Schumpeterian and semi‐endogenous productivity growth explanations

This paper examines the nature and sources of productivity growth in South African manufacturing sectors, from an international comparative perspective. On panel data estimations, we find that the evidence tends to support Schumpeterian explanations of productivity growth for a panel of countries including both developed and developing countries, and a panel of South African manufacturing sectors. By contrast, semi‐endogenous productivity growth is supported for a panel of OECD (Organisation for Economic Cooperation and Development) manufacturing sectors. However, we also report evidence that suggests that sectors are not homogeneous. For this reason, time series evidence may be more reliable than panel data. Time series evidence for South Africa suggests that prospects for the sustained productivity growth associated with Schumpeterian innovation processes, is restricted to a narrow set of sectors. For the OECD manufacturing sectors, both semi‐endogenous and Schumpeterian growth finds support. Schumpeterian growth is present for a larger number of sectors than for South Africa, and is most prevalent in the North American economies.     

Further evidence of the determinants of industrial research and development using single and simultaneous equation models

This paper provides empirical evidence in favor of the Schumpeterian hypothesis using single equation models. A simultaneous equation model is then developed which examines the interaction of R & D, growth and profitability.     

Corporate taxes, growth and welfare in a Schumpeterian economy

I take a new look at the long-run implications of taxation through the lens of modern Schumpeterian growth theory. I focus on the latest vintage of models that sterilize the scale effect through a process of product proliferation that fragments the aggregate market into submarkets whose size does not increase with the size of the workforce. I show that the following interventions raise welfare: (a) granting full expensibility of R&D to incorporated firms; (b) eliminating the corporate income tax and/or the capital gains tax; (c) reducing taxes on labor and/or consumption. What makes these results remarkable is that in all three cases the endogenous increase in the tax on dividends necessary to balance the budget has a positive effect on growth. A general implication of my analysis is that corporate taxation plays a special role in Schumpeterian economies and provides novel insights on how to design welfare-enhancing tax reforms.     

On the Effectiveness of Growth-Enhancing Policies in a Model of Growth Without Scale Effects

Standard R&D growth models have two disturbing properties: the presence of scale effects (i.e., the prediction that larger economies grow faster) and the implication that there is a multitude of growth-enhancing policies. Recent models of growth without scale effects, such as Segerstrom's (1998), not only remove the counterfactual scale effect, but also imply that the growth rate does not react to any kind of economic policy. They share a different disturbing property, however: economic growth depends positively on population growth, and the economy cannot grow in the absence of population growth. The present paper integrates human capital accumulation into Segerstrom's (1998) model of growth without scale effects. Consistent with many empirical studies, growth is positively related not to population growth, but to investment in human capital. And there is one way to accelerate growth: subsidizing education.     

Human capital effects on labour productivity in EU regions

Recent years have seen a wealth of articles on spatial effects in empirical growth specifications. Endogenous growth models, together with the arguments of the new economic geography, have led to spatial dependence being identified with the existence of externalities which cross regional borders. This article continues in this line of research and offers new empirical evidence on the contribution of human capital and agglomeration economies to the differences in productivity in European Union regions. The article uses the spatial Durbin model with different weight matrices to explain the relation between human capital variables and labour productivity, with the advantage that it allows the effects of spatial externalities associated to human capital and agglomeration economies to be quantified.     

A Schumpeterian growth model with random quality improvements

A common assumption in the Schumpeterian growth literature is that the innovation size is constant and identical across industries. This is in contrast with the empirical evidence which shows that: (1) innovation size is not identical across industries and (2) the size distribution of profit returns from innovation is highly skewed toward the low value side, with a long tail on the high value side. In the present paper, we develop a Schumpeterian growth model that is consistent with this evidence. In particular, we assume that when a firm innovates, the size of its quality improvement is the result of a random draw from a Pareto distribution. This enables us to extend the class of quality-ladder growth models to encompass firm heterogeneity. We study the policy implications of this new setup numerically and find that it is optimal to heavily subsidize R&D for plausible parameter values. Although it is optimal to tax R&D for some parameter values, this case only occurs when the steady-state rate of economic growth is very low.     

