Neoclassical Growth Model Research Articles

The Impact of Manufacturing, Investment, Labor Force and Technology on Economic Growth in Palestine

The study aims to explore the impact of manufacturing, investment, labor force, and technology on the economic growth of Palestine using Kaldor’s first law of growth and the neoclassical growth model. The study used secondary data from the World Bank Database covering the period from 2000-2020. Correlation analysis and VIF tests were conducted to explore correlations and assess multicollinearity among the variables. A linear regression model was used to measure the relationship between manufacturing output, Investment, labor force, technology, and economic growth in Palestine. The analysis showed that an increase in manufacturing output leads to an increase in economic growth. Labor force participation and technology advancement have a significantly positive impact on economic growth, while investment has a significantly negative relation to economic growth. Based on these findings, policymakers are recommended to prioritize inclusive and sustainable industrialization, enhance the business environment, reduce unemployment rates, and promote competitiveness and innovation.

Deregulation as a source of China’s economic growth

AbstractWe develop a simple two-sector neoclassical growth model in which the upstream sector produces intermediate goods, and the downstream sector produces final goods with outputs from the upstream. While the downstream sector features perfect competition, firms in the upstream sector engage in Cournot competition and charge a markup. We show that the deregulation and the introduction of competition in the upstream goods sector not only increases the productivity in the sector but also has a substantial spillover effect on the productivity of the downstream sector and factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which the deregulation in the upstream market in China from 1998 to 2006 can account for the rapid economic growth and the high and rising returns to capital in China over the same period. Our quantitative experiments show that the deregulation in the upstream sector can account for a significant share of economic growth in China during the study period. In addition, our model delivers implications that are consistent with several other relevant observations in China during the same period.

Catching up or getting stuck: convergence in Eastern European economies

The paper studies the convergence and growth behavior of 11 Central and Eastern European members states of the European Union between 2000–2019, using a modified development accounting approach based on the neoclassical growth model. The main goal of the exercise is to decompose the still existing development gap relative to Western Europe (Austria) into three components: convergence, productivity, and long-run factors. The latter may include general institutional features such as population growth, or capital market imperfections measured by the capital wedge. The capital wedge is identified by leveraging the neoclassical growth model’s ability to explain the observed behavior of the capital-output ratio. The main conclusions are that for most countries, lower productivity and capital distortions are both important to understand underdevelopment. Economic policy, therefore, should primarily target productivity growth and a free and efficient capital market.

Integrating macroeconomics and economic geography: the neoclassical growth model in spatial general equilibrium

ABSTRACT The neoclassical growth model and the Roback model of spatial general equilibrium (SGE) are integrated to study the joint determination of macroeconomic phenomena (gross domestic product (GDP) and the rate of interest) and spatial economic phenomena (the spatial distribution of gross regional product (GRP), employment and capital). If internal capital mobility is perfect and regional savings rates are homogeneous, GDP depends on SGE, but SGE does not depend on GDP. If saving rates are spatially heterogeneous, GDP and the rate of interest depend on SGE, but SGE does not depend on the rate of interest and GDP. If in addition capital is imperfectly mobile, macroeconomic outcomes such as GDP, the rate of interest and SGE are jointly determined. In general, therefore, the dichotomy between macroeconomics and economic geography breaks down.

A Review of Tipping Points and Precaution using HJB equations

This paper analyzes three models in environmental economics with the property that tipping can occur in the ecological part of the model: the pollution control model where tipping suddenly shifts up the damage, the fishery model where tipping suddenly lowers the carrying capacity, and the Ramsey growth model where tipping suddenly decreases the total factor productivity. The question is whether the possibility of tipping gives rise to precaution in the sense of lower production, lower harvest, or higher accumulation of capital, respectively. The paper shows that precaution always results in the pollution control model but in the other two models, it depends on the elasticity of intertemporal substitution. In these models, the tipping point is uncertain, and the analysis employs a hazard rate that can be constant or state dependent. The paper shows that the Hamilton-Jacobi-Bellman equations are the appropriate framework to implement this hazard rate. The results are mostly known, but this paper puts the results together in a transparent way, using the HJB equations consistently. In this way, it pays tribute to this technique in optimal control that proves to be useful when tipping points can occur. Extensions to differential games are discussed at the end of each section.

