Run Growth Rate Research Articles

Limits to Fiscal and Monetary Policy in Small Open Economies

ABSTRACT In this paper we investigate the impact of the balance-of-payments constraint on output, income distribution and policy space in a small economy open to both commercial and financial flows. We do so by extending a Sraffian supermultiplier growth model to consider current and capital accounts and endogenous money. Expansionary fiscal policies increase output and its long run growth rate but have a negative impact on the balance-of-payments. Based on these results, we derive the value of government spending that maximises output while maintaining external equilibrium. Monetary policy also influences the balance-of-payments by attracting foreign financial flows through higher interest rates. This relationship is non-monotonic, since these flows can finance the external deficit resulting from a high output level but can also lead to a greater interest burden. This trade off allows us to find the level of the interest rate that maximises external space. It also implies that, with limits, raising interest rates might allow for higher real wages. Lastly, we examine the effects of the currency denomination of debt. We find that, in case of a depreciation, debt in domestic currency allows for a less contractionary adjustment than foreign currency-denominated debt but does not lead to higher economic growth.

GROWTH CYCLES IN MATURE AND DUAL ECONOMIES

Mature economies may experience fluctuations, but the average medium and long run growth rate matches the natural rate. Like Kaldor's neo-Keynesian models, the Marx-Goodwin tradition explains this outcome by endogenizing the distribution of income and assuming that the accumulation of capital is increasing as a function of the profit share. The application of Goodwin cycles to developing economies may be hard to justify, however. The modified Goodwin models in this paper include relative-wage norms as a central element of wage formation. Norms change endogenously, leading to path dependence (hysteresis) in the stationary solution for the employment share of the modern sector. The effects of shocks – the sensitivity of the long-run outcome to initial conditions – may be amplified by non-linearities in the adjustment of wages to deviations of actual wages from the norm.

Reforma poreske politike za održivi privredni rast u Srbiji

In the last two decades, the Serbian economy posted an average growth rate of 3.8 percent, which was above the average growth rate in the EU, Central and Eastern Europe (CEE) 1 and the Western Balkans 2 . Together with sharp decline in population, this has led to some economic convergence in terms of the GDP per capita, although the gap to the EU and CEE countries remains significant (57 and 42 percent respectively). To achieve full economic convergence with the European countries, Serbian economy needs to post long run growth rates of 4-6 percent per year, in a sustainable manner, which primarily refers to a more fair distribution of growth dividend (reduction of economic inequality) and limiting negative environmental footprint. In this sense, the reform of tax policy can make a contribution to the sustainable growth of the Serbian economy, through: i) a slight reduction in the overall tax burden, primarily through a significant cut in labour taxes, which may be financed by means of broadening the environmental taxes base, increase in consumption taxes and reducing unproductive public expenditures, ii) moderately increasing the progressivity of the personal income tax, recurring property tax and inheritance tax, and iii) broadening the environmental taxes base (with the focus on energy and pollution taxes) and introducing the tax incentives for households to switch to green energy sources.

Idle Automation Capital and Convergence

The possibility that automation capital is idle has been so far neglected in the literature. However, we show that the departure from the full utilization assumption has significant transitional as well as long-run consequences for growth. We show that capital utilization can bring down the convergence speed as well as the long run growth rate towards an empirically plausible number provided that the elasticities of depreciation with respect to physical and automation capital utilization are sufficiently heterogenous. If not, or if heterogenous utilization elasticities tend to infinity, the model fails to produce results that are line with empirical data. The point is that it is not the introduction of capital utilization per se but the relationship between the elasticities of utilization of automation and physical capital that is relevant to produce empirically plausi­ble speeds of convergence and growth rates.

Growth cycles and business cycles of the Chinese economy through the lens of the unobserved components model

We build upon the most recent development in the literature and estimate a comprehensive set of univariate and bivariate Unobserved Components models to study the varying long-run growth rate and output gap of the Chinese economy for the period of 1952–2017. We find that the long-run growth rate varied substantially, and thus the growth cycles played an important role in the Chinese economy. Specifically, the long run growth rate accelerated since the late 70s, peaked in the early 90s, and since then has continuously declined except for several years right after China's entrance into the WTO. We also find that although the recent 4-trillion-Yuan economic stimulus package helped to sustain the economic growth temporarily it appeared to have accelerated the decline of the long run growth rate. We also find that the potential growth rate is estimated to be slightly above 8% as in 2017, but the output gap has become negative since 2015 and this recession at the business cycle frequency continuously deepened until the end of the sample.

