AIDS and economic growth: A human capital approach

Using a model that combines growth and health capital equations this study analyses the impact of HIV/AIDS on economic growth. The econometric results indicate that the epidemic's effects have been substantial; in Africa the marginal impact on income per capita of a 1% increase in HIV prevalence rate is minus 0.59%. Even in countries with lower HIV prevalence rates the marginal impacts are non-trivial. Hence while the human and social costs of the HIV/AIDS epidemic are major causes for concern, these results indicate that the macroeconomic affects of the HIV/AIDS epidemic are important.     

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

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

OPTIMAL FOREIGN BORROWING REVISITED

Foreign capital has become increasingly important in financing investment and growth in developing countries. Foreign capital flows, however, can be volatile as is evident from the recent financial crises. It has also recently been noted by researchers that there is little systematic empirical evidence that foreign capital contributes to the economic growth of developing countries. In this context, this paper attempts to theoretically reevaluate the borrowing behaviour of a developing economy that relies on foreign borrowing for its capital formation. In particular, this paper investigates the implications of different lending policies of international financial institutions. It is found that no matter whether the borrowing interest rate increases with the level of foreign debt per capita or with the foreign‐capital/total‐capital ratio, the economy always moves toward the stationary state. The result holds even when the representative agent regards the interest rate given as constant. This implies that foreign borrowing does help economic growth, irrespective of lending policies of international financial institutions.     

A smooth coefficient quantile regression approach to the social capital–economic growth nexus

This analysis assesses the role of social capital in generating heterogeneity in growth processes across U.S. counties by estimating growth regressions, using the novel semiparametric smooth coefficient quantile regression method in which parameters are unspecified functions of a measure of social capital. The results indicate substantial differences across the quantiles of economic growth in the profile shapes of the coefficient estimates over the level of social capital. Moreover, the coefficient function estimates are highly nonlinear over the level of social capital, providing evidence that the growth process that links initial income, education attainment, ethnic diversity, inequality, population density, and government activity to growth varies with social capital in a nonlinear way.     

Are prior restrictions on factor shares appropriate in growth accounting estimations?

Several studies make different prior assumptions on the magnitude of factor shares and scale of production when accounting for economic growth. The initial Solow estimations for instance assumed a capital share of 0.3 and constant returns to scale. Most authors have subsequently used the same restrictions just because they were used in previous studies even when production in the countries under study may not necessarily be taking place under constant returns to scale and capital share may be a value not any close to 0.3. This is likely to distort growth accounting estimation results. This study investigates whether these prior restrictions on factor shares and scale of production as commonly used in the literature are appropriate and whether the Solow assumptions are likely biased even in developed countries. Using Kenyan data and structural vector autoregressions, the main findings are; first, in all cases of the unrestricted estimations, the share of physical capital is less than 0.16. An estimation which imposes 0.3 as the share of physical capital in this case would therefore not be in line with the data generating process leading to biased results. Secondly, in all cases, the explanatory power of the model decreases when the restrictions are imposed implying that the restrictions are not appropriate in growth accounting exercises. The paper further disputes the “styled fact” in growth studies that the Solow assumptions may be relevant for developed countries but not developing countries and concludes that the Solow assumptions may be biased even in developed countries.     

Accounting for human capital externalities with an application to the Nordic countries

Externalities caused by human capital accumulation have taken up considerable space in theoretical work on economic growth. However, less attention has been paid to this externality in traditional growth accounting exercises. This paper takes up the issue of growth accounting, suggesting a framework for quantifying human-capital externalities and illustrating it empirically using data from the five Nordic countries. Four sources of growth are identified, i.e. capital accumulation, labor force growth, and total factor productivity growth (TFP), where the traditional TFP measure is split into a part explained by human-capital formation and an unexplained part. By doing this I am able to attribute between 12 per cent and 33 per cent of growth in the Nordic countries to human capital investment.     

Social capital, innovation and growth: Evidence from Europe

This paper investigates the interplay between social capital, innovation and per capita income growth in the European Union. We model and identify innovation as an important mechanism that transforms social capital into higher income levels. In an empirical investigation of 102 European regions in the period 1990-2002, we show that higher innovation performance is conducive to per capita income growth and that social capital affects this growth indirectly by fostering innovation. Our estimates suggest that there is no direct role for social capital to foster per capita income growth in our sample of European Union countries.     

Per capita output convergence across Asian countries: Evidence from covariate unit root test with an endogenous structural break

This study investigates long-run convergence of per capita output across ten Asian countries over 1960 to 2014 by taking advantage of possible economic growth determinants, which may be responsible for setting Asian countries on a long-term steady-state growth path. We simultaneously examine the presence of output convergence in the region, as well as the statistical significance of these economic growth determinants, by using a unit root test with a stationary covariate. In addition, the study allows for the presence of endogenous structural changes in the time series under investigation in order to capture sharp drops in per capita outputs, which may be brought about by influential economic events, such as serious economic slumps in domestic economies or the global financial crises in 1997–98 and 2008–09. The limiting distribution of the covariate unit root test that permits structural breaks is also derived. The results show significant evidence to support the convergence hypothesis. In particular, asymptotically absolute convergence holds among Hong Kong, Korea, Singapore, and Taiwan. In addition, Thailand shows a convergence tendency in terms of asymptotically relative convergence toward Singapore. Malaysia, Indonesia, and India also turn out to converge toward Hong Kong in an asymptotically relative sense. Certain potential growth determinants, such as the trade/GDP ratio, inflation rate, government expenditure/GDP ratio, and quality of human capital, may help these countries achieve and maintain the long-run convergence process toward the reference countries in the region.     

