|
on Economic Growth |
| By: | Grimaud, André; Lafforgue, Gilles; Rougé, Luc |
| Abstract: | Degrowth is often advocated as a response to the climate crisis, but its consistency with growth theory remains unclear. We develop an endogenous growth model of directed technical change and climate in which the economy relies on both a polluting fossil resource and a clean renewable alternative. We fully characterize the social optimum and show that accounting for climate damages may justify an initial phase of degrowth. Such a phase is more likely when fossil resources are abundant and fossil-oriented research is relatively inefficient. In all cases, long-run optimal growth remains positive. |
| Keywords: | degrowth; directed technical change; endogenous growth; social optimum; climate change. |
| JEL: | O33 O44 Q32 Q55 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131735 |
| By: | Sebastiano Della Lena (Department of Economics, Monash University); Yasuhiro Sato (The University of Tokyo); Yves Zenou (Department of Economics, Monash University) |
| Abstract: | We develop a dynamic model in which individuals allocate time between work and religious activities, and parents invest in their children’s human capital and religious belief. The model delivers, in a unified framework, the two empirical regularities doc- umented by Barro and McCleary (2003) and McCleary and Barro (2019): controlling for religious activities, stronger belief raises economic growth because it raises hu- man capital investment; controlling for belief, more time spent on religious activities lowers growth by crowding out labor supply. While the labor-supply margin is in- dividually optimal, the human-capital margin is not: parents do not internalize that greater human-capital investment crowds out future religious transmission through the socialization channel, leading to inefficiently high human capital in equilibrium under strong socialization externality. We extend this baseline framework in three directions. First, introducing a complementarity between religious belief and human capital—capturing the Protestant-ethic channel of Weber (1930)—we show that the efficiency of equilibrium depends non-monotonically on the strength of this comple- mentarity. Second, allowing for cultural conflict between two religious groups `a la Bisin and Verdier (2000), we show that cultural intolerance depresses human capital investment and, if human capital raises labor productivity, reduces economic growth. Third, embedding the model in a system of cities, we show that larger, more produc- tive cities endogenously attract workers who invest more in human capital and spend less time on religious activities, generating a negative cross-city relationship between city size and religiosity that is consistent with the empirical evidence in McCleary and Barro (2019). |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2026cf1274 |
| By: | Maebayashi, Noritaka |
| Abstract: | I develop an endogenous growth model with overlapping generations in which individuals choose their schooling and retirement lengths, reflecting the complementarity between physical and human capital. I propose a public pension system that promotes active aging and lengthens schooling without increasing income inequality. In the baseline model, this system does not raise social welfare because additional labor supplied by the elderly reduces leisure and depresses wages, while the Ben-Porath–type human capital gains are negligible. However, if greater elderly labor participation generates even small positive externalities—such as stronger senior work communities, better working environments for older individuals, and reduced loneliness or illness—then such the pension system encouraging active aging can improve welfare for all generations. |
| Keywords: | Active aging, Retirement, Education, Public pension, Heterogeneous agents, Endogenous growth, Overlapping generations |
| JEL: | E62 H55 J24 J26 |
| Date: | 2026–04–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128720 |
| By: | Chebbi, Ali |
| Abstract: | Why does rapid technological progress at the global frontier coincide with persistent divergence in follower economies? This paper develops a stochastic growth model that integrates a Schumpeterian technology frontier with a micro-founded human capital threshold to address this puzzle. Our main contribution is to show that the development barrier is not static but an endogenously evolving volatility trap, where the threshold itself becomes a function of frontier-level and volatility. This transforms technological volatility from a cyclical concern into a powerful driver of long-run welfare distributions. The model generates three testable results: (1) It proves the conditions for irreversible collapse (Theorems 2 & 4), providing micro-foundations for the lower "twin peak." (2) It endogenizes the concurrent breakdown of Okun’s Law and the Beveridge Curve (Theorems 6 & 7) as structural symptoms of the trap. (3) It identifies three specific externalities that justify a shift from growth-maximizing to resilience-building policies. The analysis provides a unified framework for understanding jobless recoveries, persistent poverty traps, and the policy imperative of managing catastrophic risk in an era of technological change. |
| Keywords: | Schumpeterian Growth, Volatility Trap, Endogenous Technological Threshold, Hysteresis, Jobless Growth, Multiple Equilibria. |
| JEL: | E24 E32 J64 O41 |
| Date: | 2026–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128819 |
