nep-gro New Economics Papers
on Economic Growth
Issue of 2020‒11‒23
nine papers chosen by
Marc Klemp
University of Copenhagen

  1. Quality-adjusted Population Density By J. Vernon Henderson; Adam Storeygard; David N. Weil
  2. The Fetters of Inheritance? Equal Partition and Regional Economic Development By Huning, Thilo R.; Wahl, Fabian
  3. Artificial Intelligence in Economic Growth: Modelling the Dynamic Impacts of Automation on income distribution and growth By Gries, Thomas; Naude, Wim
  4. A Strictly Economic Explanation of Gender Roles: The Lasting Legacy of the Plough. By Alessandro Cigno
  5. Redistributive Income Taxation with Directed Technical Change By Loebbing, Jonas
  6. Missing growth measurement in Germany By Schmidt, Vanessa; Schreiber, Sven
  7. Pollution, children’s health and the evolution of human capital inequality By Karine Constant; Marion Davin
  8. Persistence and Path Dependence in the Spatial Economy By Treb Allen; Dave Donaldson
  9. Culture, institutions, and long-run performance By Zhou, Haiwen

  1. By: J. Vernon Henderson; Adam Storeygard; David N. Weil
    Abstract: Quality-adjusted population density (QAPD) is population divided by land area that has been adjusted for geographic characteristics. We derive weights on these geographic characteristics from a global regression of population density at the quarter-degree level with country fixed effects. We show, first, that while income per capita is uncorrelated with conventionally measured population density across countries, there is a strong negative correlation between income per capita and QAPD; second, that the magnitude of this relationship exceeds the plausible structural effect of density on income, suggesting a negative correlation between QAPD and productivity or factor accumulation; and third, that higher QAPD in poor countries is primarily due to population growth since 1820. We argue that these facts are best understood as results of the differential timings of economic takeoff and demographic transition across countries, and particularly the rapid transfer of health technologies from early to late developers.
    JEL: O13 O18 Q56 R12
    Date: 2020–11
  2. By: Huning, Thilo R.; Wahl, Fabian
    Abstract: How can agricultural inheritance traditions affect structural change and economic development in rural areas? The most prominent historical traditions are primogeniture, where the oldest son inherits the whole farm, and equal partition, where land is split and each heir inherits an equal share. In this paper, we provide a theoretical model that links these inheritance traditions to the local allocation of labor and capital and to municipal development. First, we show that among contemporary municipalities inWest Germany, equal partition is significantly related to measures of economic development. Second, we conduct OLS and fuzzy spatial RDD estimates for Baden-Württemberg in the 1950s and today. We find that inheritance rules caused, in line with our theoretical predictions, higher incomes, population densities, and industrialization levels in areas with equal partition. Results suggest that more than a third of the overall inter-regional difference in average per capita income in present-day Baden Württemberg, or 597 Euro, can be explained by equal partition.
    Keywords: Inheritance rules,sectoral change,regional economic development,Baden-Württemberg,spatial inequalities
    JEL: D02 D31 N00 O18 Z00
    Date: 2020
  3. By: Gries, Thomas; Naude, Wim
    Abstract: The economic impact of Artificial Intelligence (AI) is studied using a (semi) endogenous growth model with two novel features. First, the task approach from labor economics is reformulated and integrated into a growth model. Second, the standard represen- tative household assumption is rejected, so that aggregate demand restrictions can be introduced. With these novel features it is shown that (i) AI automation can decrease the share of labor income no matter the size of the elasticity of substitution between AI and labor, and (ii) when this elasticity is high, AI will unambiguously reduce aggre- gate demand and slow down GDP growth, even in the face of the positive technology shock that AI entails. If the elasticity of substitution is low, then GDP, productivity and wage growth may however still slow down, because the economy will then fail to benefit from the supply-side driven capacity expansion potential that AI can deliver. The model can thus explain why advanced countries tend to experience, despite much AI hype, the simultaneous existence of rather high employment with stagnating wages, productivity, and GDP.
    Keywords: Technology,artificial intelligence,productivity,labor demand,income distribution,growth theory
    JEL: O47 O33 J24 E21 E25
    Date: 2020
  4. By: Alessandro Cigno
    Abstract: We show that the descendants of ancient farmers may have an interest in marrying among themselves, and thus maintaining the gendered division of labour, originally justified on comparative-advantage grounds by the advent of the plough, even after they emigrate to a modern industrial economy where individual productivity depends on education rather than physical characteristics. The result rests on the argument that, if efficiency requires the more productive spouse to specialize in raising income, and the less productive one in raising children, irrespective of gender, an efficient domestic equilibrium will be implemented by a costlessly enforceable pre-marital contract stipulating that the husband should do the former and the wife the latter. A con-tract may not be needed, however, if time spent with children gives direct utility, because an effi cient equilibrium may then be characterized by little or no division of labour.
    Keywords: plough, comparative advantage, gender, matching, hold-up problem, contract enforcement, migration
    JEL: C78 D02 J16 J61
    Date: 2020
  5. By: Loebbing, Jonas
