nep-gro New Economics Papers
on Economic Growth
Issue of 2020‒03‒09
twelve papers chosen by
Marc Klemp
University of Copenhagen

  1. The intellectual spoils of war? Defense R&D, productivity and international spillovers By Van Reenen, John; Moretti, Enrico; Steinwender, Claudia
  2. Economic outcomes predicted by diversity in cities By Chong, Shi Kai; Bahrami, Mohsen; Chen, Hao; balcisoy, Selim; Bozkaya, Burcin; Pentland, Alex 'Sandy'
  3. Rates of Population Decline in Solow and Semi-Endogenous Growth Models: Empirical Relevance and the Role of Child Rearing Cost By Ichiroh Daitoh
  4. Three Economic Myths about Ageing: Participation, Immigration and Infrastructure By Murray, Cameron
  5. Innovation without regional development? The complex interplay of innovation, institutions and development By Marques, Pedro; Morgan, Kevin
  6. Human Capital and Macro-Economic Development : A Review of the Evidence By Rossi, Federico
  7. Health Capital Provision and Human Capital Accumulation By Leonid V. Azarnert
  8. Does Rainfall Matter for Economic Growth ? Evidence from Global Sub-National Data (1990-2014 By Damania,Richard; Desbureaux,Sebastien Gael; Zaveri,Esha Dilip
  9. The role of ICT in modulating the effect of education and lifelong learning on income inequality and economic growth in Africa By Tchamyou, Vanessa S; Asongu, Simplice A; Odhiambo, Nicholas M
  10. Trends, Breaks and Persistence in Top Income Shares By Atanu Ghoshray; Issam Malki; Javier Ordóñez
  11. Compensation Growth and Slack in the Current Economic Environment By M. Henry Linder; Robert W. Rich; Richard Peach
  12. The Transitional Dynamic of Finance Led Growth By Razzak, Weshah; El Bentour, M

  1. By: Van Reenen, John; Moretti, Enrico; Steinwender, Claudia
    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: defense; R&D; productivity
    JEL: R14 J01 J1
    Date: 2019–11
  2. By: Chong, Shi Kai; Bahrami, Mohsen; Chen, Hao; balcisoy, Selim; Bozkaya, Burcin; Pentland, Alex 'Sandy'
    Abstract: Much recent work has illuminated the growth, innovation, and prosperity of entire cities, but there is relatively less evidence concerning the growth and prosperity of individual neighborhoods. In this paper we show that diversity of amenities within a city neighborhood, computed from openly available points of interest on digital maps, accurately predicts human mobility ("flows") between city neighborhoods and that these flows accurately predict neighborhood economic productivity. Additionally, the diversity of consumption behaviour or the diversity of flows together with geographic centrality and population density accurately predicts neighborhood economic growth, even after controlling for standard factors such as population, etc. We develop our models using geo-located purchase data from Istanbul, and then validate the relationships using openly available data from Beijing and several U.S. cities. Our results suggest that the diversity of goods and services within a city neighborhood is the largest single factor driving both human mobility and economic growth.
    Date: 2020–02–19
  3. By: Ichiroh Daitoh (Faculty of Business and Commerce, Keio University)
    Abstract: It has been found that population decline may change the properties of growth paths from those in a population-increasing economy in the Solow and semi-endogenous growth models. However, the rates of population decline needed to generate richer dynamics seem too large given the available empirical data and population prospects. This paper first shows that in a semi-endogenous growth model, positive externalities from knowledge accumulation can make such rates of population decline sufficiently small to be consistent with the United Nations population estimates. In the Solow growth model without such externalities, an introduction of child rearing costs could reduce the critical rate of population decline below which richer dynamics emerge. Finally, the economic implications of a child rearing cost are discussed for the Solow growth model with population decline.