Accommodation Versus Control Suggested Model to Macro-Economics

Abstract The study raised the question of knowledge generation, in attempt to answer this question an economic model was introduced, namely, aggregate demand and aggregate supply. The final target equations can be solved by general rule (deterministic) of solving quadratic equations. The study use analytical geometry and matrix algebra tools to solve the model beside testing their stability characteristics. If we reach unique value to the price equilibrium level then income equilibrium level the maximum potency of the economy can determined. Accordingly the rest of model values would be solved spontaneously. The essential derived result is the relationship between the dependent variable and independent variable can be redefined into accommodated and accommodator one. The long run growth rate of price and income which equal to the equilibrium combat with exogenous theory of growth which seeking stable and sustainable growth. Other results center around how to view the debate of different economic schools from the shape of aggregate demand and aggregate supply, moreover the theoretical and practical test of model give great push to the suggested approach in answering the questions raised concerning the knowledge generation. If the model succeed in exceeding the theoretical and practical tests our understanding to the phenomena functioning will be broaden and enhanced, hence the model capability can be enlarged to interpret phenomena in fields other than economic, typically the suggested approach “top to bottom” may contribute positively to the process of knowledge generation in addition to the modification of value system extraction. Finally the study suggested a protocol scenario in how to apply the derived model by introducing different steps to the application.

A Theory of Falling Growth and Rising Rents

Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating IT advances. In response, the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline— lowering the long run growth rate.

Economic Growth, Productivity and Convergence of West Asian and North African Countries

The present study tried to explore the spatial and temporal variation in economic growth and productivity of Middle East and North African countries for the period 1971-2014. Further, we also tested the hypothesis of regional convergence in neo-classical framework. The study is based on the Penn World Table data of sample of Middle East and North African countries. Our findings suggests that oil-dependent economies have shown large variations in growth which can be linked with the fluctuations of oil price. Due to rapid population and labour force growth (both nationals and immigrants) in most of the oil based economies, growth rates of per capita GDP and per worker GDP are quite meagre. Total factor productivity does not play a significant role and growth in the region is due to the capital accumulation. Both beta and sigma measures of convergence suggest that there is convergence in per worker GDP (labour productivity) and per capita GDP. The study favours adoption of large scale structural reforms to achieve sustained long run growth rates. At the same time economic diversification would reduce the volatility of income and employment.

Importancia del sector industrial en el desarrollo económico: Una revisión al estado del arte

This paper seeks promote the knowledge and start the debate on the pertinence of the industrial policy and the implementation of public policies whose objective is invigorate the industrial growth that lead the economy to its productive structure change and to major long run growth rates. For this, from a structuralist vision and historical rationale a state of art has been elaborated that states the importance of the industry and of industrial policies for development of countries. The literature revised concludes that the manufacture industrial sector has important qualities for the productive diversification and economic growth of countries, therefore, it should be a key piece in the agenda of governments that want to promote the economic development.

Importancia del sector industrial en el desarrollo económico: Una revisión al estado del arte

El presente artículo busca promover el conocimiento y abrir el debate sobre la pertinencia de la política industrial y la implementación de políticas públicas que tienen el objetivo de dinamizar el crecimiento industrial que conduzca a la economía a un cambio de su estructura productiva y a mayores tasas de crecimiento de largo plazo. Para esto, desde una visión estructuralista y argumentación histórica se ha elaborado un estado del arte que expone la importancia de la industria y de las políticas industriales para el desarrollo de los países. De la revisión de la literatura se puede concluir que el sector industrial manufacturero tiene cualidades importantes para la diversificación productiva y el crecimiento económico de los países, y por lo tanto, debe ser pieza fundamental en la agenda de los gobiernos que buscan promover el desarrollo económico.