Schumpeterian dynamics : Some methodological notes

The main purpose of this paper is to define ‘Schumpeterian dynamics’ and to indicate how it can serve as a basis and starting point for studies in development economics irrespective of how Schumpeter used his general approach and what kind of hypotheses he launched. Schumpeterian dynamics is characterized by its focus on economic transformation. This implies that the main interest is in causal chains outside the scope of macroeconomic growth analyses, namely in disequilibria and chain effects created inter alia by entrepreneurial activities, market processes and competition as a dynamic force. The micro underpinnings of such analyses therefore differ from those of growth models which deal with aggregates, such as investments and saving, productivity, income distribution, wage shares in value added, and capital/output ratios. Seen through Schumpeterian glasses, the micro units have no well-defined generalizable ‘propensities’, and they are not fully informed calculators reacting in a mechanical way to prices that they cannot influence. Instead, firms continuously seek new information and often search for projects which, if carried out, exert transformation pressure on the markets. Consumers can also actively influence firms and markets and do not only passively react to supply prices. Transformation analyses should not replace macroeconomic growth models, but a change of roles is called for. Such analyses have too long and too often been regarded as empirical complements to growth analyses and therefore as belonging mainly to the domain of economic historians. The stress on ‘complement’ instead of ‘alternative’ implies that some sort of a synthesis should be sought in theoretical as well as in empirical research.     

R&D and manufacturing production specialization in developed economies

A study of the relation between technology and manufacturing production specialization in a series of developed economies is performed by means of models relating indicators of revealed symmetric comparative advantage of value added and exports to similar measures of comparative performance of R&D expenditure, capital intensity, total factor productivity and wage costs. The production and R&D specialization are shown to be substantial and sticky. This contrasts with the evidence of a substantial degree of convergence in the patterns of the other variables. Regression estimates show that, although all variables play their part, the impact of comparative R&D efforts on production specialization is by far the strongest. This impact is found to be stronger in the smaller economies and it is especially important in research-intensive industries. The influence of comparative wages is, moreover, found to be positive here, suggesting the dominance of a labour skill and efficiency wage effect over a wage cost competitiveness effect. These findings are shown to conform quite well with the predictions of Schumpeterian theory and of certain contributions to ‘new trade theory’ that have stressed the importance of dynamic economies of scale.     

New evidence on the sources of EU countries’ productivity growth—industry growth differences from R&D and competition

Recent studies on productivity growth show how competition affects innovation and TFP growth in OECD countries, but do not explicitly account for sectoral parameter heterogeneity. This paper examines whether competition and innovation have a direct effect on labor productivity growth in EU goods-producing industries separated by three different industry types. The results show that the effect of R&D on labor productivity growth is not equal across industries, but rather depends on the innovation activities of sectors. The same is true for competition and labor productivity growth. The empirical evidence indicates that in unleveled industries (i.e. industries characterized by technologically unequal firms) like Specialized Goods Suppliers and Science-Based Innovators strong labor productivity growth originates with decreased competition and increased R&D, thereby supporting Schumpeterian arguments. The findings suggest Schumpeterian effects in Supplier-Dominated Goods-Producing Industries, but reveal decreasing labor productivity growth in these sectors when competition is strongly restricted.     

METHODS OF ESTIMATING HOUSEHOLD EQUIVALENCE SCALES: AN EMPIRICAL INVESTIGATION

This paper presents empirical evidence regarding key assumptions of the Rothbarth and Barten methods of constructing household equivalence scales. The assumption of separability in the Rothbarth model is investigated by examining the implied intra-household allocation of specific goods and by examining studies of economies of scale in household consumption. The assumption of the exogeneity of the distribution parameters in the Barten model is related to the results of empirical studies of clothing expenditures. This paper suggests that empirical evidence fails to support the assumptions maintained in these theoretically sophisticated models of household income equivalence.     

A Modern Money Perspective on Financial Crowding-out

Abstract

The withdrawal of discretionary fiscal stimulus and a renewed emphasis on institutional and ‘self-imposed’ budgetary constraints are evidence that the imperative of fiscal sustainability and sound accounting fundamentals continue to drive fiscal policymaking within many advanced economies. To buttress the urgency for fiscal sustainability, neo-liberals often draw upon financial crowding-out theory. Despite an extensive literature, empirical applications are often misspecified due to their failure to account for different institutional arrangements. However, the policy responses of national governments to the Global Financial Crisis have highlighted the institutional disparities, presenting a unique opportunity for a rigorous empirical investigation. This paper develops panel vector error correction models for both sovereign and non-sovereign economies over the period 1999 to 2010 to examine financial crowding-out. The empirical evidence reveals crowding-out effects in non-sovereign economies, but not within sovereign economies.     

Non-scale Models of Economic Growth

Growth models that incorporate non-rivalry and/or externalities imply that the size of an economy may influence its long-run growth rate. Such implied scale effects run counter to empirical evidence. This paper develops a general growth model to examine conditions under which balanced growth is void of scale effects. The model is general enough to replicate well known exogenous, as well as endogenous, (non-) scale models. We derive a series of propositions that show that these conditions for non-scale balanced growth can be grouped into three categories that pertain to (i) functional forms, (ii) the production structure, and (iii) returns to scale.     

