Long-run Economic Growth Rate Research Articles

Material resource decoupling dilemma: Convergence and traps of in-use stock productivity in national economy development

Various studies have suggested decoupling material stock from economic output as an important measure for promoting sustainable development. Here, we develop three theoretical hypotheses to describe the evolution features and economic effects of material stock intensity, and predict in theory that (1) Countries with higher material stock intensity are more likely to decouple economic growth from material stock. (2) Material stock intensity follows convergence trends. (3) Higher material stock intensity leads to higher long-run economic growth rates. To examine the adaptability of these hypotheses, we choose steel in-use stock as the proxy for the material capital stock and use panel data in 85 countries from 1950 to 2018 to conduct empirical analysis. Our empirical results in most countries support the theoretical predictions of the hypotheses. In particular, a 0.1t/k$ increase in steel stock intensity leads to a 2.12% increase in the probability of decoupling between steel stock and economic output next year and a 0.34% increase in the long-run GDP per capita growth rate annually. Moreover, steel stock intensity converges to approximately 0.25t/k$ to 0.35t/k$ at mature development stages. We predict that, except China, which is expected to follow decoupling trends, other large developing economies will couple economic output with steel stock. However, the shape of intensity curves is still uncertain for highly developed countries in the future.

The Impact of Trade Openness on Economic Stability in Asian Countries

The purpose of this study was to investigate the nexus between trade openness and three aspects of macroeconomic stability, including growth stability, inflation stability, and exchange rate stability, in 20 Asian countries from 2011 to 2019. The empirical analysis was carried out with the help of the autoregressive distributed lag (ADRL) model to examine the impact of trade openness on economic stability. Our results revealed that trade openness was negatively associated with the growth stability of the countries located in the Asian region, while the opposite was true for exchange rate stability in the short run. There was, however, no relation between trade openness and inflation stability, which requires further investigation. In addition to contributing new empirical evidence to academic literature, our study expects to have important implications for policymakers. In particular, Asian countries are recommended to speed up the process of trade liberalisation to accelerate long-run economic growth and exchange rate stability.

The Past and Future of Economic Growth: A Semi-Endogenous Perspective

The nonrivalry of ideas gives rise to increasing returns, a fact celebrated in Paul Romer's recent Nobel Prize. An implication is that the long-run rate of economic growth is the product of the degree of increasing returns and the growth rate of research effort; this is the essence of semi-endogenous growth theory. This review interprets past and future growth from a semi-endogenous perspective. For 50+ years, US growth has substantially exceeded its long-run rate because of rising educational attainment, declining misallocation, and rising (global) research intensity, implying that frontier growth could slow markedly in the future. Other forces push in the opposite direction. First is the prospect of “finding new Einsteins”: How many talented researchers have we missed historically because of the underdevelopment of China and India and because of barriers that discouraged women inventors? Second is the longer-term prospect that artificial intelligence could augment or even replace people as researchers. Throughout, the review highlights many opportunities for further research.

English

Despite Ethiopia's, Sudan's, and Kenya's fastest-growing economies' performance over the last two decades, the overall average inflation rate remains double digits. It subsequently incorporates a detrimental impact to support economic growth in an extended period. This study aims to assess the dynamics of inflation and its impacts on economic growth Ethiopia, Kenya, and Sudan using time-series macroeconomic data collected from the African Development Bank. The research used the Autoregressive Distributed Lag (ARDL) econometrics model and investigated the presence of cointegration and long-term relationships between macroeconomic factors. The result indicates that the exchange rate and the supply of the long-run economic growth rate influence Ethiopia's money supply. Inflation rates and foreign direct investments have impacted economic growth rates in Kenya and Sudan. The economic growth rate in all counties is generally influenced by both the availability of money and the exchange rate—also, real per capita GDP affecting the economic growth rate of Sudan and Ethiopia. Policies on introducing new technologies, building capacities in public and private sectors, youth and gender parity, mobilizing domestic resources, and public participation are recommended for Ethiopia, Kenya, and Sudan.   Key words: Inflation dynamics, real GDP growth rate, ARDL model, Ethiopia, Kenya and Sudan.

