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on Development |
| By: | Akcomak, Semih (UNU-MERIT); ter Weel, Bas (UNU-MERIT) |
| Abstract: | This paper investigates the interplay between social capital, innovation and economic growth in the European Union. We identify innovation as an important mechanism that transforms social capital into economic growth. In an empirical investigation of 102 European regions in the period 1990-2002, we show that higher innovation performance is conducive to economic growth and that social capital affects growth indirectly by fostering innovation. Our estimates suggest that there is only a limited role for a direct effect of social capital on economic growth. |
| Keywords: | Social capital, Innovation, Economic growth, European Union |
| JEL: | O1 O3 O52 Z13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2006040&r=dev |
| By: | Harsha Thirumurthy (Center for Global Development); Joshua Graff Zivin (Columbia University); Markus Goldstein (World Bank) |
| Abstract: | Using longitudinal survey data from western Kenya, this paper estimates the economic impacts of antiretroviral treatment. The responses in two important outcomes are studied: (1) labor supply of adult AIDS patients receiving treatment; and (2) labor supply of patients’ household members. We find that within six months after treatment initiation, there is a 20 percent increase in patients’ likelihood of participating in the labor force and a 35 percent increase in weekly hours worked. Since patient health would continue to decline without treatment, these labor supply responses are underestimates of the impact of treatment on the treated. The upper bound of the treatment impact, based on plausible assumptions about the counterfactual, is considerably larger. The responses in household members’labor supply are heterogeneous, with young boys and women work significiantly less after initiation of treatment. The effects on child labor are important since they suggest potential schooling impacts from treatment. |
| Keywords: | HIV/AIDS, ARV Treatment, Labor Supply, Child Labor |
| JEL: | I1 I3 O1 J2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:947&r=dev |
| By: | Natálie Reichlová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | According to Abraham Maslow's motivational theory, human action is motivated by five groups of human needs. The model introduced in this paper exploits Maslow's theory to explain migration flows between regions. In the model, movement from one place to another influences migrant's utility through three various ways. First, through change in wage caused by different wage levels in each location. Second, through changes in utility connected with individuals safety needs and finally, through disarrangement of individual's social networks. When safety and social needs are added to the model, equilibria arise in which wage differential between regions persists. |
| Keywords: | agent-based modeling; decision making; migration; motivation; networks |
| JEL: | J61 F22 I31 O15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp097&r=dev |
| By: | Nauro F. Campos (Brunel University); Roman Horváth (Czech National Bank, Prague, Czech Republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | We construct objective measures of privatization, internal and external liberalization reform efforts, across countries over time, and investigate their determinants, reversals and macroeconomic impacts. We find that GDP growth determines external liberalization and privatization, concentration of political power drives internal liberalization, and democracy underpins all three. We find that FDI inflows reduce the probability of privatization reversals, labour strikes increase that of internal liberalization reversals, and terms of trade shocks increase that of external liberalization reversals. We replicate previous studies and find that the macroeconomic effects of reform (when measured objectively) tend to be larger and more precisely estimated. |
| Keywords: | reform; liberalization; privatization; political economy; transition |
| JEL: | E23 D72 H26 O17 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2006_16&r=dev |
| By: | Michal Bauer (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Julie Chytilová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Pavel Streblov (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | High desired fertility is an important factor contributing to the population explosion in sub-Saharan Africa. On a broad sample of 910 respondents from the rural areas of Uganda this paper assesses the impact of health risks, economic contributions from children, traditional community institutions and unequal position of women on desired fertility levels. The paper further scrutinizes how these determinants are affected by education. The results show that fear of diseases and involvement in traditional clan institutions increase desired number of children. Interestingly, these effects can be remarkably mitigated through education that improves the individual health prevention as well as reduces the influence of clans. Economic incentives for having children seem to be less significant than other factors. In addition, a very significant difference in desired fertility between men and women emerges, nevertheless education leads both to reduction and convergence of their desired fertility levels. All these findings suggest that education stimulates a complex change in fertility preferences and underline the importance of education as efficient tool for reducing rapid population growth. |
| Keywords: | fertility; education; development; demography |
| JEL: | I1 I2 J1 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2006_23&r=dev |
| By: | Vincent Bouvatier (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]) |
| Abstract: | This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result. |
| Keywords: | Hot money inflows, domestic credit, VECM, Granger causality. |
| Date: | 2006–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00111153_v1&r=dev |
| By: | Rémy Herrera (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]) |
| Abstract: | This article is to be published in the May 2006 issue of the Monthly Review. Nowadays, neoclassical economics' domination of development theory is on par with that of high finance's neoliberal power over development policies. There are important complementarities between these two forms of ideological domination which are mutually reinforcing and interdependent. Thus, it is not only the absence of a scientific basis and the logical inconsistencies that disqualify these approaches, but the ideological function and antisocial project that their methodologies and conclusions support in the service of world capital. |
| Keywords: | Development, neo-classical economics, neo-liberalism, crisis, heterodoxies. |
| Date: | 2006–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00113514_v1&r=dev |
| By: | Björkman, Martina (IGIER - Bocconi University and CEPR); Reinikka, Ritva (World Bank); Svensson, Jakob (Institute for International Economic Studies, Stockholm University) |
| Abstract: | Identifying and implementing incentives that give rise to a strong relationship of accountability between service providers and beneficiaries is viewed by many as critical for improving service delivery. How to achieve this in practice and if it at all works, however, remain open questions. Systematic evaluation of service delivery innovations to increase accountability can show what works, what doesn’t and why, a first step to scaling up success. This paper discusses one such attempt: a randomized evaluation of a Citizen Report Card project at the community level in primary health care in Uganda. The Citizen Report Card project collected quantitative information on the quality and quantity of health service provision from citizens and public health care providers. This information were then assembled in "easy access" report cards that were disseminated, together with practical information on how best to use this information, in community, staff, and interface meetings by local community organizations in order to enhance citizens’ ability to monitor the health care providers. The intervention improved both the quality and quantity of health service provision in the treatment communities: One year into the program, average utilization was 16 percent higher in the treatment communities; the weight of infants higher, and the number of deaths among children under-five markedly lower. Treatment communities became more extensively involved in monitoring providers following the intervention, but we find no evidence of increased government funding. These results suggest that the improvements in the quality and quantity of health service delivery resulted from increased effort by the health unit staff to serve the community. |
| Keywords: | Accountability; Incentives; Health Care; Uganda |
| JEL: | I18 O12 |
| Date: | 2006–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iiessp:0749&r=dev |
| By: | Tom Bundervoet (Vrije Universiteit Brussel) |
| Abstract: | In this paper, we evaluate absolute consumption poverty and inequality in rural and urban Burundi after more than 5 years of civil war. Using the cost of basic needs method, we find a poverty incidence of 71.5% in rural areas and 36.5% in Bujumbura, and a Gini-coefficient of inequality of respectively 34.9 and 44.5%. In analysing the main correlates and determinants of rural poverty, we identify the very low levels of education and the intensity of the civil war as key factors explaining the high incidence of rural poverty. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:20&r=dev |
| By: | Christopher Blattman (University of California, Berkeley) |
| Abstract: | Civil wars have afflicted two-thirds of African nations, drawing up to a third of male youth into armed groups. Little is known, however, about the long term effects of military participation due to a lack of data and potential sample selection: recruits are usually self-selected and screened, and may also selectively survive. This paper presents new evidence on the causal impact of military participation using an original dataset collected by the author in northern Uganda. The large-scale, indiscriminate and forcible abduction of youth by Ugandan rebels provide arguably exogenous variation in exposure to conflict. Results suggest that the most prevalent effect of abduction is on human capital acquisition: abductees lose nearly a year of schooling on average. Combined with a greater incidence of injuries, this schooling loss leads to nearly a third lower earnings. Meanwhile, exposure to conflict seems to increase political participation: abductees are more likely to vote and twice as likely to be community leaders. Finally, the psychological impacts of war appear to be moderate and concentrated in a minority. These results run counter to the prevailing view that war primarily causes ‘psychosocial’ distress. Post-conflict policy implications are discussed. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:22&r=dev |
| By: | Menezes Filho, N. A.; Giovannetti, Bruno |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_55&r=dev |
| By: | Singh Sukhpal |
| Abstract: | Indian agriculture is under policy reforms for some time now. One of the issues it faces is that of lack of viability of smallholdings and lack of international competitiveness of its produce. In this regard, new initiatives of reorganizaing the production systems are being attempted in the form of contract farming and corporate farming. At the state level, laws are being amended to facilitate the practice of contract farming and corporate farming. Where contract farming means working with small growers most of the time and therefore, high costs for agribusinesses, the alternative of corporate farming is being seen to resolve this problem. For facilitating this, prime agricultural land and wastelands are being allowed to be bought or leased in by corporate agribusiness houses, the latter (wastelands) being given away by the state on nominal lease. This paper profiles cases of corporate farming practice and examines the rationale for allowing corporate farming in India in the context of its agriculture and rural sector. It points out that the rationale is weak and not supported by international evidence on corporate farming. It rather argues for other alternatives, like consolidation of land holdings and contract farming, for making better use of corporate resources for agricultural development. |
| Keywords: | corporate farming, India, wastelands, land ceilings, consolidation, contract farming, agriculture |
| Date: | 2006–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2006-11-06&r=dev |
| By: | Thomas Lagoarde-Segot; Brian M. Lucey |