THE ROLE OF TAXES IN THEORIES OF ECONOMIC GROWTH AND DEVELOPMENT

Taxes, which have an important place in the economy, have the ability to seriously affect the country's economy with a number of functions. This article discusses taxes, theories of taxation, and the role of taxes in theories of economic growth and development. The article reflects the views of A. Smith's classical taxation theory, C. M. Keynes' theory, and M. Friedman's monetarism, A. Laffer's theory of supply economy, which are representatives of the neoclassical theory. The main purpose of all mentioned theories and various views of economists have been explained. The role and functions of taxes in the policy of each of them were investigated and different results were obtained. After information on taxes and tax theories, various types of economic growth and development theories were discussed and were mentioned the existence of taxes and the nature of their impact on the growth rate in each theory. These are the Harrod-Domar development model developed by R. Harrod and E. Domar, the neoclassical growth model of R. Solow, the F. Knight model, and J. Heckman, R. King, S. Rebelo, and R. E. Lucas, who provided information on development models based on human capital. The common denominator is that the only goal of all these theories is, of course, to achieve economic growth. However, the impact of taxes has given different results because the ideas are different in each of them and the mechanisms used to increase the growth rate are different. Keywords: taxes, taxation theories, theories of economic growth and development

Pandangan Model Dua-Sektor Lewis dan Model Solow terhadap Pertumbuhan Ekonomi Indonesia

This study aims to acknowledge the effect of applying the two-sector Lewis and Solow neoclassical growth model in Indonesia’s economic growth. The variables are Urbanization Rate, Labor in Industry Sector, Human Development Index, Total Factor Productivity, and GDP. The research model is an associative quantitative method with multiple linear regression on time series data. The result showed that all variables simultaneously affect GDP significantly. Urbanization (partially) affects GDP positively and significantly. Labor in Industry Sector (partially) doesn’t affect GDP. HDI doesn’t affect GDP. TFP affects GDP positively and considerably at a 90% confidence level. According to this research, the Indonesian Government should increase the quality of their labor, especially in the industry sector. Further research is expected to add more variables that represent both models.

Do institutions matter in the very long-run? - New evidence from OECD countries

ABSTRACT Institutions are an important determinant of long-run economic growth. However, most studies only examine this relationship over a relatively short period and do not regularly include institutional variables in growth models. This article applies the pooled mean group (PMG) estimator to a panel of 18 OECD countries over 138 years. We find evidence that institutions matter for economic growth in the very long-run and conclude that economists should include them in any empirical application of the neoclassical growth model. Our result is robust to various robustness checks.

Interrogating the growth of Africa through the opportunity act and the Nigerian textile industry

The study examined the impact of AGOA on the textile industry in Nigeria between 2000 and 2015. The African Growth and Opportunity Act (AGOA) was signed into law on May 18, 2000 as Title 1 of The Trade and Development Act of 2000. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets. This paper attempts to answer the question: Did the preferential access to the U.S. market under AGOA increase the volume of textile export from Nigeria to U.S. between 2000 and 2015? Secondary data were used and data collected were analysed using tables and content analysis. The study adopted the Complex Interdependence theory as its preferred framework of analysis and argued that the letter and spirit of AGOA were both in consonance with the neoclassical model of growth for SSA designed by the U.S. We remarked that this liberalised trade introduced by United States in Sub-Saharan Africa through AGOA was equally deepened to strengthen U.S. involvement capacity to this under developed markets in Sub-Saharan Africa. The study found out that the preferential access to U.S. market under African Growth and Opportunity Act did not increase the volume of textile export from Nigeria to the U.S. between 2000 and 2015. Finally, the study made profound recommendations aimed at maximizing the benefits inherent in the Nigeria-United States trade relationship.

Accounting for Mexican business cycles

AbstractThe Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions and a small open economy with imported intermediate goods inputs, in which relative price changes manifest themselves as changes on the efficiency wedge. This result proposes a solution for the theoretical puzzle regarding the relationship between terms of trade shocks and productivity. Finally, the model is able to reproduce both the intensities and velocities of the crises in Mexico.

Automation and economic growth in a task‐based neoclassical growth model

AbstractThis paper incorporates a task‐based approach into the Solow growth model to analyze the effects of automation on economic growth. We find that if task producers smoothly adopt automation technology along the capital accumulation path, sustained growth is possible even without technological progress. This result is brought about by the fact that task automation makes the aggregate production function linear. In addition, we demonstrate that both the rental price of capital and the wage are constant on the growth path. In sum, while the interaction between task automation and capital accumulation can be a pathway for sustained growth in output, it leads to the cease of wage growth in the long run.