The Past and Future of Economic Growth: A Semi-Endogenous Perspective

The nonrivalry of ideas gives rise to increasing returns, a fact celebrated in Paul Romer's recent Nobel Prize. An implication is that the long-run rate of economic growth is the product of the degree of increasing returns and the growth rate of research effort; this is the essence of semi-endogenous growth theory. This paper interprets past and future growth from a semi-endogenous perspective. For 50+ years, U.S. growth has substantially exceeded its long-run rate because of rising educational attainment, declining misallocation, and rising (global) research intensity, implying that frontier growth could slow markedly in the future. Other forces push in the opposite direction. First is the prospect of finding new Einsteins: how many talented researchers have we missed historically because of the underdevelopment of China and India and because of barriers that discouraged women inventors? Second is the longer-term prospect that artificial intelligence could augment or even replace people as researchers. Throughout, the paper highlights many opportunities for further research. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

HIGHER EDUCATION SUBSIDY POLICY AND R&D-BASED GROWTH

We examine how a subsidy policy for encouraging more individuals to pursue higher education affects economic growth in an overlapping generations model of R&D-based growth, including both product development and process innovation. We show that such a policy may have a negative effect on the long-run economic growth rate. When the market structure adjusts partially in the short run, the effect of an education subsidy on economic growth is ambiguous and depends on the values of the parameters. However, when the market structure adjusts fully in the long run, the education subsidy expands the number of firms but reduces economic growth. These unfavorable predictions of an education subsidy on economic growth are partly consistent with the empirical findings that mass higher education does not necessarily lead to higher economic growth.

The quest for status and R&D-based growth

We analyze the effect of status preferences on R&D-based economic growth. For this purpose, we extend the standard relative wealth approach by allowing the various assets held by households to differ with respect to their status relevance. Relative wealth preferences imply that the effective rate of return on saving in the form of a particular asset is the sum of its market rate of return and its status-related extra return. We show that the status relevance of shares issued by entrants to finance new technologies is of crucial importance for long-run growth: First, an increase in the intensity of the quest for status raises the steady-state economic growth rate only if the status-related extra return of these shares is strictly positive. Second, for any given degree of status consciousness, the long-run economic growth rate depends positively on the relative status relevance of shares issued by entrants. Finally, we show how the inefficiency of the decentralized balanced growth path is affected by allowing the various assets to differ with respect to their status relevance.

Longevity-induced vertical innovation and the tradeoff between life and growth

We analyze the economic growth effects of rising longevity in a framework of endogenous growth driven by quality-improving innovations. A rise in longevity increases savings and thereby places downward pressure on the market interest rate. Since the monopoly profits generated by a successful innovation are discounted by the endogenous market interest rate, this raises the net present value of innovations, which, in turn, fosters R&D investments. The associated increase in the employment of scientists leads to faster technological progress and a higher long-run economic growth rate. From a welfare perspective, the direct effect of an increase in life expectancy tends to be larger than the indirect effect of the induced higher consumption due to faster economic growth. Consequently, the debate on rising health care expenditures should not be predominantly based on the growth effects of health care.

Bubbles, growth and imperfection of credit market in a two-country model

This study extends Hirano and Yanagawa (Rev Econ Stud 84(1):406–443, 2017) to an asymmetric two-country model and examines bubbles effects on each country’s long-run economic growth rate. This study also provides numerical examples with respect to the relationship between each country’s growth rate and their financial frictions in the balanced growth equilibria with bubbles and without bubbles. It shows that foreign bubbles have positive and negative effects on both countries’ growth rates, and which effect dominates depends on the level of financial development in both countries. In this study, the positive effect of bubbles tends to dominate when the total level of financial frictions in both countries is relatively low. When the total effect of bubbles on the growth rate is positive, the burst of foreign bubbles leads to a decrease in the growth rate in both countries. This implies that there is a positive correlation between foreign bubbles and the domestic as well as the foreign country’s growth rate.

Crecimiento económico y política fiscal: una revisión crítica de la literatura

En este documento se discuten diferentes aspectos sobre la relación entre crecimiento económico y política fiscal. Desde un punto de vista teórico, se parte del modelo propuesto por Barro (1990). Luego se introducen algunos modelos desarrollados posteriormente, los cuales están en línea con los principales resultados de Barro. Por otra parte, existen muchos estudios empíricos que dan soporte al marco de los modelos de crecimiento endógeno, por cuanto aportan evidencia de que el gasto público afecta la tasa de crecimiento económico de largo plazo. Una corriente de la literatura sobre este tema resalta que los trabajos empíricos deben desagregar el gasto público. Además, es necesario incluir explícitamente la restricción presupuestaria del gobierno, dado que sus decisiones sobre gastos e ingresos no son independientes. Finalmente, cuando se consideran varios países, la técnica de datos panel parece ser mejor que otras a fin de evaluar los efectos de la política fiscal en el crecimiento. Con respecto a la literatura empírica, son muchos los estudios que dan soporte al marco de los modelos de crecimiento endógeno, por cuanto se ha encontrado que el gasto público afecta la tasa de crecimiento económico de largo plazo. Sin embargo, es posible afirmar que los resultados distan mucho de ser concluyentes y que éstos dependen de varios aspectos, como los métodos o técnicas aplicadas, supuestos utilizados, país o conjunto de países analizados, etc.Una corriente de la literatura sobre la relación entre gasto público y crecimiento económico resalta que los trabajos empíricos deben desagregar la inversión pública, si es posible. También es importante reconocer que se debe incluir explícitamente la restricción presupuestaria del gobierno en el modelo, dado que sus decisiones sobre gasto e ingresos no son independientes. Por último, cuando se consideran varios países, la técnica de datos de panel parece ser mejor que otras a fin de evaluar los efectos de la política fiscal en el crecimiento.