Inspiration vs. perspiration in economic development of the Former Soviet Union and China (ca. 1920–2010)

Here, we discuss the role of both perspiration factors (physical and human capital) and inspiration factors (Total Factor Productivity) in the economic development of the Former Soviet Union area (FSU) and China, ca. 1920–2010. Using a newly created dataset, we find that during the Socialist central‐planning period, economic growth in both countries was largely driven by physical capital accumulation. This finding follows logically from the development policies in place at that time. During their transition periods, (i.e., starting from the late 1970s in China and the late 1980s in the FSU), China managed to keep technical inefficiency of production factors in check, largely by massively increasing its human capital, thereby lowering the physical‐to‐human capital ratio. In contrast, the FSU accomplished a similar outcome largely through reducing its stock of physical capital. As a result, although there was little difference in technical efficiency between these two economies, China's emphasis on human capital formation made it easier for this country to improve its general productivity and to increase per capita growth. This changed in the late 1990s and early 2000s, when the FSU began to recover economically, regaining its 1990 levels of output and productivity.     

Human capital accumulation in R&D-based growth models

This paper develops a model that reproduces the essential aspects of the recent ICT-based economy using the framework of endogenous growth theory in which a central role is played by human capital accumulation. In particular, it considers a multi-sectoral growth model in discrete time with infinite horizon, endogenous growth, embodied technological progress, horizontal differentiation and “lab-equipment” specification of R&D, and with human capital accumulation (represented by the fact that households devote a fraction of their time to schooling), in order to take into account the crucial role of the latter when new technologies are present. In this model it is possible to obtain some important results, both analytically and through simulations, either in the case of constant productivity of schooling and in the case in which this productivity is a function of technological progress. The first conclusion is that the productivity of schooling affects the long run growth of the economy, contrary to the productivities of the other sectors, hence in this model human capital accumulation is the true engine of growth. It is then possible to study the reaction of the economy to different types of shocks, and to compare the results with the empirical evidence. The conclusion is that the model is able to reproduce such evidence, suggesting that the interaction between ICT and human capital is one of the drivers of the recent economic performance.     

A nonsmooth, nonconvex model of optimal growth

This paper analyzes the nature of economic dynamics in a one-sector optimal growth model in which the technology is generally nonconvex, nondifferentiable, and discontinuous. The model also allows for irreversible investment and unbounded growth. We develop various tools to overcome the technical difficulties posed by the generality of the model. We provide sufficient conditions for optimal paths to be bounded, to converge to zero, to be bounded away from zero, and to grow unboundedly. We also show that under certain conditions, if the discount factor is close to 1, any optimal path from a given initial capital stock converges to a small neighborhood of the golden rule capital stock, at which sustainable consumption is maximized. If it is maximized at infinity, then as the discount factor approaches 1, any optimal path either grows unboundedly or converges to an arbitrarily large capital stock.     

Natural capital, subjective well-being, and the new welfare economics of sustainability: Some evidence from cross-country regressions

The measurement of natural capital and its management during the economic development process are important aspects of the capital approach to sustainable development. However, the assessment of social welfare in terms of genuine savings (or changes in total wealth per capita) is arguably too limited. This paper tries to make a case for the incorporation of subjective well-being measures in debates about sustainable development by exploring the macro-level relationship between subjective well-being and natural capital in a cross-country setting. It is tested whether natural capital per capita is correlated with subjective well-being in a sample of fifty-eight developed and developing countries, using natural capital data from the World Bank's Millennium Capital Assessment. Bivariate regressions indicate that it is. When multiple regression models are estimated that include (a) major country-level determinants of subjective well-being (GNI per capita, social capital, income distribution, unemployment, inflation), and (b) regional dummy variables for ex-Soviet Union and Latin American countries, the positive correlation remains. The role of data outliers is carefully explored, and the sensitivity of the results to the use of alternative subjective well-being measures (i.e. life satisfaction, happiness, and a combined life satisfaction and happiness index) is investigated. This does not change the nature of the results. The findings arguably strengthen the case for a ‘new welfare economics of sustainability’ that takes subjective well-being measures into account.     

Experiencing change and the evolution of adaptive skills: Implications for economic growth

We distinguish learning in a static environment from that in a dynamic environment to show the existence of an important interaction between the development of new technologies and human capital accumulation. Because technological progress creates a more dynamic environment, it complements education in the production of human capital by enhancing adaptive skills. Higher levels of adaptability and human capital in turn determine the profitability of new inventions and the incentive to invest in new R&D. Differences in the history of technological progress produce different levels of adaptability and our results suggest why countries that have comparable levels of education and per capita incomes may differ significantly in their growth performance.     

