Democracy, Governance, and Economic Growth: Theory and Evidence

The paper examines how democracy affects long-run growth by influencing the quality of governance. Empirical evidence is first presented showing that measures of the quality of governance are substantially higher in more democratic countries. A general-equilibrium, endogenous growth model is then built to show how a governance-improving democracy raises growth. In this model, stronger democratic institutions influence governance by constraining the actions of corrupt officials. Reducing corruption, in turn, stimulates technological change and spurs economic growth. Empirical evidence is presented showing that democracy is in fact a significant determinant of total factor productivity (TFP) growth between 1960 and 1990 in a cross-section of countries. But this contribution occurs only insofar as stronger democratic institutions are associated with greater quality of governance.     

Enterprise Productivity and Efficiency: When Is Up Really Down?

A substantial body of literature has documented impressive total factor productivity (TFP) growth in China's state-owned enterprises (SOEs) during the period of China's enterprise reform. Such growth rates have been used to support the view that China's reforms of SOEs have been highly successful. In this paper, we question the validity of using TFP growth rates as a “bottom line” measure of performance. In the spirit of a counterexample, we use a simple model to show that when firms are not profit maximizers for whatever reason, higher productivity may actually lead to greater allocative distortion, lower profits, and lower economic efficiency. On the basis of existing evidence, we argue that these conditions held for many Chinese state enterprises during the reform.J. Comp. Econom.,June 1997,24(3), pp. 265–280. Boston College, Chestnut Hill, Massachusetts 02167; University of Michigan, Ann Arbor, Michigan 48109-1220; and Industrial Relations Center, Carlson School of Management, University of Minnesota, 271 19th Ave. S., Minneapolis, Minnesota 55455.     

The challenge to china’s enterprises from increasing labor costs: the product quality perspective

ABSTRACT

Using China Employer–Employee Survey data, this paper investigates the possible heterogeneous results of increasing labor costs of different firms. The paper finds that, unskilled labors have a higher wage growth rate than the skilled labor. Firms with higher product quality employ more skilled labor, and thus are less affected by the increasing labor costs. On the other hand, firms with higher product quality have less elastic demand, which makes it possible for them to increase their prices without demand decreasing. The conclusions are well supported by the data. Therefore, we should treat the challenge of increasing labor cost in a new way. The real challenge of increasing labor cost is greater for low-quality firms. The empirical results suggest that some of the low-quality firms should upgrade their quality to a higher level to offset their labor cost increase.

Abbreviations: CEES: China Employer-Employee Survey LP: Labor productivity LTP: Lewis turing point TFP: Total factor productivity     

Engines of Growth in China: The Limits of Informal Institutions

Abstract:

Since the 1978 reforms, China has experienced rapid economic and social development. GDP growth has been in the double digits on average yearly, creating the fastest sustained economic growth recorded by a major economy in history. Not only did this transform the economy and society at large, China reached important milestones in terms of reducing poverty and creating prosperity in a short period of time. This article uses the conceptual framework of new institutional economics to examine China’s economic growth and how growth has been achieved largely by ‘informal institutions’ that are grounded in culture, customs, and private interactions that emerge spontaneously. The trajectory by which these informal institutions left their imprint on China’s complex economic landscape and how they can constrain future economic growth are also of central importance. After examining decentralization and risk management practices, property rights, and the legal system, we emphasize the importance of creating formal institutions necessary for long-term growth, most importantly innovation. Preliminary evidence shows total factor productivity is tapering off which may reflect the constraints of China’s institutional environment. This ought to be reversed if China is to enjoy long-term sustained growth.     

Generation and distribution of the total factor productivity gains in US industries

This study estimates productivity gains and their distribution among inputs and outputs for 63 American industries over the period 1987–2012. Using the traditional surplus accounting method, the Total Factor Productivity (TFP) growth rates are divided into their price change components in order to determine the stakeholders who do or do not receive price advantages.

An initial analysis showed that TFP of US industries increased at an average trend of 0.8% and established that remunerations to employees and firms’ profitability constituted 49% and 39%, respectively, of the accumulated economic surplus from the productivity gains. Suppliers of intermediate inputs retained 12.1% of the surplus. Finally, customers, equipment and structure providers were the losers in the distribution of economic surplus via, respectively, a significant growth of relative final demand prices and a substantial price decrease of these assets.

A second step analysis underlined that industries with high TFP growth rates mainly benefited customers and firms via output price decreases and profitability improvements while industries with low or negative TFP changes hurt customers through significant output price increases. The sectoral level analysis also showed that employees’ remunerations depend only slightly on productivity gains produced within their industrial sectors.     

