nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒04‒05
eleven papers chosen by
Marc Klemp
University of Copenhagen

  1. Culture and Stages of Economic Development By Chu, Angus C.; Kou, Zonglai; Wang, Xilin
  2. Macroeconomic Stability and Inclusive Growth By Hamid R Davoodi; Peter J Montiel; Anna Ter-Martirosyan
  3. Childcare Support and Public Capital in an Ultra-Declining Birthrate Society By Miyake, Yusuke
  4. SIR Economic Epidemiological Models with Disease Induced Mortality By Aditya Goenka; Lin Liu; Manh-Hung Nguyen
  5. The Roles of Foreign Ownership and Growth Opportunity amid the Trade War: Evidence from an Emerging Country By , AISDL
  6. The link between unemployment and real economic growth in developed countries By Kitov, Ivan
  7. Is slow economic growth originating from the total external debt stock in the Democratic Republic of Congo? By Mupenda, Olivier Munene
  8. Stochastic Earnings Growth and Equilibrium Wealth Distributions By Thomas J. Sargent; Neng Wang; Jinqiang Yang
  9. Impact of FDI on GDP per capita in India using Granger causality By Nadar, Anand
  10. A Representation of the World Population Dynamics for Integrated Assessments Models By Court Victor; Florent Mc Isaac
  11. Influenza Pandemics and Macroeconomic Fluctuations in Recent Economic History By Fraser Summerfield; Livio Di Matteo