| By: | Daniel Gallardo-Albarrán (Wageningen University); Kalle Kappner (HU Berlin) |
| Abstract: | European countries paved the way for modern economic growth in the 19th century with large-scale reforms facilitating human capital accumulation. The literature has looked at the role of elites in broad education investments, but less attention has been devoted to reforms promoting workers' health, a key component of human capital. This paper studies the impact of the 1866 cholera outbreak on modern waterworks construction in the German Empire to test the hypothesis whether concerns about workers' health may have compelled elites to invest in health-enhancing public goods. We find that the epidemic raised the annual probability of building waterworks by about 35%. Exogenous variation relying on the cholera-spreading effect of military movements during the Austro-Prussian War in 1866 further underpins this result. Quantitative and qualitative evidence indicates that non-agricultural elites employing more productive capital and better-skilled workers pushed for reform to avoid the costly prospect of future labour shocks. Long-term analyses show sizeable and persisting effects of the epidemic on public health and development outcomes shortly before the First World War. |
| Keywords: | political economy; public goods; sanitation; cholera; elites; |
| JEL: | H41 H54 I18 N33 N93 |
| Date: | 2026–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:573 |
| By: | Luca Zamparelli (Department of Social Sciences and Economics, Sapienza University, Italy) |
| Abstract: | This paper develops a growth model that integrates automation, conceptualized as a distinct form of "automation capital", into a Classical–Marxian framework characterized by an institutionally given real wage and an endogenous labor supply. Automation capital and labor are perfect substitutes, while the two are perfect complements with traditional capital. Capitalists allocate savings between investment in traditional and automation capital. Below a critical investment share in automation, the economy converges to a balanced growth path, characterized by stable income distribution and a negative relationship between automation and the labor share. Beyond it, the economy tends toward full automation and a null wage share. Automation’s effect on growth is regime-dependent: it accelerates growth under high wages but retards it under low wages. Consequently, profit-maximizing capitalists with an infinite horizon choose full automation under high wages and none under low wages. With a finite horizon in a low-wage regime, they may adopt limited automation, trading immediate distributional gains against long-run growth. A strategic union, valuing both wages and employment growth, will set a low wage to preempt full automation, leading to an equilibrium with partial or no automation depending on the capitalists’ planning horizon. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2604 |
| By: | Daniel Gallardo-Albarrán; Kalle Kappner |
| Abstract: | European countries paved the way for modern economic growth in the 19th century with large-scale reforms facilitating human capital accumulation. The literature has looked at the role of elites in broad education investments, but less attention has been devoted to reforms promoting workers' health, a key component of human capital. This paper studies the impact of the 1866 cholera outbreak on modern waterworks construction in the German Empire to test the hypothesis whether concerns about workers' health may have compelled elites to invest in health-enhancing public goods. We find that the epidemic raised the annual probability of building waterworks by about 35%. Exogenous variation relying on the cholera-spreading effect of military movements during the Austro-Prussian War in 1866 further underpins this result. Quantitative and qualitative evidence indicates that non-agricultural elites employing more productive capital and better-skilled workers pushed for reform to avoid the costly prospect of future labour shocks. Long-term analyses show sizeable and persisting effects of the epidemic on public health and development outcomes shortly before the First World War. |
| Keywords: | political economy, public goods, sanitation, cholera, elites |
| JEL: | H41 H54 I18 N33 N9 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12683 |
| By: | Obregon Diaz, Carlos Federico |
| Abstract: | This paper presents a theoretical and historical analysis of economic development based on the concept of belonging. It argues that existing growth theories fail to explain cross-country differences because they neglect institutional inclusion and the role of the middle class in expanding effective market demand. The Economy of Belonging framework interprets development as a function of institutional arrangements that determine participation in markets and access to rights. Comparative evidence from Russia, Latin America, and East Asia shows that successful development depends on the expansion of a broad middle class and the alignment of investment with technological frontiers. The paper contributes to the literature by integrating institutional economics, growth theory, and political economy into a unified framework centered on belonging. |
| Keywords: | • Economic development • Growth theory • Institutional economics • Middle class • Effective demand • Comparative development • Political economy • Economic history • Development policy • Market size |
| JEL: | B52 F63 N10 O10 O11 O15 O43 O47 |
