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on Economic Growth |
| By: | Tomohiro HIRANO; Joseph E. Stiglitz |
| Abstract: | This paper analyses the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy with credit frictions, with the driver of growth lying in one sector (manufacturing) but not in the other (real estate). We show that it is not so much aggregate credit expansion that matters for long-run productivity and economic growth but sectoral credit expansions. Credit expansions associated mainly with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulations, low interest rates and more expansionary monetary policy may so encourage land speculation using leverage that productive capital investment and economic growth are decreased. Unlike in standard macroeconomic models, in ours, the equilibrium price of land will be finite even if the safe rate of interest is less than the rate of output growth. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:24-010e&r= |
| By: | Peretto, Pietro; Valente, Simone |
| Abstract: | We fully characterize the transition to sustained growth of resource-constrained economies using a model of industrialization that reproduces key stylized facts of resource use and prices. Natural scarcity, endogenous demography and innovations generate different growth regimes: knowledge-based innovations can potentially feed productivity growth in the long run, but exhaustible primary inputs and population pressure may halt economic development at earlier stages. Our model reproduces two well-documented empirical regularities -- a U-shaped path of resource prices and a hump-shaped path of resource extraction -- as secular trends that arise across growth regimes. Resource use and prices reach their respective turning points at different stages of development, and we may observe a peak in extraction followed by a long period where both resource use and its market price fall. The decoupling of price and quantity dynamics hinges on general-equilibrium interactions between demography and three sources of endogenous technological change, namely, increases in the mass of intermediate firms, vertical innovations within each intermediate firm, and endogenous extraction costs affected by learning-by-doing in the primary sector. |
| Keywords: | Endogenous Growth, Population, Natural Resources, Sustainability. |
| JEL: | E10 L16 O31 O40 |
| Date: | 2024–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120828&r= |
| By: | Chu, Angus C.; Peretto, Pietro; Wang, Xilin |
| Abstract: | The goal of this study is to contribute to the debate on the role of government spending in shaping the growth process. We take the analysis in three new directions. First, we investigate the role of government spending in a scale-invariant Schumpeterian model of endogenous innovation. Second, we allow public spending to be the catalyst that precipitates the takeoff of the economy. Third, we postulate a production structure that violates the conventional condition for endogenous growth, namely, that the economy's reduced-form production function must be linear in the accumulated factor. With non-distortionary taxation, increasing productive government spending causes an earlier industrial takeoff and faster economic growth. With distortionary labor-income tax under elastic labor supply, instead, increasing productive government spending has a U-shaped effect on the timing of the industrial takeoff and an inverted-U effect on economic growth. Using cross-country panel data, we document an inverted-U relationship between productive government spending and economic growth. Calibrating the model to US data, we find that raising productive government spending from its historical value to to its growth-maximizing value causes an earlier industrial takeoff by over six decades and an increase in the long-run level of output by 129%. We also explore the robustness of our results under consumption tax and corporate income tax. |
| Keywords: | Government spending; taxation; industrialization; innovation; economic growth |
| JEL: | E6 O3 O4 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120797&r= |
| By: | Ege Erdil; Tamay Besiroglu; Anson Ho |
| Abstract: | Accurately modeling the production of new ideas is crucial for innovation theory and endogenous growth models. This paper provides a comprehensive methodological survey of strategies for estimating idea production functions. We explore various methods, including naive approaches, linear regression, maximum likelihood estimation, and Bayesian inference, each suited to different data availability settings. Through case studies ranging from total factor productivity to software R&D, we show how to apply these methodologies in practice. Our synthesis provides researchers with guidance on strategies for characterizing idea production functions and highlights obstacles that must be addressed through further empirical validation. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.10494&r= |
| By: | Koike Yasutaka-Mori; Toshitaka Maruyama; Koki Okumura |
| Abstract: | This paper develops an endogenous growth model that incorporates a frictional inventor market and examines the allocation of inventors across firms, knowledge diffusion, and its impact on growth. In our model, inventors play dual roles: they engage in in-house R&D and transfer knowledge from previous employers to new ones when changing jobs. Using an administrative panel dataset on German inventors matched to their employing establishments and patents, we find that, relative to general workers, inventors are more likely to transition to less productive establishments and suffer a higher wage growth via the transition. We also find that the knowledge base of establishments measured by patents grows faster when a significant proportion of their inventors originate from establishments possessing a larger knowledge base. We then calibrate the model to reflect these empirical findings and examine the effects of innovation policy. While subsidies to frontier firms discourage knowledge diffusion from these firms to technologically lagging firms, these subsidies also encourage innovation within frontier firms. The former negative effect dominates in the short term, but the latter positive effect dominates in the long run. |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1244&r= |
| By: | Debin Ma (All Souls College, Oxford University); Jared Rubin (Chapman University) |
