Growth Of National Income Research Articles

The Economic Development of Southeast Asia in the Colonial Era:c.1870–1942

AbstractThe article attempts a survey of economic development in the main colonies of Southeast Asia, and the independent country of Thailand, in the decades from 1870 to 1940. These decades witnessed a rapid growth of exports and in several cases quite fast growth of national income. The article examines the links between expanded export trade, economic growth, the role of government and living standards. The article stresses the very considerable differences which had emerged in a number of economic and social indicators by the late 1930s.

Three faces of international inequality

Recent studies of international inequality have focused mostly on the trend in international income inequality. This article extends the analysis of international inequality to also include inequalities in education and health. Analyses of time-series data for more than 100 countries show that international income inequality declined from 1980 to 2003 as several large, poor Asian countries outpaced many Western countries in national income growth. By contrast, international health inequality followed a U-shaped trend, falling in the 1980s before rising in the 1990s. The turnaround in health inequality coincides with a trend of declining life expectancy in sub-Saharan Africa. International educational inequality experienced the sharpest recent decline, spurred by the global expansion of formal schooling. These findings confirm that there is more to international inequality than income inequality alone and suggest that patterns of inequality in the current era of globalization are likely more complex than many leading theories suggest.

U.S. Decline in the Context of Formal Education and In Situ Learning

A substantial literature links the level of formal education to the level or rate of growth of national income. For some observers, education as a path to development is so straightforward as to elicit the question Why Isn't the Whole World Developed? (Easterlin 1981). But formal education accounts for only part of the process of the acquisition and dispersion of economically relevant knowledge and skills, and ecorfomic growth is not co-extensive with economic development. In leading nations such as the contemporary United States, the working population gains a whole set of implicit or in situ advantages simply as a result of growing up, living, and working in a leading economy. These in situ advantages partially compensate for the low ranking of the United States in current international comparisons of scholastic achievement. As a result, the relative decline of great economic powers such as the United States might be slower than expected purely on the basis of their failures in the maintenance or development of explicit or formal forms of education vis-a-vis rivals. On the other hand, the evaporation of some of the invisible residual strengths of the U.S. human capital stock from in situ knowledge is likely to be more rapid than heretofore for several reasons, including changes in the global competitive environment and the widespread presence of foreign direct investment (FDI). The next section considers education and economic development in a social context, and is followed by an outline of U.S. failures in education. The in situ advantages likely to mitigate any U.S. economic decline as a result of its weaknesses in formal education are described in the fourth section, but in the section entitled Current Tendencies Weakening In Situ Advantages it is argued that these very advantages are being dissipated more rapidly than in earlier periods. A set of concluding remarks follows.

Franco Modigliani and the Life Cycle Theory of Consumption

In the early 1950s, Franco Modigliani and his student Richard Brumberg worked out a theory of spending based on the idea that people make intelligent choices about how much they want to spend at each age, limited only by the resources available over their lives. By building up and running down assets, working people can make provision for their retirement, and more generally, tailor their consumption patterns to their needs at different ages, independently of their incomes at each age. This simple theory leads to important and non-obvious predictions about the economy as a whole, that national saving depends on the rate of growth of national income, not its level, and that the level of wealth in the economy bears a simple relation to the length of the retirement span. These predictions, which were untestable in the 1950s, have received empirical support in later work by Modigliani and other researchers. While there have been many challenges to the theory of consumption through the years, most recently from a coalition of psychologists and economists, the life-cycle hypothesis remains an essential part of economists' thinking. Without it, we would have much less to say about many important issues, such as the private and public provision of social security, the effects of the stock market on the economy, the effects of demographic change on national saving, the role of saving in economic growth, and the determinants of national wealth.