Aspects of Creative Capital in a Regional Economy with Time Variant Schooling

We follow Batabyal and Beladi (2014, 2015) and theoretically study a regional economy that produces a final consumption good with physical and creative capital. However, in contrast with the approach taken in the above two papers, in our model, the means for obtaining acquired creative capital which is the number of years of schooling is not constant but growing over time. In this setting, we first derive an expression for the long run growth rate of output per raw creative capital unit. Next, we provide a numerical example to show how the above expression can be used to determine the proportion of overall regional growth that is due to increases in schooling. Finally, we discuss whether it is possible for the number of years of schooling in the region under study to grow indefinitely.

Natural disasters, growth and institutions: A tale of two earthquakes

We examine the impact of natural disasters on GDP per capita by applying the synthetic control approach and using a within-country perspective. Our analysis encompasses two large-scale earthquakes that occurred in two different Italian regions in 1976 and 1980. We show that the short-term effects are negligible in both regions, though they become negative if we simulate the GDP that would have been observed in absence of financial aid. In the long-term, our findings indicate a positive effect in one case and a negative effect in the other, largely reflecting divergent patterns of the TFP. Consistent with these findings, we offer further evidence suggesting that a quake and related financial aid might either increase technical efficiency via a disruptive creation mechanism or reduce it by stimulating corruption, distorting the markets and deteriorating social capital. Finally, we show that the bad outcome is more likely to occur in regions with lower pre-quake institutional quality. As a result, our evidence suggests that unanticipated local shocks are likely to change long run growth rates, exacerbating territorial disparities.

The implied growth rates and country risk premium: evidence from Chinese stock markets

Realized stock market returns are volatile and poor reflections of economic growth and investor expectations in China. In this paper, we estimate simultaneously the implied long run growth rate and cost of equity capital for listed Chinese firms over the period 2004–2012. We find that the implied mean growth rate in earnings is around 10 % and the mean implied cost of capital is about 14.6 %. These suggest that the implied growth rates from companies’ fundamentals are in line with the economic growth and the implied cost of capital is consistent with investors’ expectations. Comparing with estimates for the US markets, we find that the mean country equity risk premium for this largest emerging market is about 6.5 %. Our study has important implications to the Chinese policy makers and international investors.

Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions

We use a dynamic model to study the effects of technology and learning on the long run economic growth rates of a leading and a lagging region. New technologies are developed in the leading region but technological improvements in the lagging region are the result of learning from the leading region’s technologies. Our analysis sheds light on four salient questions. First, we determine the long run growth rate of output per human capital unit in the leading region. Second, we define a lagging to leading region technology ratio, study its stability properties, and then use this ratio to ascertain the long run growth rate of output per human capital unit in the lagging region. Third, for specific parameter values, we analyze the ratio of output per human capital unit in the lagging region to output per human capital unit in the leading region when both regions have converged to their balanced growth paths. Finally, we discuss the policy implications of our analysis and then offer suggestions for extending the research described here.

Positive and Negative Externalities in Innovation, Trade, and Regional Economic Growth

We analyze the interactions between positive and negative externalities in innovation and trade for economic growth in a region when this region is part of an aggregate economy consisting of two regions. In both regions consumers have constant relative risk aversion preferences, there is human capital use, and there are three kinds of manufacturing activities involving the production of blueprints for inputs or machines, the inputs or machines themselves, and a single final good for consumption. We study two cases. In the first case, there is no growth in the human capital stock but innovative activities give rise to positive externalities or knowledge spillovers in two ways. In this setting, we study whether and under what circumstances opening a region to trade results in an increase in this region’s equilibrium growth rate. In the second case, there is growth in the human capital stock but there are negative externalities in innovation. In this scenario, we show that opening a region to trade leads to more innovation but to no change in its long run growth rate.

