Endogenous Growth Mechanisms Research Articles

Technology diffusion and international business cycles

This paper shows that the cross-country diffusion of innovations forms a critical channel through which macroeconomic shocks are transmitted across economies. This inference is obtained from a two country, medium scale DSGE model that includes an endogenous growth mechanism. R&D activity and innovation are the main components of this mechanism and they are introduced through a labor-augmenting technology. The model features international diffusion of technologies as the innovations by a firm are not only adopted by other firms within a country but also by those in the other country. Estimating the model with US and Euro Area data, I observe that foreign shocks contribute a high share to the macroeconomic volatility in each economy. By contrast, foreign shocks make a negligible contribution when the model is estimated after shutting down technology diffusion. The results, more generally, show that it is not technology shocks, nor any other shock, but the transmission of shocks through the diffusion of new technologies that is the key driver of international business cycles.

Semi-endogenous or fully endogenous growth? A unified theory

Is growth ultimately fully endogenous or semi-endogenous? Three decades of theoretical and empirical growth economics have kept both possibilities open. Here, R&D-driven growth is a general combination of both semi-endogenous and fully endogenous mechanisms.I demonstrate that if the semi-endogenous growth component is indispensable to the actual growth mechanism, the long-run growth rate follows the semi-endogenous growth predictions. Conversely, if the semi-endogenous growth is non-essential and the world population experiences slow growth, the fully endogenous growth mechanism could dictate the long run, even if it is not essential.If no other (third) growth mechanism exists, a criterion sufficient to ascertain the essentiality of semi-endogenous growth is that reduced research consistently leads to fewer innovations.If an unknown third growth engine exists, the steady state remains semi-endogenous, provided the essentiality criterion is met. Regardless of how this third factor impacts short-term growth, semi-endogenous growth will prevail in the long run.

Sustainable Revitalization and Green Development Practices in China’s Northwest Arid Areas: A Case Study of Yanchi County, Ningxia

Consolidating and expanding the achievements of poverty alleviation, and effectively connecting it with rural revitalization, are part of an important path to achieving sustainable poverty alleviation and common prosperity in China, especially in its northwest arid areas. In this paper, the human–earth system was employed to analyze the elemental composition, structural organization, and functional state of China’s northwest arid areas. The results revealed the following: (1) poverty in northwest arid areas stems from the lack of a coupling and coordinating mechanism among humans, the economy, resources, and environmental elements; this is not conducive to transforming ecological advantages into regional development. (2) In the antipoverty stage, China’s northwest arid areas innovate human–earth coupling and a coordinating mechanism through a series of targeted measures. (3) We found that three paths, namely “promoting the integration of featured advantageous industries and tourism culture, innovating the realization path according to local conditions, and paying attention to the subjectivity of farmers” broaden the means of sustainable livelihood, consolidate the achievements of poverty alleviation, and achieve rural revitalization. (4) In particular, it is necessary to practice the concept of green development and pursue ecological industrialization by establishing a policy system of green land-people-industry-right, thus building an endogenous growth mechanism of sustainable poverty alleviation and green development in China’s northwest arid areas. The results provide theoretical support and model reference for the effective connection between consolidating and expanding the key achievements of poverty alleviation and rural revitalization in China’s northwest arid areas.

Monetary Policy in a Model of Growth

<ns3:p>Empirical evidence suggests that recessions have long-run effects on the economy's productive capacity. Recent literature embeds endogenous growth mechanisms within business cycle models to account for these "scarring" effects. The optimal conduct of monetary policy in these settings, however, remains largely unexplored. This paper augments the standard sticky-price New Keynesian (NK) to allow for endogenous dynamics in aggregate productivity. The model has a representation similar to the two-equation NK model, with an additional condition linking productivity growth to current and expected future output gaps. Absent state contingency in the subsidies that correct the externalities associated with productivity growth, optimal monetary policy sets inflation above target whenever the subsidies fall short of the externalities. In the recovery from a spell at the ZLB, the optimal discretionary policy sets inflation temporarily above target, helping mitigate the long-run damage. Following a cost-push shock that creates inflationary pressure, the central bank tolerates a larger rise in inflation than in a model with exogenous productivity. The gains from commitment include the central bank's ability to make credible promises about future output gaps in a way that allows it to manipulate current productivity growth.</ns3:p>

Sustainable poverty alleviation and green development in China’s underdeveloped areas

