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on Economic Growth |
| By: | Wang, Gaowang; Zou, Heng-fu |
| Abstract: | In this article, we develop a growth theory by integrating the Weber-Schumpeterian spirit of capitalism into Romer's (1990) model of endogenous technological change. The spirit of capitalism influences innovation and long-run growth through capital accumulation and the reallocation of human capital, mediated by a price mechanism. It also helps prevent economic stagnation arising from a limited stock of human capital. Explicit solutions illustrate the qualitative effects of the spirit of capitalism on growth. Using calibrated parameters based on U.S. data, we find this effect is quantitatively significant, accounting for more than half of U.S. long-run growth. |
| Keywords: | Weber's Spirit of Capitalism; Schumpeter's entrepreneurial psychology; Endogenous Growth; Economic Stagnation; Heterogeneous Ability |
| JEL: | E1 O3 O4 |
| Date: | 2025–10–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126518 |
| By: | Stéphane Bouché; Mikhail Pakhnin |
| Abstract: | We study a neoclassical growth model with population growth and agents who are heterogeneous in their discount factors. Population growth is interpreted as the entry of new infinitely-lived agents with zero initial endowments who are not included in the economic calculus of existing agents. We prove that when capital and labor are substitutes in production and utility is isoelastic, there exists a unique stationary equilibrium in per capita terms. A stationary equilibrium can take one of two forms: a Ramsey conjecture equilibrium, in which only the most patient agents own the entire capital stock, or a non-degenerate equilibrium, in which agents other than the most patient ones also hold positive amounts of capital. We show that introducing public debt, a labor income tax or a capital subsidy shifts the economy from a Ramsey conjecture stationary equilibrium to a non-degenerate one, and analyze the resulting relationship between income and inequality. |
| Keywords: | economic growth, heterogeneous discounting, inequality, ramsey conjecture, overlapping generations |
| JEL: | D15 D31 D50 E21 O40 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12213 |
| By: | de la Fonteijne, Marcel R. |
| Abstract: | This paper examines the dynamic behavior of the capital-labor-mix parameter α in CES production functions within the framework of the Modern Universal Growth Theory (MUGT). While traditional growth models don’t show openly the dynamic behavior of α, we show that under marginal profit optimization, α has to adapt continuously to remain on a balanced growth path (BGP). This adjustment leads to a redefinition of α at each basepoint—denoted αₘ—highlighting its role as a stabilizing variable. In practice, αₘ appears remarkably stable, suggesting the presence of market or institutional mechanisms that counterbalance the change of the capital-labor-mix α by technical progress. Growth, without counterbalance of the capital-labor-mix α and with elasticity of substitution σ≠1, always leads in the long run to a labor-only or capital-only production function. We further explore whether policy should focus on stabilizing workshare ws or on maintaining profitability r. |
| Keywords: | Capital and Labor Augmented Technical Progress; Growth Model, Maximum Profit Condition; Production Functions; General Technical Progress; Capital-Labor-mix; Elasticity of Substitution; DSGE; Total Factor Productivity; TFP; Solow model; Hicks; Harrod; MUGT; Modern Universal Growth Theory |
| JEL: | E00 E02 E20 E23 E24 E25 |
| Date: | 2025–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126079 |
| By: | Kurniady, Alvin |
| Abstract: | The purpose of this paper is to introduce a new production function that takes into account self-learning AI, which can improve itself and therefore productivity without any additional human capital or labor, even though it still requires physical capital. The difference between my production function and any other existing production function is that my production function separates technologies into self-learning and non-self-learning technologies. The value of exponent for the self-learning technologies depends on the value of its base and this is the unique recursive feature of my production function. Unlike in the MRW production function, in my production function, technology and labor force are separated and this is allowed because I make the technology endogenous. My production function leads to only two possibilities, which are an economy that is in balanced growth path (BGP), and an economy that is in accelerating growth path. The determining factor that decides whether an economy is in BGP or not is the exponent for the self-learning technologies in my production function. If the sum of all exponents is less or equal to 1, then the economy is in BGP, which is consistent with MRW (1992). If the sum of all exponents is greater than 1, then the economy is in accelerating growth path, which is consistent with Romer (1986). There is no steady state in my production function. I also rule out the possibility of singularity. My production function has many policy implications, and the policy recommendations differ among AI-producing countries, rich non-AI-producing countries and poor non-AI-producing countries. |
| Keywords: | Self-learning artificial intelligence; Production function; Balanced growth path vs. accelerating growth path; Recursive learning; Economic growth; Total output |
| JEL: | O41 |
