nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒09‒13
nine papers chosen by
Marc Klemp
University of Copenhagen

  1. (Successful) Democracies Breed Their Own Support By Acemoglu, Daron; Ajzenman, Nicolas; Aksoy, Cevat Giray; Fiszbein, Martin; Molina, Carlos
  2. Productivity Slowdown: Reducing the Measure of Our Ignorance By Timo Boppart; Huiyu Li
  3. Agricultural productivity and fertility: Evidence from the oil palm boom in Indonesia By Gehrke, Esther; Kubitza, Christoph
  4. How inequality drives growth: an investigation of the transmission channels for OECD countries By José Carlos Coelho; José Alves
  5. Economic elites and the constitutional design of sharing political power By Paniagua, Victoria; Vogler, Jan P.
  6. Optimal Taxation in the Endogenous Growth Framework with the Private Information By Guo, Lu; Yan, Chong
  7. Is Public Debt Always Harmful to Economic Growth By Christian Richter; Sara El Asy
  8. Demographic Change and Private Savings in India By Jain, Neha; Goli, Srinivas
  9. Demographic Change and Economic Growth in India By Jain, Neha; Goli, Srinivas

  1. By: Acemoglu, Daron (MIT); Ajzenman, Nicolas (São Paulo School of Economics-FGV); Aksoy, Cevat Giray (European Bank for Reconstruction and Development); Fiszbein, Martin (Boston University); Molina, Carlos (Massachusetts Institute of Technology)
    Abstract: Using large-scale survey data covering more than 110 countries and exploiting within-country variation across cohorts and surveys, we show that individuals with longer exposure to democracy display stronger support for democratic institutions. We bolster these baseline findings using an instrumental-variables strategy exploiting regional democratization waves and focusing on immigrants' exposure to democracy before migration. In all cases, the timing and nature of the effects are consistent with a causal interpretation. We also establish that democracies breed their own support only when they are successful: all of the effects we estimate work through exposure to democracies that are successful in providing economic growth, peace and political stability, and public goods.
    Keywords: democracy, economic growth, institutions, support for democracy, values
    JEL: P16
    Date: 2021–08
  2. By: Timo Boppart; Huiyu Li
    Abstract: Growth accounting suggests that the bulk of the post-2004 slowdown in output growth in the U.S. is attributed to a residual called TFP. In this paper we provide a tractable accounting framework with firm heterogeneity to link this residual to innovations, markup dispersion, and potential measurement errors. Theories of creative destruction offer rich testable predictions of how the quality upgrading of products, the process efficiency of different firms, and markup dispersion in the market interact and therefore constitute a key approach to shed light on the slowdown in TFP growth. Surveying the literature on measurement, we conclude that measurement errors is unlikely to explain the recent deceleration in TFP growth.
    Keywords: growth accounting; development accounting; growth slowdown; measurement; innovation
    JEL: O31 O47 O51
    Date: 2021–08–22
  3. By: Gehrke, Esther; Kubitza, Christoph (International Rice Research Institute)
    Abstract: We analyze the link between agricultural productivity growth and fertility, using the oil palm boom in Indonesia as empirical setting. During the time period 1996 to 2016, we find consistently negative effects of the oil palm expansion on fertility. We explain this finding with rising farm profits, that led to consumption growth, the expansion of the non-agricultural sector, increasing returns to education and to higher school nrollment. Together these findings suggest that agricultural productivity growth can play an important role in accelerating the fertility transition, as long as the economic benefits are large enough to translate into local economic development.
    Date: 2021–04–20
  4. By: José Carlos Coelho; José Alves
    Abstract: This paper assesses the relationship between inequality and growth for 34 advanced OECD countries between 1990 and 2019 using recent Gini coefficients from Solt (2020) database and through a dynamic panel technique of two-step system GMM (Generalized Method of Moments). We find that the Gini coefficient of disposable income has a positive and significant impact, at a 10% level of significance, on subsequent economic growth over the five-year period. This result is explained based on the fiscal policy and saving channels, and also through the role of investment. More specifically, inequality translates into lower shares of public consumption and direct taxation on GDP, which boosts economic growth. Furthermore, inequality encourages saving and stimulates investment, which results in greater growth of the income per capita level.
    Keywords: inequality; economic growth; transmission channels; fiscal policy; saving; investment; system GMM
    JEL: D63 E21 E22 E62 O47
    Date: 2021–09
  5. By: Paniagua, Victoria; Vogler, Jan P.
    Abstract: What explains the emergence and persistence of institutions aimed at preventing any ruling group from using the state apparatus to advance particularistic interests? To answer this recurring question, a burgeoning literature examines the establishment of power-sharing institutions in societies divided by ethnic or religious cleavages. Going beyond existing scholarly work focused on these specific settings, we argue that political power-sharing institutions can also be the result of common disputes within the economic elite. We propose that these institutions are likely to emerge and persist when competition between elite factions with dissimilar economic interests is balanced. To address the possibility of endogeneity between elite configurations and public institutions, we leverage natural resource diversity as an instrument for elite configurations. We show that, where geological resources are more diverse, competition between similarly powerful economic groups is more likely to emerge, leading ultimately to the establishment of power-sharing mechanisms that allow elite groups to protect their diverging economic interests.