Human capital and economic growth in Central Asia

ABSTRACT This study explores the long-term economic performance in former Soviet republics of Central Asia for the last three decades. We look at sources of economic growth based on the extended version of the neoclassical growth model. Our key focus is to see whether human capital in the form of education and health inputs has an impact on growth rates in the region. Results show that over the entire period under study, on average, the growth rates of total factor productivity (TFP) were not remarkable, ranging from 1.4% for Kazakhstan and 0.51% for Tajikistan to −1.13% for the Kyrgyz Republic. Kazakhstan as a frontier economy of the region maintained better economic results in almost all indicators. Since 2000, TFP growth rates were notably stronger in Tajikistan compared to Kazakhstan and the Kyrgyz Republic. However, a reduction in TFP in Tajikistan in the 1990s is attributed to the country’s dire civil war.

Biological productivity and optimal harvesting of a biological resource — An uncomplicated exercise in comparative dynamics.

The paper presents a very simple mathematical proposition that enables easy examination of comparative dynamics when the stock of a renewable biological resource is very low. The proposition is used to prove that in the canonical schooling fisheries model the optimal harvest rate is a decreasing function of the biological productivity of the resource for low stock levels even if the optimal steady state harvest rate is an increasing function of biological productivity. The results presented here carries over to the effect of technological change in the Ramsey model as the fisheries model used here and the Ramsey model are formally equivalent.

The Impact of Reform on the Economic Growth Trajectory of Sub-Saharan Africa

The research examines why sub-Saharan African (SSA) nations have seen unsatisfactory economic development by assessing the reform programmes implemented during the last three decades. Based on an enhanced neoclassical growth model framework generated from a dynamic panel for 12 African nations from 1995 to 2019 using data from the LSDCV dynamic panel. The findings revealed that insufficient changes, particularly in governance and the institutional environment, had been implemented. Stability in the macroeconomic environment, structural reform, and physical infrastructure are all necessary for an efficient reform process and development of the developing world's growth prospects. Reform implies that it is political, social, and economical simultaneously. Political and economic reform should be carried out in tandem.

Indicators of financial fraud in the Ghanaian mobile payment industry in the pre-pandemic period

This study seeks to investigate recent rampant financial frauds and their impact on the financial performance of the four mobile payment companies in Ghana. The study used secondary data obtained from the consolidated financial statements for the past 10 years (2010-2019) of the mobile payment companies’ operations around the world. The sample consists of the subsidiaries of the four companies whose consolidated financial information is available for public use. Methodologically, factor analysis, pair sample t-test, and principal component analysis were exploited in the analyses to estimate and predict the relationship between fraud and its impact on financial performance indicators. The combined results offer theoretical contributions in the area of the adoption of multiple fraud theories within the framework of the neoclassical growth model. The application of the outcome to practice is the use of the result for predictability and financial sustainability of the mobile companies over future periods. Keywords: Consolidated financial statements, financial fraud, global, mobile payment, return on equity

How capital intensity affects technical progress: An empirical analysis for 17 advanced economies

AbstractIn this paper we present a model of economic growth with endogenous technical progress. We test if the neoclassical growth model accepts the assumption that capital intensity affects Total Factor Productivity (TFP) in the long run. Our view takes inspiration from Kaldor's growth model of 1957 in which theTechnical Progress Function(TPF) responds to the joint behavior of capital intensity and inventiveness. We find that “movements along a production function cannot be distinguished from shifts in this function” as formalized by the TPF. The model is tested using a Structural VAR for 17 advanced economies, over the period 1980–2020. On impact, when capital intensity improves, TFP increases sharply. This response is large and persistent over time and explains about half as much as of measured TFP. It confirms that capital intensity is an omitted variable in the traditional scheme used to estimate technical progress. Notably, the standard neoclassical growth model is not consistent with this evidence. Our analysis also shows that demand shocks can have permanent effects on output and unemployment. Finally, monetary policy helps to stabilize the business cycle, but loses its effectiveness in the long run.