| Abstract: | The objective of this paper is to review the transmission mechanisms uniting equity market development and economic growth in developing countries. We find that the theoretical impact of equity markets is ambiguous. At the domestic level, the allocation function of equity markets appears conditioned by the extent of informational efficiency. Turning to international linkages, theoretical models suggest that equity market integration lowers the cost of capital, increases financial vulnerability and has a mixed impact on capital flows. Taking this into account, two conclusions arise. First, equity market development policies should focus on reaching and maintaining adequate levels of institutional transparency. Second, the optimal degree of international integration depends on the society’s preference between international accessibility and domestic stability. |
| Keywords: | Equity Markets, Economic Development. |
| Date: | 2006–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp182&r=dev |
| By: | Mendoza, Enrique G.; Oviedo, P. Marcelo |
| Abstract: | The ratios of public debt as a share of GDP of Brazil, Colombia, and Mexico were 12 percentage points higher on average during the period 1996-2005 than in the period 1990-1995. Costa Rica's debt ratio remained stable but at a high level near 50 percent. Is there reason to be concerned for the solvency of the public sector in these economies? We provide an answer to this question based on the quantitative predictions of a variant of the framework proposed by Mendoza and Oviedo (2006). This methodology yields forward-looking estimates of debt ratios that are consistent with fiscal solvency for a government that faces revenue uncertainty and can issue only non-state-contingent debt. In this environment, aversion to a collapse in outlays leads the government to respect a ``natural debt limit" equal to the annuity value of the primary balance in a ``fiscal crisis." A fiscal crisis occurs after a long sequence of adverse revenue shocks and public outlays adjust to their tolerable minimum. The debt limit also represents a credible commitment to remain able to repay even in a fiscal crisis. The debt limit is not, in general, the same as the sustainable debt, which is driven by the probabilistic dynamics of the primary balance. The results of a baseline scenario question the sustainability of current debt ratios in Brazil and Colombia, while those in Costa Rica and Mexico are inside the limits consistent with fiscal solvency. In contrast, current debt ratios are found to be unsustainable in all four countries for plausible changes to lower average growth rates or higher real interest rates. Moreover, sustainable debt ratios fall sharply when default risk is taken into account. |
| Keywords: | fiscal sustainability; public debt; sovereign default |
| JEL: | F3 |
| Date: | 2006–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12700&r=dev |
| By: | Matthieu Bussière (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | The rapid transition of China from a closed agricultural society to an industrial powerhouse has been associated with a rapid increase in the share of China in world trade. As the world is taking the full measure of this phenomenon, tensions have been arising ranging from holding China partly responsible for global imbalances to complaints about the “excessive” competitiveness of Chinese products. Without a quantifiable benchmark, however, such claims are difficult to judge. This paper therefore provides an assessment of China’s “natural” place in the world economy based on a new set of trade integration indicators. These indicators are used as a benchmark in order to examine whether China’s share in international trade is consistent with fundamentals such as economic size, location and other relevant factors. They constitute a better measure of trade integration that incorporates many more factors than traditional openness ratios. Results show that the model tracks international trade well and confirm that China is already well integrated in world markets, particularly with North America, several Latin American and East Asian emerging markets and most euro area countries. JEL Classification: C23, F15, F14. |
| Keywords: | Gravity Model, Panel Data, Trade, China. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060693&r=dev |
| By: | Shiro Kuwahara (Institute of Economic Research, Kyoto University); Akihisa Shibata (Institute of Economic Research, Kyoto University) |
| Abstract: | Extending the Kim (1989) model of endogenous labor specialization to an overlapping generations model with an endogenous technology choice, we show in this paper that, when the market size and the fixed costs associated with the technologies with labor specialization are small, the growth pattern of this economy depends on worker expectations. In other words, if workers expect low returns of specific human capital, they will not invest in such capital, and the economy will be eventually locked in an underdevelopment trap. On the other hand, if they expect high returns of specific human capital, they invest in such capital, and, as a result, the economy can exhibit long-run growth. |
| Keywords: | Labor specialization, endogenous choice of technology, endogenous growth, development traps |
| JEL: | O11 O14 O41 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:625&r=dev |
| By: | Pascal Hetze (University of Rostock and Max Planck Institute for Demographic Research) |
| Abstract: | This paper develops an endogenous growth model with continuous labor reallocation. Economic integration increases the home availability of technologies globally developed. The wider technology pool has implications for the vintage structure of the manufacturing sector and affects the revenues earned in the two sectors R&D and manufacturing. The free exchange of technologies across the borders leads to structural change and labor reallocation within manufacturing and between the sectors. If there arises too much job destruction caused by economic integration, unemployment may be a consequence of more openness to technologies developed abroad. |
| Keywords: | economic integration, job destruction, job creation, endogenous growth |
| JEL: | F43 O33 J63 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ros:wpaper:65&r=dev |
| By: | Pascal Hetze (University of Rostock and Max Planck Institute for Demographic Research) |
| Abstract: | The macroeconomic experience has been somewhat ambiguous during the historic experiment of economic transition in the former centrally-planed countries in Central and East Europe (CEE). The economic restructuring produced a notable catching-up in terms of productivity but also a J-curve shape of output growth accompanied by an increase in unemployment on a large scale. This paper models the transformation progress which leads to these contradictory outcomes. Before transition initiated catching-up, the economies suffered from two limits to growth: a gap of usable capital and a gap of technologies. Accordingly, a rapid technology transfer from the advanced Western economies led to a significant technological and structural change combined with high rates of labor reallocation. If we include frictions in the consequent matching between job seekers and jobs, the model reproduces the pattern of productivity, growth and unemployment that we find in the CEE countries. |
| Keywords: | catching-up, growth, unemployment, technological change, transition economies |
| JEL: | E24 O33 P20 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ros:wpaper:66&r=dev |
| By: | José Ramón Ruiz Tamarit (Universitat de València); Manuel Sánchez Moreno (Universitat de València) |
| Abstract: | This paper develops a two-sector model for a renewable natural resource based economy. Pareto efficient results show the optimal harvesting rate that allows for sustained long-run optimal growth, which is upper-bounded by the biological rate of reproduction. Regulation prevents from resource over-exploitation and exhaustion which arise under open access. The Ramsey policy allowing the competitive economy to reach the first-best solution, leads the government to tax harvesting activity from firms and distribute the receipts among households. In the short-run the tax is variable. In the long-run, the lower the intrinsic rate of reproduction the higher the constant unit tax on the resource use. |
| Keywords: | Natural Resources, Efficiency, Open Access, Ramsey Regulation, Growth. |
| JEL: | C62 D90 O41 Q2 H2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2006-21&r=dev |
| By: | Annett Fleischer (Max Planck Institute for Demographic Research, Rostock, Germany) |
| Abstract: | The aim of this paper is to investigate the influence of family and kin networks on the individual decision to migrate. The study is based on qualitative ethnographic data collected during field research in Cameroon and shows the considerable impact of the extended family on the migrant’s decision to leave Cameroon for Germany. Migrants do not necessarily set out to pursue individual goals. They are often delegated to leave by authority figures in their extended family. The individual is part of an informal reciprocal system of exchange, which is based on trust, has social consequences, and includes duties and responsibilities for both sides. |
| Keywords: | Cameroon, Germany, decision making, kinship, migration, race relations, remittances |
| JEL: | J1 Z0 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:dem:wpaper:wp-2006-047&r=dev |
| By: | Blien, Uwe (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Phan, thi Hong Van |
| Abstract: | "This paper presents a regional case study of the labour market and its surrounding of Vinh City in central Vietnam, based on surveys conducted in 1999 and 2005. By including the time dimension and surveying samples with over 6000 individuals respectively it is possible to identify precisely the changes that have taken place within six years. The results reflect an enormous development process. Incomes increased fast and many structural parameters of the economy adapted to the new institutional setting of a market economy. The absolute level of income and of the standard of living is still low, however. A key finding of the analyses is that vocational training is meeting with large demand in private enterprises and is therefore of considerable importance for Vietnam's development process. Another important finding is that educational investments pay more in private enterprises." (author's abstract, IAB-Doku) ((en)) |
| JEL: | J31 J42 J65 |
| Date: | 2006–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:200623&r=dev |
| By: | Oded Galor; Omar Moav; Dietrich Vollrath |
| Abstract: | This research suggests that favorable geographical conditions, that were inherently associated with inequality in the distribution of land ownership, adversely affected the implementation of human capital promoting institutions (e.g., public schooling and child labor regulations), and thus the pace and the nature of the transition from an agricultural to an industrial economy, contributing to the emergence of the Great Divergence in income per capita across countries. The basic premise of this research, regarding the negative effect of land inequality on public expenditure on education is established empirically based on cross-state data from the beginning of the 20th century in the United States. |
| Keywords: | Land Inequality, Institutions, Geography, Human capital accumulation, Growth |
| JEL: | O10 O40 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_001&r=dev |
| By: | Joel Mokyr; Hans-Joachim Voth |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_002&r=dev |
| By: | Nico Voigtländer; Hans-Joachim Voth |
| Abstract: | Why did England industrialize first? And why was Europe ahead of the rest of the world? Unified growth theory in the tradition of Galor-Weil (2000) and Galor-Moav (2002) captures the key features of the transition from stagnation to growth over time. Yet we know remarkably little about why industrialization occurred so much earlier in some parts of the world than in others. To answer this question, we present a probabilistic two-sector model where the initial escape from Malthusian constraints depends on capital deepening and the use of more differentiated capital inputs. Weather-induced shocks to agricultural productivity cause changes in prices and quantities, and affect wages. In a standard model with capital externalities, these fluctuations interact with the demographic regime and affect the speed of growth. Our model is calibrated to match the main characteristics of the English economy in 1700 and the observed transition until 1850. We capture one of the key features of the British Industrial Revolution emphasized by economic historians – slow growth of output and productivity. The paper explores one additional aspect of inequality in the transition to the Post-Malthusian economy – the availability of nutrition for poorer segments of society. We examine the influence of redistributive institutions such as the Old Poor Law, and find they were not decisive in fostering industrialization. Simulations using parameter values for other countries show that Britain’s early escape was only partly due to chance. France could have attained a greater workforce in manufacturing than Britain, but the probability was less than 30 percent. Contrary to recent claims in the literature, 18th century China had only a minimal chance to escape from Malthusian constraints. |