Modigliani's life-cycle theory of savings fifty years later

In the 1950s, Modigliani proposed a theory of spending in which people make intelligent choices about their spending at each age limited by the resources available over their lives. By using assets and debts, working people can provide for their retirement and tailor their spending to their needs at each age independent of income at each age. The theory predicts that national saving depends on the growth of national income, not its level, and that aggregate wealth depends on the length of retirement. Fifty years later, the life-cycle hypothesis remains an essential part of economists' thinking. Without it, we would have much less to say about the private and public provision of social security, the effects of the stock market on the economy, the effects of demographic change on national saving, the role of saving in economic growth, and the determinants of national wealth. JEL Codes: B21, B22, B31, D91, E21

Why countries are fiscally decentralizing

This paper models and empirically investigates underlying forces that promote governmental decentralization, or effective federalism, in the world over the last 25 years. A move to a federal system is based on the demand by hinterland regions for local autonomy, which increases with national income growth, greater relative hinterland population, and increasing national population. It is influenced as well by the degree of democratization nationally and locally. Decentralization is measured by both institutional indices indicating greater devolution of power to local governments and the share of local governments in national government consumption. Empirically, the paper finds that decentralization changes in ways predicted, in particular it increases with economic growth, country size, and population. Institutional structures based on colonial experience and initial constitutional provisions also matter.

Foreign Direct Investment, Economic Growth, and Financial Sector Development: A Comparative Analysis

1. Introduction The issue of economic prosperity is often linked to massive inflows of foreign direct investment (hereafter referred to as FDI) into a nation, and the impact of FDI on economic growth has been argued considerably in the development and economic growth literature for many years. Many researchers have conducted studies to investigate the fundamental theories of FDI, various macroeconomic variables that influence FDI, the impact of economic integration on the movements of FDI, and the advantages and disadvantages of FDI (see Yusop 1992; Jackson and Markowski 1995; Cheng and Yum 2000; Lira and Maisom 2000). Most of them agree that there exists a positive causal relationship between FDI and economic performance, either in the short run, or in the long run, or both. Zhang (2001) has studied the causal relationship between FDI and economic performance in both East Asian and Latin American countries. Zhang's findings suggest that there is considerable cross-country variation and differences between East Asia and Latin America in the causal patterns of FDI-growth links. He further concluded that a key advantage created by FDI to recipient countries is technology transfer and spillover efficiency. This advantage, however, does not automatically occur, but rather depends on recipient countries' absorptive capabilities, such as a liberal trade policy, human capital development, and an export-oriented FDI policy. Investigations of the causal relationship between economic growth and FDI inflows have, therefore, a significant role in economic development. If there is a unidirectional causality from economic growth to FDI, this implies that national income growth can be treated as a catalyst in attracting inflows of FDI. Conversely, if the unidirectional causality runs from FDI to economic performance, this would strongly suggest that FDI not only stimulates the economic growth rate, but also leads to fixed capital formation and employment augmentation (Borensztein, De Gregorio, and Lee 1998; Lim and Maisom 2000; Zhang 2001). If a bi-directional causality exists between these variables, then both FDI and economic growth would have a reinforcing causal relationship. Nevertheless, these previous studies ignored the role played by domestic financial sector development in examining the long-run relationship, and short-run causality, between FDI and economic growth. Indeed, the speed of technological innovation and patterns of economic growth of a country are highly dependent on the evolution of the domestic financial sector, which acts as a mechanism to channel financial resources between surplus and deficit units, as well as transferring technology embodied in FDI inflows. Financial systems that are more effective at pooling the savings of individuals can profoundly affect economic development. Besides the direct effect of better savings on capital accumulation, better savings mobilization can improve resource allocation and boost technological innovation (Levine 1997). Although existing theories have not yet formally identified a direct link between financial development, economic growth, and foreign direct investment, Hermes and Lensink (1999) and Bailliu (2000) attempted to study the significance of both foreign capital inflows and financial development as a channel for promoting growth. Different from previous studies, both studies investigated the relationship between international capital inflows and economic growth through financial sector evolution, rather than simply focusing on the promotion of the domestic investment rate and spillover efficiency. They concluded that inflows have both a positive spillover efficiency and a significant impact on economic growth, if the domestic financial sector has achieved a certain minimum level of development. This article aims to re-estimate the links between FDI and economic growth by including the development of the domestic financial sector in three developed countries (Japan, the United Kingdom, and the United States) and select East Asian countries (Indonesia, Korea, Malaysia, the Philippines, Singapore, and Thailand). …

