nep-gro New Economics Papers
on Economic Growth
Issue of 2023‒10‒16
nine papers chosen by
Marc Klemp, University of Copenhagen

  1. The Outlook for Long-Term Economic Growth By Charles I. Jones
  2. Analyzing Economic Growth Within the Framework of the Knowledge Economy Ecosystem model By Dilaka Lathapipat
  3. On the Transition to Modern Growth By B. Ravikumar; Guillaume Vandenbroucke
  4. Institutional Drift, Property Rights, and Economic Development: Evidence from Historical Treaties By Donn L. Feir; Rob Gillezeau; Maggie E.C. Jones
  5. Revolution and Economic Growth: Evidence from the Sandinista Revolution By Silano, Filippo
  6. Structural Transformation and Value Change: The British Abolitionist Movement By Valentín Figueroa; Vasiliki Fouka
  7. Growth at Risk and Uncertainty: Evidence from Mexico By Salgado Alfredo; Trujillo Alejandro
  8. A Quality Dimension? A Re-appraisal of Financial Development and Economic Growth Nexus in a Quality-Quantity Setting By Rosen Azad Chowdhury, Dilshad Jahan, Tapas Mishra, Mamata Parhi; Dilshad Jahan; Tapas Mishra; Mamata Parhi
  9. Human Capital Misallocation and Output per Worker Differences: Beyond Cobb-Douglas By Trenczek, Jan; Wacker, Konstantin M.