| Date: | 2025–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126457 |
| By: | Luisa Corrado; Stefano Grassi; Aldo Paolillo |
| Abstract: | Recent studies suggest that space activities generate significant economic benefits. This paper attempts to quantify these effects by modeling both business cycle and long–run effects driven by space sector activities. We develop a model in which technologies are shaped by both a dedicated R&D sector and spillovers from space†sector innovations. Using U.S. data from the 1960s to the present day, we analyze patent grants to distinguish between space and core sector technologies. By leveraging the network of patent citations, we further examine the evolving dependence between space and core technologies over time. Our findings highlight the positive impact of the aerospace sector on technological innovation and economic growth, particularly during the 1960s and 1970s. |
| Keywords: | Aerospace, Space Economy, Growth |
| JEL: | A1 C5 E00 O10 |
| URL: | https://d.repec.org/n?u=RePEc:nsr:niesrd:573 |
| By: | SAKURAGAWA, Masaya; SAKURAGAWA, Yukie |
| Abstract: | This paper establishes a growth theory that enable us to study fiscal policies in economies of low interest rates on debt. In order to explain low interest rates, we introduce financial frictions, namely, uninsurable idiosyncratic risk in capital income and borrowing constraints faced by firms, into a standard endogenous growth model. Interest rates on debt can fall below the economic growth rate, and then the government can sustain debt by running primary deficits. Low interest rates on debt arise from the shortage in liquidity, and thus those low rates are associated with low investment and slow economic growth. The choice faced by the government is either the set of deficits and slow growth or the set of surpluses and fast growth. We show that the current Japanese economy falls into a region of liquidity shortage. We evaluate fiscal policies at aiming fiscal surpluses above zero from the perspective of our model. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-152 |
| By: | Andreas Irmen (DEM, Université du Luxembourg); Maria Krelifa (DEM, Université du Luxembourg); Johanna Kuehnel (University of Heidelberg, DE) |
| Abstract: | This paper investigates how population ageing affects economic growth by altering the composition of government expenditure. We develop and test an original political economy model in which an aging population shifts the preferences of the median voter, leading to increased elderly spending at the expense of private investment, thus reducing growth. The model yields three predictions: population ageing (i) raises elderly spending (as a share of output); (ii) does not significantly affect productive expenditure; and (iii) lowers economic growth. Using OECD data from 2007-2018 and both OLS and IV regression analyses, we find strong support for prediction (i): population ageing significantly increases spending on “old age” and “hospital services.” Consistent with (ii), there is no significant impact on “tertiary education, ” “transport, ” “communication, ” or “R&D.” Finally, using GMMbased estimation with a broader sample of 178 countries, we confirm prediction (iii): healthcare expenditure negatively affects growth. |
| Keywords: | "ageing, demographics, endogenous economic growth, generalised method of moments, government spending, median voter." |
| JEL: | D72 E62 H40 J10 O40 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:25-15 |
| By: | Lin, Ziruo |
| Abstract: | This essay compares the influence of Confucianism in China and the Protestant ethic in Europe on both formal and informal institutions, examining their role in shaping divergent economic trajectories. Drawing on historical and institutional analysis, this essay integrates insights from economic history, sociology, and political theory. The findings contribute to debates on the cultural origins of the Great Divergence and offer broader insights into how culture interacts with governance structures and economic incentives over the long run. Understanding these historical dynamics is valuable not only for explaining the Great Divergence but also for interpreting contemporary patterns of development, governance, and social trust. In an era where policymakers and international organizations grapple with institutional reform, corruption, and cultural barriers to economic growth, the study highlights the importance of aligning institutional design with prevailing social norms to foster sustainable, inclusive development. |
| Keywords: | Confuscanism; the Protestant ethic; ideology; economy |
| JEL: | J1 |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129934 |
| By: | Danyang Xie (Society Hub, HKUST (Guangzhou)); Heng-fu Zou (The World Bank; Institute for Advanced Study, Wuhan University; China Economics and Management Academy, Central University of Finance and Economics) |
| Abstract: | We study the optimal timing of institutional reform in a growth model where reform is anticipated and causes a one-time disruption. Institutions are costly tech- nologies that affect the economy's resource constraint and household saving. We solve for the optimal reform time by maximizing lifetime utility within a continuous-time optimal control framework with an endogenous switching time. For an analytically tractable case, we derive the necessary conditions for an optimal interior reform time. The core condition is the continuity of the optimized Hamiltonian at the point of reform, solved simultaneously with jump conditions for capital and its shadow price. This approach internalizes the fact that the pre-reform path is chosen in anticipation of the reform date. A calibration exercise illustrates three distinct regimes: immediate reform, delayed reform, and indefinite postponement, depend ing on the magnitude of the disruption and the quality of institutional improvement. Our analysis yields policy implications for sequencing and communicating reforms, highlighting conditions under which delay is optimal even when new institutions are unambiguously superior in the long run. |