  1. By: Chu, Angus C.; Kou, Zonglai; Wang, Xilin
    Abstract: How do cultural differences in preferences affect economic development? This study develops a simple growth model that features two stages of development. In the first stage, economic growth is driven by human capital accumulation. In the second stage, economic growth is driven by innovation. The economy does not necessarily experience the transition from the first stage to the second stage. If this endogenous transition does not occur, the economy converges to a steady-state level of output. The economy remains in this middle-income trap if leisure preference is too strong or parental preference for education is either too weak or too strong.
    Keywords: culture; education; innovation; economic development; middle-income trap
    JEL: O3 O4
    Date: 2021–03
  2. By: Hamid R Davoodi; Peter J Montiel; Anna Ter-Martirosyan
    Abstract: We survey the literature on the relationship between macroeconomic stability and inclusive growth and identify gaps in our knowledge. We examine the role of macroeconomic policies (fiscal, monetary, macroprudential, and exchange rate) and measures of inclusiveness (income inequality, consumption inequality, wealth inequality, poverty, and unemployment) across countries at different income levels. Avoiding procyclical macroeconomic policies and mitigating macroeconomic volatility should be on the agenda of all policymakers concerned with promoting inclusive growth. The emerging theory and evidence suggest a strong role for macroeconomic policies in shaping inclusive growth, both in the short-run and the long-run. The two-way relationship between the macroeconomy and inequality underscores the challenge of identifying and estimating causal relationships. Models with heterogeneous agents have much to offer in this area.
    Date: 2021–03–19
  3. By: Miyake, Yusuke
    Abstract: This paper analyzes whether public capital investment oor childcare support maximize the growth rate in an ultra-declining birth rate society using a labor-augmented model with public capital. We clarify the global stability of the private capital-public capital ratio in the steady state. In addition, we analyze the effect of increasing the expenditure share of tax revenue on economic growth. The result of this analysis shows that an increased share of public capital investment brings higher economic growth. This means that if all tax revenue is allocated to public capital investment, the growth rate will be maximized. Furthermore, in the second case, the model is reconstructed in such a way that the child is regarded as a nominal consumer goods in the first period and the childcare cost is regarded as a price. In that case, the impact of increased public capital on growth is shown to be minor compared to the former case.
    Keywords: Public capital investment・ Childcare support・ Income tax・ Economic growth
    JEL: D91 E62 O41
    Date: 2021–03–13
  4. By: Aditya Goenka (Unknown); Lin Liu (Unknown); 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: 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: Prevention,Lockdown,Economic growth,Sufficiency conditions,Mortality,SIR model,Covid-19,Infectious diseases,Health expenditure
    Date: 2021–03
  5. By: , AISDL
    Abstract: In recent years investors tend to divert their investment to emerging economies in the Association of Southeast Asian Nations (ASEAN), especially during the U.S.-China trade war. The present study adopts the Weighted Least Square (WLS) and PROCESS macro tool to examine the effects of foreign ownership and growth opportunity on financial performance of Vietnamese listed firms over the period 2011-2018. Our findings show that foreign ownership plays as moderator variable in the relationship between short-term and long-term performance of firms. Empirical results also reveal that mediating effects of growth opportunity on short-term and long-term performance are different before and after the trade war. These findings have important implications for investors and managers in the ASEAN countries.
    Date: 2020–01–14
  6. By: Kitov, Ivan
    Abstract: Ten years ago we presented a modified version of Okun’s law for the biggest developed economies and reported its excellent predictive power. In this study, we revisit the original models using the estimates of real GDP per capita and unemployment rate between 2010 and 2019. The initial results show that the change in unemployment rate can be accurately predicted by variations in the rate of real economic growth. There is a discrete version of the model which is represented by a piecewise linear dependence of the annual increment in unemployment rate on the annual rate of change in real GDP per capita. The lengths of the country-dependent time segments are defined by breaks in the GDP measurement units associated with definitional revisions to the nominal GDP and GDP deflator (dGDP). The difference between the CPI and dGDP indices since the beginning of measurements reveals the years of such breaks. Statistically, the link between the studied variables in the revised models is characterized by the coefficient of determination in the range from R2=0.866 (Australia) to R2=0.977 (France). The residual errors can be likely associated with the measurement errors, e.g. the estimates of real GDP per capita from various sources differ by tens of percent. The obtained results confirm the original finding on the absence of structural unemployment in the studied developed countries.
    Keywords: unemployment, GDP, modelling, Okun’s law
    JEL: E1 E3 E32 E50 J64
    Date: 2021–02–07
  7. By: Mupenda, Olivier Munene
    Abstract: Unsustainable debt reduces productivity of a country. Ten years following its “1960 independence”, the Democratic Republic of Congo adopted policies of resorting to external financing while the world was at the peak of the petro-dollar crisis in the 1970’s. A decade later, in the 1980’s, with the fall in price of raw materials, the Democratic Republic of Congo was trapped in an unsustainable debt burden cycle that saw its economy stagnating with the majority of its population living in extreme poverty with less than US$1.90 a day according to the World Bank. The rise of active armed conflicts in the 1990’s and political unrest during the 2000's added pressures to seek further financial support from creditors, which facilitated corruption and poverty in the process. A country's inability to service its debt has consequences on its population. With empirical evidence, our analysis will be looking at the Congolese standard of living from its independence in 1960 to the historical democratic transfers of power in late 2018 to understand the effects of external debts in the Congolese economic growth.
    Keywords: Growth, Economy and Debt in the Democratic Republic of Congo
    JEL: A1 A10 C0 H12 O49 Y4 Y5
    Date: 2021–01–31
  8. By: Thomas J. Sargent; Neng Wang; Jinqiang Yang
    Abstract: The cross-section distribution of U.S. wealth is more skewed than the distribution of labor earnings. Stachurski and Toda (2019) explain how plain vanilla Bewley-Aiyagari-Huggett (BAH) models with infinitely lived agents can't generate that pattern because an equilibrium risk-free rate is lower than the time rate of preference and each person's wealth process is stationary. We provide two modifications of a BAH model that generate this pattern: (1) overlapping generations of agents who have low wealth at birth and pass through N life-stage transitions of stochastic lengths, and (2) labor-earnings processes that exhibit stochastic growth. With only a few parameters such a model can well approximate mappings from the Lorenz curve and Gini coefficient for cross-sections of labor earnings to their counterparts for cross sections of wealth. Three forces amplify inequality in wealth relative to inequality in labor-earnings: stochastic life-stage transitions; a precautionary savings motive for high wage earners that is especially strong after they receive positive permanent earnings shocks; and an energetic life-cycle saving motive for agents who have low wealth at birth. An equilibrium risk-free interest rate that exceeds a time preference rate fosters a fat-tailed wealth distribution.
    JEL: D14 D31 E21
    Date: 2021–03
  9. By: Nadar, Anand
    Abstract: This research investigates the causality between FDI and GDP per capital in the context of India. Using WDI data from 1970-2019, We applied two types of Granger causality tests: long-run causality and shortrun causality tests. For the long-run causality, we applied pairwise Granger causality test, and for shortrun, we performed the Wald test approach under VECM (Vector Error Correction Model). The long-run causality test indicates that there is a unidirectional causality running from FDI to GDP per capita, implying that FDI causes the GDP per capita to change and not vice-versa. The short-run causality test indicates that there is no causality between FDI and GDP per capita, suggesting that, in the short-run, FDI and GDP per capita does not cause each other. The central policy conclusion from this study is that although FDI does not cause GDP per capita in the short-run, it causes in the long-run. Therefore, according to our study, India should attract FDI to sustain a long-run growth of GDP per capita.
    Keywords: GDP per capita; Granger causality; FDI; India; VECM
    JEL: F0 F1 F2
    Date: 2021–03–27
  10. By: Court Victor (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles, IFP School); Florent Mc Isaac (AFD - Agence française de développement)
    Abstract: Using the gross world product (GWP) as the only exogenous input variable, we design a model able to accurately reproduce the global population dynamics over the period 1950–2015. For any future increasing GWP scenarios, our model yields very similar population trajectories. The major implication of this result is that both the United Nations and the Intergovernmental Panel on Climate Change assume future decoupling possibilities between economic development and fertility that have never been witnessed during the last sixty-five years. In case of an abrupt collapse of the economic production, our model responds with higher death rates that are more than offset by increasing birth rates, leading to a relatively larger and younger population. Finally, we add to our model an excess mortality function associated with climate change. Estimates of additional climate-related deaths for 2095-2100 range from 1 million in a +2◦C scenario to 6 million in a +4◦C scenario.
    Keywords: System dynamics,Global population model,Demographic transition,Climate change
    Date: 2019–11
  11. By: Fraser Summerfield; Livio Di Matteo
    Abstract: COVID-19 and the associated economic disruption is not a unique pairing. Catastrophic health events including the Black Death and the Spanish Flu also featured major economic disruptions. This paper focuses on significant health shocks during 1870-2016 from a singular virus: influenza. Our analysis builds on a literature dominated by long-run analyses by documenting the causal impact of influenza pandemics on short-run macroeconomic fluctuations. We examine 16 developed economies combining the Jorda-Schularick-Taylor Macro History Database with the Human Mortality Database. Our results reveal important negative impacts. Further, we illustrate that these effects operate through different channels over time. Prior to vaccines, pandemic-induced mortality was responsible for economic contractions while modern flu-induced cycles appear to arise because of pandemic-induced consumption decreases.
    Keywords: Pandemics, Business Cycles, Mortality, Consumption, GDP Fluctuations
    JEL: E32 I18
    Date: 2021–03

This nep-gro issue is ©2021 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.