| Keywords: | Industrial Revolution, Unified Growth Theory, Endogenous Growth, Transition, Calibration, British Economic Growth before 1850 |
| JEL: | E27 N13 N33 O14 O41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_003&r=dev |
| By: | Gonçalo Monteiro; Alvaro S. Pereira |
| Abstract: | The recent literature on unified growth theory has shed new light on the transition to sustained economic growth. Nevertheless, unified growth theory has not devoted a lot of attention to the nature of economic growth and its impact in the transition from Malthus to Solow. This research presents new evidence on the existence of pre-industrial growth spurts and provides new foundations concerning the nature of economic growth during the Malthus to Solow transition. Following previous research in unified growth theory, sustained economic growth arises due to complementarities between the triple engines of growth of technological development, human capital and the organization of the workplace. In this research, growth spurts are an intrinsic feature of the economy, but throughout history their effect on standards of living is mostly temporary. The rise in living standards only becomes sustained when the complementarity of the triple engines of growth emerges. In Malthusian economies, most technologies were basic and only require straightforward knowledge or human capital, and thus the skill-technology complementarity did not play a role in their development. As a consequence, most technological developments in Malthusian economies generated growth spurts that did not become sustained, although there was a temporary increase in standards of living. However, the increasing complexity of the epistemic knowledge base reported by the historical literature meant that investments in applied technology were progressively more significant, enhancing the role of human capital. After a certain threshold of the knowledge base was surpassed, more and more complex applied technologies were developed, and growth spurts became permanent features of the economy. This research thus captures some of the most important historical features concerning the nature of growth in the transition to sustained economic growth. |
| Keywords: | growth spurts, unified growth theory, sustained economic growth |
| JEL: | O10 O33 O40 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_004&r=dev |
| By: | María Dolores Guilló; Fidel Pérez Sebastián |
| Abstract: | We develop a theory to explain the transition from stagnation to modern growth. We focus on the forces that shaped the evolution of total factor productivity in agriculture and manufacturing across history. More specifically, we build a multisector model of endogenous technical-change and economic growth. We consider an expanding-variety setup with rising labor specialization and two different R&D technologies, one for agriculture and another for manufacturing. As a consequence, total factor productivity in the model can increase via two different channels. First, population growth allows larger levels of specialization of land and labor in the economy that bring efficiency gains. This type of productivity improvement is capital saving, but can not generate sustained growth. Technical change is also possible by investing in R&D. Unlike specialization, new technologies generated in this way are land and labor augmenting, and are the key to modern growth. In the model, the economy has not incentives to invest in R&D until a minimum knowledge base is available to researchers. This is in line with ideas contained in Mokyr (2005). To make possible the accumulation of this minimum knowledge base, we assume that learning-by-doing is the implicit underlying force that leads to specialization. However, land and labor specialization is based on knowledge whose nature differs in agriculture and in manufacturing. More specifically, whereas this knowledge is farm-specific in agriculture, mainly concern with the acquisition of uncodified information about local conditions of soil and whether, specialization in manufacturing is the result of general knowledge, mainly codified, that contributes at a larger extent to the knowledge base. |
| Keywords: | stagnation, modern growth, specialization, learning-by-doing, R&D, Knowledge base |
| JEL: | O13 O14 O41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_005&r=dev |
| By: | Thomas Barnebeck Andersen; Carl-Johan Dalgaard |
| Abstract: | A number of empirical studies have investigated the hypothesis that cross-border flows of goods (international trade) and capital (FDI) lead to international technology diffusion. The contribution of the present paper consists in examining an as yet neglected vehicle for technology diffusion: cross-border flows of people. We find that increasing the intensity of international travel, for the purpose of business and otherwise, by 1% increases the level of aggregate total factor productivity and GDP per worker by roughly 0.2%. |
| Keywords: | Technology diffusion, Productivity, IV estimation |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_006&r=dev |
| By: | Tomasz Michalski |
| Abstract: | We discuss the role of contracting impediments created by the existence of national borders on open economy growth. In a two-good neoclassical Ramsey growth model with lack of enforcement on international trade contracts we show that endogenous trading constraints with positive trade may arise on the transition path towards an open-economy steady state. These constraints may bind more severely low-income economies. Dynamic incentives to fulfill international contracts are easier to provide to high-income agents that have a stronger love-of-variety and investment motives to trade internationally. Investment in capital serves thus as a commitment device. The extent of the impediments may render countries unable to engage in international exchange at all, in effect keeping them in a poverty trap. Countries with dissimilar initial capital per capita may converge to different steady states. Contracting problems in international exchange may block the channel through which, as many researchers believe, international trade affects growth by increasing investment rates. The model provides a new explanation for the correlations observed in the data, for example that the trade/GDP ratio across countries is positively related with income per capita. Our model and its extensions add to the understanding of a number of puzzles (inter alia "the missing trade") in international economics. Using new data on trade credit in international transactions we provide correlations supporting the view that collection risks hinder international exchange. Policy implications stress the role of promoting contract enforcement and trade liberalization. |
| Keywords: | trade, growth, limited commitment, borders, poverty trap |
| JEL: | D86 F15 F34 F43 O16 O4 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_007&r=dev |
| By: | Gerardo Angeles-Castro |
| Abstract: | Using a panel data set of countries this paper shows that the inequality-growth relationship follows an ordinary-U curve during the period 1970-98, in which inequality first decreases and then increases with economic growth. In addition, there is some evidence that the increasing pattern may reverse at higher levels of income. A time-series approach shows that a substantial group of countries capture a minimum turning point in different years along the period and others follow a permanent positive trend. It also indicates that only a few countries reverse inequality in a latter stage and display a maximum turning point after the mid 1990s; these countries are associated with macroeconomic stability, high governance and moderate expansion of trade and FDI. Hence, the inequality-growth relationship during the era of market openness has tended to change towards a positive one, although it might reverse at a later stage. |
| Keywords: | Income Distribution, Economic Growth, Dynamic Panel Data Models, Time-Series Analysis |
| JEL: | C22 C23 F01 O15 O57 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_009&r=dev |
| By: | Maurizio Iacopetta |
| Abstract: | Do policies that alter the allocation of human capital across individuals affect the innovation capacity of an economy? To answer this question I extend Romer’s growth model to allow for individual heterogeneity. I find that the value of an invention rises with equality. If skills and talents are evenly distributed, inventions are more widely adopted in production and users are willing to bid a higher price. Therefore more inequality is associated with a larger share of the population employed in the business of invention. But, somehow surprisingly, the analysis suggests that although an equal society values inventions more than an unequal one, it may produce fewer of them, or, equivalently, generates inventions of a lower quality. A calibration of the model suggests a weak, but positive, relationship between the rate of innovation and inequality. Finally, in a two-country world, in which ideas, individuals, and capital circulate without restrictions, I find that the unequal economy tends to specialize into the business of innovation. The main implication of the analysis is that an observed difference in the innovation rate between two countries with similar levels of education can hardly be attributed to variations in domestic human capital policies. |
| Keywords: | human capital, inequality, innovation |
| JEL: | O15 O31 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_013&r=dev |
| By: | Erich Gundlach |
| Abstract: | Translated to a cross-country context, the Solow model (Solow 1956) would predict that international differences in steady state output per person are due to international differences in technology such that the capital output ratio is constant for international differences in steady state capital intensities. Most of the cross-country growth literature that refers to the Solow model has employed a specification where steady state differences in output per person are due to international differences in the capital output ratio for a constant level of technology. My empirical results show that the cross-country data can also be summarized by an alternative empirical specification of the Solow model that uses a measure of institutional technology as an explanatory variable and treats the capital output ratio as part of the regression constant. The steady state implications of the Solow model with regard to international technology differences also appear to matter for empirical studies of trade. In contrast to Hicks neutral technology differences, Harrod neutral technology differences may explain why countries have different factor intensities and end up in different cones of specialization. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_015&r=dev |
| By: | Tomoo Kikuchi |
| Abstract: | We develop an overlapping generations model with asset and capital accumulation to analyze the interaction between the real economy and international asset markets. The world consists of two homogenous countries with an integrated asset market, which differ only in levels of their capital stock. Two period lived consumers transfer wealth over time and across countries by holding international assets with stochastic dividends. Short sale of assets allows poor economy to take credit for productive investment. Yet, risk aversion and expectations may preclude capital stock of both countries from converging while capital flows from the rich to the poor country. The poor country needs sufficiently high capital stock initially to catch up with the rich country. Cycles in capital stocks and international capital flows occur. |
| Keywords: | International asset market, endogenous cycles, two-country model |
| JEL: | E44 F43 O11 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_016&r=dev |
| By: | Harald Fadinger |
| Abstract: | This paper tries to contribute to the strand of literature that investigates the question to what extend differences in per capita income between countries are due to differences in factor endowments like human- and physical capital on the one hand and due to differences in technology on the other hand. In particular, I am trying to assess to what extend structural transformation, ie the ability of a country to specialize in the production of goods that intensively use the factors with which it is abundantly endowed, has an important role in determining cross country income differences. I find that when productivities are country specific, for realistic parameter values structural transformation plays little role and productivity differences between countries remain large. However, when I allow for factor augmenting technology differences and factors are complementary in sectoral production, there seem to be large differences in the productivity of physical capital that are strongly correlated with per capita income, while human capital seems to have an inverse hump shape. This result is ad odds with Caselli (2005), who finds that poor countries use capital more efficiently than rich countries, while having a lower productivity of human capital. Finally, I use trade data and the Heckscher-Ohlin-Vanek equations to assess the plausibility of my calibrations and find a good fit for the model with factor specific productivities and complementary factors. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_017&r=dev |