OPTIMAL TRANSITION DYNAMICS IN THE LEONTIEF TWO‐SECTOR GROWTH MODEL WITH DURABLE CAPITAL: THE CASE OF CAPITAL INTENSIVE CONSUMPTION GOODS*

We present results on undiscounted optimal policies in the Leontief two‐sector growth model with durable capital. Unlike the results with a labour intensive consumption goods sector, we show that a monotonic optimal programme is only one special case out of many richer possibilities of transition dynamics. Depending on the initial capital stock, and a key parameter ζ that could be interpreted as a marginal rate of transformation of capital between today and tomorrow, an optimal programme may converge to a period‐two cycle; and even when it converges to the golden rule stock, it can do so (damped) cyclically or with a “jump”.     

Do microfinance institutions fulfil their promise? Evidence from cross-country data

The concept of microfinance promises poverty reduction and economic growth. We empirically challenge this economic and social promise in an attempt to prove its fulfilment. Our multivariate regressions of economic development variables such as per capita gross national income based on PPP converted to international dollars (GNI per capita PPP), GDP growth, as well as gross capital formation and labour participation rate against specific microfinance institutions’ (MFI) variables show that the success and performance of MFIs significantly influence economic development. Microfinance directly influences economic growth through the value that MFI performance adds to purchasing power. An indirect impact comes from an improvement in capital accumulation and employment rates. These insights are valuable as the interdependencies between microfinance and economic development that this article verifies offer new and progressive insights into purposeful action that can be taken to stimulate economic development and growth. Targeted development programmes as well as socially responsible investments can be applied in developing economies in order to strengthen their growth and alleviate poverty.     

Intangible Capital and Labor Productivity Growth: Panel Evidence for the EU from 1998–2005

Using new international comparable data on intangible capital investment by business within a panel analysis between 1998 and 2005 in an EU country sample, a positive and significant relationship between intangible capital investment and labor productivity growth is detected. This relationship proves to be robust to a range of alterations. The empirical analysis confirms previous findings that the inclusion of business intangible capital investment in the asset boundary of the national accounting framework increases the rate of change of output per hour worked more rapidly. In addition, intangible capital is able to explain a significant portion of the unexplained international variance in labor productivity growth, and becomes a dominant source of growth.     

The Financial Sector and Economic Growth*

The Mankiw–Romer–Weil (1992) augmented Solow–Swan ( Solow 1956 ; Swan 1956 ) model is extended to incorporate the financial sector in this study. Distinguishing between financial capital, physical capital and human capital, the research attempts to identify, in particular, the effects of financial capital on economic growth. The effects of financial sector efficiency on economic growth are also examined. The financial sector augmented model is tested on a cross‐section of 35 economies. Strong support is found for the model.     

Growth miracles and failures in a Markov switching classification model of growth

In this paper economic growth is interpreted as a sequence of transitions between distinct growth regimes that countries visit with different frequencies. Countries featuring similar growth dynamics are endogenously grouped into three different clusters. The first cluster comprises successful countries that are characterized by lengthy periods of high or very high growth. Moderately successful countries in the second cluster experience both periods of reasonable growth and periods of stagnation, whereas failing countries in the third cluster suffer from highly volatile growth rates with frequent episodes of crisis. Successful countries are characterized by better initial conditions, policies and institutions compared to the other countries. Neither initial conditions nor institutions distinguish moderately successful from failing countries; what makes them different is policy in the form of investments into infrastructure and human capital, trade liberalization and limited policy volatility.     

Population and Economic Growth Under Different Growth Engines

Using a growth model with physical capital accumulation, human capital investment and horizontal R&D activity, this paper proposes an alternative channel through which an increase in the population growth rate may yield a non‐uniform (i.e., a positive, negative, or neutral) impact on the long‐run growth rate of per‐capita GDP, as available empirical evidence seems mostly to suggest. The proposed mechanism relies on the nature of the process of economic growth (whether it is fully or semi‐endogenous), and the peculiar engine(s) driving economic growth (human capital investment, R&D activity, or both). The model also explains why in the long term the association between population growth and productivity growth may ultimately be negative when R&D is an engine of economic growth.     

TESTING CATCHING‐UP BETWEEN THE DEVELOPING COUNTRIES: “GROWTH RESISTANCE” AND SOMETIMES “GROWTH TRAGEDY”

This paper provides empirical evidence that there is no convergence between the GDP per‐capita of the developing countries since 1950. Relying upon recent econometric methodologies (non‐stationary long‐memory models, wavelet models and time‐varying factor representation models), we show that the transition paths to long‐run growth (the catch‐up dynamics) are very persistent over time and non‐stationary, thereby yielding a variety of potential steady states (conditional convergence). Our findings do not support the idea according to which the developing countries share a common factor (such as technology) that eliminates per‐capita output divergence in the very long run. Instead, we conclude that growth is an idiosyncratic phenomenon that yields different forms of transitional economic performance: growth tragedy (some countries with an initial low level of per‐capita income diverge from the richest ones), growth resistance (with many countries experiencing a low speed of growth convergence), and rapid convergence.