital and labor are sufficiently complementary to inelastically supplied genius, innovation augmenting either of the first two factors can decrease wages and interest rates in the short and long run. Growth is increasingly constrained by the scarce input, not labor or capital. We discuss microfoundations for genius, with a focus on the increasing importance of superstar labor. We also consider consequences for government policy and scale sustainability.
    JEL: D02 D8 O0 O11 O3 O4
    Date: 2019–02
  9. By: Arayssi, Mahmoud (Lebanese American University); Fakih, Ali (Lebanese American University); Haimoun, Nathir (University of Lethbridge)
    Abstract: This paper examines the economic ramifications of the recent political reconfigurations that the MENA region witnessed, commonly known as the Arab Spring, utilizing MENA countries data during period 2005-2016. Using the Arellano-Bond dynamic panel estimation, the paper estimates a growth model using the difference in the log of GDPC between periods t and t+1. Buttressed by sufficient empirical evidence, the paper's findings corroborate that the Arab Spring had been negatively associated with growth.
    Keywords: Arab Spring, growth, MENA countries, panel data
    JEL: G2 O16 P48 N25
    Date: 2019–02
  10. By: Hayat, Arshad; Tahir, Muhammad
    Abstract: This research paper investigates the impact of natural resources’ volatility on economic growth. The paper focused on three resources rich economies namely; UAE, Saudi Arabia, and Oman. Using data from 1970 to 2016 and employing the autoregressive distributed lag (ARDL) cointegration approach developed by Pesaran, Shin, and Smith (2001), we found that both natural resources and their volatility matters from the growth perspective. The study found strong evidence in favor of a positive and statistically significant relationship between the natural resource and economic growth for the economy of UAE and Saudi Arabia. Similarly, for the economy of Oman, a positive but insignificant relationship is observed between natural resources and economic growth. However, we found that the volatility of natural resources has a statistically significant negative impact on the economic growth of all three economies. This study contradicts the traditional concept of resources curse and provides evidence of resources curse in the form of a negative impact of volatility on economic growth.
    Keywords: Natural Resources, Volatility, Economic Growth, ARDL Modeling, GCC
    JEL: O4 Q33
    Date: 2019
  11. By: Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong
    Abstract: This paper examines whether the Chamley-Judd result of a zero optimal capital tax rate is valid in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D.
    Keywords: Optimal capital taxation; R&D externalities; innovation
    JEL: E62 O31 O41
    Date: 2019–02
  12. By: Ha, Joonkyung (Hanyang University); Lee , Sang-Hyop (University of Hawaii at Manoa)
    Abstract: We present three conditions for a demography-driven middle-income trap and show that many economies in East, South, and Southeast Asia satisfy all of them. The conditions are (1) support ratio— the ratio of workers to consumers—matters for economic growth, (2) economic development accompanies more investment in human capital and lower fertility due to the quantity–quality tradeoff, and (3) current low level of fertility corresponds to too low support ratios for keeping up with the frontier economies in the long run. The panel analyses for 178 countries, among which 30 are ADB developing member economies, show that (i) and (ii) are satisfied for Asia with higher elasticity than others. As for (iii), we set up a dynamic model for simulations, showing that about two-thirds of ADB members have unsustainable level of support ratios, implying possibilities of a middle-income trap due to demographic headwinds in the future.
    Keywords: demography; fertility; middle-income trap; national transfer accounts; support ratio
    JEL: J11 O11 O53
    Date: 2018–02–16
  13. By: Kim, Jungsuk (Sogang University); Park , Jungsoo (Sogang University)
    Abstract: We examine the importance of total factor productivity (TFP) growth in middle-income countries based on cross-country panel data for the period 1975–2014. We find that TFP growth contributed significantly to a country’s upward transition from middle-income to high-income country group. The TFP growth model reveals that the catch-up effect, human capital, smaller population, weak currency, and research and development (R&D) growth are significant sources of TFP growth. We do not find a systematic difference in the TFP growth models for middle-income countries. In analyzing the role of factors influencing TFP growth at different income stages, strengthening innovative activities and building innovative capacities are important in overcoming the challenges that middle-income countries face when transitioning to the high-income group. Governments of upper-middle-income countries need to initiate reform to motivate innovation by optimizing national R&D systems, and redesigning the educational system to target promoting innovation.
    Keywords: economic growth; human capital; middle-income countries; research and development; total factor productivity
    JEL: O47 O57
    Date: 2017–11–29
  14. By: Auerbach, Paul (Kingston University London)
    Abstract: Widespread uneasiness has emerged concerning a perceived slowdown in productivity growth. The question posed here is whether our destiny is indeed tied to inexorable movements in productivity and innovation, whatever these things may be, or can we build a future contingent upon collective choices and guided by human needs and desires?
    Keywords: Artificial Intelligence; innovation; productivity; Schumpeter; technological change; total factor productivity.
    JEL: O10 O30 O33 O40 O47
    Date: 2019–02–25

This nep-gro issue is ©2019 by Marc Klemp. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.