| By: | Esteban Jaimovich |
| Abstract: | This paper proposes a theory in which informational failures hindering an efficient operation of the economy are solved over the course development. Individuals are heterogeneous in terms of entrepreneurial talent, exhibiting different comparative advantages. Talent is subject to private information, giving rise to adverse selection problems. In this paper, adverse selection stems from sectors scarcity, which prevents some individuals from finding their "appropriate" sector. The availability of many sectors facilitates the allocation of individuals' unobservable talent. As a result, sectors expansion fosters growth because it helps to solve adverse selection problems. Successful long-run development is characterised by a continuous process of sectoral expansion, improved allocation of talent, and more efficient operation of financial institutions. Nevertheless, this model may also lead to poverty-traps; where economies are confined to a rudimentary situation with few sectors, poor allocation of talent, and underdeveloped financial institutions. |
| Keywords: | Horizontal Innovation, Talent Allocation, Adverse Selection, Risk-Sharing |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_018&r=dev |
| By: | Jaime Alonso-Carrera; Xavier Raurich |
| Abstract: | We characterize the dynamic equilibrium of a two-sector endogenous growth model with constant returns to scale. We assume that both sectors produce consumption and investment goods, and we introduce a minimum consumption requirement. In this model, economies with the same fundamentals but different endowments of capitals will converge to a common growth rate, although the long run level and sectoral composition of GDP will be different. Because total factor productivity depends on sectoral composition, capital endowments will also contribute to GDP by means of changing the sectoral composition. This suggests that the development accounting exercises should consider the endogeneity of total factor productivity when measuring the contribution of capital to GDP. Along the transition, the slope of the policy functions depends on the initial values of the capital stocks and of the minimum consumption requirement. This implies that the minimum consumption is a barrier to development and that economies initially similar may diverge along the transition. |
| Keywords: | sectorial composition, human capital, endogenous growth, two-sector growth model |
| JEL: | O41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_019&r=dev |
| By: | Rubina Verma |
| Abstract: | Following the trade liberalization in 1991, the Indian economy embarked on a path of rapid growth of aggregate output. In particular, it witnessed a high growth rate of service sector output while that of industry was relatively muted. As a result, the share of services in GDP has come to resemble that of a high income country while its per capita income still remains that of a low income country. Further, we also observe a sharp increase in the rate of growth of service sector trade after liberalization. In this paper, we build a quantitative model which captures a falling share of agricultural output and a rapidly increasing share of service sector output as the economy grows. We develop a three sector open economy growth model and allow the economy to trade with the rest of the world by exporting as well as importing services and industrial goods. We focus on two steady state years, 1970 and 1994, and assume trade to be balanced in these two years. In addition, we allow for exogenous productivity growth in each of the three sectors. We find that it is high productivity growth, especially in the service sector, rather than growth of trade in services which is the primary factor driving the high growth witnessed by the Indian service sector. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_020&r=dev |
| By: | Laura Alfaro; Areendam Chanda; Sebnem Kalemli-Ozcan; Selin Sayek |
| Abstract: | The empirical literature finds mixed evidence on the existence of positive productivity externalities in the host country generated by foreign multinational companies. We propose a novel mechanism, which emphasizes the role of local financial markets in enabling foreign direct investment (FDI) to promote growth through backward linkages, shedding light on this empirical ambiguity. In a small open economy, final goods production combines the production processes of foreign and domestic firms, which compete for skilled labor, unskilled labor, and intermediate products. In order to operate a firm in the intermediate goods sector, entrepreneurs must first develop a new variety of intermediate good. Innovation and imitation both require capital costs, which must be financed through the domestic financial institutions. The more developed the local financial markets are, the easier it is for credit constrained entrepreneurs to start their own firms. Thus the number of varieties of intermediate goods increases, causing positive spillovers to the final goods sector. As a result the host country benefits from the backward linkages between foreign and domestic firms since the local financial markets allow these linkages to turn into FDI spillovers. Our calibration exercise confirms our analytical results. In particular, the results show that the same amount of increase in FDI, regardless of the reason of the increase, generates three times more additional growth in financially well-developed countries than in financially poorly-developed countries. The calibration exercise also shows the importance of the other local conditions such as market structure and human capital–the absorptive capacities–for the effect of FDI on economic growth. |
| Keywords: | FDI spillovers, backward linkages, financial development, economic growth |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_023&r=dev |
| By: | Ulla Lehmijoki; Tapio Palokangas |
| Abstract: | This paper examines a developing economy by a family-optimization model in which the number of children is a normal good in preferences. Trade liberalization generates two effects: an income effect, which raises population growth in the short run; and a gender wage effect, which decreases that in the long run. With higher income, families invest more in capital. Because female labor is more complementary to capital, a higher level of investment increases women's relative wages and attracts more of them from child rearing into production. Consequently, the population growth rate falls below the original level in the long run. This paper also provides some empirical evidence on these results. |
| Keywords: | Keywords: population growth, international trade |
| JEL: | O41 J13 J16 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_025&r=dev |
| By: | Danny Givon |
| Abstract: | This paper views technical change as a labor-saving, but capital-using, mechanization process, whereby capital replaces labor; though within any given technique, factors have a limited ability to substitute one another. This is formalized by reinterpreting the “distribution-parameters” of a low substitution CES aggregate production function as time-varying weights, such that technical change corresponds to a decrease in labor’s weight, along with an increase in capital’s. This “direction” of shift is considered a natural outcome of the fact that ideas are embedded within capital. As capital’s weight tends to one, changes in it become increasingly negligible and balanced-growth is attained. Thus the proposed non-neutral mechanism is asymptotically equivalent to Harrod-neutrality. But during industrialization, when capital grows faster than output, its “dis-augmentation” is still significant; the result being constant factor-shares. This resolves a recent controversy regarding the measurement of TFP growth, specifically in East Asian NICs. The capital-using aspect of factors’ replacement, along with the limited degree of factor substitution, also lead to time-ranked “appropriate-technologies”, which are broadly consistent with under-development; despite the lack of non-convexities. |
| Keywords: | Mechanization, Non-Neutral Technical Change, Dis-Augmentation, CES |
| JEL: | O33 O11 O14 E25 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_028&r=dev |
| By: | Cem Ertur; Wilfried Koch |
| Abstract: | This paper develops a bisectorial growth model with physical and human capital accumulation. Each sector is characterized by a different technology involving different human capital parameters. The model includes human capital externalities together with technological interdependence between economies. It leads to a spatial autoregressive reduced form for the real income per worker at steady state. The structural parameters of the model are recovered and evidence of the insignificance of human capital in explaining per capita growth, that is the human capital puzzle, is reconsidered. In fact, the parameter related to human capital in the consumption good sector is low which is consistent with evidence presented in the growth accounting framework. In contrast it is indeed higher in the education sector. Our model leads to spatial econometric specifications which are estimated on a sample of 89 countries over the period 1960-1995 using maximum likelihood as well as Bayesian estimation methods, which are robust versus outliers and heteroskedasticity. This model yields a spatially augmented convergence equation characterized by parameter heterogeneity. A locally linear spatial autoregressive specification is then estimated providing a different convergence speed estimate for each country of the sample. |
| Keywords: | Conditional convergence, technological interdependence, spatial autocorrelation, parameter heterogeneity, locally linear estimation |
| JEL: | C14 C21 O4 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_029&r=dev |
| By: | Philippe Aghion; Diego Comin; Peter Howitt |
| Abstract: | Can a country grow faster by saving more? We address this question both theoretically and empirically. In our model, growth results from innovations that allow local sectors to catch up with the frontier technology. In relatively poor countries, catching up with the frontier requires the involvement of a foreign investor, who is familiar with the frontier technology, together with effort on the part of a local bank, who can directly monitor local projects to which the technology must be adapted. In such a country, local saving matters for innovation, and therefore growth, because it allows the domestic bank to cofinance projects and thus to attract foreign investment. But in countries close to the frontier, local firms are familiar with the frontier technology, and therefore do not need to attract foreign investment to undertake an innovation project, so local saving does not matter for growth. In our empirical exploration we show that lagged savings is significantly associated with productivity growth for poor but not for rich countries. This effect operates entirely through TFP rather than through capital accumulation. Further, we show that savings is significantly associated with higher levels of FDI inflows and equipment imports and that the effect that these have on growth is significantly larger for poor countries than rich. |
| Keywords: | Savings, growth, technology adoption, TFP, FDI |
| JEL: | E2 O2 O3 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_030&r=dev |
| By: | David Weil |
| Abstract: | I use microeconomic estimates of the effect of health on individual outcomes to construct macroeconomic estimates of the proximate effect of health on GDP per capita. I use a variety of methods to construct estimates of the return to health, which I combine with cross-country and historical data on several health indicators including height, adult survival, and age at menarche. My preferred estimate of the share of cross-country variance in log income per worker explained by variation in health is 22.6%, roughly the same as the share accounted for by human capital from education, and larger than the share accounted for by physical capital. I present alternative estimates ranging between 9.5% and 29.5%. My preferred estimate of the reduction in world income variance that would result from eliminating health variations among countries is 36.6%. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_031&r=dev |
| By: | Gustav Hansson; Ola Olsson |
| Abstract: | The political and economic impact of country size has been a frequently discussed issue in social science. In accordance with the general hypothesis of Montesquieu, this paper demonstrates that there is a robust negative relationship between the size of country territory and a measure of the rule of law for a large cross-section of countries. We propose that there are two main reasons for this regularity; firstly that institutional quality often has the character of a local public good that is imperfectly spread across space from the capital to the hinterland, and secondly that a large territory usually is accompanied by valuable rents that tend to distort property rights institutions. Our empirical analysis further shows that whether the capital is centrally or peripherally located within the country matters for the average level of rule of law. |