  1. By: Charles I. Jones
    Abstract: What are the prospects for economic growth in the United States and other advanced countries over the next several decades? U.S. growth for the past 150 years has been surprisingly stable at 2% per year. Growth theory reveals that in the long run, growth in living standards is determined by growth in the worldwide number of people searching for ideas. At the same time, a growth accounting exercise for the United States since the 1950s suggests that many other factors have temporarily contributed to growth, including rising educational attainment and a rising investment rate in ideas. But these forces are inherently temporary, implying that growth rates could slow in the future. This prediction is reinforced by declining population growth throughout the world. In contrast, other forces could potentially sustain or even increase growth. The emergence of countries such as China and India provides large numbers of people who could search for ideas. Improvements in the allocation of talent --- for example, the rise of women inventors --- and increased automation through artificial intelligence are other potential tailwinds.
    JEL: O4
    Date: 2023–08
  2. By: Dilaka Lathapipat
    Abstract: This paper builds on Chen and Dahlman (2006)’s Knowledge Economy concept by introducing the Knowledge Economy Ecosystem model consisting of five pillars: ICT infrastructure, innovation infrastructure, financial infrastructure, quality of institutions, and educated and skilled workers. The subindices for the first four pillars contribute to the Knowledge Economy Infrastructure (KEI) Index, while the human capital pillar is represented by the learning-adjusted years of schooling (LAYS), a measure introduced by the World Bank in 2018. The utilization of LAYS in our model is important, because it recognizes that mean years of schooling is a poor measure of human capital simply because the quality of education can differ greatly across countries. Employing a dynamic panel data framework, we empirically examine the influence of the KEI Index and LAYS on total factor productivity (TFP) and GDP per capita growth. Our findings affirm the substantial positive impact of both LAYS and the KEI Index on TFP and economic growth. This empirical evidence underscores the essential role of sustained investments in these five pillars for fostering long-term economic growth, offering vital insights for policymakers. Drawing on Thailand as a case study, the analysis illuminates the nation's specific challenges within the Knowledge Economy Ecosystem framework, especially in the realms of human capital development, innovation, and institutional quality. The study underscores the considerable obstacles Thailand encounters in these domains, impeding its transition toward a knowledge-based economy.
    Keywords: Human capital; Education; Knowledge economy; Productivity
    JEL: I25 O40
    Date: 2023–09
  3. By: B. Ravikumar; Guillaume Vandenbroucke
    Abstract: We study a simple model where a single good can be produced using a diminishing-returns technology (Malthus) and a constant-returns technology (Solow). The economy's output exhibits three stages: (i) stagnation; (ii) transition with increasing growth; (iii) constant growth in the long run. We map the Malthus technology to agriculture and show that the share of employment in agriculture is sufficient to determine both the onset of economic transition and the dynamics of output during the transition. Using 20th century data on agricultural share of employment, we project backward and estimate the onset of transition for the U.S., Western Europe, and India. We then show that the model's implications are consistent with the observed output dynamics.
    Keywords: economic transition; agricultural employment; Malthus; Solow
    JEL: O10 O13 O40
    Date: 2023–09
  4. By: Donn L. Feir; Rob Gillezeau; Maggie E.C. Jones
    Abstract: For nearly three centuries, Indigenous peoples within the borders of present-day Canada engaged in treaty-making with the British Crown and other European powers. These treaties regularly formed the colonial legal basis for access to Indigenous lands. However, treaties were not negotiated everywhere, including in regions subsequently settled by Europeans. Consequentially, there is substantial regional variation in the legal status of occupied lands, jurisdiction over natural resources, and state commitments to Indigenous nations. We study how these legal institutions have shaped the path of economic development in Indigenous communities. Using restricted-access census data, we show that historical treaties substantially lower income in Indigenous communities today. We argue that this results from the constitutional and legal recognition of Aboriginal rights and title, which have dramatically increased bargaining power and, consequently, income growth in non-treaty Indigenous communities.
    JEL: J15 N31 N32 P14
    Date: 2023–09
  5. By: Silano, Filippo
    Abstract: This study examines the repercussions of the 1979 Sandinista revolution on Nicaragua's economic growth trajectory. Drawing on the synthetic control method, it constructs an artificial counterpart to Nicaragua with the primary objective of estimating the counterfactual gross domestic product (GDP) per capita growth rate, assuming that the revolution did not take place. By doing so, the study quantifies the extent to which the Sandinista revolution influenced the country's economic development. The results show that the Somoza removal and the immediate implementation of the Sandinistas policies led to a slight improvement of GDP per capita's growth rate (+2%). On the other hand, the civil war's intensification that ensued (1984-87) negatively affected the initial positive effect of the revolutionary government policy making. This study contributes to a better understanding of the economic dynamics associated with revolutions and civil wars. The findings underscore the significance of considering the broader context in assessing historical events' economic implications and call for further research into the long-term effects of such institutional and political transformations.
    Keywords: Sandinista, Nicaragua, Revolution, Civil war, Synthetic control method, Economic growth, Economic development, Political economy
    JEL: O54 N46 P16 P26 C21 H56
    Date: 2023
  6. By: Valentín Figueroa; Vasiliki Fouka
    Abstract: What drives change in a society’s values? From Marx to modernization theory, scholars have identified a connection between structural transformation and social change. To understand how changes in a society’s dominant mode of production affect its dominant values, we examine the case of the movement for the abolition of slavery in the late 18th and early 19th century Britain, one of history’s most well-known campaigns for social change, which coincided temporally with the Industrial Revolution. We argue that structural transformation alters the distribution of power in society and enables groups with distinct values and weak economic interest in the status quo to mobilize for change. Using data on anti-slavery petitions, membership in abolitionist groups, MP voting behavior in Parliament and economic activity, we show that support for abolition was strongly connected to manufacturing at the aggregate and individual level. We rely on biographical data and the analysis of parliamentary speeches to show that industrialists were relatively less reliant on income from slavery and were characterized by a universalist worldview that distinguished them from established elites. Together, our findings suggest that both values and economic interest play a role in driving social change.
    JEL: A13 N63 O14 P16 Z10
    Date: 2023–09
  7. By: Salgado Alfredo; Trujillo Alejandro
    Abstract: We analyze the relationship between uncertainty and economic growth expectations in Mexico through the Growth at Risk methodology. Our analysis consists of two stages: first, we estimate a quantile regression of annual output growth conditional on lagged values of a measure of macroeconomic uncertainty and other drivers. Second, based on the fitted values of the quantile regression, we estimate the parameters of a t-skewed distribution of expected economic growth. Our results show that an increase in macroeconomic uncertainty has a negative and statistically significant impact on the left tail of the growth distribution, leading to an increased probability of observing lower growth rates. These results remain robust to alternative measures of financial conditions, of economic policy uncertainty, and of risk exposure, as well as to alternative measurements of economic activity.
    Keywords: Macroeconomic Uncertainty;Financial Conditions;Growth at Risk
    JEL: C53 E23 E27 E32 O40
    Date: 2023–09
  8. By: Rosen Azad Chowdhury, Dilshad Jahan, Tapas Mishra, Mamata Parhi (Department of Economics, Swansea University); Dilshad Jahan (Department of Economics, Swansea University); Tapas Mishra (Southampton Business School, University of Southampton); Mamata Parhi (Roehampton Business School, University of Roehampton)
    Abstract: Despite the existence of a robust body of theoretical and empirical literature on the subject, there is an unresolved ambiguity on the exact nature of the relationship between financial development and economic growth. In this context, this paper re-examines the relationship by emphasizing on the ‘quality’ essence of financial development - a role, notwithstanding its significance (especially for developing countries), has clearly been underemphasized. We advance a measure of this ‘quality’ attribute by degrees of cost efficiencies and profit functions. The quality proxy is combined with a measure of quantity attribute of financial development in the form of broad money growth and bank credit to the private sector. Both measures portend relative stability of banks concerning efficiency in fund channeling. Using data for 191 banks spread over eight South and South-East Asian countries for a period of ten years and employing System GMM panel estimations, we demonstrate that a mixture of both quality and quantity of financial development holds key information on the exact direction of travel of economic growth among these countries. Further, results from panel VAR estimation provide robustness to our predictions.
    Keywords: Quality and quantity of financial development; Economic growth; Efficiency; Developing countries; Panel VAR
    Date: 2023–09–12
  9. By: Trenczek, Jan; Wacker, Konstantin M.
    Abstract: Misallocation of human capital across sectors can have substantial negative implications for aggregate output. So far, the literature examining this type of labor misallocation has assumed a Cobb-Douglas production function. Our paper departs from this assumption and instead considers more exible CES production functions with different labor skill types as individual inputs. Our estimates from sectoral data of 39 countries suggest that physical and human capital are less substitutable than Cobb-Douglas assumes. Our counterfactual results indicate that human capital misallocation can explain approximately 15% of output per worker variation across countries, which is substantially less than under a Cobb-Douglas specification (21%).
    Keywords: Misallocation, Human Capital, Sector level, Production function, Elasticity of substitution, Total factor productivity
    JEL: O41 O47 E24
    Date: 2023

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