nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒09‒06
seven papers chosen by
Marc Klemp
University of Copenhagen

  1. Accounting for Japan's Lost Score By Betts, Caroline
  2. The Baran Ratio, Investment, and British Economic Growth and Investment By Lambert, Thomas
  3. Determinants of Economic Growth - A Reinforcement Learning Approach By Khadka, Savin; Munisamy, Gopinath
  4. Adam Smith and The Roots of Populism By Roberto Censolo; Massimo Morelli
  5. Some Comments on TFP and its Growth in India By Partha Pratim Dube
  6. Is that Really a Kuznets Curve? Turning Points for Income Inequality in China By Martin Ravallion; Shaohua Chen
  7. Nexus between Carbon Dioxide Emissions and Economic Growth in G7 Countries: Fresh Insights via Wavelet Coherence Analysis By Khalfaoui, Rabeh; Tiwari, Aviral Kumar; Khalid, Usman; Shahbaz, Muhammad

  1. By: Betts, Caroline
    Abstract: This paper develops a quantitative framework to evaluate the sectoral origins of economic growth. First, I decompose growth in aggregate growth accounting variables–GDP per working age person, a capital factor, an hours’ worked factor, and an implied total factor productivity factor–into sectoral contributions. I decompose the TFP factor growth contribution of a sector into 1) sector-share weighted, within-sector TFP factor growth, and 2) several residual allocative effects. Second, I interpret structurally the observed sectoral contributions by comparing them to those predicted by a multi-sector neoclassical growth model. Using the framework to account for Japan’s economic growth slowdown I find that, empirically, two factors quantitatively dominated Japan’s slowing GDP per working age person in the 1990s. First, a large decline in aggregate TFP growth relative to the 1980s, driven by 1) slower within-industrial sector TFP growth, and 2) negative residual effects due to faster value-added reallocation towards services which mediated a larger impact of the sector for aggregate capital deepening. Second, a large fall in hours worked per working age person, originating mainly in smaller industrial sector contributions. In the 2000s, continued GDP per working age person and aggregate TFP growth decay were due largely to slower within-service sector TFP growth. In the 2010s, anemic aggregate TFP factor growth equal to just 18 percent of its 1980s value was depressed by zero service sector TFP growth; a modest growth rate recovery in GDP per working age person originated in rapid increases in hours worked per working age person, via roughly equal increases in industrial and service sector contributions. A calibrated three-sector growth model absent frictions, featuring sectoral TFP time series as inputs, reproduces closely the time-series from 1980–2018 of a) hours shares of sectors, b) GDP per working age person, and c) the aggregate TFP factor. It captures quite well a) sample-average aggregate TFP growth, b) aggregate TFP growth rate changes across decades, c) the decomposition of aggregate TFP factor growth into total “within-sector” TFP and total residual contributions of sectors, and d) “within-sector” TFP growth contributions of agriculture, industry, and services. The model cannot replicate the sources of, or sectoral contributions to, observed–albeit small–TFP growth residual effects. More importantly, the model’s predicted hours factor (hours per working age person): 1) captures only 46 percent of the decline in industry’s contribution to the fall in aggregate hours factor growth in the 1990s; 2) declines in the 2000s, while hours factor growth is positive in the data; 3) captures only 47 percent of observed average hours factor growth in the 2010s; and 4) allocates too much of the 2010s increase in aggregate hours factor growth to industry. A higher intertemporal elasticity of substitution, a higher Frisch elasticity, and an aggregate labor (policy) wedge resolve some, but exacerbate other, model failures.
    Keywords: Economic Growth, Neoclassical Growth Model, Structural Change, Total Factor Productivity, Japan.
    JEL: E13 O41 O47 O53
    Date: 2021–08–21
  2. By: Lambert, Thomas
    Abstract: Investment in capital, new technology, and agricultural techniques has not been considered an endeavor worthwhile in a medieval economy because of a lack of strong property rights and no incentive on the part of lords and barons to lend money to or grant rights to peasant farmers. Therefore, the medieval economy and standards of living at that time often have been characterized as non-dynamic and static due to insufficient investment in innovative techniques and technology. Paul Baran’s concept of the economic surplus is applied to investment patterns during the late medieval, mercantile, and early capitalist stages of economic growth in England and the UK. This paper uses Zhun Xu’s Baran Ratio concept to try to develop general trends to demonstrate and to reinforce other historical accounts of these times that a productive and sufficient level of public and private investment out of accumulated capital income, taxation, and rents does not have a real impact on economic per capita growth until around the 1600s in Britain. This would also be about the time of capitalism’s ascent as the dominant economic system in England. Even then, dramatic increases in investment and economic growth do not appear until the late 18th Century when investment more consistently becomes more than one hundred percent of the level of economic surplus and takes in government spending. The types of investment, threshold amounts of investment out of profits and rents along with government spending seem to matter when it comes to a growth path raising GDP per capita and national income per capita to higher levels. Although much of this knowledge perhaps is embodied in current historical accounts, the Baran Ratio nicely summarizes and illustrates the importance of levels of investment to economic growth.
