Monetary Policy in a Schumpeterian Growth Model with Two R&D Sectors

We explore the growth and welfare effects of monetary policy in a two-sector Schumpeterian economy with cash-in-advance (CIA) constrained R&D investment in both sectors. We show that a nominal interest rate increase generates two effects on equilibrium labor allocation: a manufacturing-R&D-reallocation effect and a cross-R&D-sector effect. The former reduces economic growth by shifting labor from R&D to production, whereas the latter can enhance it by shifting labor from the less productive R&D sector to the more productive one. Unless the high productivity R&D sector is severely more CIA-constrained than the low productivity one, aggregate R&D overinvestment is sufficient but not necessary ..

Economic Growth

Firm Entry and Exit and Aggregate Growth

Applying the Foster, Haltiwanger and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. To analyze this relationship, we develop a model of firm entry and exit based on Hopenhayn (1992). When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.

Economic Growth

Could the Colombian economy grow faster? How it would be possible?

Economic Growth

Causal Relationship between Economic Growth and Agricultural productivity in Sub Saharan Africa: A Panel Cointegration Approach

The study revisits the causal relationship between agricultural productivity and economic growth in sub-Saharan Africa. The analysis is based on the panel cointegration approach, estimated using the Pooled Mean Group (PMG) estimators. The study employs a cross-country balanced panel data covering 35 countries from 1981 to 2010. Per capita, gross domestic product is an indicator of economic growth, and the total factor productivity (TFP) index is an agricultural productivity indicator used in the study. The empirical results show the variables have a different integration order based on the unit root test, while evidence of a cointegration relationship among the variables exists. The estimate..

Economic Growth

Drivers of medium term growth

Drivers of medium term growth

Economic Growth

Pandemic Effects in the Solow Growth Model

We show how diseases can affect economic growth by using the standard Solow model with population growth and no technical progress as our benchmark. We couple this model in turn with the two most basic models of pandemics: SIS and SIR models. In these two models infections are assumed to take place by random matchings between infected and susceptible individuals according to some basic reproductive number. This number determines in which of the two posible equilibria, the disease free or the pandemic equilibrium, the economy ends. By inserting these two models of disease in the basic Solow growth model, we show that the steady state capital labour ratio is not affected by the disease but out..

Economic Growth

Occasional Bulletin of Economic Notes 202101 Drivers of medium term growth

Occasional Bulletin of Economic Notes 2021/01 Drivers of medium term growth

Economic Growth

Complementarity between human capital and public infrastructure in industrial comparative advantage

The article examines the role of public capital as an infrastructure service in the acquisition of industrial comparative advantages. To achieve this in this framework, we develop a theoretical model highlighting the complementarity between public and human capital as a mechanism of industrial development, and test this idea using sectoral panel data from 1999 to 2014 across 35 advanced and less advanced countries. Our results show that the sustainable acquisition of a comparative advantage in the production of industrial goods can only be guaranteed by accumulating public capital and human capital. It shows that public infrastructure can only generate industrialization when it is made avail..

Economic Growth

The Industrial Revolution, an unintended consequence of self-defence?

This short paper examines Patrick O'Brien's bold reinterpretation of the British Industrial Revolution as a joint result of the expropriation of land by the landed aristocracy, abundant coal endowments, and the unintended consequences of self-defence, in the context of historical literature and contraposes it to evidence on long run growth and inequality and alternative narratives of British industrialisation. It concludes that, by neglecting the contribution of culture and institutions to incentivise investment and innovation, O'Brien lessens the role of the British Industrial Revolution for understanding modern economic growth.

Economic Growth

Test Scores and Economic Growth: Update and Extension

Research indicates that education quality – measured by test scores in international student surveys – predicts economic growth. In this paper, we extend previous findings up to 2016 and analyse test scores of upper-secondary school students only. We find that the positive relationship between growth and test scores holds in both cases. The share of top-performing students exhibits a stronger correlation with economic growth than does the share of students who meet basic requirements.

Economic Growth

Market Size and Spatial Growth - Evidence from Germany’s Post-War Population Expulsions

Virtually all theories of economic growth predict a positive relationship between population size and productivity. In this paper I study a particular historical episode to provide direct evidence for the empirical relevance of such scale effects. In the aftermath of the Second World War about 8m ethnic Germans were expelled from their domiciles in Eastern Europe and transferred to West Germany. This inflow increased the German population by almost 20%. Using variation across counties I show that the settlement of refugees had a large and persistent effect on the size of the local population, manufacturing employment and income per capita. I show that these findings are quantitatively consis..

Economic Growth

The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study

We examine the relationship between wealth and health through prominent growth indicators and cognitive ability. Cognitive ability is represented by nutritional status. In this study, the proxy variable for nutritional status is BMI since there is a strong relationship between cognitive ability and nutrition. We use the reduced form equation in the cubic specification of time preference rate to estimate this relationship. We assume that the time preference rate is one of the outputs of cognitive ability. The growth indicators utilized are GDP per capita, schooling, overall and manufacturing productivities, and savings. We estimate our models using the FE, GMM estimators, and long difference ..

