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on Economic Growth |
| By: | Chilosi, David; Lecce, Giampaolo; Wallis, Patrick |
| Abstract: | Adam Smith’s claim that the division of labour is one of the major engines of economic growth is a foundational concept in economics. Despite this, we lack measures of the scale and growth of Smithian specialisation over the long run. This paper introduces a novel method based on job titles to measure specialisation. We apply this method to document patterns of Smithian specialisation in early modern Britain. National trends in specialisation were closely associated with economic growth. By 1800, the division of labour was over two and a half times as advanced as in the early sixteenth century, with particularly marked changes within English manufacturing, especially in the mechanical subsector, and, to a lesser extent, services. Specialisation was far less advanced in Wales and Scotland. We study several possible explanations for this change with an IV panel analysis. We find that this significant increase in the division of labour was mostly driven by the growth of the domestic market, in line with Adam Smith’s predictions. Intensive specialisation was concentrated in Middlesex and was helped by a supply factor, Marshallian externalities. Finally, we explore the connection between Smithian Growth and the Industrial Revolution. We find that early specialisation did not lead to later industrial success. Like Adam Smith himself, Smithian specialisation did not predict the Industrial Revolution. |
| Keywords: | economic growth; division of labour; specialisation; tasks; Adam Smith; Britain; productivity; industrial revolution; market potential |
| JEL: | N13 O47 J21 |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:wpaper:128849 |
| By: | Zhang Peichang |
| Abstract: | This paper develops an endogenous growth model featuring income-dependent risk preferences to explain the emergence and evolution of buyout funds. We propose a novel preference structure where high-income agents derive utility from the thrill of entrepreneurial risk-taking, leading them to acquire business ideas from capital-constrained innovators. The model demonstrates that buyout funds emerge as equilibrium contracts when income inequality exceeds a critical threshold, with wealthy investors paying premiums to participate in ventures. Conversely, in more equal economies, buyout funds serve as transitional institutions. Initial inequality enables the acquisition of ideas, but subsequent growth allows the original idea holders to become independent entrepreneurs, leading to the fund's eventual decline. Our framework provides microfoundations for understanding how income distribution shapes financial intermediation patterns and their growth consequences, offering new insights into the relationship between inequality, entrepreneurial spawning, and innovation-driven growth. |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:78 |
| By: | Paker, Meredith; Stephenson, Judy; Wallis, Patrick |
| Abstract: | Understanding long-run economic growth requires reliable historical data, yet the vast majority of long-run economic time series are drawn from incomplete records with significant temporal and geographic gaps. Conventional solutions to these gaps rely on linear regressions that risk bias or overfitting when data are scarce. We introduce “past predictive modeling, ” a framework that leverages machine learning and out-of-sample predictive modeling techniques to reconstruct representative historical time series from scarce data. Validating our approach using nominal wage data from England, 1300-1900, we show that this new method leads to more accurate and generalizable estimates, with bootstrapped standard errors 72% lower than benchmark linear regressions. Beyond just bettering accuracy, these improved wage estimates for England yield new insights into the impact of the Black Death on inequality, the economic geography of pre-industrial growth, and productivity over the long-run. |
| Keywords: | machine learning; predictive modeling; wages; black death; industrial revolution |
| JEL: | J31 C53 N33 N13 N63 |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:wpaper:128852 |
| By: | Daron Acemoglu (MIT, Department of Economics); Ufuk Akcigit (University of Chicago - Department of Economics); Simon Johnson (MIT, Sloan School of Management) |
| Abstract: | This chapter presents a tractable framework for the study of technology adoption and diffusion in the context of economic development. Firms in countries behind the world technology frontier can rapidly adopt new techniques from the world frontier. Lower absorptive capacity (because of weak education systems, poor management practices, or barriers to technology adoption), institutional distortions, mismatch between frontier technologies and the needs of firms in the country (i.e., “inappropriate technology†), and credit market frictions slow down technology adoption and cause the economy in question to have a greater distance to the frontier and thus lower income per capita—although the long-run growth rate of the country still remains equal to that of the frontier. This framework is extended to study the choice between innovation and imitation, as well as the role of selection for higher-productivity and higher-absorptive capacity firms during the process of economic development. We illustrate the main comparative statics of our framework with a number of correlations based on cross-country and firm-level data. The tractability of the framework makes it amenable to a range of additional extensions. |
| Keywords: | technology adoption, innovation, income gap, institutions, economic growth, development, productivity |
| JEL: | O1 O3 O4 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfi:wpaper:2026-12 |