Corruption, Taxation and Economic Growth: Theory and Evidence

In this paper, we analyze the interaction between corruption, taxation and economic growth. Our contributions are twofold. Theoretically, in an endogenous growth model, we introduce corruption in two different ways: corruption in the public expenditure and corruption in the public revenue. We show two opposing effects. Under certain conditions, corruption can affect growth rate positively but it can also exert a negative effect via fiscal revenue. Not only does it tend to make the tax rate, which maximizes the long run growth rate sub-optimal, but it can also create distortions that can lead to excessive tax rates harmful to growth. The empirical analyses are based on non parametric estimates as well as econometric investigations. Our results support the assumption of a non linear relationship between public resources and growth. Interactions between public resources and institutional variables evidence the following the results: (i) the more countries are corrupt the stronger the negative effects of taxation on the growth (ii) Once the negative effects of corruption are accounted

Estimates of the steady state growth rates for some European countries

This paper estimates the steady state growth rates for the main European countries with an extended version of the Solow (1956) growth model. Total factor productivity is assumed a function of human capital, trade openness and investment ratio. We show that these factors, with some differences, have played an important role to improve the long run growth rates of Italy, Spain, France, UK, and Ireland. A few policies to improve the long-run growth rates for these countries are suggested.

Economic Growth and the Quality Composition of Human Capital

There are contradictory views in the literature regarding the relationship between education and economic growth. According to Lucas (1988), accumulation of human capital over time that boosts economic growth, whereas Nelson and Phelps (1966) argue that the stock of human capital is important for economic growth. Romer (1990a) concludes that if stock of human capital is employed in the research sector, technological progress is greater and this leads to faster growth. Several empirical studies have been carried out on the nature of the relationship between human capital. Also whether quality composition of human capital is important for growth or not has also been dealt with in the literature but there are some problems with the treatment. This study relates to the relationship between quality composition of human capital and technological change and the mechanism through which technological change affects long run growth rates. This study relates to 55 countries over fourteen year periods from 1980 to 2007. We find that the average stock of human capital is important to increase economic growth. Stock of average human capital affects economic growth through its effect on growth rate of capital stock. However the stock of tertiary educated persons is not a significant determinant of growth but stock of secondary and primary educated persons are important. This may suggest that the stock of skilled labour affects the rate of technological change primarily through diffusion of technology and not through R&D activity in the economy. Secondary or primary schooling which is necessary to absorb existing technologies but probably not sufficient for R&D activity turns out to be a significant determinant of growth rate of output. In this study, stock of human capital affects economic growth through its effect on capital productivity as well as technological diffusion.

Acumulação de capital, restrição externa, hiato tecnológico e mudança estrutural: teoria e experiência brasileira

Os períodos de crescimento acelerado da economia brasileira do pós-guerra até a década de 1970 foram constrangidos pela restrição externa. Propomos neste artigo um modelo baseado em Kaldor, em que estabelecemos uma relação entre acumulação de capital, hiato tecnológico e restrição externa ao crescimento de longo prazo para economias periféricas. A hipótese básica do modelo é que a acumulação de capital, sob certas condições, pode contornar a restrição externa ao crescimento dessas economias desde que o esforço de acumulação seja capaz de produzir uma mudança estrutural no sentido de aumentar a participação relativa dos setores mais dinâmicos do ponto de vista tecnológico. Essa mudança estrutural irá resultar em um aumento gradual da elasticidade-renda das exportações e numa redução da elasticidade-renda das importações, aumentando assim a taxa de crescimento do produto real que é compatível com o equilíbrio de longo prazo do balanço de pagamentos. Ilustramos ao final do artigo que a economia brasileira do pós-guerra até os anos 1970 apresentou uma elevada taxa de acumulação de capital, aprofundando o processo de substituição de importações, o que na nossa interpretação contribuiu para parcialmente permitir relaxar a restrição externa ao crescimento de longo prazo.

What determines the long run growth rate in Kenya?

This paper examines the determinants of total factor productivity (TFP) in Kenya. We utilized the theoretical insights from the Solow (1956) growth model and its extension by Mankiw, Romer and Weil (1992) and followed Senhadji's (2000) growth accounting procedure. We find that growth in Kenya, until the 1990s was mainly due to factor accumulation. Since then, TFP has made a small contribution to growth. Our findings imply that while variables like overseas development aid, foreign direct investment and progress of financial sector improves TFP, trade openness is the key determinant. Consequently, policy makers should focus on policies that improve trade openness if the long run growth rate is to be raised.