nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒04‒15
fourteen papers chosen by
Marc Klemp
University of Copenhagen

  1. A Multi-factor Uzawa Growth Theorem and Endogenous Capital-Augmenting Technological Change By Gregory Casey; Ryo Horii
  2. Modeling the drugs and guns trade in a two-country model with endogenous growth By King Yoong Lim; Diego Morris
  3. An inverted-U effect of patents on economic growth in an overlapping generations model By Yuta Nakabo; Ken Tabata
  4. On the economic importance of the determinants of long-term growth By Olivier Sterck
  5. Taxing Top Incomes in a World of Ideas By Charles I. Jones
  6. Productive Consumption Hypothesis and a Two-Sector Model of Economic Development By Ichiroh Daitoh; Kazuo Nishimura
  7. Fading Legacies: Human Capital in the Aftermath of the Partitions of Poland By Andreas Backhaus
  8. Human Capital and the Economic Convergence Mechanism: Evidence from China By Zhang, Xiaobei; Li, Haizheng; Wang, Xiaojun; Fleisher, Belton M.
  9. A causal relationship between unemployment and economic growth By Kenny S, Victoria
  10. Disaster risks, disaster strikes and economic growth: the role of preferences By Thomas Douenne
  11. The value added tax and growth: Design matters By Santiago Acosta-Ormaechea; Atsuyoshi Morozumi
  12. Endogenous Demographic Change, Retirement and Social Security By Cipriani, Giam Pietro; Fioroni, Tamara
  13. The Determinants of Economic Growth: The Role of Infrastructure By Fosu, Prince
  14. The Political Economy of Foreign Aid and Growth:Theory and Evidence By Sultan Mehmood; Avner Seror

  1. By: Gregory Casey; Ryo Horii
    Abstract: We prove a generalized, multi-factor version of the Uzawa steady-state growth theorem. In the two-factor case, the theorem implies that a neoclassical growth model cannot be simultaneously consistent with empirical evidence on both capital-augmenting technical change and the elasticity of substitution between labor and reproducible capital. In the multi-factor case, balanced growth with capital-augmenting technical change is possible as long as capital has a unitary elasticity of substitution with any single non-reproducible factor, increasing the likelihood that neoclassical models can be consistent with empirical findings. To illustrate the importance of this result, we also build a three-factor growth model with endogenous and directed technical change and show that is has a stable balanced growth path with a strictly positive rate of capital-augmenting technical change.
    Date: 2019–03
  2. By: King Yoong Lim; Diego Morris
    Abstract: This paper develops a two-country, dynamic general equilibrium model of endogenous growth with illicit drugs and guns trade. With a trade framework that unies both drug-control policies in consuming- and producing-country, as well as explicit modeling of firearm trade, the model is solved and parameterized to study the dynamic trade-off and growth effects of various drug-control policies. A production-consumption growth trade-off not previously documented in the literature is found. Further, under different conditions, and depending on the resulting gain in formal trade expansion, there are economic rationale to either a prohibitive or liberalization drug-control policy.
    Keywords: Endogenous Growth, Drugs, Illicit Trade, Organized Crime
    JEL: E26 F59 O41 O54
    Date: 2019–01
  3. By: Yuta Nakabo (Faculty of Social Studies, Nara University); Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: This paper analyzes how patent protection affects economic growth in a continuous-time overlapping generations model with lab-equipment type R&D-based growth. We show that increasing patent breadth may generate an inverted-U effect of patents on economic growth, an effect which is partly consistent with an empirically observed nonmonotonic relationship between patent protection and economic growth. This paper also shows that the combinations of heterogeneous households with finite lifetimes and the lab-equipment type R&D specification are relevant for deriving the inverted-U effect of patent protection on economic growth.
    Keywords: Innovations, Patents, Overlapping Generations
    JEL: O31 O34 O40
    Date: 2019–04
  4. By: Olivier Sterck
    Abstract: The economic literature has identified dozens of statistically significant determinants of long-run growth, from malaria ecology and ruggedness to genetic diversity and the timing of the Neolithic transition. Yet, the economic importance of these factors - understood as their contribution to variation in current GDP per capita - is unknown. In this paper, I propose two complementary approaches to measure economic importance, and apply these methods to assess the importance of the determinants of longrun growth. I find that distance to coast, malaria ecology, and legal origins are the three most important factors explaining contemporary development, ceteris paribus. Temperature, the share of the population from European descent, and the timing of the Neolithic transition are also important. In comparison, ruggedness, genetic diversity, slave trade intensity, and ethnolinguistic fragmentation appear to be relatively unimportant. The effects of malaria ecology, of temperature, of the share of the population from European descent, and of the timing of the Neolithic transition are mutually reinforcing.
