nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒03‒18
eight papers chosen by
Marc Klemp
University of Copenhagen

  1. Spatial inequality, geography and economic activity By Sandra Achten; Christian Leßmann
  2. Why was the First Industrial Revolution English? Roman Real Wages and the Little Divergence within Europe Reconsidered By Rota, Mauro; Weisdorf, Jacob
  3. Misallocation of Talent and Human Capital: Political Economy Analysis By Gradstein, Mark
  4. Identifying and Disentangling the Impact of Fiscal Decentralization on Economic Growth By Cristian Sepulveda; Jorge Martinez-Vazquez; Jorge Martinez-Vazquez
  5. Gender inequality and economic development: fertility, education and norms By Kleven, Henrik; Landais, Camille
  6. Childlessness, Celibacy and Net Fertility in Pre-Industrial England: The Middle-class Evolutionary Advantage By Croix, David de la; Schneider, Eric B.; Weisdorf, Jacob

  1. By: Sandra Achten; Christian Leßmann
    Abstract: We study the effect of spatial inequality on economic activity. Given that the relationship is highly simultaneous in nature, we use exogenous variation in geographic features to construct an instrument for spatial inequality, which is independent from any man-made factors. Inequality measures and instruments are calculated based on grid-level data for existing countries as well as for artificial countries. In the construction of the instrumental variable, we use both a parametric regression analysis as well as a random forest classification algorithm. Our IV regressions show a significant negative relationship between spatial inequality and economic activity. This result holds if we control for country-level averages of different geographic variables. Therefore, we conclude that geographic heterogeneity is an important determinant of economic activity.
    Keywords: regional inequality, spatial inequality, economic activity, development, geography, machine learning
    JEL: R12 O15
    Date: 2019
  2. By: Rota, Mauro (University of Rome); Weisdorf, Jacob (University of Southern Denmark, CAGE, CEPR)
    Abstract: We compare early-modern Roman construction wages to Judy Stephenson’s downward-adjusted construction wages for London. We find that Roman workers earned at least as much as their London counterparts in the run-up to the Industrial Revolution, challenging the high-wage-economy explanation for why the Industrial Revolution was English and not Italian. We argue, however, that daily construction wages present a poor testing ground for the high-wage hypothesis, proposing instead that wages are compared among permanent employees in sectors less prone to seasonality and economic fluctuations than construction work.
    Keywords: Construction Work, Convergence, Divergence, Industrial Revolution; Living Standards; Prices, Wages. JEL Classification: J3, J4, J8, I3, N33
    Date: 2019
  3. By: Gradstein, Mark
    Abstract: Mismatches in the labor market, specifically because of underrepresentation of various population groups, carry significant economic cost. In this paper we argue, using a simple analytical model, that an additional cost component is related to the effect of such underrepresentation on incentives to invest in human capital, which results in a mutual feedback relationship between the labor market and the skill acquisition market and may lead to economy's divergence. Further, under increasing returns to scale in human capital, it is shown that an initially advantaged group has an incentive to minimize the bias against the disadvantaged group, and that political enfranchisement is the means to achieve a commitment to such a policy. It is argued that this is consistent with empirical regularities.
    Date: 2019–03
  4. By: Cristian Sepulveda (Farmingdale State College, SUNY, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: This paper revisits the relationship between fiscal decentralization and economic growth by addressing the endogeneity issue stemming from reverse causality and unobserved factors that has plagued the extensive previous literature on this subject. In our approach, we use the Geographic Fragmentation Index (GFI) and country size as instrumental variables, which we argue are strong and consistent instruments for fiscal decentralization. Empirically, we find that indeed both instruments are strong and valid in the first stage of estimation and that on average, a 10-percent increase in subnational expenditure or revenue shares—the conventional measures of decentralization—will increase GDP per capita growth by approximately 0.4 percentage points; however, the results differ for developed versus developing countries.
    Date: 2019–03
  5. By: Kleven, Henrik; Landais, Camille
    Abstract: We document the evolution of gender inequality in labour market outcomes—earnings, labour supply and wage rates—over the path of economic development, and present evidence on the potential reasons for this evolution. To this end, we have created a micro database that compiles 248 surveys from 53 countries between 1967 and 2014, covering a wide range of per capita income levels. There is large convergence in the earnings of men and women over the path of development, driven by female labour force participation and wage rates. We argue that the single most important factor behind this convergence is demographic transition: the effects of children on gender gaps (‘child penalties’) are large at both low and high levels of development, but fertility declines drastically over the growth process and thus reduces the aggregate implications of children. We also document gender convergence in educational attainment and consider its effects on earnings inequality, arguing that these are significant but less dramatic than the effects of fertility. Finally, we document striking changes in the values or norms surrounding the role of women with children, implying that such changes could serve as a reinforcing mechanism for gender convergence.
    JEL: J1
    Date: 2017–04–01
  6. By: Croix, David de la (IRES, UCLouvain and CEPR); Schneider, Eric B. (London School of Economics and CEPR); Weisdorf, Jacob (University of Southern Denmark, CEPR, and CAGE)
    Abstract: In explaining England’s early industrial development, previous research has highlighted that wealthy pre-industrial elites had more surviving offspring than their poorer counterparts. Thus, entrepreneurial traits spread and helped England grow rich. We contest this view, showing that lower-class reproduction rates were no different from the elites when taking singleness and childlessness into account. Elites married less and were more often childless. Many died without descendants. We find that the middle classes had the highest net reproduction and argue that this advantage was instrumental to England’s economic success because the middle class invested most strongly in human capital.
    Keywords: Fertility, Marriage, Childlessness, European Marriage Pattern, Industrial Revolution, Evolutionary Advantage, Social Class JEL Classification: J12, J13, N33
    Date: 2019
  7. By: Nicolas De Vijlder; Koen Schoors (-)
    Abstract: In this paper we investigate the hypothesis that the economic divergence across Flemish localities between 1830 and 1910 is explained by the theory of Hernando de Soto. We hypothesize that the uniform land rights installed after the French revolution provided borrowers with an attractive form of collateral. Conditional on the presence of local financial development provided by a new government-owned bank this eased access to external finance and fostered industrial and commercial economic activity. Using primary historical data of about 1179 localities in Flanders we find that the variation in the local value of land (collateral) and the variation in local financial development jointly explain a substantial amount of the variation in non-agricultural employment accumulated between 1830 and 1910. By 1910 industrial and commercial economic activity was more developed in localities where both early (1846) rural land prices were high and early (1880) local financial development was more pronounced, which is in line with the “de Soto” hypothesis.
    Keywords: de Soto, financial institutions, industrial development, land prices, Flanders, 19th - 20th centuries
    JEL: N93 O43 R11 R12
    Date: 2019–02
  8. By: Maté Fodor; Jean Luc De Meulemeester; Denis Rochat
    Abstract: The objective of this paper is twofold. On the one hand, it provides a balanced account of both theoretical and empirical debates on the link between education and growth since World War 2. We point out the lack of a clear-cut consensus.On the other hand, we question the traditional measurements of human capital, and assess their fit to various theoretical models of growth. Subsequently, we provide a new and arguably more appropriate proxy. Using it, we document crude correlations in line with the literature, pointing out that education may not be an appropriate instrument to accelerate growth.
    Keywords: Education; Growth; Human capital; Education policy
    JEL: E24 O40 B22 B23 I25
    Date: 2019–03–06

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