| Date: | 2025–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:792 |
| By: | Heng-fu Zou (Institute for Advanced Study, Wuhan University) |
| Abstract: | We develop a unified, utility-based model of semi-endogenous growth in which a representative household (RH) and a social planner (SP) face identical feasibility and knowledge constraints, and in which automation/A.I. directly performs a fraction of research tasks. The framework is deliberately parsimonious-one state (the stock of ideas) and one intensive choice (the research share)-so mechanisms are transparent and results come in closed form. First, in a competitive reduced-form environment we solve RH and SP side-by-side, prove equivalence for growth, and derive a closed-form balanced-growth research share that cleanly separates levels (chosen by the research share) from rates (pinned by the idea law and the evolution of research effort). Second, we place automation inside R&D via a task aggregator and obtain a single organizing iden tity that links long-run idea growth to the growth of machine and human research capacity. Two closures-ideas-riding A.I. and “exogenous A.I. drift†-deliver testable expressions for per-capita growth and a simple sustainability condition under demographic headwinds. Off the balanced growth path, we provide an exact transition decomposition, including a reallocation term from the diffusion of automation. Third, embedding a Romer variety-expansion sector reveals a static markup wedge and a dynamic knowledge wedge; a minimal policy pair-a user-price subsidy for intermediates and an R&D prize/ wage subsidy-decentralizes the planner. The resulting toolkit offers suffcient statistics for measurement and policy design. |
| Date: | 2025–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:794 |
| By: | Gillman, Max; Csabafi, Tamás Z.; Benk, Szilárd; Mátyás, László; Smith, Mitchell P.; Harris, Mark N. |
| Abstract: | This paper extends the neoclassical growth framework and provides an econometric estimation of output growth for twenty-one countries in a panel setting using annual data spanning nearly four decades. Building on the model where economic growth depends on returns to human and physical capital, we specify a baseline econometric model that includes variables most directly affecting these returns. The empirical findings highlight inflation and the rate of capacity utilization of physical capital as the two main statistically significant variables, with opposite signs consistent with theoretical predictions. We employ advanced panel-data techniques, including Common Correlated Effects estimation, error-correction models, and cointegration analysis, to ensure robustness. Interpreting the results through the lens of tax-smoothing principles suggests that policymakers should limit reliance on inflation surges during crisis-induced Treasury debt expansions. Instead, greater crisis financing through the private sector, while reducing inflationary pressures, can entail higher real interest rates that depress capital utilization and, consequently, economic growth. |
| Keywords: | inflation, economic growth, common correlated effects, panel error correction model, capacity utilization, income taxes |
| JEL: | C23 E31 E52 O16 O42 |
| Date: | 2025–10–21 |
| URL: | https://d.repec.org/n?u=RePEc:cvh:coecwp:2025/03 |
| By: | Bharti, Nitin Kumar; Gethin, Amory; Jenmana, Thanasak; Mo, Zhexun; Piketty, Thomas; Yang, Li |
| Abstract: | This paper constructs a new global historical database on public expenditure and revenue and their components-particularly education and health expenditure-covering all world regions over the 1800-2025 period. We document a large rise of human capital expenditure (as % of GDP) in all parts of the world in the long run, but with enormous and persistent inequality between regions. Public education expenditure per school-age individual in Sub-Saharan Africa is about 3% of the level observed in Europe and North America in 2025 in PPP terms (versus 6% in 1980 and 4% in 1950). We also find a large impact of human capital expenditure on productivity growth over the 1800-2025 period, especially for public education and for poor countries. Estimated returns using our macro-historical database are around 10% or more, in line with micro studies. Finally, we present simulations based on alternative human capital expenditure trajectories over the 2025-2100 period. In particular, we analyze the conditions under which convergence in human capital expenditure could lead to global productivity convergence by 2100 (around 100€ per hour in all regions in our benchmark scenario). |
| Keywords: | Human Capital, Productivity, Education, Health, Global Inequality |
| JEL: | E24 H5 I15 I25 N10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:330312 |
| By: | Fanze Kong; Jiayi Sun; Shuangquan Xie |