A NOTE ON THE IMPLICATIONS OF AUTOMATION FOR ECONOMIC GROWTH AND THE LABOR SHARE

We introduce automation into a standard model of capital accumulation and show that (i) there is the possibility of perpetual growth, even in the absence of technological progress; (ii) the long-run economic growth rate declines with population growth, which is consistent with the available empirical evidence; (iii) there is a unique share of savings diverted to automation that maximizes long-run growth; and (iv) automation explains around 14% of the observed decline of the labor share over the last decades in the United States.

Linking Cross-Country Disparity in the Long Run Growth Rates to the Initial Disparity in the Human Capital Distribution

This paper aims to provide a theoretical explanation for understanding the cross-country disparity of long-run economic growth rates based on the diversity in the initial conditions. In particular, it argues that the disparity in the inequality of human capital and income, as well as the industry structure of the economy prior to the emergence of endogenous growth, plays an important role in determining its long-run growth rate. The initial distribution of human capital and the share of agriculture characterize the initial state of the economy. I present a model of endogenous growth that generates cross-country diversity of long-run growth rates of per capita income as functions of path dependent history of human capital distribution. The model’s predicted growth rate explains up to fifty-three percent of the observed variation in growth rates across countries. The results of the econometric estimation of the equilibrium restriction of the model on the data answer an important question regarding why two countries with the same average stock of human capital may have different total factor productivity (TFP). The results support the hypothesis that the diversity in the relative proportion of innovators due to differences in the historical distribution of human capital and the redistributive tax regimes induce significant heterogeneity in the level of TFP as well as its growth rates across countries.

Endogenous Fiscal Growth and Public Macroeconomics

In this research paper, we critically examine the view of capital fundamentalism, claiming that national fiscal policies can be considered as the primary determinant of dynamic and equilibrium economic growth, and then carefully assess the effectiveness of optimal fiscal policy for the economics of welfare, reflecting on familiar externalities associated with public expenditures and taxes. In accomplishing such a hybrid task, we managed to derive rather than postulate the simplest possible formulation of neoclassical origins, aimed at constituting a benchmark for endogenous fiscalist rules, underpinning the role of productive public expenditures and the ensuing complementarity properties for the governmental size and the rate of economic growth. By encompassing traditional and modern literature strands on endogenous growth, the structural analysis is initially developed and subsequently presented in two main thematic units. The first part puts forward an intertemporal model of a small open economy that is suitable to capture the dynamic interdependence of output growth and the real interest rate, in the presence of adjustment costs on private investment, the effective utilisation of which might help determine the rate of public capital accumulation too. According to our analysis, a country that initially experiences a low rate of output growth, with a relatively low public to private capital ratio, can generate and attain a higher long-run rate of economic growth, equivalent to the growth rate of installed capital. A non-trivial role is also attributed to capital efficiency characterising both the analysis of transitional dynamics and the steady-state effects. Intuitively, dependence of government expenditure on the costs of adjustment drives the notional wedge not only between private and public sectors, but also between output growth and intertemporal welfare as it significantly influences the distributive channel of resources allocation. The second part puts emphasis on welfare economics and particularly on the policy dimensions characterising the size of governments and the rate of growth. By introducing a closed-type economy with policy variations, both the roles of productive spending and government financing are greatly enhanced while the analogous effects on production and/or utility are discussed. In this vein, the privately determined choices for saving and growth - after accounting for a partial impact on consumption - may easily end up suboptimal, owing to governmental externalities. As a principal result, it is revealed that the after-tax marginal product of capital, hence the rate of return, depends positively on the ratio of private to public capital, something that sharply contradicts the results obtained in earlier strands of research where the rate of return was invariant with that particular ratio. A rather subsidiary outcome, from reconsidering certain properties of optimal fiscal policy in accordance to conventional priors, is that maximisation of private welfare corresponds to maximisation of the growth rate of the economy, thereby satisfying the natural condition for productive efficiency.