Quality-oriented growth: a new trend for Chinese firms

ABSTRACT

Based on data from the China Employer-Employee Survey (CEES), this study analyses the actual effect of quality-driven growth on firms’ performances in the economic transition of recent years. The results show positive and significant effects between the firms’ performance and quality-oriented growth, which is defined as a strategy that supports the spirit of greater entrepreneurial innovation, the advancement of input quality, and corporate governance improvement. Using a quality-driven growth mode, firms can effectively relieve the adverse effect of downward macroeconomic growth pressure on performance. This study proposes that China’s macroeconomic policy should shift from demand-oriented management to supply-oriented management, with a particular focus on quality development strategy. Moreover, firms should establish a quality-driven development strategy, facilitating a spirit of entrepreneurial innovation, advancing input quality, and improving corporate governance. This strategy will increase the firm’s performance, and effectively relieve the macroeconomic downward pressure.

Abbreviations: CEES: China Employer-Employee Survey, TFP: Total factor productivity     

Economic growth and poverty traps in sub-Saharan Africa: The role of education and TFP shocks

This paper investigates the “education-total factor productivity trade-off” in explaining income per worker differences between sub-Saharan (unlucky) and G7 (lucky) economies. First, we examine the dynamics of average years of schooling (i.e. education), capital per worker, income per worker, and total factor productivity (TFP) across sub-Saharan and G7 countries. We confirm that physical capital and education levels partially explain income per worker differences between lucky and unlucky economies. Second, we undertake a novel examination of the impact of technology shocks on income per worker, with the goal of understanding the role of technology variation in causing cross-country income per worker differences, and as a potential contributor to overall slow growth in the sub-Saharan region. In a vector autoregressive (VAR) framework, we show that the impact of “ad hoc” TFP shocks on income per worker is larger in unlucky economies than in lucky ones. We observe that average TFP volatility in the “unlucky world” is eight times higher than in the “G7 world”. We argue that the order of magnitude of the impact heavily depends on the level of the TFP volatility. Last, we suggest that the documented differences in the amount of physical capital and in the productivity of human capital between these two regions add conceptual support for the existence of poverty traps for sub-Saharan Africa.     

Is education important in assessing the impact of institutions on economic growth in emerging economies?

ABSTRACT

In this article, we empirically revise the hypothesis that institutions cause economic growth for emerging countries starting from a theoretical model. Our sample consists of 21 countries covering different zones: European Emerging, Asia Pacific Emerging, Latin America, Middle-East and Africa while the status advanced versus secondary emerging countries based on FTSE (Financial Times Stock Exchange) classification is accounted for. The period analysed is 1995–2014. The methodology is based on System GMM estimator of Arellano-Bover and Blundell-Bond for dynamic panel data. Empirical findings suggest that only variables such as voice and accountability and government effectiveness have a significant positive impact on economic growth rates of the analysed countries. In the presence of control variables, i.e. trade and government final consumption, results are robust. Results remain robust for countries that have a high level of government expenditure on tertiary education which proves the role of education in assessing the impact of institutions on economic growth.     

Explaining local manufacturing growth in Chile: the advantages of sectoral diversity

This article investigates whether the agglomeration of economic activity in regional clusters affects long-run manufacturing Total Factor Productivity (TFP) growth in an emerging market context. We explore a large firm-level panel dataset for Chile during a period characterized by high growth rates and rising regional income inequality (1992–2004). Our findings are clear-cut. Locations with greater concentration of a particular sector have not experienced faster TFP growth during this period. Rather, local sector diversity was associated with higher long-run TFP growth. However, there is no evidence that the diversity effect was driven by the local interaction with a set of suppliers and/or clients. We interpret this as evidence that agglomeration economies are driven by other factors such as the sharing of access to specialized inputs not provided solely by a single sector, e.g. skills or financing.     

The impact of foreign direct investment on productivity: New evidence for developing countries

We provide new empirical evidence on the relationship between inward foreign direct investment (FDI) and total factor productivity (TFP) growth using cross-country data for 51 developing countries over the period 1984–2010. Our results suggest a weak direct effect of FDI on TFP growth but, after accounting for the roles of human capital and institutions as contingencies in the FDI-TFP growth relationship, we find a robust FDI-induced productivity growth response dependent on these ‘absorptive capacities’. However, the relevance of the human capital contingency effect diminishes when the effect of institutions is also considered, which suggests that improving institutions is relatively more important than human capital development for developing countries to realise productivity gains from FDI.     

