nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒09‒09
eleven papers chosen by
Marc Klemp
University of Copenhagen

  1. Inequality and growth: The cholesterol hypothesis By Gustavo A. Marrero; Juan Gabriel Rodríguez
  2. Pandemics, Places, and Populations: Evidence from the Black Death By Remi Jedwab; Noel D. Johnson; Mark Koyama
  3. Who Gained from India’s Demonetization? Insights from Satellites and Surveys By Chanda, Areendam; Cook, Justin
  4. Institutional Responses to Aging Populations and Economic Growth: A Panel Data Approach By Emerson, Patrick M.; Knabb, Shawn D.; Sirbu, Anca-Ioana
  5. Old Sins Cast Long Shadows: The Long-Term Impact of the Resettlement of the Sudetenland on Residential Migration By Guzi, Martin; Huber, Peter; Mikula, Stepan
  6. Unsustainable Mining Development and the Collapse of Some Ancient Societies: Economic Reasons By Clement Tisdell; Serge Svizzero
  7. Synergizing Ventures By Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
  8. Does inequality reduce mobility? The Great Gatsby Curve and its mechanisms By Brandén, Gunnar
  9. Natural disasters and economic growth in Africa By Adjei-Mantey, Kwame; Adusah-Poku, Frank
  10. Golden Age of Capitalism: The effect of education on growth and inequality By Pier Paolo Saviotti; Andreas Pyka; Bogang Jun
  11. Characterizing growth instability: new evidence on unit roots and structural breaks in long run time series By Russo, Emanuele; Foster-McGregor, Neil; Verspagen, Bart

  1. By: Gustavo A. Marrero (Universidad de la Laguna); Juan Gabriel Rodríguez (Universidad Complutense de Madrid)
    Abstract: A fundamental unsolved question in economics is whether inequality is good or bad for growth. We argue here that this lack of consensus is due to the cholesterol hypothesis. This hypothesis states that the part of inequality generated by factors beyond the individuals’ control, referred to as inequality of opportunity (IO), is growth-deterring, while the type of inequality generated by the difference in the willingness to exert effort, referred to as inequality of pure effort (IE), is growth-enhancing. We first build an overlapping generation model with human capital to derive a reduced-form growth equation consistent with this hypothesis, and the existing interaction between poverty and inequality. Then, given the inherent difficulty to decompose total inequality into IO and IE, we develop a strategy to test the cholesterol hypothesis: by extending the standard inequality-growth equation with a proxy of IO, the estimated coefficient of inequality must increase, while the coefficient of the IO proxy must be negative. Next, we use the best available data at worldwide level and, given the limitations of the existing IO indices, we construct an alternative proxy of IO by considering that the quality of institutions and ethnic and religious tensions are relevant macroeconomic drivers of IO. Using an instrumental variable approach and different samples and IO measures, our results do not reject the cholesterol hypothesis at worldwide level.
    Keywords: growth, inequality, inequality of opportunity, poverty, human capital.
    JEL: O40 D63 E24 I32
    Date: 2019–07
  2. By: Remi Jedwab (George Washington University); Noel D. Johnson (George Mason University); Mark Koyama (George Mason University)
    Abstract: The Black Death killed 40% of Europe’s population between 1347-1352, making it one of the largest shocks in the history of mankind. Despite its historical importance, little is known about its spatial effects and the effects of pandemics more generally. Using a novel dataset that provides information on spatial variation in Plague mortality at the city level, as well as various identification strategies, we explore the short-run and long-run impacts of the Black Death on city growth. On average, cities recovered their pre-Plague populations within two centuries. In addition, aggregate convergence masked heterogeneity in urban recovery. We show that both of these facts are consistent with a Malthusian model in which population returns to high-mortality locations endowed with more rural and urban fixed factors of production. Land suitability and natural and historical trade networks played a vital role in urban recovery. Our study highlights the role played by pandemics in determining both the sizes and placements of populations.Creation-Date: 2019-03
    Keywords: Pandemics; Black Death; Mortality; Path Dependence; Cities; Urbanization; Malthusian Theory; Migration; Growth; Europe
    JEL: R11 R12 O11 O47 J11 N00 N13
  3. By: Chanda, Areendam; Cook, Justin
    Abstract: On November 8, 2016, the Indian government abruptly demonetized 86% of its currency in circulation in an attempt to reduce black money, corruption, and counterfeiting. Yet, 99% of the currency was eventually returned to banks. We exploit large regional variations in deposit growth as a result of demonetization to study the medium-term effects of this policy. Using night-light data, we show that districts which experienced higher deposit growth during the demonetization period recorded higher levels of economic activity in the year and a half that followed. We estimate a one standard deviation increase in deposits is associated with a 5% increase in district GDP per capita. Further, districts with larger rural population, agricultural and non-agricultural informal labor shares also recorded an increase in nighttime light activity. The results are also supported by household-level surveys on income and expenditures.
