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on Economic Growth |
| By: | Matteo Cervellati; Gerrit Meyerheim; Uwe Sunde |
| Abstract: | This paper demonstrates that a tractable heterogeneous agent endogenous growth model can quantitatively match the stylized empirical facts of long-run development trajectories of income, life expectancy, and fertility for 86 countries over the past 140 years. A decomposition of comparative development differences into contributions of country-specific "deep determinants'', accumulation forces during the historical development process, and balanced growth dynamics sheds new light on the mechanisms leading to country-specific differences in development and establishes a link between the largely disparate literatures on endogenous growth, comparative development, and growth accounting. Structural estimation results show that historical accumulation dynamics explain most of today's comparative development patterns. A quantification of the demographic dividend suggests implications for future growth dynamics. |
| Keywords: | long-run growth dynamics, quantitative growth dynamics, comparative development, structural estimation |
| JEL: | O10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12176 |
| By: | Matteo Cervellati; Gerrit Meyerheim; Uwe Sunde |
| Abstract: | The relation between income and democracy remains debated, empirically and theoretically. We propose a broader perspective that goes beyond a uni-directional and monocausal interpretation of the income-democracy nexus by focusing on the neglected role of the transition from economic stagnation to sustained growth. We illustrate our argument with an integrated model of long-run growth and democratisation that delivers two general insights. First, rather than higher income levels \emph{per se}, it is the onset of sustained growth that increases the likelihood of democratisation. Intuitively, the faster accumulation of productive factors, such as human capital, reduces conflicts of interest and hence the elite's resistance to democracy. Second, the economic consequences of democracy are amplified when democratisation occurs after the transition to growth. We explore the validity of these novel predictions by revisiting influential empirical studies and exploiting variation in the timing of the transition to sustained growth. Our evidence is consistent with the theoretical predictions, shedding new light on the interpretation of earlier mixed findings. |
| Keywords: | democratisation, demographic transition, unified growth model, comparative development |
| JEL: | D72 J11 O10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12174 |
| By: | Ufuk Akcigit; Harun Alp; Jeremy Pearce; Marta Prato |
| Abstract: | This paper studies how individuals sort into entrepreneurship and invention-related occupations and how their interactions shape innovation and economic growth. We develop an endogenous growth model in which occupational sorting jointly determines the supply of R&D talent and entrepreneurs’ demand for it. Empirically, using Danish microdata, we show that transformative entrepreneurs—those who hire R&D workers—tend to have higher IQ and education and build faster-growing firms than other entrepreneurs. Quantitatively, the estimated model indicates that financial barriers to education misallocate talent; alleviating them through education subsidies increases both demand and supply of R&D workers, raising innovation and long-run growth. Broad startup subsidies are ineffective. |
| Keywords: | entrepreneurship; R&D Policy; innovation; IQ; endogenous growth |
| JEL: | O31 O38 O47 J24 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:101780 |
| By: | Heng-fu Zou |
| Abstract: | This paper develops a dynamic economic growth model in which institutions are treated as real cost technologies borne directly by households that produce, consume, and own firms. Building on Coase's insight that institutions exist to economize on the costs of exchange, Williamson's theory of comparative governance, North's historical thesis on institutional divergence, and Cheung's claim that transaction costs are institution costs, we construct a framework where governance structures absorb resources and alter intertemporal incentives. In this setting, the representative capitalist household faces not only the usual trade-off between consumption and saving but also the resource drain and dynamic wedges created by supervision, verification, and bureaucratic complexity. Institutions thus determine both the feasibility of exchange and the trajectory of growth. The analysis demonstrates how poor institutions depress capital accumulation and consumption, widen the gap between potential and realized outcomes, and lock economies into low-level equilibria. Reforms that reduce verification costs deliver immediate consumption gains, while reductions in supervision and complexity costs require transitional sacrifices but yield higher long-run capital and welfare. Comparative governance is formalized as a boundary condition that selects markets, firms, or hybrids according to which minimizes institution costs at the relevant scale. When governance intensity both raises productivity and consumes resources, institutional performance follows an inverted-U pattern, generating a Laffer-type curve. The model shows that institutional change is the hinge of capitalist development: societies that reduce institution costs achieve sustained growth, while those that do not stagnate. |
| Keywords: | Institutions; Transaction Costs; Institution Costs; Com parative Governance; Economic Growth; Institutional Change; Political Economy |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:787 |
| By: | Kirill Borissov; Stefano Bosi; Thai Ha-Huy; Van-Quy Nguyen; Mikhail Pakhnin |
| Abstract: | We study a discrete-time optimal growth model with endogenous discounting. The discount factor may depend on both consumption and the capital stock, and intertemporal utility is modeled as a discounted sum of instantaneous utilities, with the sum of discount factors equal to one. We show that this specification preserves the invariance of optimal paths and steady states to affine transformations of the instantaneous utility function, providing a general and flexible framework for analyzing economic dynamics under endogenous time preference. We prove that optimal capital paths are monotonic, and steady states depend on initial conditions. We also show the robustness of poverty traps under endogenous discounting: in several examples, for a set of parameters with positive measure, the optimal path converges to a positive steady state only if the initial capital stock exceeds a critical level and otherwise converges to the origin. |
| Keywords: | economic growth, time preference, endogenous discounting, poverty traps |
| JEL: | C61 D15 D90 O41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12156 |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Wei Ma (Center for Economic Research, Shandong University, Jinan, 250100, China) |
| Abstract: | We develop a monetary endogenous growth overlapping generations model characterized by investment adjustment costs as a negative function of productive government expenditures, and an inflation-targeting central bank. We show that growth dynamics arise, otherwise not possible in a standard monetary endogenous growth model with a money growth-rule and an exogenous adjustment cost parameter. Furthermore, hinging crucially on the strength of the response of the adjustment cost to productive public spending, single or multiple equilibria emerge, with the high-growth (low-growth) equilibrium in the latter case being stable (unstable), but locally indeterminate (locally determinate). |
| Keywords: | Supply Investment adjustment costs, endogenous growth, inflation-targeting, growth dynamics |
| JEL: | E22 E58 O42 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202537 |
| By: | Heng-fu Zou |
| Abstract: | This paper develops a governance-augmented Ramsey-Cass-Koopmans (RCK) growth model that unifies the neoclassical theory of capital accumulation with the institutional economics of Coase, Williamson, Alchian-Demsetz, Barzel, North, and Grossman-Hart-Moore. The central proposition is that governance is production: institutions reshape the effective production frontier, alter the intertemporal Euler condition, and modify welfare. On the production side, relation-specific investment generates incentive relief when returns are appropriable, offset by bureaucratic drag, safeguarding costs, and maladaptation. On the consumption side, transaction frictions such as iceberg costs, convex distribution costs, shopping-time requirements, and psychological wedges reduce effective utility. The model demonstrates that governance frictions shift steady states, generate multiple equilibria, and create low-level development traps. Comparative statics show that strengthening property rights, reducing bureaucracy, and lowering consumer frictions raise capital, consumption, and welfare. Cross-country differences in governance parameters explain divergent growth paths, while endogenizing institutions yields virtuous cycles, vicious cycles, and path dependence. The framework integrates institutional economics into dynamic macroeconomics, providing a rigorous foundation for understanding how governance structures shape long-run development. |
| Keywords: | Ramsey–Cass–Koopmans model; governance; transaction costs; property rights; appropriability; bureaucracy; consumption frictions; institutions; multiple equilibria; economic growth; welfare; political economy |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:785 |