nep-gro New Economics Papers
on Economic Growth
Issue of 2022‒01‒03
eight papers chosen by
Marc Klemp
University of Copenhagen

  1. How production networks amplify economic growth By McNerney, J.; Savoie, C.; Caravelli, F.; Carvalho, W. M.; Farmer, J. D.
  2. Human Capital and Industrialization: German Settlers in Late Imperial Russia By Viktor Malein
  3. Unionization, Industry Concentration, and Economic Growth By Colin Davis; Ken-ichi Hashimoto; Ken Tabata
  4. Historical Prevalence of Infectious Diseases and Entrepreneurship: the Role of Institutions in 125 Countries By Omang O. Messono; Simplice A. Asongu
  5. Financial Development, Reforms and Growth By Spyridon Boikos; Theodore Panagiotidis; Georgios Voucharas
  6. Wealth Inequality, Uninsurable Entrepreneurial Risk and Firms Markup By Samuel Brien
  7. Development loans, poverty trap, and economic dynamics By Cuong Le Van; Ngoc-Sang Pham; Thi Kim Cuong Pham
  8. Public debt dynamics and nonlinear effects on economic growth : evidence from Rwanda By Rutayisire, J.Musoni

  1. By: McNerney, J.; Savoie, C.; Caravelli, F.; Carvalho, W. M.; Farmer, J. D.
    Abstract: Technological improvement is the most important cause of long-term economic growth. We study the effects of technology improvement in the setting of a production network, in which each producer buys input goods and converts them to other goods, selling the product to households or other producers. We show how this network amplifies the effects of technological improvements as they propagate along chains of production. Longer production chains for an industry bias it towards faster price reduction, and longer production chains for a country bias it towards faster GDP growth. These predictions are in good agreement with data and improve with the passage of time, demonstrating a key influence of production chains in price change and output growth over the long term.
    Keywords: Production networks, Growth, Multi-sector models, Productivity
    Date: 2021–12–10
  2. By: Viktor Malein (University of Southern Denmark)
    Abstract: Between 1890 and 1913, Russian Empire experienced a rapid transition to an industrial economy, catching up with Western countries. Using accidental elements in German settlement locations in Russia 1763-1861, the paper estimates the effects of the more educated Germans in Russia’s industrial transition in 1890-1913. I demonstrate that German settlers had significant external benefits in their regions through improved schooling infrastructure and increased literacy among the local population. Educational benefits translated into a higher share of industrial occupations, per-capita local expenditures and urbanization by 1897. I also find a positive impact of education on productivity, mainly in industries that experienced technological transformation and had higher human capital requirements. Furthermore, panel estimates reveal that German areas experienced a higher industrial growth only after 1890 with the adaption of more progressive technologies. Finally, I find no evidence supporting alternative explanations of the German impact: increased agricultural productivity, lower exposure to serfdom, demographic transition or changes in landownership structure.
    Keywords: Human capital, Russian economic history, Industrialization
    JEL: N14 I25 O47
    Date: 2021–12
  3. By: Colin Davis; Ken-ichi Hashimoto; Ken Tabata
    Abstract: This paper examines how unionization affects economic growth through its impact on industry concentration in a two-country model of international trade and endogenous productivity growth. Knowledge spillovers link firm-level productivity in innovation with geographic patterns of industry ensuring a faster rate of output when industry is relatively concentrated in the country with the greater labor supply. We show that stronger bargaining power in the relatively large country increases the rate of output growth when labor unions are employment-oriented, but decreases the rate of growth when unions are wage-oriented. We then calibrate the model using labor market data for the United States and the United Kingdom and study the effects of falling union bargaining power on industry location patterns, output growth, and national welfare.
    Date: 2021–12
  4. By: Omang O. Messono (University of Douala, Douala, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This study examines the effects of the historical prevalence of infectious diseases on contemporary entrepreneurship. Previous studies reveal the persistence of the effects of historical diseases on innovation, through the channel of culture. Drawing on the epidemiological origin of institutions, we propose a framework which argues that the impact of infectious disease prevalence on contemporary entrepreneurship is mediated by property rights. The central hypothesis posits that a guarantee of property rights reduces the effect of past diseases on entrepreneurship. Using data from 125 countries, we find strong and robust evidence on the proposed hypothesis and other results. Property rights are higher in countries where the prevalence of diseases was low, which leads to good entrepreneurship scores. In contrast, countries with high disease prevalence did not have time to develop strong institutions to secure property rights. This explains their low level of entrepreneurship today. These results are robust to alternative methods and measures of property rights. Furthermore, our results also confirm the level of development, culture and the digitalization of economies as transmission channels between past diseases and the current level of entrepreneurship.