    Keywords: Demonetization, Regional Economic Growth, Monetary Policy, Indian Economy, Difference in Difference, Informal Economy, Agriculture, Credit
    JEL: E21 E26 E51 E65 O11 O13 O16 O17 O18 O5
    Date: 2019–08–23
  4. By: Emerson, Patrick M. (Oregon State University); Knabb, Shawn D. (Western Washington University); Sirbu, Anca-Ioana (Western Washington University)
    Abstract: Will an aging population lower economic growth? Economists are generally concerned that the increase in life expectancy could lower economic growth, however, theory does not make a prediction. As life expectancy increases, so should household savings, which results in more physical capital per worker. This will stimulate economic growth. However, as the retired population share increases, this may reduce spending on children as more resources are transferred to the elderly. This will likely reduce human capital accumulation and lower growth. The net effect of these competing influences is an empirical question. This paper constructs a stylized endogenous growth model that includes both human capital and government transfers to the elderly. The model is mapped into a linear statistical framework that allows us to estimate each of these potential responses using panel data for a set of OECD countries during the period 1975-2014. We find evidence that households do in fact increase savings in response to a longer retirement period and this effect is associated with a higher realized rate of growth per worker. However, we also find evidence that an aging population reduces spending on children (or other productive investments) placing a drag on growth. These results suggest it is the institutional response to population aging that will determine whether or not an aging population will place a drag on future growth, not population aging itself.
    Keywords: population aging, educational crowding-out, slow secular growth, cross-country panel data
    JEL: J11 J18 I21 I28 E66 E37 O43
    Date: 2019–08
  5. By: Guzi, Martin (Masaryk University); Huber, Peter (WIFO - Austrian Institute of Economic Research); Mikula, Stepan (Masaryk University)
    Abstract: We analyze the long-term impact of the resettlement of the Sudetenland after World War II on residential migration. This event involved expulsion of ethnic Germans and almost complete depopulation of an area of a country and its rapid resettlement by 2 million Czech inhabitants. Results based on nearest neighbor matching and regression discontinuity design show a higher population churn in resettled areas that continues today. The populations in resettled areas and in the remainder of the country share similar values and do not differ statistically in terms of their propensity to give donations, attend social events, and participate in voluntary work. However, we observe that resettled settlements have fewer local club memberships, lower turnout in municipal elections, and less frequently organized social events. This finding indicates substantially lower local social capital in the resettled settlements that is likely to have caused higher residential migration. This explanation is consistent with theoretical models of the impact of social capital on migration decisions.
    Keywords: migration, social capital, Sudetenland
    JEL: N44 Z10 R23 J15
    Date: 2019–08
  6. By: Clement Tisdell (University of Queensland [Brisbane]); Serge Svizzero (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)
    Abstract: The literature explaining social collapse mainly focuses on factors such as wars, climate change or disease, as exemplified by numerous examples of collapses which have occurred during the Late Bronze Age in the Near East and in the South-eastern Mediterranean region. This paper aims at demonstrating that collapse can also have economic reasons. Indeed, collapse may be the outcome of an economic growth process which is inherently unsustainable. More precisely, we claim that several ancient societies collapsed because their form of economic development eventually proved to be unable to sustain their standard of living. It is believed that the Únĕtice societies (which existed in the central European Early Bronze Age) were among those that collapsed for that reason. Two different simple models are presented to demonstrate how agricultural economies of this type which introduced bronze mining and metallurgy were unable to sustain their economic development.
    Keywords: unsustainable development,Bronze Age,elite,economic surplus,mining productivity,Únĕtice culture.
    Date: 2019
  7. By: Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
    Abstract: Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC-backing increases a startup’s likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
    JEL: G24 O31 O32 O40
    Date: 2019–08
  8. By: Brandén, Gunnar (Umeå University)
    Abstract: A body of evidence has emerged in the literature on intergenerational mobility documenting that countries with large income differences also have less intergenerational mobility: a relationship known as the Great Gatsby Curve. In this paper, I estimate the Great Gatsby Curve within Sweden exploiting both cross-sectional and longitudinal variation. I find that men who grew up in regions or periods with high levels of income inequality experienced less intergenerational mobility as adults, thereby confirming the existence of a Great Gatsby Curve in Sweden. I also present new evidence on the underlying mechanisms of the Great Gatsby Curve. By decomposing intergenerational mobility into separate transmission channels, I find that the mediating effects that educational attainment and cognitive and non-cognitive skills have on the persistence of socioeconomic status across generations drive the Great Gatsby Curve.