In 2020, the decisive victory of building a moderately well-off society in all aspects means that absolute poverty in rural China has been completely eliminated. Consolidating and expanding the achievements of poverty alleviation and establishing a long-term mechanism to solve relative poverty have become key issues in high-quality development of underdeveloped areas. In this study, human-earth system is employed to analyze the element composition, structural organization and functional state of underdeveloped areas. The results show that poverty in underdeveloped areas stems from the lack of the coupling and coordinating mechanism among human, economic, resource and environmental elements, which is not conducive to transforming the ecological advantages into the advantages of regional development. In the antipoverty stage, underdeveloped areas innovate the human-earth coupling and coordinating mechanism through a series of targeted measures, promote the organic combination of poverty alleviation, ecological conservation and sustainable development, and boost the transformation of regional development and the increase of farmers’ incomes. Focusing on the 14th Five-year Plan (2021-2025) and the long-term goal of 2035, governments in underdeveloped areas should make full use of the policy support to explore scientific methods of modern governance and sustainable development. In particular, it is necessary to practice the concept that “clear waters and lush mountains are invaluable assets” and take the road of the ecologicalization of industry and the industrialization of ecology by establishing a policy system of “green land”, “green people”, “green industry” and “green right”, thus building an endogenous growth mechanism of sustainable poverty alleviation and green development in China’s underdeveloped areas.

Research on the Effect of Knowledge Network Embedding on the Dynamic Capabilities of Small and Micro Enterprises

In the complex and dynamic economic environment, the growing pain of small and micro enterprises is long‐standing. It is urgent to strengthen the research on the endogenous growth mechanism of small and micro enterprises. Based on the background of the era of knowledge‐driven economy, this paper explores the relationship between knowledge network embeddedness and dynamic capabilities of small and micro enterprises with environmental munificence as the regulating variable. We have the structural equation empirical research with the data from 260 questionnaires of small and micro enterprises. The results show that structural embeddedness and relational embeddedness have a positive driving effect on the dynamic capability of small and micro enterprises, and environmental munificence plays a positive regulatory role in the positive impact of knowledge network embedding on the dynamic capability. The research conclusion is helpful for the small and micro enterprise to develop dynamic capacity and for the supportive policy making as well.

Capital Accumulation, Green Paradox, and Stranded Assets: An Endogenous Growth Perspective

The existing studies on Green Paradox and stranded assets focus on dirty exhaustible assets (fossil fuel reserves) and show that environmental regulations, by changing the costs of dirty inputs relative to clean ones, lead to replacements of the former by the latter and stranding of dirty assets due to perfect substitution. It, in turn, induces acceleration of dirty resource extractions and pollution emissions for fear of dirty assets becoming stranded - the Green Paradox effect. This paper uses an endogenous growth framework to revisit the problem of Green Paradox and stranded assets by taking a new perspective that focuses on capital accumulation with investment irreversibility. We show that if 1) direct irreversibility of investment does not rule out the indirect channel of converting dirty capital goods into clean ones through final goods allocations, and 2) interactions between dirty and clean capital as imperfect substitutes can generate reciprocal effects, then environmental regulation, through directing investment towards clean capital, does not necessarily leads to asset stranding of dirty capital. Accumulation of clean capital with a pollution-saving effect offsets the polluting impact of dirty one and leads to reversed Green Paradox. We further propose an endogenous growth mechanism through which the accumulation of both dirty and clean capital, as well as environmental improvement, can be sustained in the long run without converging to the steady state.

Economic Growth Effects of Alternative Climate Change Impact Channels in Economic Modeling

Despite increasing empirical evidence of strong links between climate and economic growth, there is no established model to describe the dynamics of how different types of climate shocks affect growth patterns. Here we present the first comprehensive, comparative analysis of the long-term dynamics of one-time, temporary climate shocks on production factors, and factor productivity, respectively, in a Ramsey-type growth model. Damages acting directly on production factors allow us to study dynamic effects on factor allocation, savings and economic growth. We find that the persistence of impacts on economic activity is smallest for climate shocks directly impacting output, and successively increases for direct damages on capital, loss of labor and productivity shocks, related to different responses in savings rates and factor-specific growth. Recurring shocks lead to large welfare effects and long-term growth effects, directly linked to the persistence of individual shocks. Endogenous savings and shock anticipation both have adaptive effects but do not eliminate differences between impact channels or significantly lower the dissipation time. Accounting for endogenous growth mechanisms increases the effects. We also find strong effects on income shares, important for distributional implications. This work fosters conceptual understanding of impact dynamics in growth models, opening options for links to empirics.