    Keywords: child rearing cost, population decline, semi-endogenous growth, Solow growth model
    JEL: J11 O11 O47
    Date: 2020–01–29
  4. By: Murray, Cameron
    Abstract: Population ageing due to longevity is one of the greatest successes of the modern era. However, it is widely thought to dramatically reduce workforce participation and overall output resulting in significant economic costs. This widely held view is wrong. Ageing countries have higher economic growth and the improved health and longevity of older people increases their economic contributions. High immigration is also thought to combat population ageing and be a remedy for these non-existent costs of ageing. This is wrong. Low immigration can affect the age structure by helping to stabilise the population, but high immigration has almost no long-run effect besides increasing the total population level. This creates bigger problems in the future. It is also widely thought that simply investing in infrastructure will accommodate high immigration and population growth at little cost. This too is wrong. Diseconomies of scale are a feature of rapid infrastructure expansion due to (1) the need to retrofit built-up cities, (2) the dilution of irreplaceable natural resources, and (3) the scale of investment relative to the stock of infrastructure. This ageing-immigration-infrastructure story is wrong on all three of its major points. Population ageing should be seen as the successful result of improvements in medical and health practices that have improved longevity and fostered a long-lived and economically productive society.
    Date: 2020–02–14
  5. By: Marques, Pedro (Universitat Politècnica de Valencia); Morgan, Kevin (Cardiff University)
    Abstract: This paper argues that the development of regional innovation concepts drawing primarily on the experiences of advanced regions, has meant that the dominant narratives about regional development are not adequate to explain the experiences of less developed regions (LDRs). Drawing on the extensive experience of the authors doing research in LDRs, the paper develops three main arguments: first, the emphasis put on networks and systems means that not enough attention is paid to the internal capabilities of organisations, including those of firms, Universities and the public sector. These capabilities shape the strategies of these organisations regarding innovation and collaboration, and therefore influence the nature and content of innovation systems. Second, the paper argues that too much attention has been paid to the importance of informal institutions, rather than analysing the dynamic interaction between formal and informal institutions. The latter approach allows us to avoid culturally deterministic interpretations of under-development and to think about ways in which formal policies could help to improve innovation environments. Third, the paper argues that innovation at the firm level does not always lead to improvement in productivity and economic growth at the aggregate scale. This is partly due to the effects of the dynamics discussed in the two previous points, but is also because advanced regions benefit from a socio-economic ecosystem which supports the translation of new ideas into economic activity. This means that though innovation is fundamental for long-term economic growth, it is not sufficient without mechanisms that ensure its dissemination through the entirety of the economic system.
    Keywords: Less developed regions; Innovation; Productivity; Organisational capabilities; Institutions; Regional Development
    JEL: O31 O43 P48 R11
    Date: 2020–02–26
  6. By: Rossi, Federico (University of Warwick)
    Abstract: The role of human capital in facilitating macro-economic development is at the center of both academic and policy debates. Through the lens of a simple aggregate production function, human capital might increase output per capita by directly entering in the production process, incentivising the accumulation of complementary inputs and facilitating the adoption of new technologies. This paper discusses the advantages and limitations of three approaches that have been used to evaluate the empirical importance of these channels: cross-country regressions, development accounting and quantitative models. The key findings in the literature are reviewed, and some of them are replicated using updated data. The bulk of the evidence suggests that human capital is an important determinant of cross-country income gaps, especially when its measurement is broadened to go beyond simple proxies of educational attainment. The paper concludes by highlighting policy implications and promising avenues for future work.
    Keywords: Human Capital ; Development ; Growth JEL codes: E24 ; O11 ; O47 ; I25
  7. By: Leonid V. Azarnert
    Abstract: This article analyzes the effect of public policy intervention in the production of health capital on fertility, private investment in children’s health and education and human capital accumulation. I have used a growth model with endogenous fertility, in which the usual parental trade-off between the quantity and quality of their children is augmented with an additional factor that affects children’s human capital, which is health. I analyze the overall society-wide effect of public policy intervention and derive a condition that determines precisely whether public provision of free health services increases or decreases the average level of human capital in the society.
