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on Economic Growth |
| By: | Oded Galor; Marc Klemp; Daniel C. Wainstock |
| Abstract: | Research spanning various disciplines underscores the significance of cultural diversity in facilitating cross-pollination of ideas, while diminishing social cohesiveness. Yet, the exploration of the impact of an equally intriguing dimension of diversity has remained uncharted: has the coalescence of diverse ancestral background in the formation of individuals' mindset shaped their productivity? Has a diverse mindset been central for individual's prosperity? This research advances the hypothesis that an intermediate level of diverse ancestral origins strikes a balance between the conflicting effects of cultural proximity and distinctiveness, creating an individual mindset that is conducive for productivity. While a limited cultural diversity among an individual's ancestors may reduce the scope for ancestral cross-pollination, and may diminish the individual's creativity, and adaptability, an extensive ancestral cultural divide could potentially hinder individual's coherence, human capital formation, and productivity. Leveraging the rich web of ancestries of the modern US population, we provide supporting evidence for the hypothesis and the underlying mechanism, establishing that there exists a hump-shaped relationship between intrapersonal diversity and earned income, mediated by the acquisition of human capital, in the form of educational attainment, originality, and ow of ideas. |
| Keywords: | mindset, diversity, culture, ancestry, productivity, human capital |
| JEL: | D60 O10 Z10 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10937&r=gro |
| By: | Andrea Teglio (Department of Economics, Ca’ Foscari University of Venice); Michele Catalano (Department of Economics, Ca’ Foscari University of Venice); Marko Petrovic (University of Valencia) |
| Abstract: | The neoclassical growth model is extended to include limitations in the forecasting capability of a rational individual, who can predict the future state of the economy only for a short time horizon. Long-term predictions are formulated according to uninformed expectations, relying solely on myopic information about short-run dynamics, such as assuming a future persistent growth rate. Steady-state results are obtained in the case of iso-elastic utility and Cobb-Douglas technology. The model, characterized by forecasting errors and subsequent corrections, exhibits global stability and has relevant implications for welfare and policy. It is analyzed in comparison to the Solow–Swan model and the Ramsey model. Our approach, incorporating behavioral assumptions within a standard optimization rule, successfully yields explicit analytical solutions for the policy function in the neoclassical model. This strategy may also be extended to various modeling streams, including DSGE and HANK models. |
| Keywords: | Expectations, Neoclassical growth, Bounded rationality, Myopic behavior, Dynamic optimization, Time inconsistency |
| JEL: | C61 D83 D84 E21 E25 E71 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2024:05&r=gro |
| By: | Qixin Zhan (China Economics and Management Academy, Central University of Finance and Economics); Heng-fu Zou (The World Bank; Institute for Advanced Study, Wuhan University; Institute for Advanced Study, Shenzhen University) |
| Abstract: | This paper delves into the theoretical underpinnings of how freedom, grounded in the rule of law and property rights, shapes wealth accumulation and economic growth. By integrating liberty into the neoclassical growth model, we introduce the innovative concepts of "liberty consumption" and "liberty capital" and define utility and production functions on them. Through theoretical analysis and simulations, we ascertain that a robust preference for liberty nurtures sustained prosperity and heightened productivity. However, in scenarios where the costs associated with liberty consumption are substantial and liberty capital depreciates rapidly—indicating an environment inhospitable or constraining to liberty -- it adversely affects economic output and overall well-being. These insights underscore the significance of examining liberty dynamics in economic growth and development. Without the presence of liberty, property rights, and the rule of law within utility and production functions, society faces the peril of descending into either a Hobbesian state of "war of all against all" or a totalitarian state ruled by a singular authority. In either case, life becomes solitary, poor, nasty, brutish, and potentially short. |
| Date: | 2024–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:619&r=gro |
| By: | Emmanuelle Augeraud-Veron (GRETHA, University of Bordeaux, FR); Raouf Boucekkine (CUT, Rennes School of Business, FR); Fausto Gozzi (LUISS Guido Carli, Rome, IT); Alain Vendetti (Aix-Marseille University, CNRS, AMSE, Marseille, FR); Benteng Zou (DEM, Université du Luxembourg) |
| Abstract: | We present an overview of selected contributions of the Journal of Mathematical Economics' authors to growth theory in the last half century. We start with the classical optimal growth theory within a benchmark multisector model and outline the successive developments in the analysis of this model, including the turnpike theory. Different refinements of the benchmark are considered along the way. We then survey the abundant literature on endogenous uctuations in two sector models. We conclude with two strong trends in the recent growth literature: green growth and infinite-dimensional growth models. |
| Keywords: | Growth theory, multisector models, turnpike theory, green growth, infinite-dimensional growth models, optimization. |
| JEL: | C60 C61 O41 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:24-02&r=gro |
| By: | Silva Lopes, Artur |
| Abstract: | Relying on low frequency econometric methods, a new simple procedure to assess international income convergence is introduced. It implements the long-run forecasting definition and discards short and medium-term information contents of the data as these may produce misleading evidence. Robustness to non-stationarities is achieved using first differences of (logged) per capita incomes. Application to a selected sample of 90 different countries provides mixed but generally more positive evidence than most previous studies. Nevertheless, it casts many doubts on the inevitability of income convergence, at least in practically relevant time frames and as worldwide phenomenon. |