Economic Growth

Pudding, Plague and Education: trade and human capital formation in an agrarian economy

During the late 19th century, the increasing popularity of pudding in England, along with the outbreak of phylloxera plague in French vineyards had an unintended effect in the agrarian economy of Greece. In particular, these events escalated the international demand and production of currants in Greece during the 1870s, causing an unprecedented positive shock that was transmitted through trade in the agricultural population. Using novel data from historical archives, we explore how this exogenous event affected investment towards human capital. Consistent with expectations, in an agrarian economy that specializes in unskilled labour-intensive agricultural goods, this shock had a negative eff..

Economic Growth

Creative Destruction, Distance to Frontier, and Economic Development

We construct a model of creative destruction with endogenous firm dynamics. We integrate the theory into a general equilibrium multi-country model of technological convergence where countries interact via international spillovers. We derive implications for both firm dynamics and aggregate productivity dynamics. In richer economies, firms are on average larger and the best firms grow larger over time. In poorer economies, there is little creative destruction, low selection, and firms remain small. We estimate the parameters of the model using firm-level data for India and the United States. We study the effect of counterfactual policy reforms. Industrial policy that selectively targets the m..

Economic Growth

Economic Growth and Bank Innovation

Based on archival and survey data we show that the maturity of U.S. business loans has been continuously increasing since the mid-1930s when banks invented the term loan. Concurrently, bank innovation first involved the invention of credit analysis and covenant design. Later, bank innovation included the advent of loan sales, increased loan syndications, the opening of the leveraged loan market, and the securitization of loans in collateralized loan obligations. We estimate and calibrate a model of bank innovation to determine the quantitative contribution of bank innovation to economic growth.

Economic Growth

Pudding, plague and education: trade and human capital formation in an agrarian economy

During the late 19th century, the increasing popularity of pudding in England, along with the outbreak of phylloxera plague in French vineyards had an unintended effect in the agrarian economy of Greece. In particular, these events escalated the international demand and production of currants in Greece during the 1870s, causing an unprecedented positive shock that was transmitted through trade in the agricultural population. Using novel data from historical archives, we explore how this exogenous event affected investment towards human capital. Consistent with expectations, in an agrarian economy that specializes in unskilled labour-intensive agricultural goods, this shock had a negative eff..

Economic Growth

Local majorities: How administrative divisions shape comparative development

We study the role of subnational borders and the importance of local majorities for local economic development. We exploit that France imposed a particular administrative structure on its Sub-Saharan African possessions in the early 20th century. The French government had little interest in pre-colonial political units. As a result, their colonial districts cut across ethnic homelands in a way that led to plausibly exogenous variation in an ethnic group's population share across colonial districts. We find that ethnic groups who were a local majority in most colonial districts, in which they were present, are more economically developed today. Furthermore, we show that the parts of ethnic ho..

Economic Growth

Is temperature adversely related to economic growth? Evidence on the short-run and the long-run links from sub-national data

We investigate the effect of rising temperatures on economic development, using sub-national data for approximately 1,500 sub-national regions in 81 countries from the 1950s to the 2010s. Accounting for region- and time-fixed factors by means of a two-way fixed effects panel approach, we find no evidence that rising temperatures are adversely related to regional growth measured as changes in regional per capita gross domestic product (GDP). In addition to a panel setting, we also consider the long-run analogue of the panel model, exploring the relationship between regional temperature and growth over longer time periods. Applying this long-difference approach, we find evidence of a statistic..

Economic Growth

Generalized Cumulative Offer Processes

In this paper we provide a quantitative analysis of how wealth may affect economic growth. In the economy, the utility of every individual depends on both consumption and wealth. Exploring a class of specific utility functions in which wealth has a weakening effect on the marginal utility of consumption, we find a closed-form solution of steady-state consumption, capital stock, savings rate, and convergence rate and obtain several novel results of wealth effects on economic growth. We also demonstrate that the new models can be calibrated to fit well with empirical observation.

Economic Growth

Population Growth and Automation Density: Theory and CrossCountry Evidence

We analyse the effects of declining population growth on automation. Theoretical considerations imply that countries with lower population growth introduce automation technologies faster than those with higher population growth. We test the theoretical implication on panel data for 60 countries over the time span 1993-2013. Regression estimates support the theoretical implication, suggesting that a one percent increase in population growth is associated with an approximately two percent reduction in the growth rate of robot density. Our results are robust to the inclusion of standard control variables, different estimation methods, dynamic specifications, and changes with respect measuring r..

Economic Growth

Public Debt - Economic Growth: Evidence of a Non-linear Relationship

The impact of public debt on economic growth has been widely examined in the literature. The discussions shifted towards examining the possibility of a nonlinear relationship after the seminal work of Reinhart and Rogoff (2010) who proposed a threshold of 90 percent debt to GDP ratio beyond which debt is said to have a detrimental effect on economic growth. Many studies came thereafter found a common threshold for a group of countries and a negative impact of debt on growth beyond this threshold. In this context, we examine the presence of a threshold in the debt-growth nexus and the difference in the impact of debt on growth below and above this threshold in case of 39 emerging and developi..