Disaggregate energy consumption, employment and income in Turkey

The purpose of this paper is to contribute to literature on energy consumption and economic growth relationship by examining how much of the variance in national income growth can be explained by the growth of different sources of energy consumption and employment in Turkey. We use the recently developed generalized forecast error variance decomposition technique of Koop et al. [J. Econom. 74 (1996) 119] and Pesaran and Shin [Econ. Lett. 58 (1998) 17] to determine the information content of the growth rate of energy consumption. Waste seems to have the largest initial impact, followed by oil. However, over a 3-year horizon lignite appears to explain the largest forecast error variance of GDP. The total energy consumption explains 21% of forecast error variance of GDP. Energy consumption appears to be almost as important as employment in Turkey. Therefore, policy-makers may be interested in identifying the energy dependencies of economic growth in allocating the energy investment budget.

Disaggregate energy consumption, employment and income in Turkey

The purpose of this paper is to contribute to literature on energy consumption and economic growth relationship by examining how much of the variance in national income growth can be explained by the growth of different sources of energy consumption and employment in Turkey. We use the recently developed generalized forecast error variance decomposition technique of Koop et al. [J. Econom. 74 (1996) 119] and Pesaran and Shin [Econ. Lett. 58 (1998) 17] to determine the information content of the growth rate of energy consumption. Waste seems to have the largest initial impact, followed by oil. However, over a 3-year horizon lignite appears to explain the largest forecast error variance of GDP. The total energy consumption explains 21% of forecast error variance of GDP. Energy consumption appears to be almost as important as employment in Turkey. Therefore, policy-makers may be interested in identifying the energy dependencies of economic growth in allocating the energy investment budget.

Growth Linkages, Price Effects and Income Distribution in Sub-Saharan Africa

This paper measures economic linkages emanating from investment‐led growth in eight different African countries with widely varying economic structures. To explore the importance of price effects in estimating these linkages, the paper employs two different methodologies for measuring the linkages, a fixed‐price semi‐input–output (SIO) model as well as a fully price‐endogenous computable general equilibrium model (CGE). Regardless of the methodology used, indirect effects prove to be large. On average — across countries and sectors — inclusion of growth linkages nearly doubles estimated national income growth following an initial investment‐led shock. Sectorally, investments in agriculture generate the largest impact on the poor.

Inequality and Economic Growth: A Global View Based on Measures of Pay

This paper discusses two issues in the relationship between inequality and economic growth: the data and the econometrics. We first review the income inequality data set of Deininger and Squire (D&S), which, we argue, fails to provide either adequate or accurate coverage, whether through time or across countries. We then introduce our own measures of the inequality of manufacturing pay, based on UNIDO's Industrial Statistics. These provide indicators of pay inequality that are more stable, more reliable and in our view also more comparable across countries, than the D&S data. Turning to the fabled “Kuznets” relationship between inequality and economic development, we diagnose several common econometric problems in the literature, including measurement error and omitted variable bias. By taking steps to account for these problems, and by introducing a more complete panel data set based on pay inequalities, we seek more reliable inferences concerning the relationship between inequality, national income and economic growth. We find evidence that generally supports Kuznets' specification for industrializing countries: pay inequality tends to decline as per capita income increases, though with some tendency for the relationship to curve up for the richest countries. After 1981 two findings emerge. First, per capita GDP growth slowed dramatically in most countries, increasing inequality along the augmented Kuznets curve. Second, there is a global and macroeconomic effect that produces rising inequality in our data, independent of GDP or its changes. The timing of this effect suggests a link to the high real interest rates and global debt crisis of the period beginning in 1982. (JEL C23, D31, J31, O11 )

Inequality and Economic Growth: Data Comparisons and Econometric Tests

This paper discusses two issues in the relationship between inequality and economic growth: the data and the econometrics. We first review the inequality data set of Deininger and Squire, which, we argue, fails to provide adequate or accurate longitudinal and cross-country coverage. We then introduce our own measures of the inequality of manufacturing pay, based on the UNIDO Industrial Statistics. In our view, these provide indicators of inequality that are more stable, more reliable, and more comparable across countries than those of Deininger and Squire. Turning to the relationship between inequality and development, we diagnose several common econometric problems in the literature, including measurement error, omitted variable bias, serial correlation in longitudinal data, and the possible persistence of lagged dependent variables. By taking steps to account for these problems, we seek more reliable inferences concerning the relationship between inequality, national income and economic growth. We find evidence that generally supports Kuznets’ specification for industrializing countries: inequality tends to decline as per capita income increases. However, after 1981 two problems emerge. First, per capita GDP growth slows dramatically in most countries. Second, there is a worldwide trend toward rising inequality in our data, independent of GDP or its changes. The timing and geographic pattern of these increases suggest a link to the high real interest rates and global debt crisis of the period beginning in 1982.

