nep-gro New Economics Papers
on Economic Growth
Issue of 2020‒10‒26
fifteen papers chosen by
Marc Klemp
University of Copenhagen

  1. A Theory of Strategic Uncertainty and Cultural Diversity By Willemien Kets; Alvaro Sandroni
  2. General existence of competitive equilibrium in the growth model with an endogenous labor-leisure choice By Aditya Goenka; Manh-Hung Nguyen
  3. The Race between Population and Technology: Real Wages in the First Industrial Revolution By Crafts, Nicholas; Mills, Terence C.
  4. Growth factors in developed countries: A 1960-2019 growth accounting decomposition By Cette Gilbert; Devillard Aurélien; Spiezia Vincenzo
  5. The Gravitational Constant? By David S. Jacks; Kevin Hjortshøj O'Rourke; Alan M. Taylor
  6. Efficiency with Endogenous Population and Fixed Resources By Cordoba, Juan Carlos; Liu, Xiying
  7. Evaluation of the DICE climate-economy integrated assessment model By Greaves, Gerry
  8. The Two Growth Rates of the Economy By Alexander Adamou; Yonatan Berman; Ole Peters
  9. Railroads, specialization, and population growth in small open economies: Evidence from the First Globalization By Andrés Forero; Francisco A. Gallego; Felipe González; Matías Tapia
  10. The impact of political instability on economic growth: the case of Guyana By Pasha, Sukrishnalall
  11. Pension Reforms, Population Aging, and Retirement Decision of the Elderly in a Neoclassical Growth Model By Hirono, Makoto; Mino, Kazuo
  12. Protectionism and economic growth: Causal evidence from the first era of globalization By Niklas Potrafke; Fabian Ruthardt; Kaspar W\"uthrich
  13. Modeling optimal quarantines under infectious disease related mortality By Aditya Goenka; Lin Liu; Manh-Hung Nguyen
  14. Corporate Debt, Rentiers' Portfolio Dynamics, Instability and Growth: A neo-Kaleckian Perspective By Parui, Pintu
  15. Productive government expenditure and economic growth in a heterogeneous-agents model By Ryo Arawatari; Takeo Hori; Kazuo Mino

  1. By: Willemien Kets; Alvaro Sandroni
    Abstract: We identify a new mechanism through which cultural diversity affects economic out­comes, based on a model of culture as shared cognition. Under this view, cultural diversity matters because it increases strategic uncertainty. The model can help better understand a variety of disparate evidence, including why homogeneous societies can be more con­formist, why diverse societies may get stuck in a low-trust trap, why companies with a strong culture may fail to adopt superior work practices, and why autocratic rulers in diverse societies may overinvest in state capacity.
    Date: 2020–10–15
  2. By: Aditya Goenka (University of Birmingham [Birmingham]); Manh-Hung Nguyen (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We prove the existence of competitive equilibrium in the canonical optimal growth model with elastic labor supply under general conditions. In this model, strong conditions to rule out corner solutions are often not well justied. We show using a separation argument that there exist Lagrange multipliers that can be viewed as a system of competitive prices. Neither Inada conditions, nor strict concavity, nor homogeneity, nor dierentiability are required for existence of a competitive equilibrium. Thus, we cover important specications used in the macroeconomics literature for which existence of a competitive equilibrium is not well understood. We give examples to illustrate the violation of the conditions used in earlier existence results but where a competitive equilibrium can be shown to exist following the approach in this paper.
    Keywords: Optimal growth,Competitive equilibrium,Lagrange multipliers,Elastic la-,bor supply,Inada conditions.
    Date: 2020–12
  3. By: Crafts, Nicholas (University of Sussex); Mills, Terence C. (Loughborough University)
    Abstract: We investigate a structural model of demographic-economic interactions for England during 1570 to 1850. We estimate that the annual rate of population growth consistent with constant real wages was 0.4 per cent before 1760 but 1.5 per cent thereafter. We find that exogenous shocks increased population growth dramatically in the early decades of the Industrial Revolution. Simulations of our model show that if these demographic shocks had occurred before the Industrial Revolution the impact on real wages would have been catastrophic and that these shocks were largely responsible for very slow growth of real wages during the Industrial Revolution.
    Keywords: epidemic disease; Industrial Revolution; Malthusian checks; nuptiality; population growth; real wages; technological progress. JEL Classification: N13; N33
    Date: 2020
  4. By: Cette Gilbert; Devillard Aurélien; Spiezia Vincenzo
    Abstract: Using a new and original database, our paper contributes to the growth accounting literature with three original aspects: first, it covers a long period from the early 60’s to 2019, just before the COVID-19 crisis; second, it analyses at the country level a large set of economies (30); finally, it singles out the growth contribution of ICTs but also of robots. The original database used in our analysis covers 30 developed countries and the Euro Area over a long period allowing to develop a growth accounting approach from 1960 to 2019. This database is built at the country level. Our growth accounting approach shows that the main drivers of labor productivity growth over the whole 1960-2019 period appear to be TFP, non-ICT and non-robot capital deepening, and education. The overall contribution of ICT capital is found to be small, although we do not estimate its effect on TFP. The contribution of robots to productivity growth through the two channels (capital deepening and TFP) appears to be significant in Germany and Japan in the sub-period 1975-1995, in France and Italy in 1995-2005, and in several Eastern European countries in 2005-2019. Our findings confirm also the slowdown in TFP in most countries from at least 1995 onwards. This slowdown is mainly explained by a decrease of the contributions of the components ‘others’ in the capital deepening and the TFP productivity channels.
