nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒07‒12
twelve papers chosen by
Marc Klemp
University of Copenhagen

  1. Borderline Disorder: (De facto) Historical Ethnic Borders and Contemporary Conflict in Africa By Emilio Depetris-Chauvin; Ömer Özak
  2. Redistributive Policy and R&D-based Growth By Ken Tabata
  3. Positional Preferences and Efficiency in a Dynamic Economy By Thomas Aronsson; Sugata Ghosh; Ronald Wendner
  4. Agricultural Productivity and Income Divergence: Evidence from the Green Revolution By Huang, Kaixing
  5. Railroads, specialization, and population growth in small open economies: Evidence from the First Globalization By Andrea Forero; Francisco Gallego; Felipe González; Matías Tapia
  6. Convergence of Economic Growth across Central Provinces and Cities in Vietnam By Ly Dai Hung
  7. Did the Cold War Produce Development Clusters in Africa? By Le Breton, Michel; Weber, Shlomo; Castañeda Dower, Paul; Gokmen, Gunes
  8. The nexus between domestic investment and economic growth in G7 countries; Does internet matter? By Bakari, Sayef
  9. Profitability, Productivity and Growth By Marek Ignaszak; Petr Sedlácek
  10. Conspicuous leisure, time allocation, and obesity Kuznets curves By Nathalie Mathieu-Bolh; Ronald Wendner
  11. The Neoclassical Growth Model with Time-Inconsistent Decision Making and Perfect Foresight By Kirill Borissov; Mikhail Pakhnin; Ronald Wendner
  12. Growth in a circular economy By Compagnoni, Marco; Stadler, Manfred

  1. By: Emilio Depetris-Chauvin; Ömer Özak
    Abstract: We explore the effect of historical ethnic borders on contemporary conflict in Africa. We document that both the intensive and extensive margins of contemporary conflict are higher close to historical ethnic borders. Exploiting variations across artificial regions within an ethnicity’s historical homeland and a theory-based instrumental variable approach, we find that regions crossed by historical ethnic borders have 27 percentage points higher probability of conflict and 7.9 percentage points higher probability of being the initial location of a conflict. We uncover several key underlying mechanisms: competition for agricultural land, population pressure, cultural similarity and weak property rights.
    Date: 2020
  2. By: Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: This study examines how redistributive policy attempting to reduce inequality by taxing the bequests of the rich and redistributing the revenue to the poor affects economic growth in an overlapping generations model of R&D-based growth with both product development and process innovation. We show that such a policy simultaneously increases growth and reduces inequality in the long run. When the market structure adjusts, partially reducing inequality in the short run, the effect of redistributive policy on economic growth depends on the values of the social return to variety parameter. However, when the market structure adjusts fully in the long run, the redistributive policy decreases the entry of new firms but raises economic growth and reduces inequality. These favorable predictions of redistributive bequest taxation on growth and inequality are partly consistent with the empirical findings that redistribution is generally benign in terms of economic growth and that lower post-transfer inequality is correlated with faster and more durable growth.
    Keywords: R&D, Product Development, Process Innovation
    JEL: E62 H50 O31 O40
    Date: 2021–07
  3. By: Thomas Aronsson (Umea University, Sweden); Sugata Ghosh (Brunel University, London); Ronald Wendner (University of Graz, Austria)
    Abstract: In an endogenous growth model, we characterize the conditions under which positional preferences for consumption and wealth do not cause inefficiency and derive an optimal tax policy response in cases where these conditions are not satisfied. The concerns for relative consumption and relative wealth partly emanate from social comparisons with people in other countries. We distinguish between a (conventional) welfarist government and a non-welfarist government that does not attach any social value to relative concerns. We also compare the outcome of Nash-competition among local/national governments with the resource allocation implied by a global social optimum both under welfarism and non-welfarism.
    Keywords: Positional preferences; Endogenous growth; Wealth; Intertemporal distortion, Welfarism; Non-welfarism; Inter-country externalities; Pigouvian taxation.
    JEL: E71 H11 O43
    Date: 2021–07
  4. By: Huang, Kaixing
    Abstract: Developing countries sharing nearly identical growth trends for centuries dramatically diverged in terms of income per capita over the last half-century. Using data from 78 developing countries, this study shows that the Green Revolution (GR) since the 1960s can explain most of the income divergence. Beyond the understanding that agriculture growth promotes economic growth, the study shows that developing countries less suitable for cultivating GR crops were substantially damaged by GR-induced grain imports, which increased fertility and retarded human and physical capital formation. A counterfactual analysis removing GR’s effect showed parallel growth trends similar to that prior to the GR.