| Keywords: | country size, rule of law, institutions, development, Montesquieu |
| JEL: | N40 N50 P33 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_033&r=dev |
| By: | Raouf Boucekkine; Carmen Camacho; Benteng Zou |
| Abstract: | We study a Ramsey problem in infinite and continuous time and space. The problem is discounted both temporally and spatially. Capital flows to locations with higher marginal return. We show that the problem amounts to optimal control of parabolic partial differential equations (PDEs). We rely on the existing related mathematical literature to derive the Pontryagin conditions. Using explicit representations of the solutions to the PDEs, we first show that the resulting dynamic system gives rise to an ill-posed problem in the sense of Hadamard (1923). We then turn to the spatial Ramsey problem with linear utility. The obtained properties are significantly different from those of the non-spatial linear Ramsey model due to the spatial dynamics induced by capital mobility. |
| Keywords: | Ramsey model, Economic geography, parabolic equations, optimal control |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_039&r=dev |
| By: | Shankha Chakraborty; Chris Papageorgiou; Fidel Pérez Sebastián |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_044&r=dev |
| By: | Francesco Ricci; Marios Zachariadis |
| Abstract: | This paper investigates the nature of the aggregate production function of health services. We build a model to analyze the role of public policy in determining social health outcomes, taking into account households choices concerning education, health related expenditures and saving. In the model, education has a positive external effect on health outcomes. Next, we perform an empirical analysis using a data set covering 80 countries from 1961 to 1995. We find strong evidence for a dual role of education as a determinant of health outcomes. In particular, we find that society’s tertiary education attainment levels contribute positively to how many years an individual should expect to live, in addition to the role that basic education plays for life expectancy at the individual household level. This finding uncovers a key externality of the educational sector on the ability of society to take advantage of best practices in the health service sector. |
| Keywords: | Education, life expectancy, external effects, absorptive capacity. |
| JEL: | O30 O40 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_045&r=dev |
| By: | Gilad Sorek |
| Abstract: | Endogenous accumulation of human capital increases labor productivity and promotes technological progress in the medical industry. Technological progress lowers the relative price of health services. The rising income and decreasing price of health services allow the elderly to prolong their life expectancy by using increasing amounts of healthcare services—but not necessarily by consuming a larger share of healthcare expenditure. As adults invest more in their human capital, they bear fewer children. Thus, the aging of the population is two-tailed. We characterize the optimal heath tax rate, and analyze the affects of suboptimal taxation on the dynamics of growth and aging. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_046&r=dev |
| By: | Andrew Mountford; Hillel Rapoport |
| Abstract: | Over the last two decades immigration policies in OECD economies have become increasingly selective and the rate of skilled migration from low income economies has risen markedly. This paper analyzes the theoretical implications of this shift in migration patterns for the growth and distribution of world income and population using a model with endogenous education, fertility and migration decisions in both the sending and receiving economies. It shows that Brain Drain migration may cause fertility to fall and human capital accumulation to increase in both the sending and receiving economies. It also shows that the world economy may converge to a special kind of core-periphery equilibrium where increasing inequality between countries is fueled by Brain Drain migration but where, nonetheless, the welfare of agents in both the core and the periphery is increased. Thus Brain Drain migration may increase inequality between countries at the same time as reducing world poverty and increasing world growth. |
| Keywords: | Migration, Growth |
| JEL: | O40 F11 F43 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_048&r=dev |
| By: | Piotr Stryszowski |
| Abstract: | The empirical experience of countries hit by brain drain shows no clear impact of human capital outflow on the source economy. This study shows that by triggering the capital flows from abroad, the brain can be beneficial for the sending countries. The theoretical claim about the causal effect of brain drain on capital flows is supported by empirical analysis. |
| Keywords: | Economic Growth, Technological Change, Brain Drain, FDI |
| JEL: | O15 O30 F21 F22 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_049&r=dev |
| By: | Anne D. Boschini; Jan Pettersson; Jesper Roine |
| Abstract: | This paper shows that whether natural resources are good or bad for a country’s development crucially depends on the interaction between institutional setting and the type of resources possessed by the country. Some natural resources are, for economical and technical reasons, more likely to cause problems such as rent-seeking and conflicts than others. This potential problem can, however, be countered by good institutional quality. In contrast to the traditional resource curse hypothesis, we show the impact of natural resources on economic growth to be non-monotonic in institutional quality. Countries rich in minerals are cursed only if they have low quality institutions, while the curse is reversed if institutions are sufficiently good. |
| Keywords: | Natural Resources, Appropriability, Property Rights, Institutions, Economic Growth, Development |
| JEL: | O40 O57 P16 O13 N50 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_050&r=dev |
| By: | E. Bilancini; Simone D’Alessandro |
| Abstract: | This paper analyses how the distribution of land property rights affects industrial takeoff and aggregate income through the demand side. We study a stylized economy composed of two sectors, agriculture and manufacturing. The former produces a single subsistence good while the latter is constituted of a continuum of markets producing distinct commodities. Following Murphy et al. [20] we model industrialization as the introduction of an increasing returns technology in place of a constant returns one. However, we depart from their framework by assuming income to be distributed according to functional groups membership (landowners, capitalists, workers). We carry out an equilibrium analysis for different levels of land ownership concentration proving that, under the specified conditions, there is a non-monotonic relation between the distribution of land property rights and both industrialization and income. We clarify that non-monotonicity arises because of the way land ownership concentration affects the level and the distribution of profits among capitalists which, in turn, shape their demand. Our results suggest that i) both a too concentrated and a too diffused distribution of land property rights can be detrimental to industrialization, ii) land ownership affects the economic performance of an industrializing country by determining the demand of manufactures of both landowners and capitalists, iii) in terms of optimal land distribution there may be a tradeoff between income and industrialization. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_051&r=dev |
| By: | Luca De Benedictis |
| Abstract: | This paper explores the link between trade and growth showing how the relationship between openness and per capita income is contingent to the size and the level of export specialization of countries. Measuring openness both in terms of trade volumes and trade policies, and specialization as a index of the position of the distribution of sectoral revealed comparative advantages, the paper - using parametric and semiparametric panel data analysis - offers a precise taxonomy of the effects of openness on growth according to the size and the specialization of countries. The effect of openness on growth is enhanced by the diversification of sectoral exports characterized by comparative advantages, and is reduced by the physical or economic dimension of the country considered. The effect is however nonmonotonic: an increase in openness is relevant for growth at low levels of openness, specialization is effective only at early stages of development, while is differentiation that enhances growth at higher levels of per capita income. |
| Keywords: | International Trade, Specialization, Revealed Comparative Advantage, Openness, Semiparametric Panel data, Cross-country regression |
| JEL: | C14 F10 F43 O57 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_054&r=dev |
| By: | Manoel F. Meyer Bittencourt |
| Abstract: | We examine the impact that financial development had on earnings inequality in Brazil in the 1980’s and 90’s. The empirical evidence, based on panel time series and time series data, shows that more broad access to financial and credit markets had a significant and robust effect in reducing inequality during the period investigated. We suggest that this is not only because the poor can invest the acquired credit in all sorts of productive activities, but also because those with access to financial markets can insulate themselves against recurrent poor macroeconomic performance, which is exemplified by extreme inflation rates. The main implication of the results is that a seemingly non-distortionary policy, such as more credit aimed at the poor, alleviates the high inequality present in Brazil and consequently improves welfare without distorting economic efficiency. |
| Keywords: | Financial development and markets, credit, inequality and welfare, inflation |
| JEL: | D31 E44 O11 O54 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_055&r=dev |
| By: | Joseph Zeira |
| Abstract: | This paper builds a model of growth through industrialization, where machines replace workers in a growing number of tasks. This enables the economy to experience long-run growth, as machines become servants of humans, and as their number grows unboundedly. The mechanism that drives growth is feedback between industrialization and wages. High wages provide incentives to use machines, while industrialization raises wages. The model shows that industrialization and growth take off only if the economy is productive enough. It also shows that monopoly power can stifle growth, as it lowers wages. Hence, a one-time increase in productivity, or a reduction of monopoly power can push economies from stagnation to industrialization. |
| Keywords: | Economic Growth, Industrialization, Technology |
| JEL: | O14 O30 O40 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_059&r=dev |
| By: | Pietro Peretto; John J. Seater |
| Abstract: | Endogenous growth requires that non-reproducible factors of production be either augmented or eliminated. Attention heretofore has focused almost exclusively on augmentation. In contrast, we study factor elimination. In our theory, maximizing agents decide when to reduce the importance of non-reproducible factors. We use a Cobb-Douglas production function with labor and capital as factors of production. There is no augmenting progress of any kind, whether Hicks, Harrod, or Solow neutral, thus excluding the standard engine of growth. What is new is the possibility of changing the factor shares endogenously by spending resources on R&D. Firms invest in physical capital, and they undertake R&D that alters the factor shares of the capital and labor used for production. The model allows derivation not only of the balanced growth solution but also of the full transition dynamics. There are two possible ultimate outcomes, depending on parameters and initial conditions. The economy may evolve into one that uses both labor and capital at shares that settle upon fixed final values, or it may evolve into one that uses only capital. The first outcome is the standard Solow model, and the second is the AK model. The latter produces perpetual endogenous growth, and it is itself an endogenous outcome of a rational maximizing process. In contrast to virtually all existing endogenous growth literature, neither monopoly power nor an externality is a necessary condition for perpetual endogenous growth. The transition paths are interesting, allowing non-monotonic behavior of both the capital/labor ratio and the factor shares. An aspect of the transition path that is unique for a Cobb-Douglas economy is that the origin is not an equilibrium. An economy that starts at the state space origin (capital equal to zero, capital's share equal to zero: pure labor production) moves away from the origin, simultaneously accumulating capital and increasing capital's share to make the capital useful. The theory thus offers a purely endogenous explanation for the transition from a primitive to a developed economy, in contrast to other existing theories. Finally, several aspects of the transition paths accord with the evidence, suggesting that the theory is reasonable. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_060&r=dev |
