nep-gro New Economics Papers
on Economic Growth
Issue of 2023‒07‒31
seven papers chosen by
Marc Klemp
University of Copenhagen

  1. Innovation convergence By Bryan Hardy; Can Sever
  2. The death and life of great British cities By Stephan Heblich; David Krisztián Nagy; Alex Trew; Yanos Zylberberg
  3. Bubble Necessity Theorem By Tomohiro Hirano; Alexis Akira Toda
  4. Medical innovation, life expectancy, and economic growth By Michael Kuhn; Antonio Minniti; Klaus Prettner; Francesco Venturini
  5. The economics of Canadian immigration levels By Doyle, Matthew; Skuterud, Mikal; Worswick, Christopher
  6. Eye of the Storm: The Impact of Climate Shocks on Inflation and Growth By Serhan Cevik, João Tovar Jalles
  7. Unbalanced Growth, Elasticity of Substitution, and Land Overvaluation By Tomohiro Hirano; Alexis Akira Toda

  1. By: Bryan Hardy; Can Sever
    Abstract: This paper sheds light on convergence of innovation (patenting) using data from two-digit manufacturing industries in 32 countries over the period of 1976-2006. It shows that patenting rates tend to converge over time (patenting growth is faster when initial patents are lower), including within countries (across industries) and within industries (across countries). Notably, the quality (citations and citations per patent) and efficiency (patents per worker) of innovation also exhibit convergence. Convergence is widespread across all countries and industries in our sample, and in all time periods. Country-level data confirms patent convergence continues through 2020. Patent convergence is stronger where financial development, international financial integration, and institutional quality are higher, and under the presence of financial policies supportive of financial liberalization. These factors contribute to both within country (across industries) and within industry (across countries) convergence. The results highlight the importance of financial and institutional environment for the growth of patenting, and ultimately for economic growth and productivity.
    Keywords: innovation, patents, citations, convergence, financial development, financial openness, institutional quality
    JEL: O4 O3 E2 E44 F3
    Date: 2023–07
  2. By: Stephan Heblich; David Krisztián Nagy; Alex Trew; Yanos Zylberberg
    Abstract: This paper studies how cities' industrial structure shapes their life and death. Our analysis exploits the large heterogeneity in the early composition of English and Welsh cities. We extract built-up clusters from early historical maps, identify settlements at the onset of the nineteenth century, and isolate exogenous variation in the nature of their rise during the transformation of the economy by the end of the nineteenth century. We then estimate the causal impact of cities' population and industrial specialization on their later dynamics. We find that cities specializing in a small number of industries decline in the long run. We develop a dynamic spatial model of cities to isolate the forces which govern their life and death. Intratemporally, the model captures the role of amenities, land, local productivity and trade in explaining the distribution of economic activity across industries and cities. Intertemporally, the model can disentangle the role of aggregate industry dynamics from city-specific externalities. We find that the long-run dynamics of English and Welsh cities is explained to a large extent by such dynamic externalities a la Jacobs.
    Keywords: Specialization; cities over time; quantitative economic geography.
    JEL: F63 N93 O14 R13
    Date: 2023–07
  3. By: Tomohiro Hirano; Alexis Akira Toda
    Abstract: Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of asset price bubbles. We establish the Bubble Necessity Theorem in a plausible general class of economic models: with faster long run economic growth (G) than dividend growth (Gd) and counterfactual long run autarky interest rate (R) below dividend growth, all equilibria are bubbly with non-negligible bubble sizes relative to the economy. The bubble necessity condition R
    Keywords: bubble, fundamental value, possibility versus necessity. JEL codes: D53, G12.
    Date: 2023–07
  4. By: Michael Kuhn (International Institute for Applied Systems Analysis (IIASA)); Antonio Minniti (Department of Economics, University of Bologna); Klaus Prettner (Department of Economics, Vienna University of Economics and Business); Francesco Venturini (Department of Economics, University of Perugia)
    Abstract: Despite an increasing recognition of the importance of health for economic growth, there is still a lack of understanding of the role of medical innovation in this process. Specifically, what are the causal effects of medical innovation on economic growth and which non-linearities matter in this context? To answer these questions, we propose an R\&D-based economic growth model with overlapping generations in which life expectancy depends on health care utilization per capita and on medical innovation and test the model's implications empirically. We show that a causal pathway from medical innovation to economic growth prevails with life expectancy being an important transmission mechanism. Non-linearities matter in the following way: in early stages of development, medical innovation does not have a positive effect on economic growth, whereas in intermediate stages, a positive and significant effect emerges. In late stages of development, when life expectancy is already very high, the effect becomes weaker and potentially negative because health improvements are increasingly difficult to achieve and become ever more resource intensive.
    Keywords: Medical innovation, industrial innovation, life expectancy, health, economic growth
    JEL: I15 J11 O41 O47
    Date: 2023–07
  5. By: Doyle, Matthew; Skuterud, Mikal; Worswick, Christopher
    Abstract: In the hope of addressing chronic labour shortages and sluggish economic growth, the Canadian government plans to increase immigration in the coming years to per capita levels not reached since the 1920s. We argue that economic immigration in the Canadian context should aim to boost GDP per capita in the full population including the newcomers. We then examine the potential for increases in Canadian immigration levels to achieve this objective. Our analysis suggests that Canada is not well-positioned to leverage heightened immigration to boost GDP per capita owing primarily to weak capital investment and quantity-quality tradeoffs in immigrant selection. We conclude by providing a framework for identifying the optimal level of economic immigration.
    Keywords: Immigration, economic growth, human capital
    JEL: J61 F22 J24
    Date: 2023
  6. By: Serhan Cevik, João Tovar Jalles
    Abstract: What is the impact of climate change on inflation and growth dynamics? This is not a simple question to answer as climate shocks tend to be ubiquitous, but with opposing effects simultaneously on demand and supply. The extent of which climate-related shocks affect inflation and economic growth also depends on long-run scarring in the economy and the country’s fiscal and institutional capacity to support recovery. In this paper, we use the local projection method to empirically investigate how climate shocks, as measured by climate-induced natural disasters, influence inflation and economic growth in a large panel of countries over the period 1970–2020. The results shows that both inflation and real GDP growth respond significantly but also differently in terms of direction and magnitude to different types of disasters caused by climate change. We split the full sample of countries into income groups—advanced economies and developing countries—and find a striking contrast in the impact of climate shocks on inflation and growth according to income level, state of the economy, and fiscal space when the shock hits.
    Keywords: Climate change; natural disasters; inflation; growth; local projections; panel data.
    JEL: E31 E32 E62 N10
    Date: 2023–06
  7. By: Tomohiro Hirano; Alexis Akira Toda
    Abstract: We study the long-run behavior of land prices when land plays the dual role of a factor of production and a store of value. In modern economies where technological progress is faster in non-land sectors, when the elasticity of substitution exceeds 1 at high input levels (which always holds if non-land factors do not fully depreciate), unbalanced growth occurs and land becomes overvalued on the long-run trend relative to the fundamental value defined by the present value of land rents. Around the trend, recurrent stochastic fluctuations in land prices occur, with expansions and contractions in the size of land overvaluation.
    Date: 2023–07

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