| By: | Gunter Merdzan (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Predrag Trpeski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Daniela Bojadjieva (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia) |
| Abstract: | Purpose The significance of political institutions in promoting economic growth is well acknowledged within institutional economics; however, empirical results often display considerable variation, especially in European post-transition economies. As noted by North (1990) and Acemoglu and Robinson (2012), institutions influence incentives, mitigate uncertainty, and dictate the efficiency of resource allocation. Nonetheless, evidence from transition countries indicates that the relationship between political institutions and economic outcomes is contingent upon specific contextual factors. Earlier studies have yielded mixed results regarding the relationship between economic and political freedoms. Piątek et al. (2013) found that economic freedom fosters growth in transition countries, while political freedom appears to have a neutral effect, suggesting that political reforms may lag behind market liberalisation. In contrast, Uzelac et al. (2020) and Bayar (2016) demonstrate that democracy, political stability, and the quality of governance, particularly in controlling corruption and upholding the rule of law, positively influence economic performance in Central and Eastern Europe. Alexiou et al. (2020) report similar long-term advantages associated with institutional quality, indicating that voice and accountability can enhance growth once the institutional framework becomes stable. Additionally, Tamilina and Tamilina (2014) contend that the growth of post-communist countries relies more on the maturity of political institutions than on their economic counterparts, emphasising the significance of institutional evolution over formal design. Conversely, some scholars, including Hodgson (2006) and Bonnal and Yaya (2015), note that democracy can have neutral or even adverse short-term effects, particularly in fragmented or unstable institutional environments. In this context, the current study aims to contribute to the ongoing debate by empirically re-evaluating the impact of political institutions, assessed through the Freedom House Index (which measures political rights and civil liberties) (Freedom House, 2024) and the Polity IV Index from the Center for Systemic Peace (which evaluates executive constraints and participation) (Marshall et al., 2019), on economic growth in thirteen European post-transition economies from 1996 to 2019. This paper offers updated, dynamic empirical evidence that resolves long-standing inconsistencies in the literature on institutions and growth in post-transition Europe. The topic remains highly relevant, as political and institutional reforms continue to influence the region's prospects for convergence, resilience, and long-term development. Building on prior research, this paper utilises a system generalised method of moments (system GMM) to explore the relationship between political institutions and economic growth. The aim of this study is to assess whether advancements in political institutions, characterised by increased democratic participation, improved accountability, and reinforced constraints on executive power, result in higher GDP per capita growth in post-transition Europe. Consequently, the primary hypothesis examined is: Political institutions that promote greater transparency, participation, and checks on executive authority have a positive, statistically significant effect on economic growth in European post-transition economies. Design/methodology/approach The empirical analysis utilises a dynamic panel-data framework, focusing on thirteen European post-transition economies over the period from 1996 to 2019. To address potential endogeneity, the study employs the system GMM estimator developed by Arellano and Bover (1995) and by Blundell and Bond (1998). This methodology facilitates consistent estimation in dynamic contexts where the lagged dependent variable is included as a regressor and the number of time periods is relatively limited compared to the cross-sectional units. The dependent variable in this analysis is GDP per capita growth, while the primary explanatory variables are political-institutional indicators. These include the Freedom House Index, which assesses political rights and civil liberties (Freedom House, 2024), and the Polity IV Index from the Centre for Systemic Peace, which evaluates executive constraints, political participation, and regime durability (Marshall et al., 2019). Additionally, control variables include the logarithm of GDP per capita in purchasing power parity (PPP), gross fixed capital formation (GFCF) as a measure of physical capital, human capital and population growth. Before conducting the main regression analysis, the study examines partial correlations between GDP per capita growth and the two institutional indicators, while controlling for all other growth determinants. This approach aims to isolate the relationship between political institutions and economic performance, independent of structural and macroeconomic influences. The validity of the instruments and the absence of serial correlation are assessed using standard diagnostic tests. Findings When accounting for the influences of various macroeconomic variables, including initial income, gross fixed capital formation, human capital, and population growth, the partial correlations between GDP per capita growth and the two institutional indicators remain positive, though modest in magnitude. This pattern suggests that enhancements in political rights, civil liberties, and executive constraints are consistently associated with higher growth, provided that structural and demographic factors are controlled for. The system GMM estimation reinforces these associations, demonstrating that political institutions have a positive and statistically significant impact on economic growth. The coefficient for the Freedom House Index is 0.421 (p |
