nep-gro New Economics Papers
on Economic Growth
Issue of 2023‒11‒06
nine papers chosen by
Marc Klemp, University of Copenhagen

  1. Religion and Growth By Becker, Sascha O.; Rubin, Jared; Woessmann, Ludger
  2. Demographic Change and Long-Term Economic Growth Path in Asia By Jong-Wha Lee; Eunbi Song
  3. Endogenous Working Hours, Overlapping Generations and Balanced Neoclassical Growth By Andreas Irmen
  4. Health, basic research, human capital accumulation, and R&D-based economic growth By Parui, Pintu
  5. Growth, Poverty Trap and Escape By Indrani Bose
  6. Anticipation of Future Consumption, Excessive Savings, and Long-Run Growth By Johannes Schünemann; Holger Strulik; Timo Trimborn
  7. On the Positive Relation between the Wage Share and Labor Productivity Growth with Endogenous Size and Direction of Technical Change By Luca Zamparelli
  8. Allocative Efficiency of Government Spending for Growth in Latin American Countries By Pessino, Carola; Altinok, Nadir; Chagalj, Cristian
  9. Violence and Long-run Economic Growth in the United States By Michele Baggio; Alberto Chong; Metin Cosgel

  1. By: Becker, Sascha O. (Monash University); Rubin, Jared (Chapman University); Woessmann, Ludger (University of Munich)
    Abstract: We use the elements of a macroeconomic production function—physical capital, human capital, labor, and technology—together with standard growth models to frame the role of religion in economic growth. Unifying a growing literature, we argue that religion can enhance or impinge upon economic growth through all four elements because it shapes individual preferences, societal norms, and institutions. Religion affects physical capital accumulation by influencing thrift and financial development. It affects human capital through both religious and secular education. It affects population and labor by influencing work effort, fertility, and the demographic transition. And it affects total factor productivity by constraining or unleashing technological change and through rituals, legal institutions, political economy, and conflict. Synthesizing a disjoint literature in this way opens many interesting directions for future research.
    Keywords: religion, growth, Christianity, Judaism, Islam, preferences, norms, institutions, capital, saving, financial development, human capital, education, population, labor, demography, fertility, total factor productivity, technological change, rituals, political economy, conflict
    JEL: Z12 O40 N30 I25 O15
    Date: 2023–10
  2. By: Jong-Wha Lee; Eunbi Song
    Abstract: This study analyzes Asia’s economic prospects over the next half-century, focusing on demographic changes. To project the GDP and per capita GDP growth rates for the five major Asian countries and the United States (US) until 2070, an endogenous growth model is used where physical and human capital accumulation, technological progress, and substitution between physical capital and labor are important determinants of the long-term growth rate. The simulation results show that while the declining labor force growth and an aging population have a long-term negative impact on economic growth, they will not predetermine the future of Asian economies. Highlighted is the importance of promoting technological innovation as well as investment in physical and human capital to sustain strong growth in Asian economies. China's average annual GDP growth is expected to decline to between 1.5% and 2.4% during 2051–2070, subject to scenarios. China’s higher growth trajectory could approach about 85% of the US PPP-adjusted per capita GDP by 2070. India is projected to surpass the US in PPP-adjusted GDP by 2050 and China by 2070.
    Keywords: Asia, demographic changes, economic growth, human capital, technological progress
    JEL: J11 J24 O33 O41 O53
    Date: 2023–10
  3. By: Andreas Irmen (DEM, Université du Luxembourg)
    Abstract: A balanced growth path that accounts for a decline in hours worked per worker approximates the evolution of today’s industrialized countries since 1870. This stylized fact is explained in an OLG-model featuring two-period lived individuals equipped with per-period utility functions of the generalized log- log type proposed by Boppart and Krusell (2020) and a neoclassical production sector. Technological progress drives real wages up and expands the amount of consumption goods. The value of leisure increases, and the supply of hours worked declines. Technological progress moves a poor economy out of a regime with low wages and an inelastic supply of hours worked into a regime with high wages and a declining supply of hours worked. The balanced growth path is unique and stable. In the high wage regime, the equilibrium difference equation is available in closed form. A balanced growth path with declining hours worked may also be obtained with endogenous technological progress as in Romer (1986).
    Keywords: Technological Change, Comparative Economic Development, Endogenous Labor Supply, Neoclassical Endogenous Growth, OLG-model.
    JEL: D91 J22 O33 O41
    Date: 2023
  4. By: Parui, Pintu
    Abstract: We construct a broad R&D-based endogenous growth model that incorporates the importance of children's health on human capital accumulation and publicly-funded basic research investments required to produce new goods. Although an increment in the number of healthcare professionals creates a shortage of workers for final goods production, the novelty of this paper is to demonstrate the significance of healthcare workers in enhancing the productivity of inputs of various sectors, along with its long-run consequences.
    Keywords: R&D-based growth, Basic science, Children’s Health, Education, Fertility
    JEL: H41 J24 O31 O32 O41
    Date: 2023–10–13
  5. By: Indrani Bose
    Abstract: The well-known Solow growth model is the workhorse model of the theory of economic growth, which studies capital accumulation in a model economy as a function of time with capital stock, labour and technology efiiciency as the basic ingredients. The capital is assumed to be in the form of manufacturing equipments and materials. Two important parameters of the model are: the saving fraction $s$ of the output of a production function and the technology efficiency parameter $A$, appearing in the production function. The saved fraction of the output is fully invested in the generation of new capital and the rest is consumed. The capital stock also depreciates as a function of time due to the wearing out of old capital and the increase in the size of the labour population. We propose a stochastic Solow growth model assuming the saving fraction to be a sigmoidal function of the per capita capital $k_p$. We derive analytically the steady state probability distribution $P(k_p)$ and demonstrate the existence of a poverty trap, of central concern in development economics. In a parameter regime, $P(k_p)$ is bimodal with the twin peaks corresponding to states of poverty and well-being respectively. The associated potential landscape has two valleys with fluctuation-driven transitions between them. The mean exit times from the valleys are computed and one finds that the escape from a poverty trap is more favourable at higher values of $A$. We identify a critical value of $A_c$ below (above) which the state of poverty (well-being) dominates and propose two early signatures of the regime shift occurring at $A_c$. The economic model, with conceptual foundation in nonlinear dynamics and statistical mechanics, share universal features with dynamical models from diverse disciplines like ecology and cell biology.