    Keywords: Growth, Productivity, ICTs, Robots.
    JEL: O31 O33 O47
    Date: 2020
  5. By: David S. Jacks; Kevin Hjortshøj O'Rourke; Alan M. Taylor
    Abstract: We introduce a new dataset on British exports at the bilateral, commodity-level from 1700 to 1899. We then pit two primary determinants of bilateral trade against one another: the trade-diminishing effects of distance versus the trade-enhancing effects of the British Empire. We find that gravity exerted its pull as early as 1700, but the distance effect then attenuated and had almost vanished by 1800. Meanwhile the empire effect peaked sometime in the late 18th century before significantly declining in magnitude. It was only after 1950 that distance would once again exert the same influence that it has today.
    JEL: F1 N7
    Date: 2020–10
  6. By: Cordoba, Juan Carlos; Liu, Xiying
    Abstract: This article studies socially optimal allocations, in the first-best sense, in environments characterized by fixed resources and endogenous fertility. Individuals in our environment are fully rational and altruistic toward their descendants, the social planner is benevolent, and there is full information. Our model allows for rich heterogeneity of abilities, preferences for children, and costs of raising children. We find that efficient allocations in the endogenous fertility case differ significantly from its exogenous fertility counterpart. In particular, optimal steady-state population is proportional to the amount of fixed resources and to the level of technology while steady state individual consumption is independent of these variables, a sort of "Malthusian stagnation" result. Furthermore, efficient allocations exhibit inequality, differ- ential fertility, random consumption, and a higher population density of poorer individuals. We prove a version of the second welfare theorem: efficient allocations can be decentralized through competitive markets and an initial distribution of property rights over the fixed resources.
    Date: 2018–11–01
  7. By: Greaves, Gerry
    Abstract: Climate-economy integrated assessment models are often used to assess the interaction between climate change effects and the economy. A simple but powerful model, DICE (Dynamic Integrated Climate-Economy) model, was developed at Yale. This is an easily accessible model that allows exploration of various parameters that affect long-term (years 2000-2300) climate change. The global economic model estimates the future growth of economic output tempered by abatement costs and climate change damages. It uses an optimization scheme to determine the CO2eq price over time that maximizes discounted utility of consumption. However, there are a few areas that may be improved. This paper addresses those areas. First, a model of renewable energy that explicitly accounts for the capital required for the transition is added. This has the effect of smoothing the beginning of the transition, and shows that we can afford the transition. Second, a modified damage function is used that shows a greater penalty for business as usual. Third, the growth model used in DICE results in a level of economic growth too high to be supported by historical data. A modified growth model is proposed based primarily on historical data from the Penn World Table that results in lower growth and a more rapid decline in growth rate.
    Keywords: economic growth, energy, climate
    JEL: Q43 Q54
    Date: 2020
  8. By: Alexander Adamou; Yonatan Berman; Ole Peters
    Abstract: Economic growth is measured as the rate of relative change in gross domestic product (GDP) per capita. Yet, when incomes follow random multiplicative growth, the ensemble-average (GDP per capita) growth rate is higher than the time-average growth rate achieved by each individual in the long run. This mathematical fact is the starting point of ergodicity economics. Using the atypically high ensemble-average growth rate as the principal growth measure creates an incomplete picture. Policymaking would be better informed by reporting both ensemble-average and time-average growth rates. We analyse rigorously these growth rates and describe their evolution in the United States and France over the last fifty years. The difference between the two growth rates gives rise to a natural measure of income inequality, equal to the mean logarithmic deviation. Despite being estimated as the average of individual income growth rates, the time-average growth rate is independent of income mobility.
    Date: 2020–09
  9. By: Andrés Forero; Francisco A. Gallego; Felipe González; Matías Tapia
    Abstract: We explore how railroads affected population growth during the First Globalization (1865-1920) in Chile. We look at areas with strong comparative advantage in agriculture using novel data documenting sixty years of railroad construction. Using instrumental variables, we present four main findings. First, railroads increased both urban and rural population growth. Second, the impact was stronger in areas with more potential for agricultural expansion. Third, railroads increased specialization in agriculture when combined with a high level of the real exchange rate. And fourth, railroads had little effects on human capital and fertility. These results suggest that the effects of transportation technologies depend on existing macroeconomic conditions.