    Keywords: Baran Ratio, Baran multiplier, capitalism, feudalism, Keynesian multiplier
    JEL: B51 E11 E12 N13
    Date: 2021–09–01
  3. By: Khadka, Savin; Munisamy, Gopinath
    Keywords: International Development, International Development, International Relations/Trade
    Date: 2021–08
  4. By: Roberto Censolo; Massimo Morelli
    Abstract: Industry, frugality and prudence can foster growth, and, in turn, growth can sustain individual beliefs that these virtues are the right recipe for the pursuing of happiness. This virtuous circle is an often emphasized contribution of Adam Smith. Equally important but neglected, is the Adam Smith's fear that the opposite vitious cycle can meterialize, especially at stages of development of commercial society characterized by stagnation, alienating working conditions and growming inequality: stagnation of wages, and the frustration coming from the perceived impossibility of trickle down effects from the growing wealth of the few, can degenerate moral sentiments, in ways that we can now associate to may of the current features of populism.
    Keywords: Adam Smith; Moral Sentiments; Secular Stagnation; Inequality
    JEL: B12 E71
    Date: 2021–09–03
  5. By: Partha Pratim Dube (Garalgacha Surabala Vidyamandir, West Bengal, India, 712708)
    Abstract: This paper considers the prospects for constructing a model of TFP of investment, technological progress and growth of the technological share in TFP that determines the nature of economic growth. Two models are considered: a model emphasising investment, technological progress and its impact on TFP and a model emphasising a relation of investment, TFP and growth of technological share in TFP through the experience process. The claims in mode 1 and model 2 presented here differ from those in most standard economic literature: the relation between investment and TFP is considered, the relation between technological efficiency and technological progress is established and their effect on TFP is shown. A quotient between technological progress and investment is constructed that hampers the growth of technological progress. This gives a caution to the financial institutions about the enhancement of the quotient.
    Keywords: Total Factor Productivity; Investment; Technological Progress; India; Technological Efficiency; Growth
    JEL: B22 D22 D24 O32 O43
    Date: 2021–07
  6. By: Martin Ravallion; Shaohua Chen
    Abstract: The path of income inequality in post-reform China has been widely interpreted as “China’s Kuznets curve.” We show that the Kuznets growth model of structural transformation in a dual economy, alongside population urbanization, has little explanatory power for our new series of inequality measures back to 1981. Our simulations tracking the partial “Kuznets derivative” of inequality with respect to urban population share yield virtually no Kuznets curve. More plausible explanations for the inequality turning points relate to determinants of the gap between urban and rural mean incomes, including multiple agrarian policy reforms. Our findings warn against any presumption that the Kuznets process will assure that China has passed its time of rising inequality. More generally, our findings cast doubt on past arguments that economic growth through structural transformation in poor countries is necessarily inequality increasing, or that a turning point will eventually be reached after which that growth will be inequality decreasing.
    JEL: D31 I32 O15
    Date: 2021–08
  7. By: Khalfaoui, Rabeh; Tiwari, Aviral Kumar; Khalid, Usman; Shahbaz, Muhammad
    Abstract: This study aims to revisit the evidence of co-movement and lead-lag nexus between carbon dioxide emissions and economic growth in G7 countries over a period of two centuries by using the wavelet coherence analysis. The key findings reveal (i) a cyclical relationship between carbon dioxide emissions and GDP per capita, which implies that during the upswing phase of business cycles, economic growth and carbon dioxide emissions both grow, but the latter can be predicted using GDP as an indicator function at the 1- to 2-year scale. (ii) A time-scale bidirectional causality between carbon dioxide emissions and GDP per capita. This implies that carbon dioxide emissions cannot be reduced without adversely affecting economic growth. Further, the finding also implies a rapid adoption of alternative clean energy sources to reduce carbon dioxide emissions without depressing economic growth.
    Keywords: Carbon Dioxide Emissions, Economic Growth, G7, Time-Frequency Analysis
    JEL: Q5
    Date: 2021–08–06

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