Combining semi-endogenous and fully endogenous growth: A generalization

This paper shows that combining the semi-endogenous and the fully endogenous growth mechanisms with a general CES aggregator, either growth process can prevail in the balanced growth path depending on their degree of complementarity/substitutability. Policy-induced long-run economic switches to the fully endogenous steady state as the R&D employment ratio surpasses a positive threshold are possible if the two growth engines are gross substitutes.

The Economic and Budgetary Impact of Climate Policy in Portugal: Carbon Taxation in a Dynamic General Equilibrium Model with Endogenous Public Sector Behavior

The objective of this paper is to study $$\hbox {CO}_{2}$$ taxation in its dual role as a climate and fiscal policy instrument using a dynamic general equilibrium model of the Portuguese economy which highlights the mechanisms of endogenous growth and incorporates a detailed modeling of public sector behavior and accounts. In addition to the conventional marginal abatement cost curve, we present a pair of complementary marginal abatement cost curves which highlight the impact $$\hbox {CO}_{2}$$ taxation has on economic performance and public debt and are therefore directly relevant to the terms of the policy debate. These marginal abatement cost curves provide an effective tool for understanding the rate at which the environmental effectiveness, economic costs, and budgetary effects change with the tax level. Our results indicate that $$\hbox {CO}_{2}$$ taxes can be an important policy instrument for reducing emissions and promoting fiscal consolidation, although this will come at a cost in terms of economic performance. Simulation results suggest that a tax of 17.00 Euros per $$\hbox {tCO}_{2}$$ can satisfy existing climate policy targets. The tax revenue effects, together with reductions in public spending, yield a 4.8 % reduction in public debt. These desirable outcomes come at the cost of a 1.3 % reduction in GDP over the long term. Our analysis highlights that limiting public consumption expenditures can contribute to larger reductions in public debt, albeit at a marginally greater cost to economic activity. In turn, reducing public investment, although effective in reducing public debt, produces a much larger negative economic impact. This evokes an important trade-off, particularly pronounced in the present debates regarding austerity measures in the EU, between fiscal consolidation efforts and efforts to promote convergence to EU standards of living. These results further highlight that modeling assumptions with respect to public spending decision are not innocuous. An exogenous trajectory for public spending suggests substantially smaller GDP effects and substantially larger public debt effects for any given emissions target.

Immanuel Kant and Endogenous Growth Theory

AbstractDespite the modern origins of endogenous growth theory, we argue that the ‘Idea for a Universal History with a Cosmopolitan Aim’ written by Immanuel Kant in 1784 provides an early and coherent example of such a theory. Kant's endogenous growth mechanism is driven by the inherent rivalry that exists between agents which increases effort and strengthens the accumulation of knowledge, which in turn is carried through generations. In an exercise in ‘rational reconstruction’, we present a mathematical model of Kant's mechanism. We use the model to contribute to the contemporary policy debate as to whether ‘keeping up with the Joneses’ leads to excessive effort.

Endogenous growth and wealth inequality under incomplete markets and idiosyncratic risk

This paper describes the equilibrium properties and dynamics of a model which combines the key features of the standard incomplete market model (Aiyagari, 1994) with a standard endogenous growth mechanism to gain a deeper understanding of the feedback effects between growth and wealth inequality in the presence of credit frictions and idiosyncratic risk. We characterize growth equilibria and find that a balanced growth path not necessarily exists if households are subject to ad hoc borrowing constraints. Growth, inequality, and risk are positively related in our model, but we also identify a hump-shaped relationship between welfare and risk, indicating a tradeoff relationship between risk-pooling and growth in the determination of welfare. The growth rate responds to changes in the wealth distribution and displays transitional dynamics towards the balanced growth path.