Economic Growth

Uneven Development in a Kaldor-Pasinetti-Verspagen Model of Growth and Distribution

The main objective of this paper is to incorporate the technological asymmetries between countries in the formal structure of the so-called Kaldor-Pasinetti model of growth and distribution. We will name such a model as Kaldor-Pasinetti-Verspagen Growth-Model. Our basic contribution for the literature of post-Keynesian models of growth and distribution is to redefine Kaldor´s technical progress function to incorporate the technological gap in the determination of the natural rate of growth. Such incorporation will make possible for such class of models to generate uneven development between countries, at least for mature economies, that is, economies where all labor force is employed in the..

Economic Growth

The Economic Consequences of the Opium War

This paper studies the economic consequences of the West’s foray into China after the Opium War (1839-42), when Western colonial influence was introduced in dozens of so-called treaty ports. We document a turnaround during the 19th century in the nature of China’s capital markets. Whereas before the Opium War, coastal cities were of relatively minor importance, the treaty port system of the West transformed China into an economy focused on coastal areas and on international trade that aligned with the trading interests of the West. We show, first, that the West had a positive impact on China’s economy during the 19th century. It brought down local interest rates, and regions under West..

Economic Growth

Alone and Lonely. The economic cost of solitude for regions in Europe

Solitude is a rising phenomenon in the western world. The number of people affected by solitude has been rising for some time and the Covid-19 pandemic has brought this trend to the fore. Yet, we know next to nothing about the aggregate subnational economic consequences of the rise in solitude. In this paper we analyse the consequences of solitude on regional economic performance across Europe, distinguishing between two of its key dimensions: alone living, proxied by the regional share of the population in one-person households; and loneliness, proxied by the aggregate share of social interactions. We find that solitude has important implications for economic development, but that these go ..

Economic Growth

Decentralization and economic growth: Evidence across states of some relevant macroeconomic variables

The objective of this paper is to test the relationship between de- centralization and economic growth across states. A novel methodol- ogy is applied that allows obtaining thresholds in certain variables to classify the regions into regimes (high or low). Data for the regions of Spain over the period 1986-2010 are used. In general, the results point to a positive relationship between fiscal decentralization and economic growth in regions with low public infrastructure stock per efficient worker, high human capital per worker and low total factor produc- tivity (TFP). In addition, in regions with low public infrastructure stock per efficient worker and high human capital, a negative relation..

Economic Growth

Factor Supply Elasticities, Returns to Scale, and the Direction of Technological Progress

This paper finds that the steady-state direction of technological progress is determined by the relative size of factor supply elasticities and the returns to scale of the production function, which have so far been ignored. However, the relative price (Hicks, 1932) and relative market size (Acemoglu, 2002) emphasized in the existing literature have only short-term effects. This conclusion is obtained by introducing generalized factor accumulation processes that do not restrict factor supply elasticities, and a generalized production function that does not restrict the returns to scale. It emanates solely from the characterizations of production function, steady-state growth, direction of te..

Economic Growth

Climate Protection versus Convergence?

Global economic convergence and protection of the climate are both worthwhile goals. Yet, there is an inherent tension between them. Greenhouse gases are a waste product that is often emitted in the production process. Limiting such emissions therefore hampers the accumulation of income and capital. I expand Solow's growth model to accommodate green house gases, and use this to estimate the contribution of such emissions to economic development. The sobering insight is that we would not have witnessed any convergence in the last 45 years if poorer countries had not increased greenhouse gas emissions.

Economic Growth

The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study

We examine the relationship between wealth and health through prominent growth indicators and cognitive ability. Cognitive ability is represented by nutritional status. The proxy variable for nutritional status is BMI. We use the reduced form equation in the cubic specification of time preference rate, strongly related to cognitive ability, to estimate this relationship. The growth indicators utilized are GDP per capita, schooling, overall and manufacturing productivities, and savings. We estimate our models using the FE, GMM estimators, and long difference OLS and IV estimation through balanced panel data for the 1980-2009 period. We conclude that the relationship between all prominent grow..

Economic Growth

Technical change and the postwar slowdown in Soviet economic growth

The existing studies usually find that technical change was very important in constraining the economic growth of the Soviet Union. While these studies have been successful in quantifying the extent of technical change, they have been less successful in quantifying its nature. This paper probes the essence of technical change by analysing its direction and bias. I find that the Soviet Union achieved strong increases in labour efficiency until the 1960s. Although the labour efficiency growth subsequently slowed down, it is capital efficiency that drove the postwar slowdown in economic growth. I argue that labour shortages, combined with an inadequate investment policy, retarded the Soviet cap..

Economic Growth

Demographic Change and Economic Growth in India

In this paper, we assess the economic benefits of demographic changes in India by employing econometric models and robustness checks based on panel data gathered over a period of more than three decades. Our analysis highlights four key points. First, the contribution of India’s demographic dividend is estimated to be around 1.9 percentage points out of 12% average annual growth rate in per capita income during 1981–2015. Second, India’s demographic window of opportunity began in 2005, significantly improved after 2011, and will continue till 2061. Third, our empirical analysis supports the argument that the realisation of the demographic dividend is conditional on a conducive policy e..

Economic Growth