nep-gro New Economics Papers
on Economic Growth
Issue of 2021‒10‒11
fourteen papers chosen by
Marc Klemp
University of Copenhagen

  1. Pandemic Effects in the Solow Growth Model By Carmona, Julio; León, ángel
  2. Market Size and Spatial Growth - Evidence from Germany’s Post-War Population Expulsions By Michael Peters
  3. Structural Change and Productivity Growth in Europe - Past, Present and Future By Georg Duernecker; Miguel Sanchez-Martinez
  4. Bubbles, Crashes, Ups and Downs in Economic Growth Theory and Evidence By Pablo A. Guerron-Quintana; Tomohiro Hirano; Ryo Jinnai
  5. Local Economic Growth and Infant Mortality By Andreas Kammerlander; Günther G. Schulze
  6. The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study By Aysit Tansel; Ceyhan Ozturk; Erkan Erdil
  7. Inflation and Growth: The Role of Institutions By Hakan Yilmazkuday
  8. Pudding, Plague and Education: trade and human capital formation in an agrarian economy By Pantelis Kammas; Argyris Sakalis; Vassilis Sarantides
  9. Capital Demand Driven Business Cycles: Mechanism and Effects By Karl Naumann-Woleske; Michael Benzaquen. Maxim Gusev; Dimitri Kroujiline
  10. Drivers of medium term growth By Josina Solomons; Kerschyl Singh; Jean-Francois Mercier
  11. Decentralization and economic growth: Evidence across states of some relevant macroeconomic variables By Henry Aray; Luis Pedagua
  12. Changes in the educational gradient of fertility not driven by changes in preferences By Daniel Ciganda; Angelo Lorenti; Lars Dommermuth
  13. Creative Destruction, Distance to Frontier, and Economic Development By Michael Peters; Fabrizio Zilibotti
  14. Economic Growth and Bank Innovation By Gary B. Gorton; Ping He

  1. By: Carmona, Julio (Fundamentos del Análisis Económico. University of Alicante); León, ángel (Fundamentos del Análisis Económico. University of Alicante)
    Abstract: We show how diseases can affect economic growth by using the standard Solow model with population growth and no technical progress as our benchmark. We couple this model in turn with the two most basic models of pandemics: SIS and SIR models. In these two models infections are assumed to take place by random matchings between infected and susceptible individuals according to some basic reproductive number. This number determines in which of the two posible equilibria, the disease free or the pandemic equilibrium, the economy ends. By inserting these two models of disease in the basic Solow growth model, we show that the steady state capital labour ratio is not affected by the disease but output per capita and consumption per capita do.
    Keywords: COVID-19; SIS; SIR; Solow model
    JEL: E00 I15 O40
    Date: 2021–10–06
  2. By: Michael Peters
    Abstract: Virtually all theories of economic growth predict a positive relationship between population size and productivity. In this paper I study a particular historical episode to provide direct evidence for the empirical relevance of such scale effects. In the aftermath of the Second World War about 8m ethnic Germans were expelled from their domiciles in Eastern Europe and transferred to West Germany. This inflow increased the German population by almost 20%. Using variation across counties I show that the settlement of refugees had a large and persistent effect on the size of the local population, manufacturing employment and income per capita. I show that these findings are quantitatively consistent with an idea-based model of spatial growth if population mobility is subject to frictions and productivity spillovers occur locally. The model implies that the refugee settlement increased aggregate income per capita by about 12% after 25 years and that the historical settlement rule triggered persistent industrialization of rural areas.
    JEL: O11 O4 R11
    Date: 2021–10
  3. By: Georg Duernecker; Miguel Sanchez-Martinez
    Abstract: This paper studies the effect of structural change on the historical path of aggregate labor productivity growth for a large sample of European countries, and it builds a quantitative multi-sector growth model to analyze the potential impact that structural change may have on future productivity growth. We document that the observed reallocation of economic activity since the 1970s towards the service sector has exerted a strongly negative effect on aggregate productivity growth in most European countries. Moreover, we perform a quantitative analysis to show that the expected path of structural change might continue to have a sizable dent on future productivity growth in Europe. By contrast, the impact in the U.S. is expected to rapidly diminish. We show that this differential result can be explained by the large expansion, in Europe, of certain service sub-sectors characterized by stagnant productivity.
