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on Economic Growth |
| By: | Bipul Verma |
| Abstract: | This paper revisits the debate on income convergence between poor and rich countries. I challenge the view that there is little to no catch-up, and that changes in total factor productivity (TFP) drives cross-country income differences. Since 2000, income levels in poor countries have converged with rich countries at 0.8% annually, rising to 1.5% when excluding Sub-Saharan Africa. A growth accounting exercise incorporating capital income share heterogeneity shows that most convergence since 1980, and over half since 2000 outside Sub-Saharan Africa, results from convergence in physical and human capital inputs rather than TFP. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.16127 |
| By: | Anup Malani; Ari Jacob |
| Abstract: | The world has experienced a dramatic decline in total fertility rate (TFR) since the Industrial Revolution. Yet the consequences of this decline flow not merely from a reduction in births, but from a reduction in the number of surviving children. We propose a new measure of the number of surviving children per female, which we call the effective fertility rate (EFR). EFR can be approximated as the product of TFR and the probability of survival. Moreover, TFR changes can be decomposed into changes that preserve EFR and those that change EFR. We specialized EFR to measure the number of daughters that survive to reproduce (reproductive EFR) and the number children that survive to become workers (labor EFR). We use three data sets to shed light on EFR over time across locations. First, we use data from 165 countries between 1950-2019 to show that one-third of the global decline in TFR during this period did not change labor EFR, suggesting that a substantial portion of fertility decline merely compensated for higher survival rates. Focusing on the change in labor EFR, at least 40% of variation cannot be explained by economic factors such as income, prices, education levels, structural transformation, an urbanization, leaving room for explanations like cultural change. Second, using historical demographic data on European countries since 1750, we find that there was dramatic fluctuation in labor EFR in Europe around each of the World Wars, a phenomenon that is distinct from the demographic transition. However, prior to that fluctuation, EFRs were remarkably constant, even as European countries were undergoing demographic transitions. Indeed, even when EFRs fell below 2 after 1975, we find that EFRs remained stable rather than continuing to decline. Third, data from the US since 1800 reveal that, despite great differences in mortality rates, Black and White populations have remarkably similar numbers of surviving children over time. |
| JEL: | J1 J13 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33175 |
| By: | Michael Haylock; Martin Karlsson; Maksym Obrizan |
| Abstract: | Economic growth in Sweden during the early 20th Century was largely driven by industry. A significant contributor to this growth was the installation of different kinds of engines used to power factories. We use newly digitized data on engines and their energy source by industry sector, and combine this with municipality-level data of workers per industry sector to construct a new variable reflecting economic output using dirty engines. In turn, we assess the average externality of dirty output on mortality in the short-run, as defined by deaths over the population in the baseline year. Our results show substantial increases of up to 17% higher mortality in cities where large increases to dirty engine installations occurred, which is largely driven by the elderly. We also run a placebo test using clean powered industry and find no effect on mortality. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.01532 |
| By: | Junjie Guo; Nicolas A. Roys; Ananth Seshadri |
| Abstract: | This paper estimates two measures of human capital externalities. By incorporating externalities into an overlapping-generations model of human capital accumulation with Compulsory Schooling Laws (CSL), we show that human capital externalities can be estimated from the effects of CSL for one generation on wages of other generations. Using an instrumental-variable strategy deduced from the model, we find one more year of average schooling at the U.S. state level raises individual wages by 6-8%. Taking this reduced-form estimate into account, we find the elasticity of a typical firm’s productivity with respect to the average human capital of an economy is 0.121. |
| JEL: | E24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33151 |
| By: | Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick |
| Abstract: | German history over the past 125 years has been turbulent. Marked by two world wars, revolutions and major regime changes, as well as a hyperinflation and three currency reforms, expropriations and territorial divisions, it comprises extreme shocks to study the role of historical events, taxation, asset price changes, portfolio heterogeneity in affecting the wealth distribution in the long run. Combining tax and archival data, household surveys, historical national accounts, and rich lists, we document that the top 1%wealth share has fallen by half, from close to 50% in 1895 to 26% today. Nearly all of this decline was the result of changes that occurred between 1914 and 1952. Using a novel decomposition framework, we show that collapsing equity prices after World War I and in the Great Depression as well as taxation in the aftermath of World War II stand out as great equalizers in 20th century German history. After unification in 1990, two trends have left their mark on the German wealth distribution. Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. The wealth share of the bottom 50% has halved since 1990. Our findings speak to the importance of historical shocks to the valuation of existing wealth and taxation in driving the evolution of the wealth distribution over the long run. In addition, our data revisions reveal that Germany’s current wealth-income ratio is about 120 percentage points higher than previously thought. |