| Keywords: | ncome convergence; growth empirics; low frequency; interval forecasting |
| JEL: | C22 C53 N10 O47 |
| Date: | 2024–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120143&r=gro |
| By: | J. Vernon Henderson; Bo Yeon Jang; Adam Storeygard; David N. Weil |
| Abstract: | We develop a novel method for assessing the effect of constraints imposed by spatially-fixed natural resources on aggregate economic output. We apply it to estimate and compare the projected effects of climate change and population growth over the course of the 21st century, by country and globally. We find that standard population growth projections imply larger reductions in income than even the most extreme widely-adopted climate change scenario (RCP8.5). Climate and population impacts are correlated across countries: climate change and population growth will have their most damaging effects in similar places. Relative to previous work on macro climate impacts, our approach has the advantages of being disciplined by a simple macro growth model that allows for adaptation and of assessing impacts via a large set of climate moments, not just annual average temperature and precipitation. Further, our estimated effects of climate are by construction independent of country-level factors such as institutions. |
| JEL: | J11 O44 Q54 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32145&r=gro |
| By: | Winston Wei Dou; Yan Ji; Di Tian; Pengfei Wang |
| Abstract: | We develop an endogenous growth model with heterogeneous firms facing financial frictions, where misallocation emerges explicitly as a crucial endogenous state variable and plays a significant role in driving economic growth through the valuation channel. The model illustrates that transient macroeconomic shocks affecting misallocation can yield persistent effects on aggregate growth. In equilibrium, slow-moving misallocation endogenously generates long-run uncertainty about economic growth by distorting innovation decisions. When agents hold recursive preferences, misallocation-driven low-frequency growth fluctuations result in substantial risk premia in capital markets and large losses in consumer welfare. Employing a misallocation measure motivated by the model, we substantiate our findings with empirical evidence showing that misallocation effectively captures low-frequency fluctuations in both aggregate growth and asset returns. |
| JEL: | L11 O30 O40 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32147&r=gro |
| By: | Nicol\'as Ure\~na; Antonio M. Vargas |
| Abstract: | This work studies a parabolic-ODE PDE's system which describes the evolution of the physical capital "$k$" and technological progress "$A$", using a meshless in one and two dimensional bounded domain with regular boundary. The well-known Solow model is extended by considering the spatial diffusion of both capital anf technology. Moreover, we study the case in which no spatial diffusion of the technology progress occurs. For such models, we propound schemes based on the Generalized Finite Difference method and proof the convergence of the numerical solution to the continuous one. Several examples show the dynamics of the model for a wide range of parameters. These examples illustrate the accuary of the numerical method. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.02197&r=gro |
| By: | Hagiwara, Takefumi |
| Abstract: | This study investigates the conflicting effects of a debt-financed fiscal policy on endogenous growth in an overlapping generations model with public capital and debt. Although an accumulation of public capital enhances the production efficiency of private capital, it also impedes private capital accumulation by distorting savings allocations through public debt issuance. With a low deficit ratio, the fiscal policy brings new equilibria to an unstable economy. Meanwhile, a debt-financed fiscal policy with a higher deficit ratio causes a fiscal collapse and secular stagnation. |
| Keywords: | Fiscal Sustainability; Public Debt; Public Capital; Secular Stagnation |
| JEL: | E62 H54 H62 O40 |
| Date: | 2024–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120201&r=gro |
| By: | Hasan, Amena; Dowla, Asif-Ud; Tarannum, Ramisa |
| Abstract: | This research paper examines the impact of financial inclusion on the economic growth of developing nations, with a focus on Bangladesh. It reviews existing literature and develops hypotheses related to savings, capital mobilization, entrepreneurship, poverty alleviation, financial stability, and formalization of the economy. The paper presents a conceptual framework illustrating the pathways between financial inclusion and economic growth indicators. Data analysis shows a positive correlation between financial inclusion and GDP growth, as well as a link to poverty reduction. The paper concludes with policy implications for promoting financial inclusion in Bangladesh. |
| Keywords: | Financial inclusion, economic growth, Bangladesh, poverty alleviation, financial stability |
| JEL: | D8 E4 H3 M2 |
| Date: | 2024–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120213&r=gro |
| By: | Daniele Angelini (University of Konstanz); Stefan Niemann (University of Konstanz); Florian Roeser (University of Konstanz) |
| Abstract: | We analyze the policy trade-offs facing fiscal policy in a dynamic growth model with au-tomation, education choice, and human capital formation. Although beneficial for economic growth, automation contributes to wage inequality. When human capital formation is affected by government spending, fiscal policy can enhance welfare through a coordinated increase in labor and robot taxes. The composition of taxes financing spending on transfers and educa-tion is key in determining the effects on economic growth and inequality, as the robot tax is the more redistributive instrument. We calibrate our model to the US economy and determine the welfare-maximizing tax policy. Optimality requires an initial reduction in the robot tax to foster automation-driven growth, followed by its gradual increase to address widening inequal-ity. Education subsidies can be welfare-improving if they are financed through the labor tax without compromising higher education spending. Finally, we explore robustness under private contributions to higher education. |
| Keywords: | Automation; Education; Human capital; Innovation-driven growth; Inequality; Policy responses |
| JEL: | E23 E25 H23 H52 O31 O33 O40 |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:2401&r=gro |