nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒05‒20
eight papers chosen by
Marc Klemp
University of Copenhagen

  1. Railways, Growth, and Industrialisation in a Developing German Economy, 1829-1910 By Braun, Sebastian Till; Franke, Richard
  2. The Transition of Corruption - Institutions and dynamics By Martin Paldam
  3. Economic Inequality in Ghana, 1891-1960 By Young Aboagye, Prince; Bolt, Jutta
  4. Patent Protection and Public Capital Accumulation By Ken Tabata
  5. Natural Resources and Income Inequality in Developed Countries: Synthetic Control Method Evidence By Christopher Hartwell; Roman Horvath; Eva Horvathova; Olga Popova
  6. Does Economic Freedom Boost Growth for Everyone? By Bergh, Andreas; Bjørnskov, Christian
  7. Does system instability harm development? A comparative empirical study of the long run By Martin Paldam
  8. How has globalisation affected the economic growth, structural change and poverty reduction linkages? Insights from international comparisons By Aggarwal, Aradhna

  1. By: Braun, Sebastian Till; Franke, Richard
    Abstract: This paper provides a comprehensive assessment of the effect of railways on the spatial economic development of a German economy, the Kingdom of Württemberg, during the Industrial Revolution. Our identification strategy compares the economic development of `winning' municipalities that were connected to the railway in 1845-54 to the development of `losing' municipalities that were the runners-up choice for a given railway line between two major towns. Estimates from both differences-in-differences and inverse-probability-weighted models suggest that railway access increased annual population growth by 0.4 percentage points over more than half a century. Railways also increased wages, income and housing values, in line with predictions of economic geography models of transport infrastructure improvements, reduced the gender wage gap, and accelerated the transition away from agriculture. We find little evidence that these effects are driven by localised displacement effects.
    Keywords: Railway access, growth, sectoral employment, Industrial Revolution, Württemberg
    JEL: N73 N93 O14 R12 R40
    Date: 2019–05–03
  2. By: Martin Paldam (Department of Economics and Business Economics, University of Aarhus)
    Abstract: The cross-country data for honesty/corruption and income has a correlation of about 0.75, and the data have a typical transition path; but the correlation of the growth rate and honesty is negative. Thus, the short and long-run findings are contradictory, and it is shown that the contradiction lasts a dozen years. The transition of corruption happens relatively late and works through changes in institutions. To catch all institutions the Polity-index is used for the political dimension and the Fraser-index of economic freedom for the economic one. The two indices explain as much as income, but they both have a transition, so the relations are partly spurious. To identify the non-spurious part of the relation and sort out causality, the D-index is defined as the difference between the corruption index and the transition path. Institutional instability increases corruption, but when institutions stabilize, both democracy and economic freedom increase honesty.
    Keywords: Corruption, cross-country, income vs institutions
    JEL: D73 K42 P48
    Date: 2019–05–15
  3. By: Young Aboagye, Prince (African Economic History Network); Bolt, Jutta (African Economic History Network)
    Abstract: This paper contributes to a growing literature on understanding drivers of pre-industrial inequality by constructing social tables for colonial Ghana. Ghana is generally perceived as fairly equal in terms of income distribution, both historically and today. We show, however, that income inequality rose rapidly during the colonial period, to inequality levels comparable to many contemporary African countries. We argue that the introduction and expansion of cocoa cultivation at the end of the 19th century in the forest belt of the country marked the most important development that shaped both national and regional inequality trends. Initial land abundance in the forest area provided opportunities for its population to engage in cocoa growing which increased the overall standards of living in the forest area. Areas where soil quality did not favour cocoa growing fell behind in terms of living standards, resulting in increasing national income inequalities from the 1930s onwards. Due to high set up costs of cocoa farms and increasingly polarized access to economic resources, only a wealthy minority was able to establish substantial cocoa farms, gaining much more than other social classes. The capital intensity of the export crop along with access to economic resources such as land seems an important factor driving inequality trends in Africa.
    Keywords: Inequality; social tables; Ghana; economic history
    JEL: N17 N37 N57
    Date: 2018–09–03