    Keywords: fertility, health capital, human capital, growth
    JEL: D30 I12 J10 J13 J24 O10 O40
    Date: 2020
  8. By: Damania,Richard; Desbureaux,Sebastien Gael; Zaveri,Esha Dilip
    Abstract: Much micro-econometric evidence suggests that precipitation has wide ranging impacts on vital economic indicators such as agricultural yields, human capital, and even conflict. And yet paradoxically most macro-econometric evidence (especially in the climate economy literature) finds that precipitation has no robust and significant impact on various measures of aggregate economic output. This paper argues that spatial aggregation of weather at the country level explains this result. The paper uses annual subnational gross domestic product data to show a concave relationship between precipitation and local gross domestic product growth between 1990 and 2014. It then demonstrates that when the data are aggregated at larger spatial scales, the impact decreases and eventually vanishes. The impact of precipitation on aggregate economic activity is predominantly felt in developing countries; it is insignificant in developed countries. Agriculture is found to be the dominant pathway. The results have significant consequences for measuring the economic impacts of climate change.
    Date: 2019–06–17
  9. By: Tchamyou, Vanessa S; Asongu, Simplice A; Odhiambo, Nicholas M
    Abstract: This study assesses the role of ICT in modulating the impact of education and lifelong learning on income inequality and economic growth. It focuses on a sample of 48 African countries from 2004 to 2014. The empirical evidence is based on the generalised method of moments (GMM). The following findings are established. First, mobile phone and internet each interact with primary school education to decrease income inequality. Second, all ICT indicators interact with secondary school education to exert a negative impact on the Gini index. Third, fixed broadband distinctly interacts with primary school education and lifelong learning to have a positive effect on economic growth. Fourth, ICT indicators do not significantly influence inequality and economic growth through tertiary school education and lifelong learning. These main findings are further substantiated. Policy implications are discussed.
    Keywords: Education; Lifelong learning; ICT; Inequality; Africa
    Date: 2019–11
  10. By: Atanu Ghoshray (Department of Economics, Newcastle University Business School, UK); Issam Malki (Department of Finance and Accounting, University of Westminster; London, UK); Javier Ordóñez (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: We examine the top income share data of a sample of countries to empirically examine for the presence of structural breaks, linear trends and persistence. The analysis of the data is carried out separately for each individual country using novel econometric procedures that are both appropriate and robust. Various theories have been put forward to explain the causes of structural breaks in long run data, such as the introduction of assembly lines from the time of World War I and the ICT revolution. What we find is that there is no clear evidence that Anglo Saxon countries have similar trends as opposed to Nordic, Continental European or other Asian countries. The results are varied and no clear conclusion can be made. Further, the top income share data is found to be highly persistent, suggesting that shocks to the data are likely to be long-lived.
    Keywords: Unit Roots, Top Income Shares, Structural Breaks
    JEL: C22 C32 N30
    Date: 2020
  11. By: M. Henry Linder; Robert W. Rich; Richard Peach
    Abstract: Following a significant slowing during the recent recession, growth in various labor compensation measures has stabilized during the past two to three years. This stabilization is puzzling because it?s widely held that a significant amount of slack remains in the economy. Accordingly, this large amount of slack should result in a further slowing in compensation (wage) growth. In this post, we show that there?s a very mild trade-off between compensation growth and resource slack, even though slack is sizable. Consequently, the observation that there?s slow but steady growth in labor compensation measures is consistent with a large amount of slack in the current economic environment.
    Keywords: Compensation Growth; Wage-inflation Phillips Curve; Unemplyment Gap; Nonlinear Relationship; Slack
    JEL: E2
  12. By: Razzak, Weshah; El Bentour, M
    Abstract: We depart from the empirical literature on testing the finance led growth. Instead of regression analysis, we use a semi-endogenous growth model, which identifies two productivity growth paths: a steady state and a transitional path. Steady state growth is anchored by population growth. In the transitional dynamic, productivity growth depends on the typical factors growth rates, and excess knowledge, which is the deviation of TFP in the financial sector from steady state growth. TFP is endogenous. It is an increasing function of global research efforts, which is driven by the proportion of population in developed countries that is engaged in research in finance, and the stock of human capital. We find positive evidence for this theory of TFP in the data of ten developed European countries and the United States. We also found some evidence for finance-led-growth, albeit weaker after the past Global Financial Crisis.
    Keywords: Semi endogenous growth, finance, productivity growth
    JEL: E10 O40
    Date: 2020–02–03

This nep-gro issue is ©2020 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.