    Keywords: The Green Revolution, international trade, income divergence
    JEL: E0 Q1
    Date: 2020–05–17
  5. By: Andrea Forero; Francisco 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 sixtyyears 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
  6. By: Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam)
    Abstract: The paper examines the determinants of convergence in economic growth (relative convergence) across provinces in Vietnam. The methodology combines the endogenous growth theory, analyzed in Aghion, Howitt và Mayer-Foulkes (2005), with empirical evidence on a data sample of 63 provinces over 2010-2019. The result shows that only with high-quality human capital, the economic growth rate raises for a higher proximity to world technology frontier, or the convergence of economic growth happens. Among the central cities, Hai Phong has an outstanding growth rate by exploring the backwardness advantage, based on the combination of high proximity to world technology frontier with improvement of institutional quality. The result suggests that the human capital should receive highest investment on the policy architecture in the future.
    Abstract: Bài viết đánh giá các yếu tố chi phối sự hội tụ về tốc độ tăng trưởng thu nhập (hội tụ tương đối) của các tỉnh, thành phố trực thuộc Trung ương. Phương pháp nghiên cứu kết hợp lý thuyết tăng trưởng nội sinh dựa vào bài báo của nhóm tác giả Aghion, Howitt và Mayer-Foulkes (2005) với bằng chứng thực nghiệm dựa vào bộ số liệu của 63 địa phương giai đoạn 2010-2019. Kết quả cho thấy chỉ với các địa phương có chất lượng cao về nguồn nhân lực, tốc độ tăng trưởng thu nhập gia tăng khi khoảng cách thu nhập càng xa, tức là hội tụ về tốc độ tăng trưởng. Còn các địa phương còn lại đang tồn tại sự phân cực về tốc độ tăng trưởng. Trong các thành phố trực thuộc Trung ương , Hải Phòng có tốc độ tăng trưởng vượt trội nhờ tận dụng lợi thế của địa phương đi sau, dựa vào sự kết hợp của khoảng cách công nghệ ban đầu xa và cải thiện liên tục về chất lượng thể chế. Các kết quả gợi ý rằng chất lượng nguồn nhân lực cần được chú trọng trong các thiết kế chính sách ở cấp địa phương trong thời gian tới.
    Keywords: Cross-Section Regression,Economic of Region and Provinces,Convergence of Economic Growth
    Date: 2021–01
  7. By: Le Breton, Michel; Weber, Shlomo; Castañeda Dower, Paul; Gokmen, Gunes
    Abstract: This paper examines the lasting impact of the alignment of African countries during the Cold War on their modern economic development. We find that the division of the continent into two blocs (East/West) led to two clusters of development outcomes that reflect the Cold War’s ideological divide. To determine alignment, we introduce a non-cooperative game of social interactions where each country chooses one of the two existing blocs based on its predetermined bilateral similarities with other members of the bloc. We show the existence of a strong Nash equilibrium in our game and apply the celebrated MaxCut method to identify such a partition. The alignment predicts UN General Assembly voting patterns during the Cold War but not after. Our approach, linking global political interdependence to distinct development paths in Africa, relies on history to extract a micro-founded treatment assignment, while allowing for an endogenous, process-oriented view of historical events.
    Keywords: Cold War; Political Alliances; Africa; Blocs; Development Clusters; Strong Nash Equilibrium; Landscape Theory
    JEL: C62 C72 F54 F55 N47 O19 Y10 O57
    Date: 2021–06–22
  8. By: Bakari, Sayef
    Abstract: We examine the effect of the Internet on the relationship between domestic investment and economic growth. Data for G7 countries over the period 1991–2018 are used for panel data analysis. Empirical analaysis prove that domestic investment affect positively on economic growth, however the internet dont has any effect on economic growth. Also, the effect of domestic investment on economic growth proves to be not affected by the Internet.
