nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒02‒22
nine papers chosen by
Marc Klemp
University of Copenhagen

  1. Endogenous life expectancy and R&D-based economic growth By Tscheuschner, Paul
  2. SIR Economic Epidemiological Models with Disease Induced Mortality By Aditya Goenka; Lin Liu; Manh-Hung Nguyen
  3. Demographic Structure, Knowledge Diffusion, and Endogenous Productivity Growth By Ken-ichi Hashimoto; Ryonghun Im; Takuma Kunieda; Akihisa Shibata
  4. Differential Fertility, Intergenerational Mobility and the Process of Economic Development By Aso, Hiroki
  5. The Transitional Dynamic of Finance Led Growth By Weshah Razzak; E. M. Bentour
  6. Escaping the middle income trap and getting economic growth: How does FDI can help the host country? By Nguyen-Huu, Thanh Tam; Pham, Ngoc-Sang
  7. A Revival of Budget Deficit and Economic Growth By Elisha Mavodyo
  8. Institutional Reform and Corruption on Economic Growth of Nigeria By Akindele Tolulope T.

  1. By: Tscheuschner, Paul
    Abstract: We propose an overlapping generations framework in which life expectancyis determined endogenously by governmental health investments. As a novelty, we are able to examine the feedback effects between life expectancy and R&D-driven economic growth for the transitional dynamics. We find that i) higher survival induces economic growth through higher savings and higherlabor force participation; ii) longevity-induced reductions in fertility hampereconomic development; iii) the positive life expectancy effects of larger savingsand higher labor force participation outweigh the negative effect of a reductionin fertility, and iv) there exists a growth-maximizing size of the health caresector that might lie beyond what is observed in most countries. Altogether, the results support a rather optimistic view on the relationship between lifeexpectancy and economic growth and contribute to the debate surroundingrising health shares and economic development.
    Keywords: long-run growth,horizontal innovation,increasing life expectancy,welfare effects of changing longevity,size of health-care sectors
    JEL: I15 J11 J13 J17 O41
    Date: 2021
  2. By: Aditya Goenka; Lin Liu; Manh-Hung Nguyen
    Abstract: This paper studies an optimal growth model where there is an infectious disease with SIR dynamics which can lead to mortality. Health expenditures (alternatively intensity of lockdowns) can be made to reduce infectivity of the disease. We study implications of two different ways to model the disease related mortality - early and late in infection mortality - on the equilibrium health and economic outcomes. In the former, increasing mortality reduces infections by decreasing the fraction of infectives in the population, while in the latter the fraction of infectives increases. We characterize the steady states and the outcomes depend in the way mortality is modeled. With early mortality, increasing mortality leads to higher equilibrium per capita output and consumption while in the late mortality model these decrease. We establish sufficiency conditions and provide the first results in economic models with SIR dynamics with and without 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, SIR model, mortality, sufficiency condi-tions, economic growth, lockdown, prevention, health expenditure
    JEL: E13 E22 D15 D50 D63 I10 I15 I18 O41 C61
    Date: 2021–01
  3. By: Ken-ichi Hashimoto; Ryonghun Im; Takuma Kunieda; Akihisa Shibata
    Abstract: This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy. Applying a neoclassical production function, we demonstrate that as financial frictions are mitigated, the economy loses stability and a flip bifurcation occurs at a certain level of financial frictions under an empirically plausible elasticity of substitution between capital and labor. Furthermore, the amplitude of fluctuations increases as financial frictions are mitigated and is maximized when the financial market approaches perfection. These outcomes imply that financial innovations are likely to destabilize an economy.
    Date: 2021–02
  4. By: Aso, Hiroki
    Abstract: This paper analyzes the interactions among population dynamics with differential fertility, intergenerational mobility, income inequality and economic development in an overlapping generations framework. Population dynamics with differential fertility between the educated and the uneducated has two effects on the economy: the direct effect on the educated share through changing in population size of the economy as whole, and the indirect effect on the educated share through decreasing/increasing transfer per child. When population growth increases sufficiently, the mobility and income inequality exhibit cyclical behavior due to rapidly decreasing transfer per child and increasing population size. In contrast, when population growth decreases sufficiently, the mobility and income inequality monotonically approach steady state, and the economy has two steady states: low steady state with high population growth and income inequality, and high steady state with low population growth and income inequality. As a result, this paper shows that population dynamics plays crucial role in the transitional dynamics of mobility and economic development.