    Keywords: structural change, productivity growth, Baumol’s cost disease, service sector, European Union
    JEL: O41 O47 O52
    Date: 2021
  4. By: Pablo A. Guerron-Quintana; Tomohiro Hirano; Ryo Jinnai
    Abstract: In order to account for the ups and downs in economic growth in recent decades, we construct a model with recurrent bubbles, crashes, and endogenous growth that can be easily taken to the data. Infinitely lived households expect future bubbles, which crowds out investment and reduces economic growth. For realized bubbles crowd in investment, their overall impact on economic growth and welfare crucially depends on both the level of financial development and the frequency of bubbles. We examine the US economic data through the lens of our model, finding evidence of bubbly episodes by structural estimation. Counterfactual simulations suggest that 1) the IT and housing bubbles together lifted U.S. GDP by almost 2 percentage points permanently; and 2) the U.S. economy could have grown even faster if people had believed that asset bubbles would not arise.
    Date: 2021–09
  5. By: Andreas Kammerlander; Günther G. Schulze
    Abstract: We show, for the first time, a causal effect of local economic growth on infant mortality. We use geo-referenced data for non-migrating mothers from 46 developing countries and 128 DHS survey rounds and combine it with nighttime luminosity data at a granular level. Using mother fixed effects we show that an increase in local economic activity significantly reduces the probability that the same mother loses a further child before its first birthday.
    Keywords: local economic growth, child mortality, nighttime lights
    JEL: I15 O18
    Date: 2021
  6. By: Aysit Tansel (Department of Economics, Middle East Technical University; Institute for the Study of Labor (IZA); Economic Research Forum (ERF)); Ceyhan Ozturk (Department of Economics, Middle East Technical University); Erkan Erdil (Department of Economics, Middle East Technical University)
    Abstract: We examine the relationship between wealth and health through prominent growth indicators and cognitive ability. Cognitive ability is represented by nutritional status. In this study, the proxy variable for nutritional status is BMI since there is a strong relationship between cognitive ability and nutrition. We use the reduced form equation in the cubic specification of time preference rate to estimate this relationship. We assume that the time preference rate is one of the outputs of cognitive ability. The growth indicators utilized are GDP per capita, schooling, overall and manufacturing productivities, and savings. We estimate our models using the FE, GMM estimators, and long difference OLS and IV estimation through balanced panel data for 47 countries for the 1980-2009 period, which is a representative period of the neo-liberal and globalization economic policy implications. Furthermore, by using the 1980-2009 period, we may eliminate the ripple effects of the 2007-2009 financial crisis. Although there is ample evidence that the association between GDP per capita, overall and manufacturing productivities, and BMI could be cubic, we take the results of the long-difference quadratic specification into consideration and conclude that the relationship between all prominent growth indicators and BMI is inverse U-shaped. In other words, cognitive ability has a significant potential to progress growth and economic development only in a healthy status.
    Keywords: Cognitive ability, time preference rate, BMI, productivity, health, schooling, growth, economic development.
    JEL: E21 I15 I25 J24 O11 Q18
    Date: 2021–10
  7. By: Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper investigates the effects of inflation on per capita income growth for 36 developed and developing countries by using structural vector autoregression models that are robust to the consideration of endogeneity by construction. The results show evidence for heterogeneity of such effects across countries that are shown to be further connected to the strength of their institutions. While the effects of inflation on growth are negative and significant in countries with stronger institutions, they are positive and significant in countries with weaker institutions.
    Keywords: Economic Growth, Institutions, Inflation, Structural VAR
    JEL: O11 O23 O43
    Date: 2021–09
  8. By: Pantelis Kammas; Argyris Sakalis; Vassilis Sarantides
    Abstract: During the late 19th century, the increasing popularity of pudding in England, along with the outbreak of phylloxera plague in French vineyards had an unintended effect in the agrarian economy of Greece. In particular, these events escalated the international demand and production of currants in Greece during the 1870s, causing an unprecedented positive shock that was transmitted through trade in the agricultural population. Using novel data from historical archives, we explore how this exogenous event affected investment towards human capital. Consistent with expectations, in an agrarian economy that specializes in unskilled labour-intensive agricultural goods, this shock had a negative effect on human capital formation.