Catching Up in Education in the Economic Catch‐up of Japan with the United States, 1890–1990

I. The Problem and the Approach The record of “modern economic growth” a la Simon Kuznets shows that sustained increases in real national income in advanced market economies depend predominantly on improved efficiency as measured by the growth of total factor productivity (TFP). Real national income is less dependent on increases in conventional inputs, that is, physical capital and labor in personhours. With the strong advocacy of economists such as Theodore Schultz, it has been established that investment in education is a major source of growth in TFP and, hence, national income. Estimations of the contribution of TFP to economic growth in advanced market economies have hitherto been limited to periods after these economies reached a stage of relatively high income. However, recent extensions of growth accounting analysis for earlier stages of industrialization in the United States as well as in Japan show that the contribution of TFP growth to national income growth was relatively minor. These historical findings are also consistent with other studies, indicating that the contribution of TFP growth to economic growth was small in comparison to the contribution of physical capital accumulation in newly industrialized economies (NIEs) in recent decades. Such observations suggest that the role of education may be different between the earlier and the later stages of modern economic growth. The validity of this hypothesis is critical for drawing relevant policy implications for developing economies from the historical experiences of developed economies. Nevertheless, a comprehensive analysis on the role of education covering the entire span of modern economic growth has been stymied by the sheer

A Note on the Hicksian Concept of Income

Empirical studies of intertemporal dynamics of individual income, distribution of personal income, and growth and distribution of national income are all based on statistics that rely on some concept of income. The dominant one today appears to be the so-called Haig-Simons-Hicks (HSH) concept of income. I examine the foundations of this concept in Hicks's Value and Capital and conclude that there is nothing Hicksian about the HSH concept of income. Furthermore, I argue that Hicks's failure to distinguish between definition and calculation, and the consequent lack of adequate ex post concepts, make it impossible for his income definitions to serve as a basis for income accounting.

Housing Price Volatility Changes and Their Effects

We examine significant volatility shifts in regional housing price changes, adapting a method of Haugen, Talmor and Torous (1991) independent of predefined sampling blocks. We identify 36 volatility events, most of which are purely regional, but three of which are national. We find significant associations of volatility events and economic conditions, especially national and regional income growth, inflation, and interest rates. During an initial adjustment period after a volatility shift, realized housing returns move opposite to volatility. We find evidence of significant interregional diffusion of volatility increases, but not of decreases. New insights on links between economic conditions and housing volatility and returns should be of value to household investors and mortgage investors.

Economic growth and regional income inequality in Brazil

This paper analyses the evolution of regional inequality in Brazil in the period 1939–1995. Based on a data set organized by the author, indicators of per capita income dispersion among states and regions are presented and their evolution over time is analyzed. The correlation between the regional initial level of per capita income and its growth is considered, testing for Beta convergence. The speed of convergence is calculated in two different forms, the neoclassical model and the coefficient of variation, the later allowing for the analysis of oscillations in inequality over time and its relationship to national economic growth rates. The Kuznetz hypothesis, relating regional income inequality and level of development, is tested. The results indicate the presence of signs of regional income convergence in Brazil, but with important oscillations in the evolution of inequality over time as well as across regions within the country. The association of regional inequality with national income growth produced interesting results, indicating a promising line for future research.

