nep-gro New Economics Papers
on Economic Growth
Issue of 2019‒12‒02
five papers chosen by
Marc Klemp
University of Copenhagen

  1. A Theory of Cultural Revivals By Murat Iyigun; Jared Rubin; Seror Avner
  2. The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers By Moretti, Enrico; Steinwender, Claudia; Van Reenen, John
  3. Directed Technical Change, Environmental Sustainability, and Population Growth By Peter K. Kruse-Andersen
  4. Big or small cities? On city size and economic growth. By Frick, Susanne A.; Rodríguez-Pose, Andrés
  5. A Reassessment of the Relation Between Economic Growth and Maldistribution of Income By Clavijo-Cortes, Pedro; Campo-Robledo, Jacobo; Mendoza-Tolosa, Henry

  1. By: Murat Iyigun (University of Colorado [Boulder]); Jared Rubin (Chapman University); Seror Avner (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Why do some societies fail to adopt more efficient institutions? And why do such failures often coincide with cultural movements that glorify the past? We propose a model highlighting the interplay—or lack thereof—between institutional change and cultural beliefs. The main insight is that institutional change by itself will not lead to a more efficient economy unless culture evolves in tandem. This is because institutional change can be countered by changes in cultural values complementary to a more "traditional" economy. In our model, forward-looking elites, who benefit from a traditional, inefficient economy, may over-provide public goods that are complementary to the production of traditional goods. This encourages individuals to transmit cultural beliefs complementary to the provision of traditional goods. A horse race results between institutions, which evolve towards a more efficient (less traditional) economy, and cultural norms, which are pulled towards "tradition" by the elites. When culture wins the horse race, institutions respond by giving more political power to traditional elites—even if in doing so more efficient institutions are left behind. We call the interaction between these cultural and institutional dynamics a cultural revival.
    Keywords: institutions,cultural beliefs,cultural transmission,institutional change
    Date: 2019–10
  2. By: Moretti, Enrico (University of California, Berkeley); Steinwender, Claudia (MIT Sloan School of Management); Van Reenen, John (MIT Sloan School of Management)
    Abstract: In the US and many other OECD countries, expenditures for defense-related R&D represent a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D - and defense-related R&D in particular – on privately conducted R&D, and its ultimate effect on productivity growth. We estimate models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D as an instrumental variable. In both datasets, we uncover evidence of "crowding in" rather than "crowding out," as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. A 10% increase in government-financed R&D generates 4.3% additional privately funded R&D. An analysis of wages and employment suggests that the increase in private R&D expenditure reflects actual increases in R&D employment, not just higher labor costs. Our estimates imply that some of the existing cross-country differences in private R&D investment are due to cross-country differences in defense R&D expenditures. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in significant productivity gains.
    Keywords: agglomeration, spillovers
    JEL: O30
    Date: 2019–11
  3. By: Peter K. Kruse-Andersen (Department of Economics, University of Copenhagen, Denmark)
    Abstract: Population growth has two potentially counteracting effects on pollution emissions:(i) more people implies more production and thereby more emissions, and (ii) more people implies a larger research capacity which might reduce the emission intensity of production, depending on the direction of research. This paper investigates how to achieve a given climate goal in the presence of these two effects. A growth model featuring both directed technical change and population growth is developed. The model allows for simultaneous research in polluting and non-polluting technologies. Both analytical and numerical results indicate that population growth is a burden on the environment, even when all research efforts are directed toward non-polluting technologies. Thus research subsidies alone cannot ensure environmental sustainability. Instead, the analysis shows that environmental sustainability requires pollution taxes and/or population control policies.
    Keywords: Directed technical change, endogenous growth, environmental policy, environmental sustainability, climate change, population growth
    JEL: J11 O30 O41 Q54 Q55 Q58
    Date: 2019–11–19
  4. By: Frick, Susanne A.; Rodríguez-Pose, Andrés
    Abstract: Policy-makers and academics frequently emphasize a positive link between city size and economic growth. The empirical literature on the relationship, however, is scarce and uses rough indicators for the size for a country’s cities, while ignoring factors that are increasingly considered to shape the relationship. In this paper, we employ a panel of 113 countries between 1980 and 2010 to explore whether (1) there are certain city sizes that are growth enhancing and (2) how additional factors highlighted in the literature impact the city size/growth relationship. The results suggest a non-linear relationship which is dependent on the country’s size. In contrast to the prevailing view that large cities are growth-inducing, for the majority of countries relatively small cities of up to 3 million inhabitants are more conducive to economic growth. A large share of the urban population in cities with more than 10 million inhabitants is only growth promoting in countries with an urban population of 28.5 million and more. In addition, the relationship is highly context dependent: a high share of industries that benefit from agglomeration economies, a well-developed urban infrastructure, and an adequate level of governance effectiveness allow countries to take advantage of agglomeration benefits from larger cities.
    Keywords: city size; economic growth; enabling factors
    JEL: Q15
    Date: 2018–03–07
  5. By: Clavijo-Cortes, Pedro; Campo-Robledo, Jacobo; Mendoza-Tolosa, Henry
    Abstract: This article aims to evaluate the effect of the maldistribution of income on economic growth. From the empirical point of view, the literature on the matter is considerable. However, previous studies have employed the Gini index as a measure of inequality which tends to underestimate income disparities across countries. Because the complexity of inequality has changed over time and due to the Gini index is incapable of capturing the changing nature of distribution, we employ the Palma Ratio instead of the Gini index. The main advantage of employing the Palma Ratio is that it captures the dynamics of inequality and allows us to analyze the roots of this maldistribution. The relationship is estimated employing the methodology of Arellano-Bond for dynamic panels, and the results suggest that maldistribution of income generates a sluggish economic growth. In fact, our results suggest that inequality could be associated with a substantial reduction in growth.
    Keywords: Palma Ratio; Dynamic panels; Inequality; Economic growth
    JEL: C23 D63 E25 O11 O47
    Date: 2019–11

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