    Date: 2020–09
  10. By: Pasha, Sukrishnalall
    Abstract: This paper empirically probes the nexus between political instability and economic growth in Guyana using time-series data covering the period 1961 – 2018 and GARCH (1,1) models. The results show that changes in the Head of State (HOS) exert a positive and significant impact on real GDP growth rates, while strikes have the opposite effect on economic growth. Other proxies of political instability, such as political assassinations, riots, insurrection, and terrorism, are not significantly related to growth in real GDP because of the dispersed nature of economic activities and their negligible effect on production and productivity. When the proxies of political instability are added to the conditional variance equation, the results indicate that only changes in Head of State (HOS) moderate volatility in growth rates. This is probably due to transitory goodwill enjoyed by the incoming Head of State that serves to dampen ethnic tensions, reducing instability. The latter result indicates the importance of democratic turnover.
    Keywords: Economic growth, GARCH (1,1), Guyana, political instability
    JEL: O47
    Date: 2020–09–27
  11. By: Hirono, Makoto; Mino, Kazuo
    Abstract: This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived over- lapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We first inspect the key factors that the retirement decision of the elderly. We then examine analytically as well as numeri-cally the long-run impact of labor participation of the elderly on capital accumulation.
    Keywords: retirement decision, labor force participation, population aging, pension system, capital accumulation
    JEL: E62
    Date: 2020–07–10
  12. By: Niklas Potrafke; Fabian Ruthardt; Kaspar W\"uthrich
    Abstract: We investigate how protectionist policies influence economic growth. Our empirical strategy exploits an extraordinary tax scandal that gave rise to an unexpected change of government in Sweden. A free-trade majority in parliament was overturned by a comfortable protectionist majority in the fall of 1887. We employ the synthetic control method to select control countries against which economic growth in Sweden can be compared. We do not find evidence suggesting that protectionist policies influenced economic growth and examine channels why. Tariffs increased government revenue. However, the results do not suggest that the protectionist government stimulated the economy in the short-run by increasing government expenditure.
    Date: 2020–10
  13. By: Aditya Goenka; Lin Liu; Manh-Hung Nguyen
    Abstract: This paper studies optimal quarantines (can also be interpreted as lockdowns or selfisolation) when there is an infectious disease with SIS dynamics and infections can cause disease related mortality in a dynamic general equilibrium neoclassical growth framework. We characterize the optimal decision and the steady states and how these change with changes in effectiveness of quarantine, productivity of working from home, contact rate of disease and rate of mortality from the disease. A standard utilitarian welfare function gives the counter-intuitive result that increasing mortality reduces quarantines but increases mortality and welfare while economic outcomes and infections are largely unaffected. With an extended welfare function incorporating welfare loss due to disease related mortality (or infections generally) however, quarantines increase, and the decreasing infections reduce mortality and increase economic outcomes. Thus, there is no optimal trade-off between health and economic outcomes. We also study sufficiency conditions and provide the first results in economic models with SIS dynamics with disease related mortality - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable
    Keywords: Infectious diseases, Covid-19, SIS model, mortality, sufficiency conditions, economic growth, lockdown, quarantine, self-isolation
    JEL: E13 E22 D50 D63 I10 I15 I18 O41 C61
    Date: 2020–09
  14. By: Parui, Pintu
    Abstract: Considering a stock-flow consistent neo-Kaleckian macro-model, along with firms' debt dynamics, in the long-run, we incorporate portfolio dynamics of rentiers and investigate the possibility of multiple equilibria and dynamic stability of the economy. Both the debt-led and the debt-burdened demand and growth regimes are possible. We find share buybacks, under certain conditions, not only may lead to the deterioration of the equilibrium rate of capital accumulation in the long-run but may potentially destabilize the entire economy. A strictly regulated financial market is desirable, as otherwise, the economy may lose its stability and produces the limit cycles.
    Keywords: Capital Accumulation, Kaleckian Model, Stock-flow Consistency, Instability, Limit Cycle
    JEL: C62 E12 E32 E44 O41
    Date: 2020–09–11
  15. By: Ryo Arawatari (Graduate School of Economics, Doshisha University); Takeo Hori (Department of Industrial Engineering and Economics, School of Engineering Tokyo Institute of Technology); Kazuo Mino (Institute of Economic Research, Kyoto University)
    Abstract: This paper examines the relationship between productive government expenditure and economic growth. An R&D-based model of endogenous growth is used in which agents have heterogeneous entrepreneurial abilities. We show that if the entrepreneurial ability follows a long- and fat-tailed distribution, then the relationship between government ex-penditure/ GDP and economic growth rate is depicted by an inverted U-shaped curve with a flat top. The flat top indicates that government size change has a limited impact on growth. We calibrate the model to U.S. data and empirically confirm the above theoretical prediction.
    Keywords: endogenous growth, government expenditure, heterogeneous agents, nonlinear relationship
    JEL: E62 O40
    Date: 2020–10

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