    Keywords: Domestic Investment, Economic Growth, Internet, G7 Countries, Panel Data Analysis
    JEL: O31 O32 O38 O47 O5
    Date: 2021
  9. By: Marek Ignaszak; Petr Sedlácek
    Abstract: Recent empirical evidence suggests that firm selection and growth are largely demand-driven. We incorporate this feature into a model of endogenous growth in which heterogeneous firms innovate and survive based on profitability, rather than productivity alone. We show analytically that firm-level demand variation impacts aggregate growth by changing firms’ incentives to innovate. Estimating our model on U.S. Census firm data, we quantify that 20% of aggregate growth is demand-driven and that the macroeconomic impact of growth policies is fundamentally different compared to a model driven by productivity variation alone. We find empirical support for our model mechanism in firm-level data.
    Date: 2021–05–28
  10. By: Nathalie Mathieu-Bolh (University of Vermont, USA); Ronald Wendner (University of Graz, Austria)
    Abstract: We build a theoretical model to explain the complex patterns of income and obesity, accounting for changes in behavior related to exercise. We combine the theory of time allocation with the theory of conspicuous leisure in a growth model, assuming that consumption expenditures connected to exercise time are conspicuous, and that conspicuous behavior changes with economic development. As a result, as economies develop, we show that there is a growing wedge between optimal exercise and consumption choices made by individuals with different income levels. We show that this pattern is connected to a dynamic Kuznets curve linking body weight to economic development over time, and a static Kuznets curve linking different steady state levels of income per worker to body weight. Thus, our model helps explain the rise and slowdown in obesity prevalence in the USA, as well as the positive correlation between obesity and income per worker in developing countries, and the negative correlation between obesity and income per worker in industrialized countries. We supplement our theoretical results with numerical simulations of the static and dynamic obesity Kuznets curves for the USA. We show that while exercise choices have contributed to a slowdown in the rise in obesity prevalence, there is to this date no dynamic Kuznets curve pattern for obesity in the USA. By contrast, we find the existence of a static Kuznets curve: the steady state level of average body weight increases with the per worker stock of capital up to a level of 186.5 pounds, corresponding to a capital stock 25% higher than the current steady state US capital stock, and decreases thereafter. We discuss policy implications of our findings.
    Keywords: Obesity; Status; Conspicuous leisure; Inequality; Kuznets Curve; Economic Development.
    JEL: D11 D30 H31 I15 O41
    Date: 2021–07
  11. By: Kirill Borissov (European University at St. Petersburg, Russia); Mikhail Pakhnin (European University at St. Petersburg, Russia); Ronald Wendner (University of Graz, Austria)
    Abstract: In this paper, we propose an approach to describe the behavior of naïve agents with quasi-hyperbolic discounting in the neoclassical growth model. To study time-inconsistent decision making of an agent who cannot commit to future actions, we introduce the notion of sliding equilibrium and distinguish between pseudo-perfect foresight and perfect foresight. The agent with pseudo-perfect foresight revises both the consumption path and expectations about prices; the agent with perfect foresight correctly foresees prices in a sliding equilibrium and is naive only about their time inconsistency. We prove the existence of sliding equilibria for the class of isoelastic utility functions and show that generically consumption paths are not the same under quasi-hyperbolic and exponential discounting. Observational equivalence only holds in the well-known cases of a constant interest rate or logarithmic utility. Our results suggest that perfect foresight implies a higher long-run capital stock and consumption level than pseudo-perfect foresight.
    Keywords: Quasi-hyperbolic discounting; Observational equivalence; Time inconsistency; Naive agents; Sliding equilibrium; Perfect foresight.
    JEL: D15 D91 E21 O40
    Date: 2021–08
  12. By: Compagnoni, Marco; Stadler, Manfred
    Abstract: We present a model of natural resources and growth that stresses the influence of an incomplete circularity of exhaustible natural resources. In particular, we analyze the recycling process and the material balance principle, two fundamental aspects of a circular economy. When market failures arise or complete recycling is not possible for technical reasons, then the equilibrium outcomes in terms of output, consumption, and prices for the material inputs are distorted compared to the socially optimal solution. However, the introduction of a market for waste and a system of subsidies/taxes on virgin and recycled resources enables an internalization of the externalities. The importance of technological progress in order to foster "circularity", i.e. both to improve resource efficiency in the production process and to enhance the backflow of materials from waste to production, is highlighted.
    Keywords: Circular economy,economic growth,natural resources,recycling
    JEL: O41 Q01 Q32 Q53
    Date: 2021

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.