    Keywords: Education; Fertility; Agriculture; International Trade
    Date: 2021–10
  9. By: Karl Naumann-Woleske; Michael Benzaquen. Maxim Gusev; Dimitri Kroujiline
    Abstract: We develop a tractable macroeconomic model that captures dynamic behaviors across multiple timescales, including business cycles. The model is anchored in a dynamic capital demand framework reflecting an interactions-based process whereby firms determine capital needs and make investment decisions at the micro level. We derive equations for aggregate demand from this micro setting and embed them in the Solow growth economy. As a result, we obtain a closed-form dynamical system with which we study economic fluctuations and their impact on long-term growth. For realistic parameters, the model has two attracting equilibria: one at which the economy contracts and one at which it expands. This bi-stable configuration gives rise to quasiperiodic fluctuations, characterized by the economy's prolonged entrapment in either a contraction or expansion mode punctuated by rapid alternations between them. We identify the underlying endogenous mechanism as a coherence resonance phenomenon. In addition, the model admits a stochastic limit cycle likewise capable of generating quasiperiodic fluctuations; however, we show that these fluctuations cannot be realized as they induce unrealistic growth dynamics. We further find that while the fluctuations powered by coherence resonance can cause substantial excursions from the equilibrium growth path, such deviations vanish in the long run as supply and demand converge.
    Date: 2021–09
  10. By: Josina Solomons; Kerschyl Singh; Jean-Francois Mercier
    Abstract: Drivers of medium term growth
    Date: 2021–10–06
  11. By: Henry Aray (Department of Economic Theory and Economic History, University of Granada.); Luis Pedagua (University of Leon)
    Abstract: The objective of this paper is to test the relationship between de- centralization and economic growth across states. A novel methodol- ogy is applied that allows obtaining thresholds in certain variables to classify the regions into regimes (high or low). Data for the regions of Spain over the period 1986-2010 are used. In general, the results point to a positive relationship between fiscal decentralization and economic growth in regions with low public infrastructure stock per efficient worker, high human capital per worker and low total factor produc- tivity (TFP). In addition, in regions with low public infrastructure stock per efficient worker and high human capital, a negative relation- ship between administrative decentralization and economic growth is found.
    Keywords: TFP; Spain; Panel Data.
    Date: 2021–09–28
  12. By: Daniel Ciganda (Max Planck Institute for Demographic Research, Rostock, Germany); Angelo Lorenti (Max Planck Institute for Demographic Research, Rostock, Germany); Lars Dommermuth
    Abstract: Fertility levels have historically been negatively correlated with the amount of information and material resources available to individuals and families. The recent reversal of this trend has been interpreted as a fundamental change in preferences, a return to large families led by more educated individuals. Our analysis shows, however, that the recently documented changes in fertility can be reproduced in the context of declining family size preferences across educational levels, and without assuming any transformation of the underlying behavioral mechanisms that link resources and fertility across cohorts. We demonstrate this point by replicating the stylized facts reported in previous studies using a simulated dataset. We generate this dataset from a model that assumes continuity in the way education shapes reproductive intentions over time. In our simulated population, the reversal in the relationship between education and fertility emerges as a result of the transition from a natural to a regulated fertility regime, as the share of unplanned births decreases over time, and the mechanisms that positively connect educational attainment with \textit{desired} fertility become dominant. We conclude, thus, that the explanation for the weakening educational gradient of fertility lies primarily in the decline of unintended fertility, instead of in changes in fertility preferences.
    JEL: J1 Z0
    Date: 2021
  13. By: Michael Peters; Fabrizio Zilibotti
    Abstract: We construct a model of creative destruction with endogenous firm dynamics. We integrate the theory into a general equilibrium multi-country model of technological convergence where countries interact via international spillovers. We derive implications for both firm dynamics and aggregate productivity dynamics. In richer economies, firms are on average larger and the best firms grow larger over time. In poorer economies, there is little creative destruction, low selection, and firms remain small. We estimate the parameters of the model using firm-level data for India and the United States. We study the effect of counterfactual policy reforms. Industrial policy that selectively targets the more productive firms can be beneficial in poor countries while being harmful in countries close to the economic frontier. The findings echo Acemoglu et al. (2006).
    JEL: O12 O4 O43
    Date: 2021–10
  14. By: Gary B. Gorton; Ping He
    Abstract: Based on archival and survey data we show that the maturity of U.S. business loans has been continuously increasing since the mid-1930s when banks invented the term loan. Concurrently, bank innovation first involved the invention of credit analysis and covenant design. Later, bank innovation included the advent of loan sales, increased loan syndications, the opening of the leveraged loan market, and the securitization of loans in collateralized loan obligations. We estimate and calibrate a model of bank innovation to determine the quantitative contribution of bank innovation to economic growth.
    JEL: O0 O11 O30 O43
    Date: 2021–10

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