Neoclassical Growth Model Research Articles

Accounting for spanish economic development 1850–2019

By conducting wedge-growth accounting, we assess the contribution of the economic forces (expressed as wedges in the equilibrium conditions of the neoclassical growth model) driving Spanish economic growth from 1850 to 2019. We find that declining investment and capital-efficiency wedges slowed down Spanish economic growth and downsized the labour share from 1850 to the First World War. The crisis of the 1930s (Great Depression and Civil War) was primarily driven by the decrease of the labour-efficiency wedge. The simultaneous increase of both efficiency wedges drove the Spanish economic miracle of the 1960s, which was preceded by a large increase in the investment wedge, resulting in a significant rise of the investment rate. From the mid-1970s, the declining capital-efficiency wedge was the primary force driving the fall of the labour share and the output growth slowdown. However, the labour wedge drove the medium-term fluctuations of output, labour, and investment.

Long-run consequences of population decline in an economy with exhaustible resources

This study explores how population decline affects the long-run performance of an economy in which exhaustible resources are indispensable for production. Using a one-sector neoclassical growth model with external increasing returns, we examine the conditions under which the expansion of per capita income and consumption can be sustained in the long-run equilibrium. We find that population decline, rather than exhaustible resources, can terminate the persistent growth in per capita income and consumption.

Systematic Literature Review of Human Capital in Context of Economic Growth

The purpose of this work is to investigate the connection between economic growth and human capital. The paper examines prior research on the relationship between human capital and economic growth, analyses datasets from other studies, and makes some conclusions. In terms of (i) the new endogenous theory, (ii) the neo-classical growth model, (iii) the Solow growth production-function, (iv) the theoretical framework of economic growth theory, and (v) empirical evidence on the relationship and causal link between human capital and economic growth, the paper summarises articles on human capital. Evaluating the body of research on human capital and economic growth will provide a thorough literature guide for developing developmental objectives for any region, both in the short and long terms, and for formulating and implementing policies.

Income convergence in the neoclassical growth model: The example of the Western Balkan states and the European Union

Income convergence in the neoclassical growth model: The example of the Western Balkan states and the European Union

Identification of the Household Behavior Modeling Based on Modified Ramsey Model

Identification of the Household Behavior Modeling Based on Modified Ramsey Model

An economy-wide rebound effect analysis of Kenya's energy efficiency initiatives

Adoption and improvement of energy efficiency is one of the recommended pathways to tackle the problems of growing energy demand and greenhouse gas emissions. However, studies show that rebound effects from energy efficiency improvements can erode anticipated energy savings. This paper elucidates the rebound effect arising from energy efficiency initiatives in Kenya. The study uses Index Decomposition Analysis to assess the drivers of Kenya's total primary energy supply. The paper then adopts the neoclassical growth model in the empirical analysis of energy and carbon rebound effects at the macro-economic level. Cobb-Douglas production function is further applied using Solow growth model and energy as a factor of production to approximate technological progress. Results of decomposition of energy supply show that energy intensity and affluence are the drivers with the most significant effect on energy supply while population has less critical effect. Average energy and carbon rebound effects show partial rebounds of 15.64% and 31.41%, respectively. These results imply that there is need to accelerate the pace of transitioning to green energy as the ultimate solution to minimizing environmental impacts arising from energy use and tackling climate change.

Declining Discount Rates for Energy Policy Investments in CEE EU Member Countries

Energy policy investments are usually evaluated using a cost-benefit analysis (CBA), which requires an estimation of the social discount rate (SDR). The choice of SDR can be crucial for the outcome of the appraisal, as energy-related investments generate long-term impacts affecting climate change. Once discounted, these impacts are highly sensitive to slight changes in the value of the SDR. Some countries (the UK and France) switched from a constant SDR to the declining rate scheme—a solution that limits the impact sensitivity. To our knowledge, none of the CEE countries apply DDR in CBA. While a constant SDR is a relatively well-established approach, declining SDRs are estimated to be used much less frequently, particularly for CEE EU member countries and energy policies. The rationale for the decline can rest on uncertainty over future discount rates, as shown by the approach developed by Weitzman and Gollier, which extends the classical Ramsey model. We applied this approach in our paper, as the Ramsey formula is the prevailing formula for EU countries’ SDR estimates. We estimated a flat SDR via the Ramsey formula with Gollier’s “precautionary term”, and next, we calculated Weitzman’s certainty equivalent rates for the 500-year horizon. Ramsey’s SDRs, obtained using consumption growth rates dating back to 1996, varied between 6.77% for Lithuania and 2.95% for Czechia and declined by 0.15% on average (Gollier’s term). Declining SDRs for the longest horizon dropped to approx. 0.5% (from 0.35% for Bulgaria to 0.67% for Poland), and the descent is deeper and faster when forward SDRs (following the UK Green Book approach) were considered (0.01% to 0.04%). The results are important for long-term policies regarding energy and climate change in CEE EU member countries, but they are still dependent on fossil fuels and experience an investment gap to fulfil EU climate goals.