  4. By: Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the balanced-growth maximizing public investment policy in a growth model where the engines of economic growth are private R&D and public capital accumulation. The government allocates tax revenue between new investment and maintenance expenditure for public capital. We consider how the balanced-growth maximizing public investment policy changes as patent protection becomes stronger, as seen in many countries. The results show that as patent protection becomes stronger, the income tax rate to finance public investment should be lower and the expenditure share of new investment should be higher. The balanced-growth maximizing policy leads to a smaller government, as patent protection becomes stronger.
    Keywords: Patent Protection, Public Capital, Economic Growth, Welfare
    Date: 2019–05
  5. By: Christopher Hartwell (Bournemouth University); Roman Horvath; Eva Horvathova; Olga Popova
    Abstract: We examine the causal effect of natural resource discoveries on income inequality using the synthetic control method on data from 1947 to 2009. We focus on the natural discoveries in Denmark, Netherlands and Norway in the 1960–1970s and use top 1% and top 10% income share as the measure of income inequality. Many previous studies have been concerned that natural resources may increase income inequality. To the contrary, our results suggest that natural resources decrease income inequality or have no effect. We attribute this effect to the high institutional quality of countries we examine.
    Keywords: Natural resources, income inequality, synthetic control method
    JEL: D31 O13 O15 Q33
    Date: 2019–04
  6. By: Bergh, Andreas (Research Institute of Industrial Economics (IFN)); Bjørnskov, Christian (Aarhus University)
    Abstract: While the association between economic freedom and long-run economic growth is well documented, the parallel research literature on the distributional consequences of economic freedom is full of conflicting findings. In this paper, we take a step towards reconciling the two literatures by exploring the within-quintile growth consequences of changes in three different types of economic freedom: the size of government, institutional quality and policy quality. While the associations are theoretically ambiguous, we find evidence that economic freedom affects all parts of the income distribution equally, and some indications that the growth effects are largest for the poorest and richest quintiles.
    Keywords: Economic freedom; Liberalization; Economic growth; Income inequality
    JEL: O40 O43 P16
    Date: 2019–05–02
  7. By: Martin Paldam (Department of Economics and Business Economics, University of Aarhus)
    Abstract: The paper looks at the effect of instability of political and economic institutions, using the Polity and the Fraser indices to characterize the two dimensions of society. The indices are used to derive three measures of instability: VP and VF are the average numerical annual change in each index, and ZP is the fraction of years under anarchy. All three have a negative correlation to growth. Two main theories are considered: One is the long-run transition-link: High growth in low- and middle-income countries gives a faster transition and hereby more system instability. The second is the short-run investment link: System instability gives an uncertain and unpredictable environment that harms investment, and hence growth. The combination of the two links is a main reason why the potential high growth of less developed countries is so difficult to achieve.
    Keywords: Instability, institutions, development
    JEL: O11 O43
    Date: 2019–05–15
  8. By: Aggarwal, Aradhna (Copenhagen Business School)
    Abstract: This paper examines economic growth, structural change and poverty reduction linkages across 147 countries of the world during 1991-2015. It emphasises that under the liberal market growth model structural change-growth linkages are complex, which in turn can complicate the poverty reduction effects of growth. It proposes a conceptual framework to explain how growth and structural dynamics have been influenced by globalisation. It argues that at the core of the conventional growth-structural change relationship lies the assumption that economic activities within and across sectors are strongly connected with each other through forward and backward linkages. Globalisation may distort this connectedness affecting different sectors asymmetrically. As a result, structural change in value added and employment may not commensurate with each other exerting ambiguous effects on cross-sector productivity dispersions. The study hypothesises that the convergence between them is critical for productivity enhancing structural change, and in turn, for poverty reducing effects of growth. The generalised method of moments (GMM) estimator within the framework of a dynamic panel data approach upholds the hypothesis. These findings question the sustainability of the growth and structural change processes taking place in the developing world and call for deeper strategic government interventions for broad based economic development with an emphasis on manufacturing.
    Keywords: Economic Growth, Globalisation, Structural Change, Poverty reduction, Cross country analysis
    JEL: E24 O14 O40
    Date: 2019–04–30

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