Short- and long-term relation between economic development and government spending: the role of quality of institutions

ABSTRACT

This paper tests the Wagner’s assumption of the one-sided directional flow moving from economic growth to public spending considering an international database over the 1996–2012 period. By using indicators on the level of country control of corruption, government effectiveness, political stability, rule of law, regulatory quality and voice and accountability, the paper analyses the economic performance-public spending nexus controlling for the quality of the institutions. The empirical evidence supports the existence of the Wagner’s law, showing that, in the short-run, public spending positively reacts to a positive shock in national income, with a lower magnitude for democratic countries. In the long run, the error-correction model shows the convergence between public spending and national output occurring less quickly for non-democratic, low-income and to a smaller extent for non-OECD countries. Institutional quality, such as effort in controlling corruption and the presence of regulations that permit and promote private sector development, may help reducing the amount of per capita public spending and making it more productive. Higher expenses in compositional amenities such as public services for the elderly may explain why public spending per capita will increase the most in economies with a higher share of the population that need healthcare facilities.     

Electricity Tariff Changes and Consumer Sentiment on Household Consumption Expenditure in Malaysia

Purpose

This study investigates the impact of the current electricity tariff, represented by optimized tariff calculation, on Malaysian household’s consumption across different levels of income.

Design/methodology/approach

The input-output (IO) model has vastly been used in many energy economics literature that presented the matrix of production between various sectors in an economy. This study aggregated the 124 subsectors in IO Price Table 2015 into 12 groups of consumption of goods and services based on Household Expenditure Survey 2019 (HES 2019) to meet the study’ objectives.

Findings

This study found that in all simulations, high-income earners would be highly affected by the tariff changes. The lower the increment level in electricity tariff rate, the lower the magnitude would be on the changes of household expenditure level.

Research limitations/implications

Optimization in electricity tariff consumptions can pattern the Malaysian household’s consumption across different levels of income efficiently.

Practical implications

Useful to all consumer in the Malaysia economic business sector to predict their energy consumption up to optimum level.

Social implications

The study’s findings can benefit the society in optimiza their electricity consumption since everyone requires the energy for basic needs in their life.

     

FDI and productivity growth: the role of inter‐industry linkages

Abstract There is a large literature on the effects of foreign direct investment (FDI) on productivity through inter‐industry economic linkages. This paper contributes to the literature by focusing on the developed economy of Canada. It finds that FDI generates strong effects on total factor productivity (TFP) growth through both forward and backward inter‐industry linkages, and increase in an industry's absorptive capacity raises the effects of FDI on TFP growth through forward inter‐industry linkages. For R&D intensive industries, the effects of FDI on TFP growth through inter‐industry linkages are small, but imports turn out to be an important source for TFP growth.     

企业生产率和企业"走出去"对外直接投资:基于企业层面数据的实证研究

随着中国走出去的战略实施,我国企业的对外直接投资也日益增长。通过采用浙江省制造业企业生产和对外直接投资的企业层面数据,在准确衡量"走出去"企业的全要素生产率的基础上,本文考察了企业生产率及其直接对外投资的关系。在控制了回归分析可能的内生性及其他影响因素后,我们发现:第一,生产率越高的企业对外直接投资的概率越大;第二,生产率越高的企业对外直接投资的量越大;第三,目的国的收入水平高低对企业投资与否的决定没有显著的影响。此外,行业的资本密集程度对企业的生存环境没有显著的影响。所以,本文的发现为我国企业的对外直接投资提供了微观层面的经验证据,一定程度上弥补了这方面研究的空白。     

Finance and sources of growth: evidence from the U.S. states

How does financial development affect economic growth: through its impact on accumulation of physical and human capital or by boosting total factor productivity (TFP) growth? We use a new data set on output, inputs, and total factor productivity for the US states to study this question. Unlike previous cross-country research that tries to disentangle the channels through which financial development impacts growth, we use a plausibly exogenous measure of financial development: the timing of banking deregulation across states during the period 1970–2000. At the same time our new data set allows us to go beyond what was previously done in the state banking deregulation literature and identify whether finance impacts states’ input accumulation or TFP growth. We find, in line with existing cross-country studies, that deregulation boosts growth by accelerating both TFP growth and the accumulation of physical capital without having any impact on human capital. In contrast to the cross-country studies, we also find that the effects of deregulation are largely independent of states’ initial level of development; both rich and poor states grow faster after deregulation. Additionally, since our data set breaks down aggregate output into three sectors: agriculture, manufacturing, and the remaining industries, we are able to show that deregulation accelerates the growth of productivity in manufacturing. This last finding answers an important critique of the banking deregulation studies which asserts that observed growth effects may be coming from the growth of financial industry itself and not from the beneficial effect of finance on other industries, such as manufacturing.     