Spatial growth theory: Optimality and spatial heterogeneity

Spatiotemporal dynamics are introduced in a standard Ramsey model of optimal growth in which capital moves toward locations where the marginal productivity of capital is relatively higher and initiate a study of the effects of nonlinear capital transport in terms of a linearized analysis around steady state solution solutions.The potential spatial heterogeneity of optimal growth, as seen from the point of view of an optimizing social planner, is examined. Our results suggest that for a high utility discount rate, the spatial capital flows induce the emergence of optimal spatial patterns, while for a low utility discount, a flat earth steady state is socially optimal. Furthermore, when spatial heterogeneities exist due to total factor productivity differences across locations, we identify conditions under which the spatial capital flows could intensify or weaken spatial inequalities.

Examining the Relationship between Preprimary Education and Economic Growth in Developing Countries

Purpose: The aim of the current study is to examine the relationship between preprimary/primary education and economic growth in developing countries for the period 1997-2019. Design/Methodology: In this study, making use of the relevant literature, two independent variables were added to Mankiw et al. (1992) neoclassical growth model and the extended model was used. The obtained model was estimated by the Generalized Moments Method. Findings: The results revealed that human capital positively effects economic growth. Additionally, preprimary education is more effective than primary education over the economic growth. The results also indicated that the elasticity of human capital investment is higher than physical capital investment. Therefore, it is concluded that human capital supports economic growth more than physical capital. Limitations: Since the data used in the study were only available for 40 developing countries, the remaining developing countries were not included in the model estimation, and again, considering only pre-school and primary education stages in the model due to the lack of data are the limitations of the research. Originality/Value: Although the relationship between other stages of education and economic growth has been extensively studied in the literature, there are limited empirical studies between preprimary education and economic growth. For this reason, reaching the results that can contribute to the education policies of developing countries in the study constitutes the original value of the research.

Explaining the decline in the US labor share: taxation and automation

This study provides evidence for the USA that the secular decline in the labor share is not only explained by technical change or globalization, but also by the dynamics of factor taxation, automation capital (robots), and population growth. First, we empirically find indications of co-integration for the period from the last quarter of the 20th to the first decade of the twenty-first century. Permanent effects on factor shares emanate from relative factor taxation. The latter also have a lasting effect on the use of robots. Variance decompositions reveal that taxing contributes to changes in the two income shares and in automation capital. Second, we analyze and calibrate a neoclassical growth model extended to include factor taxation, automation capital, and capital adjustment costs. Labor and automation capital are perfect substitutes, whereas labor and traditional capital are complements. The model replicates the dynamics of the observed functional income distribution in the USA during the 1965–2015 period. Counterfactual experiments suggest that the fall in the labor share would have been significantly smaller if labor and capital income tax rates had remained at their respective level of the 1960s.

Asymptotic Behavior of Three Connected Stochastic Delay Neoclassical Growth Systems Using Spectral Technique

In this study, we consider a nonlinear system of three connected delay differential neoclassical growth models along with stochastic effect and additive white noise, which is influenced by stochastic perturbation. We derived the conditions for positive equilibria, stability and positive solutions of the stochastic system. It is observed that when a constant delay reaches a certain threshold for the steady state, the asymptotic stability is lost, and the Hopf bifurcation occurs. In the case of the finite domain, the three connected, delayed systems will not collapse to infinity but will be bounded ultimately. A Legendre spectral collocation method is used for the numerical simulations. Moreover, a comparison of a stochastic delayed system with a deterministic delayed system is also provided. Some numerical test problems are presented to illustrate the effectiveness of the theoretical results. Numerical results further illustrate the obtained stability regions and behavior of stable and unstable solutions of the proposed system.

ON EXPONENTIAL STABILITY OF A CLASS OF DELAY DIFFERENTIAL EQUATIONS IN NEOCLASSICAL GROWTH MODELS

In this paper, the problem of global exponential stability of delay differential equations in a neoclassical growth model is investigated by comparison techniques via differential inequalities.

Financial Intermediation, Capital Accumulation, and Crisis Recovery

Abstract We integrate bank and bond financing into a two-sector neoclassical growth model and identify an automatic stabilization effect due to endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage due to a decline in bank equity partially offsets the post crisis decline of bank lending and accelerates economic recovery by reducing the persistence of the bank lending channel. In this case, endogenous leverage adjustment is an automatic stabilizer. Regulatory state-independent capital limits and wage rigidities impair the re-allocation of capital between sectors and weaken this automatic stabilization. A quantitative analysis of the US during the Great Recession shows that the magnitude of automatic stabilization can be significant and informs about potentially high costs of strict capital regulation or wage rigidities during banking crises.