| Abstract: | This paper revisits the old theses of the contrasting paths to modernization between Japan and China. It develops a new analytical framework regarding the role of ideology and ideological change—Meiji Japan’s decisive turn towards the West pitted against Qing China’s lethargic response to Western imperialism—as the key driver behind these contrasting paths. Our framework and historical narrative highlight the contrast between Tokugawa Japan’s feudal, decentralized political regime and Qing China’s centralized bureaucratic system as a key determinant driving the differential patterns of ideological realignment. We argue that the 1894-95 Japanese naval victory over China could not be justified under the prevailing Imperial Chinese ideology and thus served as the catalyst for China’s subsequent ideological transformation, which occurred via borrowing Japan’s successful Meiji reforms of both institutions and ideology. Our analytical framework, developed from a comparative historical narrative, sheds new insights on the importance of ideology and ideological change for our understanding of political and economic change. |
| Keywords: | ideology, ideological change, China, Japan, economic development, economic divergence, Meiji Reform, centralization, decentralization |
| JEL: | N35 N45 N75 O33 O38 Z10 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:24-09&r= |
| By: | Steven Brakman; Tristan Kohl; Charles van Marrewijk |
| Abstract: | Population forecasts indicate that the world is facing massive demographic changes during the 21st century. This does not only involve the development of the total global population, but (more importantly) will also affect the population and age distribution across countries in a fundamental way. In this paper we focus on the income consequences of these changes for the global income distribution. Key in this respect are changes in the so-called demographic dividend associated with the share of the working-age population in the total population. We link the predicted long-run changes of the demographic dividend to income projections. Our findings are as follows. First, show that historically the impact of demography on economic growth indicates that a one per cent higher demographic dividend results in about 0.22 percentage points higher growth rate. Second, we use UN population projections on population size and the associated age-distribution to predict income changes for the remainder of this century. Third, we illustrate how the center of income gravity shifts from advanced economies, like Europe and North America, towards developing and emerging economies, like South Asia and Africa. This potentially has consequences for the current global economic powers, that will see their influence on world affairs decline. |
| Keywords: | demography, income |
| JEL: | F43 J11 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11108&r= |
| By: | Can Sever |
| Abstract: | Violent conflicts are typically associated with a long-lasting drag on economic output, yet establishing causality based on macro-data remains as a challenge. This study attempts to build causality in the conflict-growth nexus by exploiting within-country variation across industries’ technological intensity. It identifies a channel through which conflicts can impact growth, i.e., by hindering R&D activities. The analysis is based on industry-level data from two-digit manufacturing industries for a large sample of countries over the last four decades. The results show that conflicts lead to a decline in labor productivity growth, particularly in industries with higher technological intensity. The estimated magnitude of the differential effect of conflicts on labor productivity growth in high-tech industries is large. Moreover, the additional labor productivity loss in those industries in the years of conflicts does not seem to be offset in the post-conflict period neither. The findings offer insight into the observed patterns of durable declines in income in the aftermath of conflicts, considering the role of technological progress and innovation in long-term economic growth. |
| Keywords: | Conflict; war; R&D; innovation; high-tech; economic growth and development |
| Date: | 2024–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/098&r= |
| By: | Désiré Kanga; Mr. Boileau Loko; Gomez Agou; Mr. Kangni R Kpodar |
| Abstract: | We examine push and pull factors, including demographic, geography, culture, economic and human development, politics and climate, and uncover the key determinants shaping migration patterns within Africa. Our findings emphasize the significance of political (instability, ethnic tensions) and socio-demographic (human development, common language, population size and structure) factors, climate shocks, along with economic motivations, in driving intra-African migration. Understanding these multifaceted factors is vital for policymakers in formulating effective strategies to leverage human capital mobility to promote sustainable development in the region. |
| Keywords: | Migration; climate shocks; human development; political risk |
| Date: | 2024–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/097&r= |
| By: | de Padua, David (Asian Development Bank); Kiocho, Mae Hyacinth (Asian Development Bank); Park, Donghyun (Asian Development Bank) |
| Abstract: | We investigate the conditions under which tax revenues can enhance economic growth. Using a newly constructed dataset consisting of 135 economies and spanning the period 1990–2019, we study how changes in tax revenues impact economic growth using a panel vector autoregression (PVAR) model. Tax revenues have a persistent positive impact on growth, and the association is especially pronounced in emerging economies. Strict inflation targeting, low-inflation, flexible exchange rates, a more developed financial sector, higher investment rates, and strong governance reinforce the growth-enhancing effect of taxes, but these results are conditional on the income level of the economy. Our findings imply that the effect of taxes on growth should be evaluated within macroeconomic and structural constraints. |
| Keywords: | taxes; growth |
| JEL: | H20 |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0727&r= |
| By: | Samuel Bazzi; Martin Fiszbein; Maximiliano Garcia |
| Abstract: | The United States is among the most individualistic societies in the world. However, unlike Western European individualism, which is imbued with moral universalism, America’s “rugged individualism” is instead particularistic. We link this distinctive cultural configuration to the country’s frontier history. The frontier favored self-reliance, but also rewarded cooperation, which could only be sustained through strong, local group identities. We show that counties with longer frontier history are more particularistic, displaying stronger opposition to federal taxes relative to state taxes, stronger communal values, less charitable giving to distant counties, and fewer online friendships with people in distant counties. At the same time, connections across counties display assortative matching on frontier history, highlighting the important role of culture in bridging disparate areas of the country. Overall, our results shed new light on moral values and the divergence of American and European individualism. |
| JEL: | N31 N91 O15 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32433&r= |