| Keywords: | Political institutions, Economic growth, European post-transition countries, System GMM |
| JEL: | O11 O43 P20 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:aoh:conpro:2025:i:6:p:299-304 |
| By: | Fatma M. Utku-Ismihan; Mustafa Ismihan (Eastern Mediterranean University) |
| Abstract: | Building a strong knowledge-based economy is essential for sustained and successful longrun economic growth. However, this presents its own set of challenges, particularly for countries with endemic instability, recurrent crises, and associated low and volatile productivity and growth rates. In this context, this paper draws from the Turkish experience to investigate the role of macroeconomic instability and knowledge on productivity and growth from 1960 to 2022 by developing an augmented production function model. Chronic macroeconomic instability arising from unsound macroeconomic policies has remained a major factor causing persistent inefficiencies in Türkiye, therefore adversely affecting its productivity and output levels. Such economic policies are often associated with weak institutions—such as political institutions that fail to limit the actions of politicians— along with prevalent corruption and a significant level of political instability. The main empirical results indicate that while knowledge accumulation in Türkiye is a critical driver of productivity and growth, the Turkish economy is also persistently and unfavorably affected by chronic macroeconomic instability fueled by recurring unsound policies and deep institutional problems. |
| Date: | 2024–10–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1740 |
| By: | Ricardo J. Caballero |
| Abstract: | AI technology can generate speculative-growth equilibria. These are rational but fragile: elevated valuations support rapid capital accumulation, yet persist only as long as beliefs remain coordinated. Because AI capital is labor-like, it expands effective labor and dampens the normal decline in the marginal product of capital as the capital stock grows. The gains from this expansion accrue disproportionately to capitalists, whose saving rate rises with wealth, raising aggregate saving. Building on Caballero et al (2006), I show that these features generate a funding feedback—rising capitalist wealth lowers the required return—that can produce multiple equilibria. With intermediate adjustment costs, elevated valuations are the mechanism that sustains a transition toward a high-capital equilibrium; a loss of confidence can precipitate a self-fulfilling crash and reversal. |
| JEL: | E21 E22 E24 E44 O33 O41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34722 |
| By: | Skerdilajda Zanaj (DEM, Université du Luxembourg); Anastasia Litina (University of Macedonia); Emma Thill (DEM, Université du Luxembourg) |
| Abstract: | "Culture shapes economic and social life, yet some traits erode quickly, while others persist across generations. Migrant experiences towards Europe or the United States illustrate this puzzle. In addition, some traits, such as fertility norms, tend to converge relatively quickly, whereas others, such as religiosity, exhibit substantially greater persistence. We develop a dynamic model of cultural transmission that endogenizes both cross-cultural group interaction and parental influence on cultural openness defined as a parentally transmitted willingness to adopt a new cultural trait when beneficial. Parents first shape cultural transmission by choosing their children’s openness to alternative traits. As young adults, individuals then decide how much to interact with other groups and, conditional on interaction, whether to switch traits. This endogenizes peer exposure and makes cultural change a deliberate choice. Within a generation, a higher group-level propensity to switch reduces group size, while tighter norms can expand or shrink a group depending on the relative utility of its trait. Across generations, parental investments in openness generate three long-run equilibria: convergence to a single trait, coexistence with interaction, or segregation without interaction. By jointly modeling parental transmission and peer-driven switching, we show that cultural persistence or change reflects purposeful micro-level decisions." |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:25-20 |
| By: | Nahar, Syfun; Inder, Brett |
| Abstract: | In this paper we propose a new test procedure with more general steady state information to test the convergence hypothesis for a specific economy. We consider a model where demeaned per capita output of an economy is a function of time trend and then set the convergence hypothesis as negative average slope of that model. Applying the new procedure to 22 OECD countries we find strong evidence of convergence for 20 countries towards their average level. We also consider the per capita output of USA as a common steady state level for OECD countries. Then using the per capita output gap from USA we test the convergence hypothesis for an individual economy. This approach also shows strong evidence in favour of convergence towards the USA for most economies. France and Iceland do not converge towards the average level of OECD countries although they are converging towards USA. Australia and New Zealand are showing the opposite pattern as they are converging towards the average level but moving away from USA. This study also points out why using standard unit root tests with Bernard and Durlauf's (1995) definition of convergence is inappropriate. |
| Keywords: | Financial Economics, International Development |
| URL: | https://d.repec.org/n?u=RePEc:ags:monebs:267483 |