| Date: | 2026–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128765 |
| By: | Gabriel, Shalom; Ndanshau, Michael O.A. |
| Abstract: | The primary objective of this study was to empirically establish the nature of the relationship between external debt and economic growth in Tanzania, both in the short run and long run. The ARDL bounds test and the error correction model (ECM) were applied to annual time-series data for the period from 1980 to 2023. Both ARDL and ECM econometric results revealed a long-run equilibrium relationship among economic growth, external debt, and some covariates relevant to Tanzania. The results revealed a less-than-proportional negative effect of a unit change in external debt on economic growth in the long run, but a significant positive effect in the short run. The finding emphasizes the importance of prudent fiscal policy as a prerequisite for effective debt management to achieve sustainable and inclusive economic growth and development. This study may benefit from a follow-up study on threshold debt, domestic debt, and debt servicing in relation to economic growth in Tanzania. |
| Keywords: | External debt, economic growth, ARDL model, Tanzania |
| JEL: | E62 O47 O55 |
| Date: | 2026–04–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128876 |
| By: | Muleta-Erena, Temesgen |
| Abstract: | This paper develops a hybrid theoretical model of low activation economies, defined as systems where substantial human, physical, and institutional capital exists but remains underutilised. While low activation individuals exist globally, the structural form of low activation is particularly pronounced in the Aid Dependent South, where institutional incentives reward conformity, symbolic modernisation, and administrative loyalty rather than innovation. Building on Baran’s concept of potential surplus and his metaphor of underdeveloped economies living “in the shadow of the sun, ” the paper integrates insights from Solow (1956), Romer (1990), Pritchett (2001), Acemoglu and Restrepo (2019), Easterly (2001, 2006), Sen (1999), and Bourdieu (1986). A replicator dynamics game theoretic model demonstrates how innovation is suppressed, conformity becomes evolutionarily stable, and economies become trapped below an activation threshold. The model explains persistent agrarian technological stagnation despite the presence of universities, graduates, digital tools, and global knowledge. The paper concludes by interpreting inactive capital as economic entropy and symbolic modernisation as a mechanism that stabilises low activation equilibria. |
| Keywords: | activation trap; inactive capital; symbolic modernisation; low activation economies; potential surplus; replicator dynamics; innovation threshold; institutional incentives; aid dependent economies; economic entropy; development traps; endogenous growth failures |
| JEL: | A10 A11 A12 A13 A14 O1 O10 O11 O12 O14 O15 O17 O19 O2 O4 O40 O43 O47 O5 O50 O53 O54 O55 P4 P41 P42 P43 P45 |
| Date: | 2026–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128800 |
| By: | Francesca Asja Trento; Andrea Melillo; Mounu Prem; Luigi Pascali |
| Abstract: | What role did the Republic of Letters play in Europe's transition to sustained innovation? We combine a corpus of digitized correspondence within the Republic of Letters with European aristocratic genealogies, historical postal routes, and a database of notable individuals to trace the diffusion and consequences of Enlightenment correspondence between 1600 and 1850. We first show that the Republic spread, in part, through aristocratic kinship networks: aristocrats connected to already participating peers entered earlier, and their probability of entry declined sharply with network distance. To isolate a causal channel, we exploit changes in postal distances along pre-existing kinship paths to already-inoculated aristocrats, while controlling directly for local postal access. We then aggregate this variation to European grid cells and estimate the effect of exposure to the Republic on the rise of applied science, innovation, and economic activity. Cells instrumented into the Republic experienced a near- doubling in applied scientists and inventors roughly three decades after first contact, with no pretrends and effects concentrated in scientific and technical correspondence rather than religion or philosophy. These findings suggest that the Republic of Letters helped reshape the geography of innovation before industrialization. |
| Keywords: | economic growth, Enlightenment, innovation, Republic of Letters, social networks, The Great Divergence, useful knowledge |
| JEL: | N13 O31 O33 Z13 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1579 |
| By: | Roman G. Smirnov |
| Abstract: | Standard dynamical systems approaches to economic modeling, such as those deriving the Cobb-Douglas and CES production functions from exponential growth trajectories, typically rely on integer-order differential equations. While effective, these models assume that economic output depends solely on the instantaneous state of capital and labor, effectively ignoring the long-term ``memory effects'' inherent in policy, infrastructure, and technological adoption. This paper extends the exponential framework by introducing the Caputo fractional derivative into the underlying dynamical systems governing factor inputs. By replacing standard growth rates with fractional-order counterparts of order $0 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.20152 |
| By: | Obregon Diaz, Carlos Federico |