TESTING SIGMA CONVERGENCE ACROSS EU-28

ABSTRACT. The main goal of this research is to assess the degree of convergence in European Union- 28 (EU-28) during 2000-2012. After a spatial analysis of macroeconomic indicators using maps and graphs that were built in GeoDa, the sigma convergence was tested. For this purpose, variation indicators in the simple and weighted variant for GDP per capita in PPS were utilized, the weights being given by the population weights in each country of the EU-28. The results indicated a decrease in divergence process in 2012 compared to 2000, but there is still not enough evidence for the closeness of an acceptable degree of convergence. However, there is a low degree of divergence in EU-28 compared to EU-27 in 2012 with respect to 2000. In 2012, the EU-28 populations explained better the GDP compared to the number of employed persons.JEL Classification: C18, C88, F2, F15Keywords: convergence, sigma convergence, GDP per capita, standard deviation, variance, coefficient of variation.(ProQuest: ... denotes formulae omitted.)IntroductionFor measuring the degree of realization for the convergence process one should assess the levels of different indicators that refer to: variability/homogeneity, polarization, concentration, complementarity, entropy. These indicators might confirm or not different aspects of the convergence process. The most known and applied is the sigma convergence measured by variation indicators.This paper is structured in several parts. After this brief introduction, a short literature review is made, underlying the latest results regarding the convergence assessment. The methodological part consists in the presentation of the statistical indicators used in measuring the variation in GDP/capita. The empirical application supposes the calculation of variation measures for European Union-28. The results put into evidence that during 2000-2012 the convergence criterion was not fulfilled, even if the degree of variability decreased in time. A section dedicated to main conclusions was presented in the end.1. LiteratureAccording to Sala-i-Martin (1996), band s indicators are new tools for measuring the degree of convergence and the speed for getting convergence. s indicator shows the convergence and divergence tendency depending on the value of sample variance. b parameter shows the speed for accomplish the convergence when it has a negative sign. Mankiw, Romer and Weil (1992) and Islam (1995) introduced in the model control variables like saving rate and population growth, showing that the economies with a low initial income tend to grow faster than the economies with higher income. On the other hand, alternative econometric models were developed by Quah (1996) and Durlauf (1996) to show that the transversal growth model is consistent with the multiple mechanisms of endogenous growth and inconsistent with the convergence. The behavior and evolution of convergence-clubs were deeply analyzed. The conventional theory of convergence and the empirical researches hide the convergence-clubs and the polarization of countries in rich in poor. Some economists like Friendman (1992) and Quah (1996) considered the beta indicator as irrelevant for the real convergence process of the economic growth. There are several forms for this tool utilized in econometric analysis: absolute beta convergence, club convergence and conditional beta convergence. The beta and sigma indicators are related and reciprocal checked. The assumption of diminishing yield of the neo-classical theory states that poor economies tend to grow faster than rich ones. This conclusion has the following implications: the coefficient of variation for GDP/capita slowly decreases and there is an inverse relationship between the rate of economic growth for GDP/capita and the initial level of GDP/capita. However, the Sala-i-Martin (1996) suggested that different relationships may occur between these two types of convergence. …

On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case

This paper examines the influence of fossil fuel prices on carbon dioxide emissions, economic activity, and the public sector account in Portugal. It uses a dynamic general equilibrium model which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector. Fuel price scenarios are based on forecasts by the US Department of Energy (DOE-US), the International Energy Agency (IEA-OECD) and IHS Global Insight Inc. The differences in relative fuel prices among the three scenarios lead to substantially different environmental impacts. Higher fuel prices in the DOE-US scenario lead to a 10.2% reduction in the policy effort required to meet the EU 2020 emission targets, while relative price changes in the IEA-OECD scenario result in a 19.2% increase in the required policy effort and decreasing fuel prices increase the emissions deficit by 95.9% under the IHS scenario. In terms of the long term economic impacts, our results suggest a 2.2% reduction in GDP in the DOE-US scenario and 1.9% in the IEA-OECD scenario and an increase of 1.4% in the IHS scenario. As to the budgetary impact, higher fuel prices lead to lower tax revenues, which, coupled with a reduction in public spending translates to lower public deficits. From a methodological perspective, our results highlight the importance of the mechanisms of endogenous growth. A scenario of higher fuel prices would, under exogenous economic growth assumptions, result in larger baseline emissions growth, substantially smaller economic effects, and rather different budgetary effects. From a policy perspective, our results highlight the importance of fossil fuel prices in defining the level of policy intervention required for compliance with international and domestic climate change legislation.

Fossil fuel prices and the economic and budgetary challenges of a small energy-importing economy: the case of Portugal

This paper examines the economic and budgetary impacts of fuel prices using a dynamic general equilibrium model of the Portuguese economy which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector. The fuel price scenarios are based on forecasts by the US Department of Energy (DOE-US) and the International Energy Agency (IEA-OECD) and represent a wide range of projections for absolute and relative fossil fuel prices. In terms of the long term economic impact, our results suggest a 1.9 % drop in GDP in the DOE-US scenario and 1.6 % in the IEA-OECD scenario. As to the budgetary impact, higher fuel prices lead to lower tax revenues, which, coupled with a reduction in public spending, translate into lower public deficits. Accordingly, increasing fuel prices create an important policy trade off in that they can contribute to reducing the public deficit while hindering economic growth. We find that fairly strong incentives for wind energy can reduce the economic impact of fuel prices by 14.2 % in the DOE-US price scenario and 18.5 % reduction in the IEA-OECD price scenario. Finally, our results highlight the importance of public sector spending decisions and the mechanisms of endogenous growth in understanding the impact of fossil fuel prices. Indeed, a scenario of higher fuel prices would, with exogenous public decisions and exogenous economic growth assumptions, result in substantially smaller economic effects and yield adverse budgetary effects.