    Abstract: This paper studies the implications of (endogenously) directed technical change for the design of non-linear labor income taxes in a Mirrleesian economy augmented to include endogenous technology development and adoption choices by firms. First, I identify conditions under which any progressive tax reform induces technical change that compresses the pre-tax wage distribution. The key intuition is that progressive tax reforms tend to increase labor supply of less skilled relative to more skilled workers, which induces firms to develop and use technologies that are more complementary to the less skilled. Second, I provide conditions under which the endogenous response of technology raises the welfare gains from progressive tax reforms. Third, I show that directed technical change effects make the optimal tax scheme more progressive, raising marginal tax rates at the right tail of the income distribution and lowering them (potentially below zero) at the left tail. For reasonable calibrations, the directed technical change effects of actual tax reforms on wage inequality appear to be small, but the impact of directed technical change on optimal taxes is considerable. Optimal marginal tax rates increase monotonically over the bulk of the income distribution instead of being U-shaped (as in most of the previous literature) and marginal tax rates on incomes below the median are reduced substantially
    Keywords: Optimal Taxation,Directed Technical Change,Endogenous Technical Change,Wage Inequality.
    JEL: H21 H23 H24 J31 O33
    Date: 2020
  6. By: Schmidt, Vanessa; Schreiber, Sven
    Abstract: Using detailed establishment-level micro data, this paper analyzes the quantitative implications of the missing-growth hypothesis by Aghion, Bergeaud, Boppart, Klenow, and Li (2019) for Germany. This hypothesis states that actual growth rates of real output are systematically understated by official estimates, such that a part of real growth is missing in the published data. The underlying effect rests on overstated inflation estimates due to imputed prices for disappearing goods and services varieties, which is indirectly measured by plant entry and exit dynamics. Using different market share proxies our main results regarding understated real output growth lie in the range of 0:39 to 0:54 percentage points per year on average for the benchmark sample 1998-2016. These are quite closely in line with existing findings for France, the USA, and Japan (in different periods). We provide additional robustness analysis and discuss limitations of the approach.
    Keywords: creative destruction,price imputation,inflation measurement
    JEL: E31 O47
    Date: 2020
  7. By: Karine Constant (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - UNIV GUSTAVE EIFFEL - Université Gustave Eiffel); Marion Davin (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This article examines how pollution and its health effects during childhood can affect the dynamics of inequalities among households. In a model in which children's health is endogenously determined by pollution and the health investments of parents, we show that the economy may exhibit inequality in the long run and be stuck in an inequality trap with steadily increasing disparities, because of pollution. We investigate if an environmental policy, consisting in taxing the polluting production to fund pollution abatement, can address this issue. We find that it can decrease inequality in the long run and enable to escape from the trap if the emission intensity is not too high and if initial disparities are not too wide. Otherwise, we reveal that a policy mix with an additional subsidy to health expenditure may be a better option, at least if parental investment on children's health is sufficiently efficient.
    Keywords: Pollution,Health,Human capital,Childhood,Overlapping generations,Inequality.
    Date: 2020–11–05
  8. By: Treb Allen; Dave Donaldson
    Abstract: How much of the spatial distribution of economic activity today is determined by history rather than by geographic fundamentals? And if history matters for the distribution, does it also affect overall efficiency? This paper develops a tractable theoretical and empirical framework that aims to provide answers to these questions. We derive conditions on the strength of agglomeration externalities, valid for any geography, under which temporary historical shocks can have extremely persistent effects and even permanent consequences (path dependence). We also obtain new analytical expressions, functions of the particular geography in question, that bound the aggregate welfare level that can be sustained in any steady-state, thereby bounding the potential impact of history. Our simulations—based on parameters estimated from spatial variation across U.S. counties from 1800-2000—imply that small variations in historical conditions have substantial consequences for both the spatial distribution and the efficiency of U.S. economic activity, both today and in the long-run.
    JEL: C33 C62 F1 R11 R13 R23
    Date: 2020–11
  9. By: Zhou, Haiwen
    Abstract: If institutions are essential for long-run performance, why don’t developing countries adopt institutions in developed countries to become rich? In this dynamic model, culture affects a ruler’s institutional choice, while culture itself evolves endogenously. Multiple stable steady states are possible, and even similar initial conditions can lead to dramatically different steady states. The state of Qin’s unification of China in 221 BC is used to illustrate the model. In one steady state, consistent with what happened in the state of Qin, individuals value material incentives. Qin did not strictly practice the patriarchal clan system advocated by Confucianism. Qin adopted Legalist institutions under which government officials were chosen by merit, and Qin culture was further shaped by Legalism. In another steady state, consistent with what happened in states other than Qin, individuals value loyalty and family values. Those states chose not to adopt Legalist institutions comprehensively for fearing that inconsistencies between culture and institutions could lead to internal rebellions even though institutional reforms would increase their military power. Other cases of how the interdependence between culture and institutions affects performance are also discussed.
    Keywords: Culture and institutions, Chinese history, economic development, political economy, path dependence
    JEL: D02 N45 O53 Z10
    Date: 2020–11–01

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