Why Do Regions Differ in Growth? The Productivity of the Eurozone and Its Contribution to the Added Value of Its European Neighbors

Despite the fact that the European integration process has intensified cooperation among European partners, the significant impact on growth represented by the recent lengthy periods of productivity stagnation in European countries still remains unexplained, as are the growing disparities among the more advanced countries of the integrated economy. This paper focuses on long-term economic growth based on productivity and its components, as well as on the effects of integration of EMU and non-EMU member states. The use of spatial econometric models allows us to incorporate the interactions among European countries into growth models. In line with neoclassical growth models, our results contribute to explaining how the growth of a eurozone country is related to the economic growth of its neighbors. Moreover, we confirm the relevance of eurozone countries’ interactions in times of crisis (2009–2018), as European countries generate spatial spillover effects that link their economic cycles. Although capital stock (i.e., investment) has a positive effect on the eurozone’s growth, its slowdown cannot compensate for the effect of declining labor-force participation, which is proven to be a crucial factor for growth. Likewise, immigration flows affect economic growth, but this differs according to the workers’ level of education.

The dynamics of growth and distribution in a spatially heterogeneous world

Distributional extensions of the benchmark AK endogenous growth model and of the Ramsey model are presented in this paper. The resulting geographic growth model - a forward-backward parabolic partial differential equation (PDE) over a bounded spatial domain - is governed by two main driving forces: a spatial friction in the reallocation of physical capital, and a spatial arbitrage driving the reallocation of savings. The spatial AK model solution, starting from an unequal distribution of capital, displays convergence over time to a spatially homogeneous balanced growth path with positive growth rates. The spatial Ramsey model potentially contains both diffusive and agglomerative spatial forces. If there are no agglomerative forces, the solution displays convergence to a spatially homogenous steady state, but if an agglomerative force exists, there is increasing spatial concentration of capital over time. This shows that convergence in the aggregate can be consistent with different distribution profiles over locations. An additional contribution of the paper is to develop a distributive comparative dynamics analysis for a spatially heterogeneous productivity shock. It is shown that, although there is redistribution of consumption across locations, technological inequality is persistent.

The procyclicality of inflation-linked debt

The share of inflation-linked debt in total public debt is procyclical in the UK and US. Controlling for breakeven inflation, the linker share is positively related to inflation. Tax-smoothing incentives of the government in a Ramsey model can explain this.

Dynamic Capital Tax Competition under the Source Principle

We explore the short- and long-run implications of tax competition between jurisdictions, where governments can only tax capital at source. We do this in the context of a neoclassical growth model under commitment and capital mobility. We provide a new theoretical perspective on the dynamic capital tax externalities that emerge in this model. Numerically, we show that the net capital tax externality is positive in the short run but converges to zero in the long run. We also find that noncooperative source-based capital taxes are initially positive and slowly decline toward zero. (JEL D62, H25, H71, H73, H87)

Does Tourism Foster Economic Growth in BRICS Region? Empirical Evidence over 1995-2019

In the BRICS region, international tourism is considered a significant contributor to employment, forex earnings, and gross domestic product. In this context, this study examined the impact of tourism on the growth of BRICS economies by employing PMG based ARDL panel data analysis technique over an augmented neo-classical growth model during a period from 1995 to 2019. The results support a positive impact of international tourism on the growth of BRICS nations when their levels of human development are controlled in the long run. So, this study adds another feather to the extant empirical evidence of the tourism-led growth hypothesis in the BRICS region. Therefore, the policies of tourism sector development/expansion can supplement in achieving an elevated real economic growth in BRICS economies.

Semi-endogenous growth dynamics in a macroeconomic model with delays

While explaining economic growth is still an open question in economics, it is widely recognized that innovation plays a leading role in its promotion. However, innovative activity involves both time delays and accumulation, and both are topics that neoclassical economics do not put an emphasis upon. If one introduces these features into a growth model and allows for imbalances between the demand and supply side of the economy, fluctuations are the result. This means that by introducing these mechanisms one can argue that investing in innovation can be both a driver for long-term growth as well as a reason for mid-term fluctuations. Hence, the growth dynamics arising from innovative activities have a more complicated pattern than neoclassical growth models can usually account for.

Collective choice with heterogeneous time preferences

AbstractThis paper reviews recent research on the aggregation of heterogeneous time preferences. Main results are illustrated in a simple Ramsey model with many agents with additively time‐separable utility functions who differ in their discount factors. We employ an intertemporal view on this model and argue that preferences of a decision maker should be represented by a sequence of utility functions. This allows us to clarify the issue of dynamic inconsistency and relate it to simple properties of discounting. We distinguish between private and common consumption cases. In the private consumption case, we discuss the properties of sequences of additively time‐separable social welfare functions (SWFs) and explain why the notion of Pareto optimality under heterogeneous time preferences becomes problematic. In the common consumption case, we focus on the problem of collective choice under heterogeneous time preferences, discuss the difficulties with dynamic voting procedures, and review some ways to overcome them. We conclude by highlighting the implications of our discussion for the problem of choosing an appropriate social discount rate (SDR).