    Keywords: Differential Fertility, Intergenerational Mobility and the Process of Economic Development
    JEL: I24 I25 J13 J62
    Date: 2020–12–23
  5. By: Weshah Razzak; E. M. Bentour
    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: O40 E10
    Date: 2020–05–05
  6. By: Nguyen-Huu, Thanh Tam; Pham, Ngoc-Sang
    Abstract: The paper investigates the country receiving FDI's optimal strategy in an optimal growth context. First, if the multinational enterprise has high productivity or the entry cost is high, no domestic firm enters the new industry. Still, the host economy's investment stock converges to a higher steady state than that of the closed economy. Second, if the old sector is strong enough and the domestic firm's productivity is high, the foreign firm will be dominated, even eliminated by the domestic one. Third, we show that if the host country invests in R\&D, its economy may grow without bounds. In this case, FDI helps the host country only at the first stages of its development process. We present empirical evidence that supports our theoretical findings.
    Keywords: Optimal growth, FDI, MNE, R\&D, fixed cost
    JEL: E2 F23 F4 O3 O4
    Date: 2021–01–16
  7. By: Elisha Mavodyo
    Abstract: South Africa has experienced high budget deficits accompanied by sluggish economic growth over the years. Fears mount that such a trend may worsen due to the advent of the Covid-19. Yet, the effect of budget deficit on economic growth remains one of the widely debated topics in economics. This article gives empirical evidence on the budget deficit-economic growth nexus and the deficit spending channels that are growth stimulating in South Africa over the period 1980 to 2018. Relying on the Dynamic Ordinary Least Squares (DOLS), results show that budget deficit is growth promoting and that budget deficit is growth stimulating if it is channelled towards export-oriented industrialisation of ores and metals.
    Keywords: DOLS; endogeneity; budget deficit; economic growth; export-oriented industrialisation
    JEL: C14 C25 C61
    Date: 2020–04–04
  8. By: Akindele Tolulope T. (The Federal Polytechnic, Ado-Ekiti. Nigeria)
    Abstract: The study examined the effect of institutional reform and corruption on economic growth of Nigeria; these were with the view to determining the relationship among institutional reform, corruption and economic growth in Nigeria. Secondary data were used for the study. Data series on corruption index, rule of law and government contract repudiation covering the period from 1985 to 2018 were sourced from the International Country Risk Guide (ICRG) indicators. Data collected were analyzed using tables, graphs, Autoregressive Distributed Lag (ARDL). The ARDL estimates revealed that rule of law and government contract repudiation have a positive effect on economic growth in the long run. On the other hand, the result revealed that corruption has a negative and significant effect on economic growth in the long run. The study concluded that institutional reform and level of corruption are important in determining economic growth in Nigeria.
    Keywords: Institutional reform, corruption, economic growth
    Date: 2020–08
  9. By: Shagufta Sultana (Pakistan Institute of Development Economics, Pakistan)
    Abstract: Pakistan receives huge amount of aid flows every year like other developing countries but still stagnant and aid dependent. This reality forced a vigorous debate on effectiveness of aid. The objective of present study is to examine the effectiveness of foreign aid and other variables such as (bilateral aid, multilateral aid, inflation, trade openness, US aid, UK aid and Japanese aid) on economic growth of Pakistan over the period 1972-2014. When we disaggregate aid in terms of bilateral aid, multilateral aid, aid from United States, aid from UK and aid from Japan, all the aid sources showed insignificant relationship with the economic growth of Pakistan in the short run. Bounds test for Cointegration accepts the hypothesis that no long run relationship exists between the variables. So in the absence of long run relationship study takes the analysis towards short run relationship by using multivariate Granger Causality test. The causality test results showed that total foreign aid, bilateral aid, aid from United States and aid from UK does not causes economic growth significantly in Pakistan over the period 1972-2014. On the other hand multilateral aid and Japanese aid significantly causes growth. Granger Causality test results showsbi-directional causality between multilateral aid and economic growth. The study is useful for policy implications because results show that multilateral aid have significant relationship with economic growth in Granger Causality test. So authorities should give priority to multilateral aid over bilateral aid
    Keywords: Economic Growth, Bilateral aid, Multilateral aid, Inflation, Trade openness, ARDL, ADF, Granger Causality
    JEL: E31 O40 B22
    Date: 2019–12

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