Economies of scale in public education: an econometric analysis

This article investigates the sources of scale economies in the production of public education. The relationship between the average cost of producing educational output and school characteristics including school and district size is estimated using a neoclassical cost function. The empirical analysis used panel data from Utah school districts and estimates the function using the covariance and error component models after making necessary corrections for heteroskedasticity and autocorrelation. The uncorrected fixed effects model generates a significant negative coefficient on district size in both the cost and expenditure functions; the coefficient on number of students has the hypothesized sign but is not significant in either equation. After making various corrections for autocorrelation and heteroskedasticity, the coefficients have the correct signs and are significant in all equations. Thus, it is concluded that scale economies arise from both sources but that the evidence is stronger for district size.     

Scale effects found!

A key feature of early endogenous growth models is their prediction of scale effects – the larger the economy, as measured by population, the number of firms or employment, the faster the economy should grow. However, empirical work has failed to support the existence of scale effects. As a result, much human capital has been expended in order to ‘fix’ this problem by eliminating scale effects in endogenous growth models. We contend that econometric techniques used in the empirical search for scale effects are inconsistent with growth theory. Using data from US states and an econometric technique that better matches growth theory by allowing each economy to have its own steady state, we provide empirical support for the existence of scale effects. Results call into question the need to reformulate the first models of endogenous growth.     

Semi-endogenous versus Schumpeterian growth models: testing the knowledge production function using international data

Using various indicators of innovative activity and product variety in the OECD countries over the past century, this paper tests first- and second-generation models of economic growth. The estimation results give evidence in favour of Schumpeterian models, while the semi-endogenous growth theories are shown not to be consistent with the data.      

Economies of scale and gender discrimination in transition: the case of the Republic of Tajikistan

This article tests for economies of scale and for evidence of discrimination based on gender lines in intra-household consumption allocations using data from the Living Standards Survey in the Republic of Tajikistan (TLSS). Overall results support the existence of household economies of scale in Tajikistan; however, empirical evidence supporting boy–girl discrimination is limited despite anecdotal evidence otherwise.     

R&D, innovation, and technological progress: a test of the Schumpeterian framework without scale effects

Abstract.  I use U.S. manufacturing industry data to estimate a system of three equations implied by a model of R&D‐induced growth in steady state. These equations relate R&D intensity to patenting, patenting to technological progress, and technological progress to economic growth. In each case, I find evidence of positive impact. Thus, I reject the null hypothesis that growth is not induced by R&D in favour of the Schumpeterian endogenous growth framework without scale effects. I also find strong support for technological spillovers from aggregate research intensity to industry‐level innovation success. JEL Classification: O40, O30     

Scale effects in endogenous growth theory: an error of aggregation not specification

Modern Schumpeterian growth theory focuses on the product line as the main locus of innovation and exploits endogenous product proliferation to sterilize the scale effect. The empirical core of this theory consists of two claims: (i) growth depends on average employment (i.e., employment per product line); (ii) average employment is scale invariant. We show that data on employment, R&D personnel, and the number of establishments in the US for the period 1964–2001 provide strong support for these claims. While employment and the total number of R&D workers increase with no apparent matching change in the long-run trend of productivity growth, employment and R&D employment per establishment exhibit no long-run trend. We also document that the number of establishments, employment and population exhibit a positive trend, while the ratio employment/establishment does not. Finally, we provide results of time series tests consistent with the predictions of these models.     

Do Geographic Scale Economies Explain Disturbances to Heckscher–Ohlin Trade?

This paper examines whether "geographic scale economies" explain the trade that remains unexplained by the Heckscher–Ohlin model. The paper develops a theoretical specification that integrates geographic scale economies into the Heckscher–Ohlin model, and develops a statistical method for detecting geographic scale economies in the distributional features of a disturbance term. The units of analysis are US states. The findings reveal that empirical support for the Heckscher–Ohlin theory is improved by accounting for geographic scale economies within states; geographic scale economies do not generate differences in Rybczynski effects across states; and the scope of geographic scale economies is contained within states.     

Business Cycles: Theory, Evidence and Policy Implications

This paper looks at recent advances in the study of aggregate fluctuations. The emphasis is on three prominent areas of research: the stochastic growth model, economies which exhibit macroeconomic complementarities and models that emphasize heterogeneity. Each section of the paper outlines the theory, examines relevant empirical evidence and then discusses some policy implications of the analysis.