nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒03‒29
nine papers chosen by
Marc Klemp
University of Copenhagen

  1. Productivity and the Welfare of Nations By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  2. Paving the way to modern growth. Evidence from Bourbon roads in Spain By Miquel-Àngel Garcia-López; Alfonso Herranz-Loncán; Filippo Tassinari; Elisabet Viladecans-Marsal
  3. Political Power, Elite Control, and Long-Run Development: Evidence from Brazil By Claudio Ferraz; Federico Finan; Monica Maretinez-Bravo
  4. Revisiting the Economic Performance and Institutions Debate in SSA Countries: The Role of Legal Origins in the Context of Ethnic Heterogeneity By Bournakis, Ioannis; Rizov, Marian; Christopoulos, Dimitris
  5. Urbanisation and the onset of modern economic growth By Liam Brunt; Cecilia García-Peñalosa
  6. The process of structural change in the spanish economy from a historical standpoint By Víctor González-Díez; Enrique Moral-Benito
  7. Effects of political institutions on the external debt-economic growth nexus in Africa By Yann Nounamo; Simplice A. Asongu; Henri Njangang; Sosson Tadadjeu
  8. A Growth Model of the Data Economy By Maryam Farboodi; Laura Veldkamp
  9. Links Between Growth, Inequality, and Poverty: A Survey By Valerie Cerra; Ruy Lama; Norman Loayza