    Keywords: Intergenerational mobility; equality of opportunity; inequality
    JEL: D31 I24 J62 R00
    Date: 2019–09–04
  9. By: Adjei-Mantey, Kwame; Adusah-Poku, Frank
    Abstract: The continent of Africa has experienced its fair share of natural disasters historically and in contemporary times. The effect of natural disasters on economic growth has generated useful but inconclusive debates in the literature. Different studies have found positive, negative or no significant effects at all in some cases of disasters on growth. This makes the question of what impacts natural disasters have on an economy’s growth a purely empirical one and more meaningful to be examined on a case by case basis. Using panel data solely for the continent of Africa from 1980-2015, our regression results show a significant negative effect of natural disasters on economic growth, growth in agricultural value-added and growth in industrial value-added. Additionally, our results also show that disaster effect appears and persists in the post-year periods. The negative relationship between economic growth and disasters is also robust to different disaster measures. We recommend the need to invest in the modernization of the agricultural sector in Africa with the goal of withstanding the negative effects of natural disasters.
    Keywords: Africa, economic growth, disaster measures, natural disasters, climate change
    JEL: O44 O47 Q54
    Date: 2019–03–01
  10. By: Pier Paolo Saviotti (Utrecht University, Utrecht, the Netherlands, GREDEG CNRS, Sophia Antipolis, France); Andreas Pyka (Economics Institute, University of Hohenheim, D-70593 Stuttgart, Germany); Bogang Jun (Department of Economics, Inha University)
    Abstract: This study explores the effect of education on the balance between income per capita and income distribution using the TEVECON model in which growth and development are driven by innovation, giving rise to new sectors. Our results can explain the Golden Age of Capitalism (1950 -1973), characterized by high growth rates and low inequality. Our experiments varying investment in education and its allocation to two social classes define a range of education policies that can lead to many combinations of income per capita and income distribution. We find that education can affect both the creation of high income per capita and income distribution, but it does not always guarantee ``positive'' economic outcomes in terms of the variables we investigate. Thus, of the development paths, our results include both scenarios similar to that described by the Kuznets curve and less ``virtuous'' ones similar to that detected by Piketty and Saez, in which economic progress is accompanied by increasingly inegalitarian income distribution. Moreover, our model predicts that even in highly developed economic systems, different education policies can give rise to combinations of high income per capita and low inequality or low income per capita and low inequality. In this context, a shift from a regime of high growth and falling income inequality, similar to the one observed in the 1950s to 1980s (P1), to a regime of lower growth and increasing income inequality, similar to the one observed in the 1980s to 2000s (P2), could have been produced by a transition from falling inequality in the distribution of education in P1 to rising inequality in the distribution of education in P2. Education alone cannot be considered to be the cause of the transition over P1-P2. Other factors such as liberalization and deregulation that began in the 1980s and increasing globalization, which has been greatly accelerated by the emergence of China, help transform the economic system in the same broad direction. In a general sense, our study shows that while education can greatly contribute to economic development, it is not an intrinsically beneficial force leading automatically to a richer and fairer society.
    Keywords: Income distribution, Education, Development, Co-evolution
    JEL: F44 G31 G35
    Date: 2019–09
  11. By: Russo, Emanuele (Institute of Economics and EMbeDS, Scuola Superiore Sant’Anna, Pisa); Foster-McGregor, Neil (UNU-MERIT); Verspagen, Bart (UNU-MERIT)
    Abstract: In this paper we investigate whether long run time series of income per capita are better described by a trend-stationary model with few structural changes or by unit root processes in which permanent stochastic shocks are responsible for the observed growth discontinuities. To this purpose, we develop a methodology to test the null of a generic I(1) process versus a set of stationary alternatives with structural breaks. Differently from other tests in the literature, the number of structural breaks under the alternative hypothesis is treated as an unknown (up to some ex ante determined maximum). Critical values are obtained via Monte Carlo simulations and finite sample size and power properties of the test are reported. An application is provided for a group of advanced and developing countries in the Maddison dataset, also using bootstrapped critical values. As compared to previous findings in the literature, less evidence is found against the unit root hypothesis. Failures to reject the I(1) null are particularly strong for a set of developing countries considered. Finally, even less rejections are found when relaxing the assumption of Gaussian shocks.
    Keywords: Long-run growth, structural breaks, unit roots, instability, time-series models
    JEL: O47 C22
    Date: 2019–08–28

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.