| By: | Oded Galor; Omer Moav |
| Abstract: | This research advances an evolutionary growth theory that captures the pattern of life expectancy in the process of development, shedding new light on the sources of the remarkable rise in life expectancy since the Agricultural Revolution. The theory suggests that social, economic and environmental changes that were associated with the transition from hunter-gatherer tribes to sedentary agricultural communities and ultimately to urban societies affected the nature of the environmental hazards confronted by the human population, triggering an evolutionary process that had a significant impact on the time path of human longevity. |
| Keywords: | Life Expectancy, Growth, Technological Progress, Evolution, Natural Selection, Malthusian Stagnation |
| JEL: | I12 J13 N3 O10 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_062&r=dev |
| By: | Garett Jones |
| Abstract: | I show that in a conventional Ramsey model, between one-fourth and one-half of the global income distribution can be explained by a single factor: The effect of large, persistent differences in national average IQ on the private marginal product of labor. Thus, differences in national average IQ may be a driving force behind global income inequality. These persistent differences in cognitive ability--which are well-supported in the psychology literature--are likely to be somewhat malleable through better health care, better education, and especially better nutrition in the world’s poorest countries. A simple calibration exercise in the spirit of Bils and Klenow (2000) and Castro (2005) is conducted. I show that an IQ-augmented Ramsey model can explain more than half of the empirical relationship between national average IQ and GDP per worker. I provide evidence that little of the IQ-productivity relationship is likely to be due to reverse causality. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_063&r=dev |
| By: | Moshe Hazan |
| Abstract: | Recent growth theories have utilized the Ben-Porath (1967) mechanism according to which prolonging the period in which individuals may receive returns on their investment spurs investment in human capital and cause growth. An important, though sometime implicit implication of these models is that total labor input over the lifetime increases as longevity does. We propose a thought experiment to empirically evaluate the relevancy of this mechanism to the transition from “stagnation” to “growth” of the nowadays developed economies. Specifically, we estimate the expected total working hours over the lifetime of nine consecutive cohorts of American men born between 1840 and 1920. Our results show that despite a gain of almost 9 years in the expectations of life at age 20, the expected total working hours over the lifetime have declined from more than 117,000 hours to less than 90,000 between the oldest and the youngest cohorts. We conclude that the Ben-Porath mechanism have had a lesser effect than previously thought on the accumulation of human capital during the growth process. |
| Keywords: | longevity, human capital, hours-worked |
| JEL: | E20 J22 J24 J26 O11 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_065&r=dev |
| By: | Fali Huang |
| Abstract: | This paper establishes a simple model of long run economic and political development, which is driven by the inherent technical features of different factors in production, and political conflicts among factor owners on how to divide the outputs. The main capital form in economy evolves from land to physical capital and then to human capital, which enables the respective factor owners (landlords, capitalists, and workers) to gain political powers in the same sequence, shaping the political development path from monarchy to elite ruling and finally to full suffrage. When it is too costly for any group of factor owners to repress others, political compromise is reached and economic progress is not blocked; otherwise, the political conflicts may lead to economic stagnation. |
| Keywords: | Economic Development, Political Development, Class Structure, Land, Physical Capital, Human Capital, Monarchy, Suffrage Extension |
| JEL: | O10 O40 P16 N10 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c011_066&r=dev |
| By: | Bjarne S. Jensen; Mogens E. Larsen |
| Abstract: | This paper analyzes Walrasian general equilibrium systems and calculates the static and dynamic solutions for competitive market equilibria. The Walrasian framework encompasses the basic multi-sector growth (MSG) models with neoclassical production technologies in N sectors (industries). The endogenous behavior of all the relative prices are analyzed in detail, as are sectorial allocations of the primary factors, labor and capital. Dynamic systems of Walrasian multi-sector economies and the family of solutions (time paths) for steady-state and persistent growth per capita are parametrically characterized. The technology parameters of the capital good industry are decisive for obtaining long-run per capita growth in closed (global) economies. Brief comments are offered on the MSG literature, together with apects on the studies of industrial (structural) evolution and economic history. |
| Keywords: | pareto effiency, walrasian equilibria, factor accumulation |
| JEL: | F11 F43 O40 O41 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_003&r=dev |
| By: | Henry Wan Jr. |
| Abstract: | The current Chinese trade expansion brings benefit to many parties, both outside and inside the Chinese Mainland. It also poses huge challenges to others, in foreign countries, also in China. The event is important for its own sake, but also what it implies when rapid growth happens to countries large in population and size (including India, Russia, Brazil). It has to be understood in context. Conventional wisdom in economics and popular explanations cannot explain Chinese growth, let alone its implications. Only with suitable adaptations of what the economic discipline has to offer, can one assess the nature of what we observe and the policy measures needed for today. Like other episodes after Industrial Revolution, the late industrialization in China also relies on outside technology, often gained through trade and foreign investment. Because of the de-colonization after 1945, such growth can succeed even with scanty domestic resource. Like other East Asian economies, participation in cross border supply chains along its neighbors offers China an effective entrée. What makes China different from the other East Asian economies is size. The presence of a huge labor reserve keeps wage down, profit up, attracts foreign investment coming with technology, but may also lead to deteriorated terms of trade and income inequality at home, de-industrialization and the loss of development opportunities abroad, also resource shortage and environment damage, some of these are irreversible in nature. Over all, the development is the result of efficiency gain, which is basically desirable. It takes international cooperation to steer such development toward mutually beneficial paths. It is also desirable for China to accelerate job creation at home and avoid irreversible environment harm. These are well recognized by Chinese decision makers. More can be done. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_004&r=dev |
| By: | David Mayer-Foulkes |
| Abstract: | A development and underdevelopment is presented using a Schumpeterian model for an open global economy with technology transfer and trade. When in the context of free commerce there exist strong enough mechanisms allowing technological asymmetries between countries to generate higher innovation incentives for the leaders, persistent inequality and divergence will result. Identical countries will reach different steady states. Such mechanisms include labor- and market- seeking foreign direct investment (FDI), which originated at the end of the 19th Century and has increased rapidly since the 1980’s. They also include the typical “colonial diktat” imposed by Great Britain in the 19th and early 20th Centuries. In the presence of labor-seeking FDI, the advantage a leading country’s innovators obtains by producing with the follower’s wages results in higher incentives to innovation for which FDI spillovers may not compensate the follower. It also crowds out the follower’s innovation. In the case of a small following country all of whose labor is demanded by leading country innovators, all innovation will be crowded out (the banana republic). Market-seeking FDI, providing goods that can only be sold where they are produced, also results in unequal incentives to innovation. Finally, when colonies’ markets and transportation options are limited by their colonial masters, or competitive industries are directly outruled, as in the typical colonial diktat of the 19th Century, persistent inequality and divergence arise. In contrast, in the case of autarchy, or in the case of free commerce without any asymmetric mechanisms, multiple steady states will only arise when country parameters differ. In all cases considered, marginal changes in the steady state determinants, such as population size, productivity fixed effects and institutions (represented by the degree of financial development and by the efficiency of a public input for producing innovated goods) result in growth effects for diverging countries and level effects for countries following the leader in parallel trajectories. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_005&r=dev |
| By: | John J. Seater |
| Abstract: | Trade is shown to increase economic growth purely through comparative advantage without recourse to scale effects, technology transfer, research and development, or even international investment. The resulting growth rates are those that would result from technology transfer, even though no technology transfer actually occurs. A balanced growth rate exists, is identical for all countries and therefore the world, and is asymptotically stable if and only if each country has an absolute (not just comparative) advantage in something. When balanced growth does not exist, trade reduces but does not eliminate differences between countries’ growth rates. Trade therefore does not necessarily guarantee a stable world income distribution. The magnitude of trade's effect on growth depends on the goods imported, not those exported. |
| Keywords: | trade, growth, technology equalization, comparative advantage, absolute advantage, world income distribution |
| JEL: | O4 F15 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_008&r=dev |
| By: | Marianne Saam |
| Abstract: | Some recent work on economic growth considers the aggregate elasticity of substitution between capital and labor as a measure of economic flexibility. It is thought to depend on technological and institutional determinants. I study how a openness to trade affects the aggregate elasticity of substitution of a large country in a Heckscher-Ohlin model with trade in intermediates and equalization of factor prices. With constant capital stocks, trade enlarges the set of available intermediates in the same way as a rise in the elasticity of substitution in their production would. An optimal tariff corresponds to an additional rise in the elasticity of substitution. In two growing economies, trade only rises the elasticity of substitution of the GDP function of the faster growing country. |
| Keywords: | aggregate elasticity of substitution, normalization, Heckscher-Ohlin model, capital accumulation |
| JEL: | F11 E23 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_013&r=dev |
| By: | Rodolfo Cermeño; Sirenia Várquez |
| Abstract: | In this paper we investigate the relationship between the agricultural technological level and R&D expenditures, human capital and openness to international trade using cross country information for a sample of 104 countries and various sub samples over the period 1961-1991. We first model the unobservable technological level as a dynamic stochastic process in the context of a general translog production function, and then we relate the implied technological levels to the aforementioned variables. For comparison, alternative specifications of the production and its associated technological process are also considered. We find that the proposed model outperforms all of the alternative specifications. The results suggest that the technological gap between developed and less developed countries in agriculture has increased considerably over this period of time and that, overall, the technological levels are directly related to R&D expenditures, human capital and openness, although this relationship is not robust across the different groups of countries considered. |