| Abstract: | One of the most significant findings in the study of spatial Solow-Swan models is the emergence of economic agglomeration, in which economic activities concentrate in specific regions. Such agglomeration provides a fundamental mechanism driving the spatial patterns of urbanization, labor migration, productivity growth, and resource allocation. In this paper, we consider the one-dimensional spatial Solow-Swan model with capital-induced labor migration, which captures the dynamic interaction between labor and capital through migration and accumulation. Focusing on the regime of sufficiently small capital diffusivity, we first construct an interior spike (spiky economic agglomeration) quasi-equilibrium. Next, we perform the linear stability of the corresponding spike equilibrium by using a hybrid asymptotic and numerical method. We show that a single interior spike remains stable for small reaction-time constants but undergoes a Hopf bifurcation when the constant is sufficiently large, leading to oscillations in spike height (economic fluctuation). Finally, we derive a differential-algebraic system to capture the slow drift motion of quasi-equilibrium (core-periphery shift). Numerical simulations are carried out to support our theoretical studies and reveal some intriguing yet unexplained dynamics. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.19204 |
| By: | Filippo De Feo (Institut für Mathematik, Technische Universität Berlin); Giorgio Fabbri (Université Grenoble Alpes; INRAE); Silvia Faggian (Ca’ Foscari University of Venice); Giuseppe Freni (Parthenope University of Naples) |
| Abstract: | We study optimal and strategic extraction of a renewable resource that is distributed over a network, migrates mass-conservingly across nodes, and evolves under nonlinear (concave) growth. A subset of nodes hosts extractors while the remaining nodes serve as reserves. We analyze a centralized planner and a noncooperative game with stationary Markov strategies. The migration operator transports shadow values along the network so that Perron–Frobenius geometry governs long-run spatial allocations, while nonlinear growth couples aggregate biomass with its spatial distribution and bounds global dynamics. For three canonical growth families, logistic, power, and log-type saturating laws, under related unilities, we derive closed-form value functions and feedback rules for the planner and construct a symmetric Markov equilibrium on strongly connected networks. To our knowledge, this is the first paper to obtain explicit policies for spatial resource extraction with nonlinear growth and, a fortiori, closed-form Markov equilibria, on general networks. |
| Keywords: | Harvesting, spatial models, differential games, nature reserves |
| JEL: | Q20 Q28 R11 C73 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2025:22 |
| By: | Bharti, Nitin; Gethin, Amory; Jenmana, Thanasak; Mo, Zhexun; Piketty, Thomas; Yang, Li |
| Abstract: | This paper constructs a new global historical database on public expenditure and revenue and their components—particularly education and health expenditure—covering all world regions over the 1800-2025 period. We document a large rise of human capital expenditure (as % of GDP) in all parts of the world in the long run, but with enormous and persistent inequality between regions. Public education expenditure per school-age individual in Sub-Saharan Africa is about 3% of the level observed in Europe and North America in 2025 in PPP terms (versus 6% in 1980 and 4% in 1950). We also find a large impact of human capital expenditure on productivity growth over the 1800–2025 period, especially for public education and for poor countries. Estimated returns using our macro-historical database are around 10% or more, in line with micro studies. Finally, we present simulations based on alternative human capital expenditure trajectories over the 2025–2100 period. In particular, we analyze the conditions under which convergence in human capital expenditure could lead to global productivity convergence by 2100 (around 100€ per hour in all regions in our benchmark scenario). (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:ftjys_v1 |
| By: | Barrales-Ruiz, Jose; Kim, Gyeongho; Mendieta-Munoz, Ivan |
| Abstract: | This paper provides an empirical analysis of the dynamic determinants of US labor productivity growth by considering that the latter is an endogenous outcome, mainly influenced by changes in the size of the economy and relative labor costs. Specifically, we consider that changes in GDP, real wages, wages relative to the price of capital, and investment effect simultaneously the evolution of labor productivity growth. We focus on studying whether the response of the latter to these effects has been stable or time-varying by adopting a flexible hybrid time-varying parameter Bayesian vector autoregression with stochastic volatility empirical framework. This allows us identify whether none, some, or all lagged and contemporaneous coefficients in the equations in the model are constant or time-varying via model selection. We find: (i) evidence supporting the view of time-varying endogenous labor productivity growth dynamics; (ii) that the response of labor productivity growth to GDP growth has tended to increase over time; and (iii) that the response of labor productivity growth to real wage growth has tended to decrease over time. Our findings have important policy recommendations that can help to improve the future performance of labor productivity growth in the USA. |
| Keywords: | labor productivity growth, induced technical change effect, Kaldor-Verdoorn effect, model selection, time-varying parameter vector autoregressions |
| JEL: | B50 C11 C32 C52 E12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:330302 |