    Keywords: entrepreneurship; institutions; diseases; property rights
    JEL: I0 J24 I21 I31
    Date: 2021–09
  5. By: Spyridon Boikos (Department of Economics, University of Macedonia, Greece); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece); Georgios Voucharas (Department of Economics, University of Macedonia, Greece)
    Abstract: Is there any specific structure of the financial system which promotes economic growth or does this structure depend on the level of economic growth itself? Financial development and financial reforms affect economic growth, but less is known on how this effect varies across different levels of the conditional distribution of the growth rates. We examine this by using panel data for 81 countries for more than 30 years. We account for unobserved heterogeneity and operate within alternative econometric approaches. The findings indicate that financial reforms are important determinants of growth, especially when a country faces relatively low levels of economic growth. Financial development does matter for growth, however, the size and significance of the effect vary. Financial reforms affect economic growth more than financial development. We reveal that the components of financial reforms, which are more important for economic growth, are the supervision of banks and the regulation of securities markets.
    Keywords: Financial Development, Financial Reforms, Economic Growth, Quantile Regression, Panel Data
    JEL: O16 O40 G10 G20 C21 C23
    Date: 2021–12
  6. By: Samuel Brien
    Abstract: This paper examines the effect of wealth concentration on firms’ market powerwhen firm entry is driven by entrepreneurs facing uninsurable idiosyncratic risks. Undergreater wealth concentration, households in the lower end of the wealth distribution aremore risk averse and less willing (or able) to bear the risk of entrepreneurial activities.This has implications for firm entry, competitiveness, and market power.I calibrate a Schumpeterian model of endogenous growth with heterogeneous riskaverse entrepreneurs competing to catch up with firms. This model is unique in thatboth household wealth distribution and a measure of firm markup are endogenouslydetermined on a balanced growth path. I find that a spread in the wealth distributiondecreases entrepreneurial firm creation, resulting in greater aggregate firm marketpower. This result is supported by time series evidence obtained from the estimationof a structural panel VAR with OECD data from eight countries.
    Keywords: Wealth inequality, market power, growth, Schumpeterian, endogenous growth, entrepreneur
    JEL: E22 E21 L12 O31 O33
    Date: 2021–11
  7. By: Cuong Le Van (IPAG Business School, TIMAS, Thang Long University, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Ngoc-Sang Pham (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie, EM Normandie - École de Management de Normandie); Thi Kim Cuong Pham (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, University of Paris Nanterre)
    Abstract: This paper investigates the nexus between foreign aid (in the form of loans), poverty trap, and economic development in a recipient country by using a Solow model with two new ingredients: a development loan and a fixed cost in the production process. The presence of this fixed cost generates a poverty trap. Development loans may help the country to escape from the poverty trap and converge to a stable steady-state in the long run, but only if (i) the country's characteristics, such as saving rate, initial capital, governance quality, and in particular productivity, are good enough, (ii) the fixed cost is relatively low, and (iii) loans rule is generous enough. We also show that there is room for endogenous cycles in our model, unlike the standard Solow model.
    Keywords: Economic dynamics,economic growth,foreign aid,development loan,poverty trap
    Date: 2021–11–30
  8. By: Rutayisire, J.Musoni
    Abstract: The purpose of this paper is to contribute to existing literature by investigating the nonlinear impact of public debt on economic growth, as well as the long and short run relationship between economic growth and its determinants in Rwanda. To this end, a quadratic polynomial function in debt and the autoregressive distributed lag (ARDL) bounds testing approach to co-integration have been employed for econometric analysis using time series data covering the period 1970- 2018. Following many other empirical studies, this research assumed that at lower level, public debt may be growth-enhancing, while at higher level, it is deleterious to growth. Therefore, this study attempted to assess whether in the case of Rwanda, there exists a threshold level or a turning point above which the impact of public debt on economic growth shifts from positive to negative. The empirical results of this study strongly suggest the presence of a concave nonlinear or an inverted U-shape relationship between public debt and economic growth in Rwanda. The turning point above which additional public debt becomes harmful to growth has been evaluated at a public debt-to-GDP ratio equal to 50.2%. This finding provides an empirical support to the public debt convergence policy benchmark of 50% adopted in Rwanda as well in the East African Economic Community member countries. This result would be useful for policy makers in the design of a well-informed macroeconomic and public debt management strategy.
    Keywords: Economic growth, Public debt, Non-linear relationship, ARDL, Rwanda.
    JEL: C51 H63
    Date: 2021–12–03

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