| Keywords: | Wealth inequality, portfolio heterogeneity, saving, wealth taxation |
| JEL: | D31 E01 E21 H2 N3 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2105 |
| By: | Heng-fu Zou (The World Bank) |
| Abstract: | By the 1880s, the United States had surpassed Britain as the world's largest economy, and by the 1920s, New York City had overtaken London as the world's leading financial center. This remarkable ascent cannot be adequately explained by models of economic growth focused on human capital accumulation, R&D, or technological innovation as championed by Paul Romer (1986, 1991), Robert Lucas (1988), and Aghion and Howitt (1992). These theories, while offering insights into the mechanics of innovation, fail to capture the true drivers of the U.S. economic miracle: liberal ideas of liberty, equality, dignity, and individualism. As Deirdre McCloskey has argued, and Edmund Phelps has elaborated in Mass Flourishing, it was these ideas—rooted in England's traditions yet unfettered by aristocratic constraints in America—that enabled ordinary people to act as entrepreneurs and grassroots innovators, fueling the dynamism of the U.S. economy. |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:723 |
| By: | Clement E. Bohr; Marti Mestieri; Frederic Robert-Nicoud |
| Abstract: | As countries develop, the relative importance of agriculture declines and economic activity becomes spatially concentrated. We develop a model integrating structural change and regional disparities to jointly capture these phenomena. A key modeling innovation ensuring analytical tractability is the introduction of non-homothetic Cobb-Douglas preferences, which are characterized by constant unitary elasticity of substitution and non-constant income elasticity. As labor productivity increases over time, economic well-being rises, leading to a declining expenditure share on agricultural goods. Labor reallocates away from agriculture, and industry concentrates spatially, further increasing aggregate productivity: structural change and regional disparities are two mutually reinforcing outcomes and propagators of the growth process. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.03755 |
| By: | Arnaud Deseau (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université) |
| Abstract: | The Malthusian trap is a well recognized source of stagnation in per capita income prior to industrialization. However, previous studies have found mixed evidence about its exact strength. This article contributes to this ongoing debate by estimating the speed of convergence for a panel of 9 preindustrial European economies over a long period of time (14th–18th century). The analysis relies on a calibrated Malthusian model for England and -convergence regressions. I find evidence of significant differences in the strength of the Malthusian trap between preindustrial European economies. The strongest estimated Malthusian trap is in Sweden, with a half-life of 20 years. The weakest estimated Malthusian trap is in England, with a half-life of about 230 years. This implies that some preindustrial economies were able to experience prolonged variations in their standards of living after a shock, while still being subject to Malthusian stagnation in the long run. |
| Keywords: | Convergence, Homeostasis, Malthusian trap, Preventive checks, Positive checks, Malthusian model, Beta-convergence |
| Date: | 2024–10–26 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04828757 |
| By: | Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business, Örebro, Sweden) |
| Abstract: | The neo-Schumpeterian growth models, which appeared in the early 1990s, have ostensibly reintroduced the entrepreneur into mainstream growth theory. However, we show that by ignoring genuine uncertainty and by assuming that profits follow an objectively true and ex ante known probability distribution, the entrepreneur is made redundant. Thus, the theory fails to exhaustively explain innovation, the role of ownership competence, profits, the function of financial markets, wealth and income distribution, and, ultimately, economic growth. These shortcomings risk leading to erroneous or overly narrow policy conclusions by overestimating the importance of supporting R&D investments. Rather, the presence of genuine uncertainty forms a fundamental theoretical basis for the importance of new venture creation as a source of innovation-driven growth; entrepreneurs must establish and expand firms to capture the subjectively perceived profit opportunities. Therefore, tax policy is decisive for the commercialization and dissemination of innovations by providing incentives to uncertainty-bearing, not only for entrepreneurs, but also for intrapreneurs and financiers taking an active part in the governance and development of firms based on innovations characterized by genuine uncertainty. Furthermore, taxation can distort the evolutionary selection of innovations and firms, for instance, by taxing owners and firms differently. |
| Keywords: | Creative destruction; Economic growth; Entrepreneur; Entrepreneurship policy; Innovation; Judgment; Knightian uncertainty |
| JEL: | B40 O10 O30 |
| Date: | 2025–01–02 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1514 |
| By: | Meiling Huang; Ming Jin; Ning Li |