    Date: 2023–10
  6. By: Johannes Schünemann (University of Göttingen, Department of Economics); Holger Strulik (University of Göttingen, Department of Economics); Timo Trimborn (Department of Economics and Business Economics, Aarhus University)
    Abstract: In this paper, we provide a new theory that explains how the anticipation of future consumption leads to excessive savings. We introduce utility from anticipatory consumption into an otherwise standard endogenous growth model and assume that individuals cannot commit to future consumption plans. We show that the associated time-inconsistent decisions lead individuals to save more of their income than planned, and that this behavior increases growth but decreases welfare. We then modify the model to account for time-inconsistent decisions due to hyperbolic discounting, which in and of themselves would result in individuals saving less of their income than planned. By combining the assumptions of anticipatory consumption and hyperbolic discounting, we show that the excessive savings outcome is preserved for the benchmark calibration of the model. We also show that an alternative parameterization of the model exists where hyperbolically discounting individuals stick to their original consumption plan even though there are no commitment devices.
    Keywords: Anticipated Consumption, Time-Inconsistency, Over-Saving, Endogenous Growth, Discounting
    JEL: D91 E21 O40
    Date: 2023–10–25
  7. By: Luca Zamparelli (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: This paper combines induced innovation and endogenous growth to investigate two issues: the relation between the wage share and labor productivity growth and the potential influence of the saving rate on the steady state wage share. We assume that myopic competitive firms choose the size and direction of technical change to maximize the growth rate of profits. First, we find a condition on the innovation possibility set sufficient to ensure that labor productivity growth is a positive function of the wage share. Second, we show that the steady state wage share depends on the saving rate if, and only if, R&D investment affects the marginal rate of transformation between labor and capital productivity growth. Both results have important policy implications as they clarify under what conditions any factor affecting the wage share or the saving rate will have an impact on labor productivity growth or steady-state income distribution.
    Keywords: Induced innovation, R&D, Factors income shares, Growth models
    JEL: D24 E25 D33 O30 O41
    Date: 2023–04
  8. By: Pessino, Carola; Altinok, Nadir; Chagalj, Cristian
    Abstract: There is scant empirical economic research regarding the way that Latin American governments efficiently allocate their spending across different functions to achieve higher growth. While most papers restrict their analysis to the size of government, much less is known about the composition of spending and its implications for long-term growth. This paper sheds light on how allocating expenditures to investment in quality human and physical capital, and avoiding waste on inefficient expenditures, enhance growth in Latin America. This paper uses a novel dataset on physical and human capital and detailed public spending that includes -for the first time- Latin American countries, which is categorized by a cross-classification that provides the breakdown of government expenditure, both, by economic and by functional heads. The database covers 42 countries of the OECD and LAC between 1985 and 2017. There are five main results. First, the estimated growth equations show significant positive effects of the factors of production on growth and plausible convergence rates (about 2 percent). The estimated effect of the physical investment rate is positive and significant with a long-run elasticity of 1.2. Second, while the addition of years of education as a proxy for human capital tends to have no effect on growth, the addition of a new variable that measures quality-adjusted years of schooling as a proxy for human capital turns out to have a positive and significant effect across all specifications with a long-run elasticity of 1.1. However, if public spending on education (excluding infrastructure spending) is added to the factor specification, growth is not affected. This is mainly because, once quality is considered, spending more on teacher salaries has no effect on student outcomes. Therefore, the key is to increase quality, not just school performance or education spending. Third, both physical and human capital are equally important for growth: the effect of increasing one standard deviation of physical capital or human capital statistically has the same impact on economic growth. Fourth, increasing public investment spending (holding public spending constant) is positive and significant for growth (a 1% increase in public investment would increase the long-term GDP per capita by about 0.3 percent), in addition to the effect of the private investment rate. However, the effect of public spending on payroll, pensions and subsidies does not contribute to economic growth. Fifth, the overall effect of the size of public spending on economic growth is negative in most specifications. An increase in the size of government by about 1 percentage point would decrease 4.1 percent the long-run GDP per capita, but the more effective the government is, the less harmful the size of government is for long-term growth.
    Keywords: government size;growth;human capital;Latin America;public spending
    JEL: H50 I20 O40 O54
    Date: 2022–06
  9. By: Michele Baggio (University of Connecticut); Alberto Chong (Georgia State University); Metin Cosgel (University of Connecticut)
    Abstract: We examine patterns of lethal socio-political violence in the United States between 1934 and 2010 and estimate the impact on income growth. The predominant type of violence shifted from riots to rampages over time. Whereas such incidents were heavily concentrated in the South before the 1960s, they spread to all regions by the twenty-first century. Using improved data measurement and applying a difference-in-difference approach designed for multiple types of events, we find that socio-political violence had a significant adverse effect on the growth of personal incomes. The magnitude was greater for racial violence than non-racial violence. Although the initial impact was immediate, it did not last long.
    Date: 2023–10

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