Study on Impacting Mechanism of Institutional Quality for Economic Growth of China During Economic Transition Period

This paper is an extension of the multi-sectors endogenous growth model including capital based on the model of Aghion and Howitt (1999). It sets the institution, endogenous human capital and technological innovation into a unified analysis framework, and tests the effects of the institution, capital accumulation and technological innovation on long-run economic growth. The results show that long-run economic growth not only depends on the institutional quality and the technical innovation, but also depends on the capital accumulation and household’s preferences. The long-run stable equilibrium of positive growth rate only occur when the institutional quality reaches a certain level, and the improvement of the institutional quality will improve the long-run economic growth rate when the equilibrium existing. In addition, government tax and subsidy policy can also affect the long-run economic growth. This paper aims to provide theoretical support and policy suggestions for the revival of China’s reform.

Labour migration policy and constitutional change in Scotland

Scotland is holding a referendum on independence in 2014, which implies that the Scottish government would become responsible for migration policy in the event of a ‘Yes’ vote. Control over labour migration could be a vital policy tool for the Scottish government, influencing long-run economic growth rates and demographic change. This paper explores migration policy in the context of alternative constitutional outcomes for Scotland. It asks what scope a small economy that is intimately linked to a neighbouring larger economy has in shaping immigration policy. It finds that the level of international migration to Scotland is relatively low and that there are some significant differences in migrant characteristics compared to the rest of the UK (RUK). It also considers the political economy aspects of labour immigration through analysis of recent survey data. Whatever the outcome of the referendum, we would argue that Scotland would benefit from a more nuanced approach to immigration policies rather than the current ‘one size fits all’ UK-wide model.

On National Fiscal Policy and Growth: Searching for Optimality Under Externality

In this paper, we examine the view of capital fundamentalism claiming that national fiscal policies, with public investment being subject to adjustment costs, can be considered as the primary determinant of economic growth. According to our analysis, a country that experiences a low rate of growth with a relatively low public to private capital ratio can generate and attain a higher long-run rate of economic growth, equivalent to the growth rate of public capital. It is revealed that the after-tax marginal product of capital, hence the rate of return, depends positively on the ratio of private to public capital, something that sharply contradicts the results obtained in the rather traditional strand of research where the rate of return was invariant with that particular ratio. We also reconsider some properties of optimal fiscal policy and conclude that, in accordance to conventional priors, maximisation of the private-sector utility function corresponds to maximisation of the growth rate of the economy.

Technological opportunity, long-run growth, and convergence

We derive an R&D-based semi-endogenous growth model where technological progress depends on the available amount of technological opportunity. Incremental innovations provide direct increases in the knowledge stock but they reduce technological opportunity and thus the potential for further improvements. Technological opportunity can be renewed only by radical innovations (which have no direct impact on factor productivity). Investigating the model for its implications on economic growth leads to two basic observations. One, in the long-run, a balanced growth path with a constant and semi-endogenous long-run economic growth rate exists only in a specific knife-edge case which implies that technological opportunity and knowledge grow at equal rates. Two, the transition need not be monotonic. Specifically, we show under which conditions our model generates endogenous business cycles via complex dynamics without uncertainty.

Social status, human capital formation and the long-run effects of money

This study examines the effects of monetary policy in a two-sector cash-in-advance economy of human capital accumulation. Agents concern about their social status represented by the relative physical capital and relative human capital. We find that if the desire for social status depends only on relative physical capital, money is superneutral in the growth-rate sense. However, if the desire for social status depends on relative human capital, the money growth rate will have a positive effect on the long-run economic growth rate. Furthermore, an increase in the desire to pursue human capital will raise the long-run growth rate, but an increase in the desire to pursue physical capital will lower it.

Social status, human capital formation and super-neutrality in a two-sector monetary economy

In this paper, we study how social status affects the impact of monetary policy on the long-run growth rate in a two-sector monetary economy with human capital accumulation, and find that the super-neutrality of money, with regard to the growth rate of the economy depends on the formation of human capital. In an economy with Lucas-type human capital formation, money is super-neutral; however, for an economy in which both physical and human capital are used as inputs for human capital accumulation, the money growth rate will have a positive effect on the long-run economic growth rate. The existence, uniqueness and saddle-path stability of balanced-growth equilibrium are also examined.

Social status and long-run effects of monetary policy in a two-sector monetary economy of endogenous growth

We develop a two-sector monetary economy with human capital accumulation and a cash constraint applied to both consumption and investment to examine the ways in which social status affects the impact of monetary policy on the long-run economic growth rate. Our findings suggest that the formation of human capital is an important determinant to the super-neutrality of money in the growth-rate sense. Within an economy with Lucas-type human capital formation, money is super-neutral; however, within an economy where human capital accumulation formation is more generalized, and in which both physical and human capital are used as inputs, the growth rate in money will have a negative effect on the long-run growth rate of the economy. The existence, uniqueness and saddle-path stability of balanced-growth equilibrium are also examined.