    Keywords: Economic importance; Effect size; Long-run growth
    JEL: O1 O4 B4
    Date: 2018
  5. By: Charles I. Jones
    Abstract: This paper considers the taxation of top incomes when the following conditions apply: (i) new ideas drive economic growth, (ii) the reward for creating a successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a separate research subsidy --- think about the business methods of Walmart, the creation of Uber, or the "idea" of These conditions lead to a new force affecting the optimal top tax rate: by slowing the creation of the new ideas that drive aggregate GDP, top income taxation reduces everyone's income, not just the income at the top. When the creation of ideas is the ultimate source of economic growth, this force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates. For example, for extreme parameter values, maximizing the welfare of the middle class requires a negative top tax rate: the higher income that results from the subsidy to innovation more than makes up for the lost redistribution. More generally, the calibrated model suggests that incorporating ideas as a driver of economic growth cuts the optimal top marginal tax rate substantially relative to the basic Saez calculation.
    JEL: E0 H2 O4
    Date: 2019–04
  6. By: Ichiroh Daitoh (Faculty of Business and Commerce, Keio University); Kazuo Nishimura (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: In low income countries, labor productivity crucially depends on a per capita consumption level that contributes to good nutrition, health and/or education. A higher level of per capita consumption improves each worker's labor productivity. The concept of productive consumption was first introduced into the growth model by Steger (2000a). In this paper, we assume that the average consumption in a society has a positive externality in production and show that the indeterminacy of equilibrium can occur in a two-sector model even without the externality of capital input. This finding explains the growth of developing countries with little or no capital externality and the diversity in the growth rates of per capita real income along the transitional paths of low income developing economies. Each country can choose a different path from an infinite number of equilibrium paths converging to the indeterminate steady state.
    Keywords: developing country, economic growth, indeterminacy of equilibrium, productive consumption
    JEL: O1 O4 E1
    Date: 2019–02–13
  7. By: Andreas Backhaus (Centre for European Policy Studies)
    Abstract: This paper studies the longevity of historical legacies in the context of the formation of human capital. The Partitions of Poland (1772-1918) represent a natural experiment that instilled Poland with three different legacies of education, resulting in sharp differences in human capital among the Polish population. I construct a large, unique dataset that reflects the state of schooling and human capital in the partition territories from 1911 to 1961. Using a spatial regression discontinuity design, I find that primary school enrollment differs by as much as 80 percentage points between the partitions before WWI. However, this legacy disappears within the following two decades of Polish independence, as all former partitions achieve universal enrollment. Differences in educational infrastructure and gender access to schooling simultaneously disappear after WWI. The level of literacy converges likewise across the former partitions, driven by a high intergenerational mobility in education. After WWII, the former partitions are not distinguishable from each other in terms of education anymore.
    Keywords: Poland, Human Capital, Education, Persistence
    JEL: N34 I20 O15 H75
    Date: 2019–03
  8. By: Zhang, Xiaobei (Zhejiang University); Li, Haizheng (Georgia Tech); Wang, Xiaojun (University of Hawaii at Manoa); Fleisher, Belton M. (Ohio State University)
    Abstract: We examine the mechanism by which human capital affects economic growth and convergence, using provincial level panel data from China. We specify alternative measures of human capital and apply them to an enhanced growth model which we estimate parametrically, nonparametrically, and with a threshold model. Our results show that economic convergence is pronouncedly conditional on human capital across all our measures of human capital. The positive "benefit of being backward" due to lower initial income is almost trumped by the negative impact of low levels of human capital among the poorest areas.
    Keywords: human capital, economic convergence, regional economic development
    JEL: R11 O47 C33
    Date: 2019–03
  9. By: Kenny S, Victoria
    Abstract: Unemployment has been seen as a world-wide economic problem and has been categorized as one of the serious impediments to social progress. Apart from representing a huge waste of a country’s manpower resources, it generates welfare loss in terms of lower output thereby leading to lower income and poor standard of living. The study found adopts the VAR Granger Causality approach to examine the direction of relationship between unemployment (UNEMP) and economic growth rate (RGDP) in Nigeria covering the period of 1981-2016. Key findings revealed a unidirectional VAR Causal relationship between unemployment and economic growth implying that the level of economic activities does not Granger cause the rate of unemployment in Nigeria. Hence government should largely enhance the survival of small and medium scale companies which can help create jobs, lower unemployment and cause sustainable real output growth, further resulting in increase in the rate of employment generation in the economy.
