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on Economic Growth |
| By: | Holtemöller, Oliver; Schult, Christoph; Solms, Anna |
| Abstract: | Many countries and regions remain below the level of economic activity of the world's most advanced economies. Some countries form growth clubs, some are stuck in the middle-income trap, and some stay on a very low level of economic activity. Although this situation is well documented on the country level, there is less evidence at the sub-national level within countries. We estimate county-level capital stocks and price indices and provide a comprehensive county-level data set for Germany. We find no evidence of convergence across all counties even if we condition on important drivers of long-term growth such as physical and human capital accumulation. Instead, we identify five convergence clubs, using endogenous clustering. We analyze differences in growth paths and describe the identified clusters based on variations in contributions of capital, labor, and total factor productivity to economic growth. Additionally, we examine the role of migration for regional development and find that net migration has in particular contributed to growth in richer regions. |
| Keywords: | convergence clubs, growth accounting, regional economic growth |
| JEL: | C23 O47 R11 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:340108 |
| By: | Guillaume Blanc and Romain Wacziarg (Simon Fraser University) |
| Abstract: | For most of human history, until the fertility transition, technological progress translated into larger populations, preventing sustained improvements in living standards. We argue that migration offered an escape valve from these Malthusian dynamics after the European discovery and colonization of the Americas. We document a strong relationship between fertility and migration across countries, regions, individuals, and periods, in a variety of datasets and specifications, and with different identification strategies. During the Age of Mass Migration, persistently high fertility across much of Europe created a large reservoir of surplus labor that could find better opportunities in the New World. These migrations, by relieving demographic pressures, accelerated the transition to modern growth. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:sfu:sfudps:dp26-05 |
| By: | Miguel Faria-e-Castro; Pascal Paul; Juan M. Sanchez |
| Abstract: | Should firms in financial distress be saved to stabilize an economy, even if less productive ones are kept alive, possibly reducing economic growth? To assess this fundamental stabilization-vs.-growth trade-off, we develop a new dynamic general equilibrium model with business cycles, endogenous growth, and innovation externalities. We discipline key parameters using microeconomic data and an instrumental-variable approach that links firm productivity growth to R&D expenditure. Based on the calibrated model, we find that economies that save distressed firms with credit guarantees, debt restructuring, or loan evergreening experience lower volatility but also slower growth. Even though welfare is higher in an economy without such interventions, the various "soft credit" regimes can still arise as equilibrium outcomes when a benevolent government intervenes in credit markets under discretion. |
| Keywords: | business cycles; endogenous growth; financial frictions |
| JEL: | E43 E44 E60 G21 G32 |
| Date: | 2026–04–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:103046 |
| By: | Leon Huetsch; Dirk Krueger; Alexander Ludwig |
| Abstract: | We build a unified quantitative theory of increasing adult life expectancy and income growth in the last two centuries, and the emergence of a modern health sector in the 20th century. We interpret the data as three phases of a dynamic equilibrium in which households are initially poor, the price of health goods is prohibitively high, and life expectancy is stagnant. As technological progress fuels income growth, households commence consuming basic health goods and life expectancy rises in the first half of the 19th century. 100 years later, further directed technological progress leads to the emergence of a modern health sector. Through the lens of the model, the quality-adjusted relative price of modern health goods declined by about 2.5% per year between 1940 and 2020 while the model-implied relative price that lacks quality adjustment increases in line with the BEA health price index. Counterfactual analyses suggest that almost one fourth of adult life expectancy gains between 1940 and 2020 are attributed to the emergence and expansion of modern health and that public spending on health R&D during World War II played an important role in the kickoff of the modern health sector. |
| JEL: | E13 I15 O41 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35092 |
| By: | Mr. Serhan Cevik; Sharayah Dominguez |
| Abstract: | Determining the appropriate size of government remains central for fiscal sustainability, social protection, and macroeconomic stability. Wagner’s law, formulated in the 19th century, posits that government expenditures rise with income, yet contemporary evidence is mixed. This paper revisits the relationship between economic growth and government spending in Europe over the period 1990–2024, with particular attention to the Balkans. Using an instrumental variable strategy based on trade-weighted partner growth, we find no evidence that rising income systematically expands government expenditure. On the contrary, faster growth is associated with modest declines in expenditure, particularly for current spending, while capital outlays remain largely unaffected. These patterns are stronger in high-debt countries, suggesting that fiscal rules and debt constraints increasingly shape spending decisions. The Balkan economies largely follow these trends, though heterogeneity reflects transition dynamics and EU integration. Our findings imply that Wagner’s law no longer describes spending behavior in modern European economies. Policymakers should focus less on income-driven expenditure growth and more on strengthening fiscal frameworks, improving spending efficiency, and prioritizing high-return investments in infrastructure and human capital. These measures can enhance fiscal resilience while supporting public service provision and long-term development goals. |
| Keywords: | Government spending; economic growth; Wagner’s Law |
| Date: | 2026–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/079 |