  1. By: Susanto Basu (Boston College); Luigi Pascali (Universitat Pompeu Fabra and University of Warwick); Fabio Schiantarelli (Boston College); Luis Serven (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates. We use these results to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.
    Keywords: Productivity, welfare, TFP, Solow residual.
    JEL: D24 D90 E20 O47
    Date: 2020–06
  2. By: Miquel-Àngel Garcia-López (Autonomous University of Barcelona & Institut d’Economia de Barcelona (IEB)); Alfonso Herranz-Loncán (University of Barcelona and 'Antoni de Capmany' Research Centre); Filippo Tassinari (University of Barcelona & Institut d’Economia de Barcelona (IEB)); Elisabet Viladecans-Marsal (University of Barcelona & Institut d’Economia de Barcelona (IEB))
    Abstract: This paper analyses the impact that Spanish road construction had on local population growth between 1787 and 1857. We find that the increase in market access associated to road accessibility had a substantial effect on local population growth. The impact was substantially higher on the municipalities that were connected earlier and that had a more diversified occupational structure. By contrast, the effect of the new network on population growth was negative in municipalities close but without direct access to the roads. We interpret these findings as evidence of a process of rural-to-rural migration due to the new roads.
    Keywords: roads, accessibility, market access, population growth, pre-railway transport, Spain
    JEL: H54 N73 N93
    Date: 2021–02
  3. By: Claudio Ferraz (University of British Columbia); Federico Finan (UC-Berkeley); Monica Maretinez-Bravo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper analyzes how changes in the concentration of political power affect long-run development. We study Brazil’s military dictatorship whose rise to power dramatically altered the distribution of power of local political elites. We document that municipalities that were more politically concentrated prior to the dictatorship in the 1960s are relatively richer in 2000, despite being poorer initially. Our evidence suggests that this reversal of fortune was the result of the military’s policies aimed at undermining the power of traditional elites. These policies increased political competition locally, which ultimately led to better governance, more provision of public goods, and higher income levels.
    Keywords: Political power, elites, regime transition, economic development.
    JEL: D72 O43 N46
    Date: 2020–06
  4. By: Bournakis, Ioannis; Rizov, Marian; Christopoulos, Dimitris
    Abstract: We contribute to the literature of economic performance and institutions by analysing how the interplay between historical legal roots and ethnic heterogeneity can determine current economic outcomes estimating various specifications of the national production function. Our empirical investigation includes a sample of 35 Sub-Saharan (SSA) countries which are typically characterised by a high degree of ethnic fragmentation, often emanating from haphazardly drawn colonial borders, while the legal systems in Africa have been exogenously implanted by the respective colonial powers. Our main results show that although the adoption of common British law (Common) is generally associated with better economic outcomes, in the presence of high ethnic heterogeneity the French civil law (Civil) outperforms British common law in terms of national economic performance because it is more effective in promoting political stability, and coordination. The latter characteristic is necessary for the efficient use of natural resources that are often abundant in SSA countries and constitute a major source of government revenue.
    Keywords: Legal Origins, Ethnic Heterogeneity, GDP per Capita, Technical Efficiency, Sub-Saharan Africa
    JEL: O43 O47 O55 P16 P17
    Date: 2021–03–10
  5. By: Liam Brunt (Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration, CEPR - Center for Economic Policy Research - CEPR); Cecilia García-Peñalosa (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR)
    Abstract: A large literature characterizes urbanisation as the result of productivity growth attracting rural workers to cities. We incorporate economic geography elements into a growth model and suggest that causation runs the other way: when rural workers move to cities, the resulting urbanisation produces technological change and productivity growth. Urban density leads to knowledge exchange and innovation, thus creating a positive feedback loop between city size and productivity that sets off sustained economic growth. The model is consistent with the fact that urbanisation rates in Western Europe, and notably in England, reached unprecedented levels by the mid-18 th century, the eve of the Industrial Revolution.
    Keywords: industrialization,urbanisation,innovation,long-run growth
    Date: 2021–01
  6. By: Víctor González-Díez (Banco de España); Enrique Moral-Benito (Banco de España)
    Abstract: Historical experience and the economic literature show that the process of structural change of economies towards more advanced stages of development is associated with a particular pattern of change in the sectoral composition of economic activity. In a first stage, the manufacturing share increases while agriculture’s share decreases. In a second stage, the manufacturing share starts to decline and the services share starts to grow. This paper presents a brief overview of the empirical evidence available on this process of structural change at an international level, highlighting the case of the Spanish economy. As a result of the rapid process of structural change over the last four decades, the productive structure of the Spanish economy has converged towards that of the European countries, with higher shares for services and manufacturing and a lower share for agriculture. Beyond the impact of cyclical fluctuations, we can expect increases in the services share, at the expense of manufacturing and agriculture. According to the literature, these patterns may be related to demand forces (the public’s preferences), supply forces (different sectoral productivity patterns) or a combination of both, owing to openness to international trade which can accelerate the process. Therefore, an in-depth analysis of the causes of structural change in Spain is essential, inasmuch as the future development of this process will determine economic growth in the long run.
    Keywords: structural change, economic sectors, sectoral analysis, Spanish economy
    JEL: O11 O14 O4
    Date: 2019–04
  7. By: Yann Nounamo (Douala, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Henri Njangang (Dschang , Cameroon); Sosson Tadadjeu (Dschang , Cameroon)
    Abstract: The main contribution of this study is the determination of an endogenous threshold of institutional quality, beyond which external debt would affect economic growth differently. The focus is on 14 countries of the African Franc zone over the period 1985-2015. Based on the panel Smooth Threshold Regression model, the results reveal that the relationship between external debt and economic growth is based on institutional quality. It is found that the level of indebtedness at which the effect of external debt on economic growth becomes negative is higher in countries with lower levels of corruption and high levels of democracy. This means that poor institutional quality prevents a country from taking full advantage of its credit opportunities. Thus, the more countries become democratic, the more debt helps finance economic growth. These results are robust to sensitivity analysis and Generalized Method of Moments estimation.
    Keywords: external debt, political institutions, economic growth
    Date: 2021–01
  8. By: Maryam Farboodi; Laura Veldkamp
    Abstract: The rise of information technology and big data analytics has given rise to "the new economy." But are its economics new? This article constructs a growth model where firms accumulate data, instead of capital. We incorporate three key features of data: 1) Data is a by-product of economic activity; 2) data is information used for prediction, and 3) uncertainty reduction enhances firm profitability. The model can explain why data-intensive goods or services, like apps, are given away for free, why many new entrants are unprofitable and why some of the biggest firms in the economy profit primarily from selling data. While our transition dynamics differ from those of traditional growth models, the long run still features diminishing returns. Just like accumulating capital, accumulating predictive data, by itself, cannot sustain long-run growth.
    JEL: O3 O4
    Date: 2021–02
  9. By: Valerie Cerra; Ruy Lama; Norman Loayza
    Abstract: Is there a tradeoff between raising growth and reducing inequality and poverty? This paper reviews the theoretical and empirical literature on the complex links between growth, inequality, and poverty, with causation going in both directions. The evidence suggests that growth can be effective in reducing poverty, but its impact on inequality is ambiguous and depends on the underlying sources of growth. The impact of poverty and inequality on growth is likewise ambiguous, as several channels mediate the relationship. But most plausible mechanisms suggest that poverty and inequality reduce growth, at least in the long run. Policies play a role in shaping these relationships and those designed to improve equality of opportunity can simultaneously improve inclusiveness and growth.
    Date: 2021–03–12

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