    Keywords: Unemployment, Economic Growth, Causality
    JEL: E0
    Date: 2019–04–07
  10. By: Thomas Douenne (Paris School of Economics)
    Abstract: This paper studies the role of preferences on the link between disasters and growth. An endogenous growth model with disasters is presented in which one can derive closed-form solutions with non-expected utility. The model distinguishes disaster risks and disaster strikes and highlights the numerous mechanisms through which they may affect growth. It is shown that separating aversion to risk from the elasticity of inter-temporal substitution bears critical qualitative implications that enable to better understand these mechanisms. In a calibration of the model, it is shown that for standard parameter values, the additional restriction imposed by the time-additive expected utility can also lead to substantial quantitative bias regarding optimal risk-mitigation policies and growth. The paper thus calls for a wider use of non-expected utility in the modeling of disasters, in particular with respect to environmental disasters and climate change.
    Keywords: Environmental disasters, Endogenous growth, Recursive utility, Precautionary savings
    JEL: E21 O4 Q54
    Date: 2019–02
  11. By: Santiago Acosta-Ormaechea; Atsuyoshi Morozumi
    Abstract: Does the design of a tax matter for growth? Assembling a novel dataset for 30 OECD countries over the 1970-2016 period, this paper examines whether the value added tax (VAT) may have different effects on long-run growth depending on whether it is raised through the standard rate or through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption). Our key findings are twofold. First, for a given total tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when the VAT is raised through C-efficiency. Second, for a given VAT revenue, a rise in C-efficiency, offset by a fall in the standard rate, also promotes growth. The implication is thus that in OECD countries broadening the VAT base through fewer reduced rates and exemptions is more conducive to higher long-run growth than a rise in the standard rate.
    Keywords: VAT; Economic growth; Standard rate; C-efficiency; Base broadening
    Date: 2019
  12. By: Cipriani, Giam Pietro (University of Verona); Fioroni, Tamara (University of Verona)
    Abstract: In this paper, we analyse the effects of demographic change on a PAYG pension system, financed with a defined contribution scheme. In particular we examine the relationship between retirement, fertility and pensions in a three-period overlapping generations model. We focus on both the case of mandatory retirement and the case where the retirement age is freely chosen. In the case of mandatory retirement, increasing longevity has an unambiguously negative impact on fertility and pension payouts and a positive effect on the level of physical capital in the steady state. On the other hand, when agents choose the time of retirement, an increase in life expectancy positively affects physical capital only when the tax rate is sufficiently low and can have a positive impact on pension benefits because agents may find it optimal to retire later and to decrease fertility less. Finally, the effects of the social security tax on capital per worker are negative with mandatory retirement, however they could be positive in the optimal retirement case.
    Keywords: PAYG pensions, endogenous fertility, aging, retirement
    JEL: J13 H2 H8 H55
    Date: 2019–03
  13. By: Fosu, Prince
    Abstract: The main objectives of the study were to examine the effect of infrastructure (i.e. railway network) on economic growth and to examine the direction of causality between economic growth and infrastructure using historical data covering the period of 1980 to 2016 and cointegration analysis. The findings from the study revealed a positive and significant effect of infrastructure on economic growth in the long-run however, the effect of infrastructure on economic growth was not significant in the short-run analysis. Also, the test of causality found a unidirectional causality running from economic growth to infrastructure. To increase economic growth in the United States, this study recommends that both the Federal and the State Government should increase its investments in infrastructure spending especially in railways.
    Keywords: economic growth, infrastructure, inflation, trade deficit, United States
    JEL: O4 O44 R1 R4 R42
    Date: 2019–04–01
  14. By: Sultan Mehmood (University of Paris - IX); Avner Seror (Chapman University)
    Abstract: In this paper, we demonstrate that even when foreign aid is used to fund patronage, it may still have a positive - and significant - effect on economic growth in developing countries. First, we present a theory that formalizes the effect of aid on economic growth and patronage. Next, we provide evidence from Pakistan consistent with the predictions of the model that foreign aid increases economic growth, despite being used for patronage. The identification strategy we propose allows us to provide causal evidence for the predictions of the model.
    Keywords: Foreign aid, Economic growth, Political Economy, Patronage
    JEL: F35 D72 O1
    Date: 2019

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