    Keywords: economic elites; power-sharing institutions; institutional design; political economy; elite competition; Springer deal
    JEL: P16 P48 Q34 D02 P52
    Date: 2021–08–19
  6. By: Guo, Lu; Yan, Chong
    Abstract: Differing from taxes of the new dynamic public finance theory without growth, our paper setups an endogenous growth model with the public finance sector which levies heterogeneous non-linear income taxes and linear flat-rate tax on gross outputs to guarantee the optimal investment in the public goods accumulation. Each taxation has individual effect: heterogeneous non-linear income taxes are used to keep standard Euler equation hold; flat-rate tax is used to compensate for the fiscal gap. The paper firstly makes the growth rate endogenous, and show there is a unique steady state growth rate for every aggregate variable by keeping assumptions of the dynamic general equilibrium theory unchangeable. We further prove the growth must exist when externalities are provided by public finance sector. The steady state growth rate can be expressed by coefficients, and the steady state intertemporal relationships of aggregate variables help us simplify simulation equations and calculations on endogenous heterogeneous non-linear income taxes in infinite periods.
    Keywords: endogenous tax; public finance; growth; uniqueness
    JEL: E6 H21 O41
    Date: 2021–07–16
  7. By: Christian Richter (Faculty of Managemennt Technology, German University in Cairo); Sara El Asy (Faculty of Management Technology, German University in Cairo)
    Abstract: The relationship between public debt and economic growth has been crucial in economics and economic development not least since the financial crisis in 2007. The problem arises when debt reduces economic growth. Thus, the focus of this paper is to investigate the relationship between public debt and economic growth. In particular, we determine the debt threshold that affects this relationship. We find that there is no single debt threshold valid for all countries and in turn that each country possesses its own country specifics, which affect its economic growth. We also find that debt is not always harmful to economic growth. Last but not least, we compare recent debt levels with the threshold and average debt levels. We also find that exceeding a threshold does not necessarily result in immediate default. This holds in particular for Western European countries where debt levels exceed threshold levels by more than for developing economies.
    Keywords: Public debt, Economic growth, Debt Threshold, Threshold model, Time series.
    JEL: C13 C32 H63 H68
    Date: 2019–10
  8. By: Jain, Neha; Goli, Srinivas
    Abstract: India is on the edge of a demographic revolution with a rapidly rising working-age population. For the first time in this study, we investigate the role of the rising working-age population on per capita small savings in post offices and banks net of socio-economic characteristics using state-level panel data compiled from multiple sources for the period 2001-2018. Our comprehensive econometric assessment with multiple robustness checks provide three key findings: (1) Per capita private savings is increasing because of India’s growing working-age population, thus the ‘economic life cycle hypothesis’ is supported. (2) The demographic factors contribute around one-fourth of the per capita private savings inequality across Indian states. (3) The demographic window of economic opportunity for India can yield maximum benefits in terms of private savings when accompanied by favourable socio-economic policies on education, health, gender equity, and economic growth.
    Keywords: Demographic change, Working age population, Private savings, Life cycle hypothesis, State-level analysis
    JEL: J1 J11 O1 O15 O16
    Date: 2021–02–15
  9. By: Jain, Neha; Goli, Srinivas
    Abstract: In this paper, we assess the economic benefits of demographic changes in India by employing econometric models and robustness checks based on panel data gathered over a period of more than three decades. Our analysis highlights four key points. First, the contribution of India’s demographic dividend is estimated to be around 1.9 percentage points out of 12% average annual growth rate in per capita income during 1981–2015. Second, India’s demographic window of opportunity began in 2005, significantly improved after 2011, and will continue till 2061. Third, our empirical analysis supports the argument that the realisation of the demographic dividend is conditional on a conducive policy environment with enabling aspects such as quality education, good healthcare, decent employment opportunities, good infrastructure, and gender empowerment. Fourth, the working-age population in India contributes around one-fourth of the inequality in per capita income across states. Thus, to reap the maximum dividends from the available demographic window of opportunity, India needs to work towards enhancing the quality of education and healthcare in addition to providing good infrastructure, gender empowerment, and decent employment opportunities for the growing working-age population.
    Keywords: Demographic Dividend, Economic Growth, Population Growth, Working-Age Population, Health, Education, Employment
    JEL: J10 J11 O1 O15
    Date: 2021–02–15

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.