Inter-regional endogenous growth under the impacts of demographic changes

This article attempts to project the economic paths for the individual Midwest states (Illinois, Indiana, Michigan, Ohio and Wisconsin, as well as the rest of the US) in the near future when the population ageing becomes more pronounced. To accomplish this task, a dynamic general equilibrium model is developed so that it could incorporate the inter-regional transactions and endogenous growth mechanisms within the framework of an Overlapping Generations (OLG) model. Key parameter values associated with the regional interconnections were assigned using a multi-regional Social Accounting Matrix (SAM) of the Midwest states. Two different steady-state results were presented with two different age-cohort population structures corresponding to year 2007 and 2030. These steady-state results imply that the rate of declining of per-capita output is projected to be heterogeneous across the regions due to different developments of age-cohort population structures and consequently different levels of endogenously determined educational investment of workers. Also, two steady-state simulation results revealed that the development of output price in a certain region reflects the dynamics of demographics of every region. Meanwhile, the dynamic simulation results reveal that the per-capita output of every region is projected to grow positively in the near future when the population ageing will be pronounced. However, the growth rate of the per-capita output is projected to be heterogeneous across the regions: the regions with high-skilled workers hold the potential threat that population ageing could give more negative impacts on the economy due to the relatively sluggish growth of human capital stock. Also, the dynamic simulation results show that certain regions in the Midwest will experience their terms of trade deterioration in the near future, implying that careful attention should be given to their future trade conditions.

Assessing Policy Reforms for Italy using ITEM and QUESTIII

In this paper we assess the implications of policy reforms for the Italian economy by jointly using the Italian Treasury Econometric Model (ITEM) and QUEST III, the endogenous growth dynamic general equilibrium (DGE) model of the European Commission (DG ECFIN) in the version calibrated for Italy. We point out some of the key differences between the two models, highlighting some policy insights that DGE models can provide compared to those of traditional macro-econometric models. Their structural characteristics and the results of simulations are analyzed by using an array of shocks commonly examined in the evaluation of possible reforms. We show that two elements incorporated into the QUEST model play a key role in explaining the qualitative and quantitative differences among the two models in the dynamic responses to structural shifts, namely: the role of expectations in the transmission of reforms and the endogenous growth mechanism. We conclude that the joint consideration of the two models can improve our understanding of how the assessment of policy interventions is likely to be affected by the uncertainty surrounding model-based evaluation.

Endogenous Growth Mechanism as a Source of Medium Term Fluctuations in the Labor Market: Application to the US Economy

Endogenous Growth Mechanism as a Source of Medium Term Fluctuations in the Labor Market: Application to the US Economy

Optimal paths in the endogenous AK class growth models

The AK class models are simple visions of economic dynamics, where production level is determined by quantity of physical capital at economy's disposal and efficiency of its usage in the process of production. One assumes implicitly that technological conditions unambiguously define the level of technical endowment of labor (the ratio of capital to labor) and labor resources are so abundant that they serve any quantity of capital. In the paper we show that even in such simple aggregated models of economic dynamics, where an endogenous growth mechanism of capital efficiency works (due to investments and innovations by R&D), it is possible to achieve social welfare, measured by production and consumption p.c., which is not attainable on the grounds of the neoclassical growth model. (original abstract)

Growth, Inequality, and Integration: A Political Economy Analysis

The issue of political integration between two countries (more generally two political constituencies) for economic reasons is studied within the context of a simple endogenous growth model with a productive public good financed by taxation. We consider two countries that initially differ in terms of average endowment, size, and inequality. Because taxation affects the distribution of income both within and between countries, we are able to show how integration impacts it over the entire time horizon. The decision to integrate or not is made by the two national median voters. We establish the net gain for any individual in any country derived from integration and offer a simple decomposition of this gain. It is then proven that even though integration generates aggregate gains for both countries through an endogenous growth mechanism related to size, it may be in the interest of either median voter not to vote for integration given the transformation in the inequality schedule it implies. Surprisingly, even the poorer median voter may vote against integration. Turning to the process of union building, we prove that, once it is decided, integration is irreversible. Countries may initially decide against integration yet be willing to reverse this decision in a subsequent period.