| Abstract: | This paper develops the Economics of Belonging as a structural extension of the capability approach. It proposes that capabilities are not primary units of analysis but outcomes of institutional belonging, defined as effective participation within institutional structures. The analysis integrates institutional economics, social choice theory, mechanism design, and game theory to demonstrate that aggregation from individual states is structurally infeasible under incomplete information and multiple equilibria. A dynamic framework is developed in which belonging drives effective demand and sustained economic growth through middle-class expansion. The paper contributes to development theory by providing a unified institutional and relational framework linking participation, demand, and long-term growth. |
| Keywords: | Economics of Belonging; Institutions; Effective Demand; Economic Development; Social Choice; Game Theory; Middle Class |
| JEL: | B41 D02 O11 O43 |
| Date: | 2026–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128817 |
| By: | Leandro Prados de la Escosura (Universidad Carlos III de Madrid) |
| Abstract: | Recent research confirms that per capita income in early modern Spain improved only marginally overall, while also revealing sustained growth through much of the sixteenth and eighteenth centuries, alongside a continued decline from the late sixteenth to the mid-seventeenth centuries. These phases shaped Spain's relative position within Western Europe and contributed to the Reversal of Fortune. This paper finds that labour productivity, proxied by output per working-age population, improved during the first three-quarters of the sixteenth century, then declined until the mid-seventeenth century, and that the subsequent recovery never reached the levels of the 1570s. What caused these episodes of growth and decline: changes in resource endowments or in the efficiency of their use? Phases of labour productivity growth were often driven by factor intensity, but efficiency losses underpinned periods of stagnation or decline, which contradicts the stylised view that factor intensity is the main driver of labour productivity in a pre-industrial economy. Compared with Great Britain, Spain showed an inverse, divergent pattern, moving from similar levels to less than half of Britain's by 1800. Efficiency was the main driver of the widening gap. Ingenuity appears, therefore, to be the driving force behind the Reversal of Fortune. |
| Keywords: | output per working-age population, dual TFP, efficiency, factor intensity, Reversal of Fortune, Spain, Britain |
| JEL: | E24 J24 N13 O47 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:hes:wpaper:0302 |
| By: | Obregon Diaz, Carlos Federico |
| Abstract: | This paper presents a theoretical framework integrating artificial intelligence (AI), institutional economics, and the concept of belonging. It argues that AI, while representing a major technological innovation, lacks autonomous agency because it is not grounded in biological evolution or emotional structures. As a result, its economic and social effects depend on institutional configurations and patterns of participation. The paper analyzes the implications of AI for labor markets, income distribution, and social cohesion, emphasizing the role of middle-class formation and effective participation in sustaining stable development paths. It proposes that AI can either reinforce exclusionary equilibria or support inclusive growth depending on institutional design. The framework contributes to development theory and political economy by incorporating belonging as a foundational determinant of economic outcomes. |
| Keywords: | Artificial Intelligence; Philosophy of Belonging; Emotions; Human Intelligence; Social Ontology; Institutional Economics; Economy of Belonging; Middle Class; Technological Change; Automation; Labor Markets; Inequality; Power and Domination; Evolutionary Psychology; Digital Capitalism; AI Ethics; Social Belonging; Development Economics; Political Economy; Affective Simulation |
| JEL: | D02 D91 I31 J24 J31 O33 O40 P16 |
| Date: | 2026–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128759 |
| By: | Yang K. Lu (Hong Kong University of Science and Technology); Eunseong Ma (Yonsei University) |
| Abstract: | This paper investigates how human capital responses to anticipated advances in artificial intelligence (AI) reshape aggregate and distributional consequences of AI. We develop an incomplete-markets model with endogenous human capital and asset accumulation in general equilibrium, featuring three skill sectors and uninsurable idiosyncratic risk. AI enters as an anticipated, sector-biased shock that narrows middle-skill wage premiums and boosts returns to top expertise. We find that human capital responses to AI (i) drive voluntary job polarization, shifting workers from the middle toward both lower and higher skill sectors; (ii) magnify AI’s positive effects on aggregate output and consumption, while dampening its impact on employment; and (iii) alter inequality: even as polarization increases disparities in income and consumption, precautionary saving by middle-sector households reduces the rise in wealth inequality. In an extension (AI+), where AI raises the human-capital threshold for high-skill jobs, additional training and saving become concentrated among high-sector households, further increasing wealth inequality. |
| Keywords: | AI, Human Capital, Job Polarization, Inequality |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-290 |