| Abstract: | Generative AI is rapidly reshaping creative work, raising critical questions about its beneficiaries and societal implications. This study challenges prevailing assumptions by exploring how generative AI interacts with diverse forms of human capital in creative tasks. Through two random controlled experiments in flash fiction writing and song composition, we uncover a paradox: while AI democratizes access to creative tools, it simultaneously amplifies cognitive inequalities. Our findings reveal that AI enhances general human capital (cognitive abilities and education) by facilitating adaptability and idea integration but diminishes the value of domain-specific expertise. We introduce a novel theoretical framework that merges human capital theory with the automation-augmentation perspective, offering a nuanced understanding of human-AI collaboration. This framework elucidates how AI shifts the locus of creative advantage from specialized expertise to broader cognitive adaptability. Contrary to the notion of AI as a universal equalizer, our work highlights its potential to exacerbate disparities in skill valuation, reshaping workplace hierarchies and redefining the nature of creativity in the AI era. These insights advance theories of human capital and automation while providing actionable guidance for organizations navigating AI integration amidst workforce inequalities. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.03963 |
| By: | Samuel Bazzi; Abel Brodeur; Martin Fiszbein; Joanne Haddad |
| Abstract: | This paper explores how historical gender roles become entrenched as norms over the long run. In the historical United States, gender roles on the frontier looked starkly different from those in settled areas. Male-biased sex ratios led to higher marriage rates for women and lower for men. Land abundance favored higher fertility. The demands of childcare, compounded with isolation from extended family, markets, and social infrastructure, constrained female opportunities outside the home. Frontier women were less likely to report “gainful employment, ” but among those who did, relatively more had high-status occupations. Together, these findings integrate contrasting narratives about frontier women—some emphasizing their entrepreneurial independence, others their prevailing domesticity. The distinctive frontier gender roles, in turn, shaped norms over the long run. Counties with greater historical frontier exposure exhibit lower female labor force participation through the 21st century. Time use data suggests this does not come with additional leisure but rather with more household work. These gender inequalities are accompanied by weaker political participation among women. While the historical frontier may have been empowering for some women, its predominant domesticity reinforced inegalitarian gender norms over the long run. |
| Keywords: | American frontier, culture, fertility, gender norms, labor supply, marriage |
| JEL: | J12 J13 J22 N31 N91 O15 P16 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11598 |
| By: | Kenneth S. Rogoff; Paul Schmelzing |
| Abstract: | We present new long-run samples of r-g series over centuries for key economies in the international financial system. Across a wide variety of econometric approaches, and including duration-matched constructions, we demonstrate strong evidence of trend stationarity in these series. Although we confirm trend stationarity, we find robust evidence of a major structural break in the first third of the 20th century. A multi-century downward trend in r-g appears to have levelled off in the years around 1930, and since then r-g has shown high volatility coupled with clear upwards pressure: notably, though real interest rates may still appear favorably low, aggregate growth rates are drifting downwards in advanced economies since the interwar period, creating secular pressures on r-g and debt sustainability. Our results stand in contrast to much recent literature and suggest the need for much more caution in assuming benign trends in global public debt sustainability. At the same time, when adding riskier elements of capital returns, the data lend support for structurally increasing "dynamic efficiency". We then associate the key 1930s inflection to the establishment and growth of welfare states in advanced economies, and the surge in non-defense, non-interest expenditures. |
| JEL: | N20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33202 |
| By: | Resul Cesur; Sadullah Yıldırım |
| Abstract: | Evolutionary accounts assert that while diversity may lower subjective well-being (SWB) by creating an evolutionary mismatch between evolved psychological tendencies and the current social environment, human societies can adapt to diversity via intergroup contact under appropriate conditions. Exploiting a novel natural experiment in history, we examine the impact of the social environment, captured by population diversity, on SWB. We find that diversity lowers cognitive and hedonic measures of SWB. Diversity-induced deteriorations in the quality of the macrosocial environment, captured by reduced social cohesion, retarded state capacity, and increased inequality in economic opportunities, emerge as mechanisms explaining our findings. The analysis of first- and second-generation immigrants in Europe and the USA reveals that the misery of home country diversity persists even after neutralizing the role of the social environment. However, these effects diminish among the second generation, suggesting that long-term improvements in the social environment can alleviate the burden of diversity. Finally, in exploring whether human societies can adapt to diversity, we show evidence that diversity causes adopting cultural traits (such as establishing stronger family ties, assigning greater importance to friendships, and adopting a positive attitude towards competition) that can mitigate the misery of diversity. These results survive an exhaustive set of robustness checks. |
| JEL: | D60 D63 I30 I31 N30 Z13 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33163 |