Investment subsidies and redistributive capital income taxation in a neoclassical growth model

AbstractHow do investment subsidies bear on pure redistribution when coupled with capital income taxes? In a heterogeneous agent, neoclassical growth framework it is found that on impact, with no optimizing behavior, investment subsidies are good for growth but bad for redistribution. The opposite holds for capital income taxes. But when the government acts as a Stackelberg leader vis‐à‐vis the private sector (the follower), the optimal feedback policy is by construction time‐consistent and implies that in a long‐run optimum the tax scheme does not distort accumulation. This holds regardless of social preferences. For the feedback Stackelberg equilibrium I find that (pure) redistribution can go either way and capital income taxes are nonzero in the long‐run, time‐consistent optimum, depending on the social weight of those who receive redistributive transfers, the distribution of pretax factor incomes, and the intertemporal elasticity of substitution. It is argued that investment subsidies may be an important indirect tool for redistribution, and may allow for the separation of “efficiency” and “equity” concerns.

A Dual Probabilistic Discounting Approach to Assess Economic and Environmental Impacts

The growing environmental concerns require the characterization of decision support methods that can guide analysts towards more sustainable investment choices. Therefore, in the ex-ante economic evaluations of investments with environmental repercussions, it is of rising interest to give the “right” value to the non-monetary effects in the long term. In this regard, conventional discounting procedures—based on constant rates—are inadequate to evaluate intergenerational environmental effects. With this research we propose an innovative model for estimating discount rates to be used in the Cost–Benefit Analysis (CBA) of projects with long-term environmental effects. The model is based on a two-goods extension of the Ramsey formula, according to which the rate at which environmental impacts are discounted is different from the rate at which monetary benefits are discounted. Compared to the Ramsey model, we propose time-declining functions of the two discount rates to assess the long-run effects of investment projects. To characterize the model, we consider the macroeconomic risk, or we assume that the variable “GDP growth rate” is a stochastic variable. Furthermore, since we propose discount rates to evaluate public projects in line with sustainable development goals, we express environmental quality as a function of the Environmental Performance Index (EPI). Based on the proposed model, we estimate for the first time declining consumption discount rates and declining environmental discount rates for Italy based on empirical data. The estimates of the two discount rates for Italy shows that the environmental discount rate is lower than the consumption one: in fact, the first one starts from a value of 3.0% and arrives at 0.4% after 300 years; while the second one starts from 0.7% and reaches 0.3% at the end of the considered time horizon. The result highlights the importance of estimating country-specific dual and declining discount rates. These discount rates allow appropriate weights to be given to all investment impacts, and therefore also to environmental impacts, compared to conventional discounting.

Impact of environmental education on environmental quality under the background of low-carbon economy.

How does environmental education affect environmental quality? There is no consensus among theorists. This paper is devoted to exploring the influence mechanism of environmental education and environmental quality under the background of a low-carbon economy from a theoretical model and empirical analysis. The research method of this paper includes two aspects. First, from the consideration of the central planner, this paper draws on and improves the Ramsey Model to explore the interaction mechanism among environmental education, environmental quality and green growth. Second, this paper uses provincial panel data from China from 2011 to 2017 for empirical analysis, which mainly verifies the impact mechanism of environmental education on environmental quality. The theoretical model shows that environmental education enhances green consumption intention through residents' environmental awareness and enhances enterprises' cleaner production motivation through environmental pressure. Correspondingly, the pressure to improve environmental quality will also promote the economy's endogenous growth through the digital economy's transformation and the accumulation of human capital. The empirical analysis confirms that environmental education can improve environmental quality through green consumption and pollution control. Still, the effect of improving environmental quality only through pollution control is not apparent, and pollution control needs to be combined with environmental education, especially in high-pollution areas. Finally, this paper puts forward some suggestions for optimizing environmental education.

Can Public Health Expenditure Influence National Productivity in an Agrarian Economy? Evidence from Nigeria

Despite the nation’s wealth in natural and human resources, productivity measure in Nigeria has not been satisfactory. Several factors have been alluded to be responsible for this. This paper investigated the impact of public health expenditure (with gross capital formation and secondary school enrolment as control variables) on national productivity (real GDP divided by working population as proxy) in Nigeria between 2000 and 2020. The theoretical foundation was based on Solow Neo-classical and Romer Endogenous growth models. The unit root test showed that variables were stationary at level. The descriptive result shows significant fluctuations in government domestic expenditure on health with an average of 18% of total health expenditure. Regression results showed a significant and positive relationship between healthcare service expenditures and productivity in Nigeria. The study recommended that Nigerian health policies should focus on developing the domestic health sector by increasing yearly budgetary allocation to the sector.