Patterns of growth and stagnation in the late nineteenth century Habsburg economy

This article addresses two issues that feature prominently in the recent historiography. First, how does the Habsburg Empire's economic performance compare to the record for other European economies in terms of levels and growth of national income? Second, to what extent was the Austrian economy subject to prolonged stagnation after 1873? These questions are examined on the basis of new annual estimates of GDP for Austria and Hungary for 1870 to 1913. The article argues, first, that over the whole period under review Austrian per capita income failed to expand at a pace broadly commensurate with the country's relative income position. The Austrian economy did not catch up with the leaders and failed to keep pace with other ‘followers’. Second, the Hungarian economy recorded a markedly higher rate of per capita income growth, placing it about mid-range in a European growth comparison. Third, the new evidence supports the notion of a ‘great depression’ in the western half of the empire (Austria) after 1873. The distinct periodicity and differential rates of Austrian and Hungarian growth are consistent with the argument that the outflow of Austrian capital to Hungary after the 1873 Vienna stock market crash was crucial in prolonging economic stagnation in Austria, whilst fuelling the first widespread wave of industrialisation in Hungary. The reversal of this capital outflow in the early 1890s was associated with an increase in Austrian economic growth and a decrease in Hungary's rate of expansion.

Government expenditure and economic growth: evidence from G7 countries

This paper examines Wagner's Law of Public Expenditure, which emphasizes economic growth as the fundamental determinant of public sector growth, using time series data drawn from the G7 industrialized countries over the sample period 1960 1993. It presents evidence on both the short- and long-run effects of growth in national income on government expenditure by resorting to recent developments in the theory of cointegrated processes. An attempt is also made in this study to examine if Wagner's Law holds between certain key components of government expenditure and income.

Büyümenin Kaynakları Yönteminin Türkiye deki Gözlemlerinden Esinlenen Bir Eleştirisi

The source of growth approach to economic growth, which is the most widely used analysis in determining economic growth of countries, is criticized by drawing upon the recent Turkish experience. In traditional analyses, the change in relative prices of goods are totally ignored. In fact, the source of growth approach is based on the impact of the rate of growth of capital and labor inputs, each multiplied by their relative share in national income plus the rate of technical growth. The calculation of growth of the Turkish economy reveals that in 1980-1998 period, in which both input and productivity increases were higher than those in the previous period (1950-1977), the growth rate has been lower than the previous period. This has suggested that there was something wrong with the source of growth method. Thereupon, it is detected that the relative decrease of labor intensive goods prices, which accured in the second period, must have exerted a decreasing influence on the growth of national income. Whereas when the source of growth approach is used this is not visible. Again, the coincidence or necessity of a decrease in the absolute level of national income along with a decrease of the growth rate of the economy suggests that the measurement of national income by foreign exchange prices should constitute a better measurement for detecting its change over time.

Cotton textile prices revisited: a response to Cuenca Esteban

prices during the industrial revolution. His exploration of the partial evidence on current values of exports and on the East India Company's sales contributed significantly to our understanding of price movements during this period. His work stimulated my research in the surviving firm records. None the less, I continue to believe that he is mistaken in his conclusions. Three issues require response. First, he argues that his cotton textile prices estimate seriously undermines the Crafts-Harley view of British economic growth. Second, he maintains that my procedure seriously underestimates the decline in the price of cotton textiles between the 1790s and the end of the Napoleonic Wars. And third, he asserts the superiority of his estimates based on export valuations. I wish to challenge all three of these assertions. The Crafts-Harley view, properly understood, would not be weakened if cotton textile prices, in fact, fell as fast as Cuenca asserts. However, analytic issues we have discussed but have not emphasized in our presentations would now need emphasis. Certainly gaps in the data make the series of cotton textile prices that I presented weaker than I could hope, but Cuenca's alternative calculations rely on a serious misunderstanding and some questionable assertions. Finally, his belief in the a priori superiority of the trade data cannot be accepted. I While there is no doubt that competing estimates of the rate of decline of cotton textile prices significantly affect interpretation of the history of cotton textiles, I would like first to confront their importance to our understanding of the beginnings of sustained growth in British per caput income. The Crafts-Harley challenge to previously held views of the industrial revolution arose from re-examination of Hoffmann's and Deane and Cole's industrial production estimates. We found no evidence of significant acceleration in per caput growth in any but the famous industries. When we constructed new industrial production indices, largely using Hoffmann's sources, we found that the pioneering estimates had unintentionally overstated aggregate growth. The modest per caput acceleration in the growth of aggregate industrial production that our calculations revealed came almost entirely from the famous industries. Furthermore, our lower estimates of the growth of industrial production led to the conclusion that per caput growth of British national income had been modest before the railway age.