| Keywords: | Agricultural production function, Agricultural technology, Dynamic error components models, Non-linear models, R&D expenditures, Human capital, Openness |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_014&r=dev |
| By: | Ana M. Fernandes; Alberto E. Isgut |
| Abstract: | The empirical evidence on whether participation in export markets increases plant-level productivity has been inconclusive so far. We explain this inconclusiveness by drawing on Arrow's (1962) characterization of learning-by-doing, which suggests focusing on young plants and using measures of export experience rather than export participation. We find strong evidence of learning-by-exporting for young Colombian manufacturing plants between 1981 and 1991: total factor productivity increases 4%-5% for each additional year a plant has exported, after controlling for the effect of current exports on total factor productivity. Learning-by-exporting is more important for young than for old plants and in industries that deliver a larger percentage of their exports to high-income countries. |
| Keywords: | learning, trade, total factor productivity, exports, export-led growth |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_018&r=dev |
| By: | Tobias Heinrich |
| Abstract: | Benhabib and Spiegel (1994) argue that regressing cross-country income changes on a catch-up term has the ability to distinguish between the Nelson-Phelps and Neo-classical approach. This paper circumstantiates that these findings constitute a statistical artefact according to Galton's Fallacy. |
| Keywords: | Cross-country growth, technological catch-up, Galton's Fallacy, regression to the mean |
| JEL: | C10 C22 O40 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_020&r=dev |
| By: | Roberto Chang; Linda Kaltani; Norman Loayza |
| Abstract: | This paper studies how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro type of model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions; hence trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. We then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, we use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. We find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken. |
| Keywords: | Openness, Growth, Economic Reform, Policy Complementarity |
| JEL: | E61 F13 F43 O40 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_021&r=dev |
| By: | Oscar Afonso; Alvaro Aguiar |
| Abstract: | This paper studies the effects of the diffusion of a General Purpose Technology (GPT), that spreads first within the developed country of its origin (North), and then to a developing country (South). We use a general equilibrium model of growth, where each final good is produced by one of two available technologies. Each technology is characterized by a specific set of intermediate goods complemented by specific labor. The quality of intermediate goods is enhanced periodically by Schumpeterian R&D. When quality reaches a threshold level, a GPT arises in one of the technologies and spreads first to the other one, within the North. Then, it propagates to the South, following a similar sequence. Since diffusion is not even, neither intra nor inter-country, the GPT produces successive changes in the direction of technological knowledge and in inter and intra-country wage inequality. |
| Keywords: | North-South, General Purpose Technology, Direction of technological knowledge, Wage inequality |
| JEL: | J31 O31 O33 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_024&r=dev |
| By: | Robert Maseland; Albert de Vaal |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_026&r=dev |
| By: | Araceli Ortega Díaz |
| Abstract: | The present work encloses an analysis related to the channels through which income inequality affects economic growth and another related to the sources of economic growth. In the first, we use two-stage estimation with fixed effects finding that the fiscal effects of inequality on growth may depend on the government expenditure covariate. Secondly, we constructed a political instability index using principal components analysis, and look at its influence on income inequality and economic growth using dynamic panel data analysis for the 32 Federal Entities of Mexico. We find that political instability is bad for growth, and the fiscal effects of inequality on growth are not conclusive and need to be studied taking into account different fiscal variables. |
| Keywords: | Panel data models, inequality, growth |
| JEL: | C23 O4 O54 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_030&r=dev |
| By: | Quamrul Ahsan |
| Abstract: | The focus of this paper is on the rural poor of south Asia and their struggle to cope with the seasonal risk of unemployment and the ensuing income risks. In the absence of formal credit or insurance markets the rural poor typically resort to, among other options, the following informal strategies to cope with seasonal income risks: (i) seasonal rural-to-urban migration, and (ii) mutual (ex-post) transfers between families of friends and relatives. Access to credit through a microfinance institution could also provide a competing source of insurance. The question raised in this paper is how the access to credit may affect the more traditional/time honoured means of risk coping, such as seasonal migration. Given that credit, i.e., a credit-financed activity, is potentially a substitute for seasonal migration, it is reasonable to argue that easy access to credit (or high return on credit) will lower the incidence of migration. However, there also exists a potential complementarity between the two activities (if implemented jointly) in terms of gains due to diversification of income risks. That is, given that income from migration is not typically subject to the same shocks as income generated by a credit-financed activity, a joint adoption of both activities creates opportunities for diversification of risk in the family incomes portfolio. If the diversification gains are large enough then the adoption of both activities jointly will be preferred to adopting either of the activities individually. In that event, introduction of microfinance in rural societies may result in raising the incidence of migration. The joint adoption case for rural households is modelled using a choice theoretic framework, and exact conditions are derived for when joint adoption is preferable to adoption of a single project. The model of joint adoption is estimated by applying a Bivariate Probit regression model on a single cross-section of household survey data from rural Bangladesh. Our preliminary results show that indeed the probability of participation in migration by household members is positively related to the probability of the household being a credit recipient. |
| Keywords: | Development, South Asia, Poverty, Microfinance, Rural labour markets, Rural-to-urban migration, Risk-coping strategies |
| JEL: | D1 D81 J43 J61 O1 Q12 R23 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_032&r=dev |
| By: | Alejandro Rodríguez Arana |
| Abstract: | This paper calibrates an AK model of growth for Mexico. Investment financing is modeled considering the domestic savings ratio as well as net factorial income and capital inflows of the balance of payments. Productivity A and the rate of depreciation of capital are found using econometric techniques. According to this model, actual parameters determining growth in Mexico are compatible with a sustained long run rate of growth of about 3.6%. At the same time, under these circumstances the ratio of the Mexican GDP to US GDP would be growing in time. The model is very sensible to the parameters and depends strongly of Mexicans living in the US and transferring remittances to Mexico, nonetheless. If remittances were eliminated, the actual rate of domestic savings would not be compatible with positive growth in the long run, which implies that relatively speaking the domestic savings rate in Mexico is very low. The paper concludes that to assure a positive growth that improves standards of living and the relative size of Mexico with respect to the US, it is necessary to implement policies oriented to increase the domestic savings rate and productivity. Otherwise there are high risks of macroeconomic crises in the future. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_035&r=dev |
| By: | Federica Hughes Fossati; Rafael Mantero Salvatore; Virginia Olivella Moppett |
| Abstract: | During the period 1955-2003 Uruguayan economic growth showed two main characteristics. First, considerable volatility, and second a low average growth rate, even for a developing economy. The objective of this paper is to analyse the determinants of economic growth for the Uruguayan economy in the period 1955-2003, seeking to explain these two stylized facts. For this matter, the approach followed here consists of a two step procedure. First, we study the “proximate” determinants of Uruguayan growth in 1955-2003, using annual data. Based on a standard growth accounting exercise and a potential growth accounting exercise, we are able to conclude that the evolution of Total Factor Productivity is the key to explain both the volatility of Uruguayan economic growth as well as its low average growth rate. These findings are consistent with recent economic literature on the subject. Hence, the second step of this paper is to analyse the factors that determine Total Factor Productivity (TFP), which, based on the above results, are the “ultimate” determinants of Uruguayan economic growth. The analysis is divided into short run and long run TFP determinants. For the short run, an econometric model is estimated, using the cyclical component of TFP (obtained applying a Hodrick-Prescott filter to the original TFP series) as the dependent variable. Exclusion test performed to the model, and the construction of a “variable incidence indicator” allow to conclude that short run TFP (and therefore the better part of Uruguayan economic growth volatility) is mainly explained by financial capital flows and by the level of activity of Argentina. Other variables like the level activity of USA, the Terms of Trade and Real Interest Rates, provide also significant explanatory power. With respect to long run TFP, both international and domestic literature seems to highlight the importance of institutional factors, although insufficient historical data does not permit similar econometric modeling. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_037&r=dev |
| By: | Michiel Van Dijk; Adam Szirmai |
| Abstract: | In this paper we provide a first attempt to analyse catch up at the micro level, not possible in conventional macro-studies. The Indonesian pulp and paper industry has been selected as case-study because it experienced spectacular investment and growth, becoming one of the world’s largest exporters and producers of paper in the world. We apply stochastic frontier analysis to compare technical efficiency of Indonesian paper mills with Finnish plants, which can be considered as the world technological leaders in the industry. The analysis is performed on a pooled dataset based on manufacturing census data for the period 1975-1997. In the paper we address the following questions: What is the distribution of Indonesian plant performance vis-à-vis the technological frontier? What is the role of entry, exit and survival on catch up? And, what are the characteristics of catching-up plants. Although we find that on average the Indonesian paper industry has closed the gap with the technology frontier during the 1990s, catch up has been a highly localised process in which only a few large establishments have achieved near best-practice performance, while most other plants have stayed behind. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_038&r=dev |
| By: | Alejandro Gaytan; Romain Ranciere |
| Abstract: | How do the liquidity functions of banks affect investment and growth at different stages of economic development? How do financial fragility and the costs of banking crises evolve with the level of wealth of countries? We analyze these issues using an overlapping generations growth model where agents can invest in a liquid storage technology or in a partially illiquid Cobb Douglas technology. By pooling liquidity risk, banks play a growth enhancing role in reducing inefficient liquidation of long term projects, but they may face liquidity crises associated with severe output losses. Middle income economies may find optimal to be exposed to liquidity crises, while poor and rich economies have more incentives to develop a fully covered banking system. Therefore, middle income economies could experience banking crises in the process of their development and, as they get richer, eventually converge to a financially safe long run steady state. The model also replicates the empirical fact of higher costs of banking crises for middle income economies. Finally, using GMM dynamic panel data techniques for a sample of 83 countries we show that growth implications of the model are consistent with the empirical facts. |
| Keywords: | OLG growth models, liquidity, financial intermediation, financial fragility, banking crises |