Institutions and Cultural Heterogeneity as Determinants of National Income: A Random‐coefficients Stochastic Frontier Model

Previous research on total factor productivity (TFP) shows that cross‐country differences in income cannot be fully explained by stocks of capital (K), labor (L) and human capital (E). In addition, the omission of major production inputs or the use of proxies to estimate unobservable inputs leads to biased estimation results. This study addresses the above issues by employing a novel econometric approach and provides empirical evidence that a fixed production input, and therefore a country's income, is positively correlated with the existence of British‐style institutions and negatively correlated with cultural heterogeneity and Spanish‐style institutions. Our methodology is twofold. First, using data for 62 countries from 1980 to 2004, we regressed a random‐coefficients stochastic production frontier that allows estimating a fixed unobservable production input without using proxies. Second, the estimated fixed production input is shown to be related to colonial institutions and cultural heterogeneity by means of ordinary least squares and feasible generalized least squares regressions.     

How important are dual economy effects for aggregate productivity?

This paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity (TFP). Development accounting research has shown that much of the variation in income across countries can be attributed to differences in TFP. The dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture. Data show large differences in marginal products of similar factors within many developing countries, offering prima facie evidence of this misallocation. Using a simple two-sector decomposition of the economy, this article estimates the role of these misallocations in accounting for the cross-country income distribution. A key contribution is the ability to bring sector-specific data on human and physical capital stocks to the analysis. Variation across countries in the degree of misallocation is shown to account for 30–40% of the variation in income per capita, and up to 80% of the variation in aggregate TFP.     

New Zealand's Economic Reforms: An assessment

New Zealand's economic policy between 1984 and 1996 is often hailed as an example of comprehensive supply-side reform that successfully improved the performance of a weak economy. In contrast, this paper presents statistical evidence to show that: (1) New Zealand sacrificed a large volume of real per capita gross domestic product after 1987; (2) its average unemployment rate increased substantially after 1988; (3) labour productivity growth declined after 1992; and (4) the per capita real income of low-income households in 1996 was more than 3% lower in absolute terms than it had been in 1984. The paper concludes that the economic reform programme did not achieve the objectives expected at its launch.     

科技与金融结合对全要素生产率的影响——基于“促进科技和金融结合试点”准自然实验的经验证据

将科技和金融结合试点政策视为一项准自然实验,基于2005—2017年中国283个城市数据,采用双重差分法评估科技和金融结合试点政策对全要素生产率的影响。结果发现：①科技和金融结合试点政策对全要素生产率具有正向影响且通过了显著性水平检验;②科技和金融结合试点政策主要通过提高城市创新水平和融资能力等途径促进全要素生产率增长,创新水平、融资能力在科技和金融结合试点与全要素生产率间起中介作用;③科技和金融结合试点政策对全要素生产率的影响存在异质性,经济发展水平较高、金融发展水平较高的城市,科技和金融结合试点政策对全要素生产率的影响更大。由此建议,加大金融资源支持力度,缓解企业融资约束,加强政府对创新的支持。     

Inside Europe: human capital and economic growth revisited

This paper investigates the impact of human capital on the process of innovation and technology catch-up in European Union countries. Based on the framework proposed by Benhabib and Spiegel (in: Aghion and Durlauf (eds) Handbook of economic growth, 1A, North-Holland, Amsterdam, 2005), a panel data model is estimated from 1950 to 2011 using the improved total factor productivity and human capital variables included in PWT 8.0. Following Vandenbussche et al. (J Econ Growth 11(2):97–127, 2006) we also analyse the differential impact of skilled and unskilled human capital on growth. The empirical analysis applies instrumental variables panel data methods which resolve the endogeneity bias. Our results show robust evidence of the significant direct and indirect effects of human capital on the process of total factor productivity (TFP henceforth) growth in euro area countries. When we analyse the impact of different kinds of human capital on different ways of increasing TFP we conclude that, regardless of academic level, the quantity of unskilled human capital boosts imitation in EU countries while, by contrast, highly qualified human capital is essential for growth through innovation.