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on Economic Growth |
| By: | Tomohiro Hirano; Joseph E. Stiglitz |
| Abstract: | This paper presents a model that studies the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy, with the driver of growth lying in one sector (manufacturing) but not in the other (real estate). We show that it is not so much aggregate credit expansion that matters for long-run productivity and economic growth but sectoral credit expansions. Credit expansions associated mainly with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulations, low interest rates and more expansionary monetary policy may so encourage land speculation using leverage that productive capital investment and economic growth are decreased. Unlike in standard macroeconomic models, in ours, the equilibrium price of land will be finite even if the safe rate of interest is less than the rate of output growth. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.05901&r= |
| By: | Wei Liang (China Economics and Management Academy, Central University of Finance and Economics); Heng-fu Zou (The World Bank) |
| Abstract: | This paper develops a dynamic representative-citizens model that endogenizes the accumulation of both constitutional democracy capital and physical capital. Drawing from Douglass North's seminal works, our model integrates interactions between institutional capital and economic performance, focusing on how changes in institutional frameworks impact economic dynamics. By exploring the reciprocal relationships between democratic institutions and economic variables over time, the model elucidates how democratic structures facilitate economic growth and how economic conditions affect the vitality of democratic governance. It demonstrates that exogenous economic variables significantly influence both democracy and physical capital, while political institutional factors critically shape economic outcomes. This approach highlights the importance of a supportive democratic environment in enhancing capital accumulation and shows how threats to democracy can hinder both democratic integrity and economic development, providing a comprehensive framework to understand the interplay between political systems and economic performance. |
| Keywords: | Democracy Capital, Constitutional Democracy, Liberty, Rue of Law, Property Rights, Institutions, Economic Growth, Development |
| JEL: | E20 E22 H56 O10 O40 P16 P48 |
| Date: | 2024–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:627&r= |
| By: | MAEBAYASHI, NORITAKA |
| Abstract: | This study investigates the effect of public debt on growth, interest rate, and sustaibility of public debt in a very simple endogenous growth model with financial imperfection and the firm heterogeneity. Increases in public debts cause higher real interest rates through financial markets and reduces both the number of firms and private investment, leading to lower long-run growth. It makes public debt less sustainable when public debt is very large. This study also examine the effect of investment subsidy financed by public debt. It hinder economic growth in the long-run although they affect posively on growth in the short run. Therefore, investment subsidy should not be financed by public debt but tax increases. |
| Keywords: | Sustainability of public debt, Finantial frictions, Firm heterogeneity, Investment subsidies |
| JEL: | E62 H20 H60 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120884&r= |
| By: | Federico Moscatelli; Christian Chacua; Shreyas Gadgin Matha; Matte Hartog; Eduardo Hernandez Rodriguez; Julio Raffo; Muhammed A. Yildirim |
| Abstract: | Recent years have witnessed a resurgence of industrial policies globally. Through various industrial policy instruments, governments make critical scientific and technological choices that shape innovation paths and resource allocations. Our paper explores innovation capabilities as essential drivers of competitive outcomes, spanning science, technology, and production domains. Based on the economic complexity literature, we propose a methodological framework to measure the innovation capabilities empirically, leveraging data on scientific publications, patents, and trade. Our findings highlight the multidimensional nature of innovation capabilities and underscore the importance of understanding both the specialization and quality of these capabilities. Our results are in line with the complexity literature, as we also find: (i) positive correlations between the innovation complexity and economic growth; and, (ii) the predictive power of existing innovation capabilities for fostering new ones. Based on these findings, we propose novel indicators informing innovation policymaking on the innovation potential across science, technology, and production fields of an ecosystem. We suggest that innovation policymaking needs to be informed by deeper insights into innovation capabilities that are crucial for long-term growth and competitiveness improvement. |
| Keywords: | Innovation capabilities, Complexity metrics, Innovation ecosystems, Science and technology policy, Industrial policy, Economic development, Smart specialization |
| JEL: | O25 O31 O33 O30 O11 O14 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:wip:wpaper:81&r= |
| By: | Miller, Marcus (University of Warwick, CAGE and CEPR) |
| Abstract: | As the world experiences a fourth industrial revolution - in Information Technology - we look back at how things turned out in the first Industrial Revolution, which began when Adam Smith was writing The Wealth of Nations. For the historical record, we draw on the recent study of Power and Progress by Daron Acemoglu and Simon Johnson, who describe how the benefits of innovation were – or were not - spread across society in Britain at that time. This paper focuses on the case of India under colonial rule, however, where two themes emerge. First, how the transfer of technology under the control of a private company – based in London and granted monopoly powers by the British government - was enough to stymie the ‘virtuous spiral of Smithian growth’ for a century or more. Second, how two centuries of colonial control also deprived the indigenous population of what Amartya Sen has claimed is the key insurance against famine - namely democratic accountability. The paper end with brief remarks on how industrial policy in India of today could help spread the benefits of the current IT revolution. |
| Keywords: | Adam Smith, specialisation, development, colonisation, famine, case studies in economic history JEL Classification: B12, F54, L12, Q1, O30 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:709&r= |
| By: | Jakob de Haan; Kersten Stamm; Shu Yu |
| Abstract: | Following earlier studies on accelerations of output and the capital stock, we propose an adjusted method to identify accelerations in investment that ensures that the identified episodes are characterized by sustained increases in per capita investment growth to a relatively high rate. We identify 192 investment accelerations in 93 economies (34 advanced economies and 59 emerging and developing economies) over 1950-2022. Our evidence suggests that economic policy reform and institutional quality are important drivers of the likelihood that such an acceleration occurs. Furthermore, we find that the impact of reform on this likelihood is conditioned by institutional quality. |
| Keywords: | investment accelerations, institutional quality, policy reform governance |
| JEL: | E22 O11 O43 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11100&r= |
| By: | Andreas Bergh (Department of Economics, Lund University, Sweden; Research Institute of Industrial Economics, Stockholm, Sweden); Christian Bjornskov (Research Institute of Industrial Economics, Stockholm, Sweden; Department of Economics, Aarhus University, Denmark); Ludek Kouba (Department of Economics, Faculty of Business and Economics, Mendel University in Brno, Czech Republic) |
| Abstract: | The discussion of the growth consequences of socialism has fulminated for a century, sparked off by the Calculation Debate in the 1920s and 30s, and has concerned the performance of the Soviet Union in the 1950s and the mixed development in the 1990s after communism collapsed in Central and Eastern Europe. We aim to inform these debates by providing an empirical assessment of how socialist economies performed across the second half of the 20th century. Using both neighbour comparisons as well as more formal empirical analysis of developing countries that turned socialist after independence, we derive a set of estimates of the degree to which the introduction of a planned socialist economy affects long-run growth and development. All analyses point towards an annual growth decline of approximately two percentage points during the first decade after implementing socialism. |
| Keywords: | economic growth, socialism |
| JEL: | O11 O43 P20 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:95_2024&r= |