| JEL: | E44 G21 O11 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_040&r=dev |
| By: | U. Arabi |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_044&r=dev |
| By: | David Mayer-Foulkes; Peter Nunnenkamp |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_045&r=dev |
| By: | Sailesh Tanna; Kitja Topaiboul |
| Abstract: | We investigate the causal links between human capital, openness through trade and FDI, and economic growth using quarterly data for Thailand over the period 1973:2-2000:4. A number of hypotheses are investigated including, in particular, FDI-led growth and export-led growth, as well as the reverse linkages from growth to FDI and exports. The importance of human capital is highlighted as complementary to trade and FDI inflows, underlying the importance of technology adoption. We find that, after controlling for domestic investment, government expenditure and imports, support for FDI-led growth is not as strong as export-led growth, although allowing for the joint interaction of FDI and human capital reveals a positive FDI effect above a minimum threshold of human capital, estimated to be around 4.5 years of average secondary schooling attainment. Extending our study using multivariate causality tests conducted within a vector error correction framework, we also find significant effects of domestic investment and trade openness, providing support for import-led growth, but direct support for FDI-led growth as well as growth-led FDI is again relatively weak, reinforcing the conclusion that trade openness has played a more significant role than FDI in influencing Thai economic growth. But the results reveal a subtle role for technology transfer through the complementary effect of trade on FDI, and FDI on government expenditure, which thereby influences human capital development with spillovers onto domestic investment and growth. This leads us to argue that there is a potential role for FDI interacting with human capital in influencing the future development of the Thai economy, given its recently active policy of FDI promotion. |
| Keywords: | Trade Openness, FDI, Growth, VECM, Technology Adoption |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_046&r=dev |
| By: | Bih Jane Liu; An-Chi Tung |
| Abstract: | Exporting and FDI have traditionally been two major firm-level responses to globalization. Export outsourcing (EO), a new strategy that gained in importance recently, has now become another alternative. This paper seeks to examine how firms choose between EO and outward FDI by looking into firm-level productivity differences. A special data set is constructed by consolidating two micro data sets of Taiwanese manufacturing firms. The paper contributes in four main ways. First, it provides a causality analysis of labor productivity and EO, whereas previous studies deal only with correlations. Second, it shows that EO can be interpreted as an indirect way of exporting. Third, it points out that outward FDI itself may not help with productivity if it is not linked with EO, which finding contradicts conventional wisdom. Finally, most evidences seem to imply that the intricate Taiwan-China interconnection is a significant factor that facilitates or contributes to all above-mentioned findings. |
| Keywords: | productivity, exports, foreign outsourcing, FDI, firm-level data |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_047&r=dev |
| By: | Sebastian Galiani; Daniel Heymann |
| Abstract: | We analyze the emergence of large-scale education systems in a setup where growth is associated with changes in the configuration of the economy. The model is based on three central elements: first, individual preferences over consumption goods generate changes in the composition of individual spending as income grows, embodied in Engel curves. Second, the production of sophisticated services is intensive in human capital. Third, investment in human capital by individual households faces borrowing constraints. Our model uses an overlapping generation framework similar to the one in Galor and Moav (2003). As that paper does, we also model the incentives that the economic ´elite may have (collectively) to accept taxation destined to finance the education of credit-constrained workers. In our model this incentive does not necessarily arise from a complementarity between physical and human capital in manufacturing. Rather, we emphasize the demand for human-capital-intensive services by high-income groups. The argument model seems capable to account for salient features of the development of Latin America in the 19th century, where, in particular, land-rich countries such as Argentina established an extensive public education system and a sophisticated service sector before developing significant manufacturing activities. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_048&r=dev |
| By: | Jean-Paul Chavas; Hector J. Villarreal |
| Abstract: | Macroeconomists, development scholars, and policy makers have long recognized the importance of poverty traps as a mayor cause of persistent inequality and a serious limitation to growth. A poverty trap may be defined as a threshold level below which individuals or households will not increase their well-being despite the conditions of the economy. While the importance of poverty traps is widely accepted, their microfoundations (the rationality) behind them are not very well understood. Under the Mexican setting, this paper contributes in two ways. First, we assume that income depends on the capital (both physical and human) that a household posses. Hence, if a household is poor and it is not able to accumulate capital it will remain poor (unless there is a sudden increase to the returns of its existing capital). Thus a poverty trap will be generated. Following Chavas (2004, 2005) we explicitly model the preferences, consumption, and the physical and human capital accumulation of Mexican households. We argue that the typical dynamic model with additive utilities and constant discount rates will not be able to capture poverty traps. The reason is that survival motives are involved (endogenous discounting is needed). Second, employing the same model, we test the impact of the Mexican government most important social policy program (Progresa-Oportunidades), in alleviating poverty traps. In the case of households with youngsters, this program can provide funds conditioned on kids attending school. This will somehow, force the participants to increase their human capital. A comparison between households in the programs versus non participants should shed some light in the effectiveness of the program and the sensitivity of persistent poverty to cash transfers. |
| JEL: | D91 D12 O12 I38 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_050&r=dev |
| By: | Beatriz Gaitan; Terry L. Roe |
| Abstract: | We investigate the Ramsey-like dynamics of nonrenewable resource abundance on economic growth and welfare in a two country world. One country is endowed with a non-renewable- resource Otherwise, countries are identical. The one country result of Rodríguez and Sachs (1999) that the initial stock of the resource influences negatively the GDP growth of the resource-rich country, is shown to not hold in general. The endowment of the nonrenewable resource can have an initial positive effect on the growth rate of the resource-rich country provided the elasticity of the initial price of the resource with regard to the initial stock of the resource is greater than minus one. The ratio of the consumption levels of the two countries are shown to be constant over time, and determined by the ratio of initial wealth. An analytical solution of the model allows us to indicate how accumulable and depletable assets affect per country welfare and income growth. For this case we demonstrate that a technological change -that is nonrenewable resource saving- can benefit the resource-rich country’s relative welfare. |
| Keywords: | Growth, Development, Non-renewable Resources, International Trade |
| JEL: | O13 O41 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_052&r=dev |
| By: | Betty Agnani; Amaia Iza |
| Abstract: | Venezuela growth experience in the last fifty years is characterized by a high economic growth rate during the period (1950-70), and a low economic growth rate in the last thirty years. In spite Venezuela is an oil abundant economy, this growth experience is mainly accounted by the evolution of the real GDP in the non-oil sector of the economy. Further- more, we make a growth accounting to quantify for how much the growth experience in the non-oil sector is due to physical capital accumulation and we find that most of its growth experience is accounted by the evolution of its TFP. On the other hand, the evolution of the oil rents have a high correlation with the TFP in the non-oil sector in the period (1950-80). During the high growth rate period, Venezuela experienced an impressive modernization. In consequence, the use of these oil rents, by the Government, may help to understand, at least partly, the growth experience of the non-oil sector of the venezuelan economy. We have constructed a model to check the importance of the venezuelan public policies. |
| Keywords: | non-renewable resources, growt accounting, TFP, oil rents |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_053&r=dev |
| By: | Elissaios Papyrakis; Reyer Gerlagh |
| Abstract: | This paper investigates the connection between resource abundance and innovation, as a transmission mechanism that can elucidate part of the resource curse hypothesis; i.e. the observed negative impact of resource wealth on income growth. We develop a variation of the Ramsey-Cass-Koopmans model with endogenous growth to explain the phenomenon. In this model, consumers trade off leisure versus consumption, and firms trade off innovation efforts versus manufacturing. For this model, we show that an increase in resource income frustrates economic growth in two ways: directly by reducing work effort and indirectly by inducing a smaller proportion of the labor force to engage in innovation. |
| Keywords: | Natural Resources, Growth, Innovation |
| JEL: | O13 O31 Q33 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_054&r=dev |
| By: | Massimo Antonini |
| JEL: | O23 E62 H62 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_055&r=dev |
| By: | César Calderón; Luis Servén |
| Abstract: | This paper provides an empirical evaluation of the impact of infrastructure development on economic growth and income distribution using a large panel data set encompassing over 100 countries and spanning the years 1960-2000. The empirical strategy involves the estimation of simple equations for GDP growth and conventional inequality measures, augmented to include among the regressors infrastructure quantity and quality indicators in addition to standard controls. To account for the potential endogeneity of infrastructure (as well as that of other regressors), we use a variety of GMM estimators based on both internal and external instruments, and report results using both disaggregated and synthetic measures of infrastructure quantity and quality. The two robust results are: (i) growth is positively affected by the stock of infrastructure assets, and (ii) income inequality declines with higher infrastructure quantity and quality. A variety of specification tests suggest that these results do capture the causal impact of the exogenous component of infrastructure quantity and quality on growth and inequality. These two results combined suggest that infrastructure development can be highly effective to combat poverty. Furthermore, illustrative simulations for Latin American countries suggest that these impacts are economically quite significant, and highlight the growth acceleration and inequality reduction that would result from increased availability and quality of infrastructure. |
| Keywords: | Infrastructure, Growth, Income Inequality |
| JEL: | H54 O54 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_056&r=dev |
| By: | Antonio Noriega; Matias Fontenla |
| Abstract: | We develop a model where investment in infrastructure complements private investment. We then provide time series evidence for Mexico on both the impact of public infrastructure on output, and on the optimality with which levels of infrastructure have been set. In particular, we look at the long-run effects of shocks to infrastructure on real output. We compute Long-Run Derivatives for kilowatts of electricity, roads and phone lines, and find that shocks to infrastructure have positive and significant effects on real output for all three measures of infrastructure. For electricity and roads, the effect becomes significant after 7 and 8 years, respectively, whereas for phones, the effect on growth is significant only after 13 years. These effects of infrastructure on output are in agreement with growth models where long-run growth is driven by endogenous factors of production. However, our results indicate that none of these variables seem to be set at growth maximizing levels. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c010_058&r=dev |