Frontiers and sustainable economic development

Exploiting new resource “frontiers,” such as agricultural land and mineral reserves, is a fundamental feature of economic development in poor economies. Yet frontier-based development is symptomatic of a pattern of economy-wide resource exploitation in developing economies that: (a) generates little additional economic rents, and (b) what rents are generated are not being reinvested in other sectors. Such development is inherently unsustainable. The following paper explains this phenomenon, and provides evidence that long-run expansion of agricultural land and oil and natural gas proved reserves across poor economies is associated with lower levels of real income per capita. The paper proposes a frontier expansion hypothesis to explain why the structural economic dependence of these economies on frontier land expansion and resource exploitation is not conducive to sustained long-run growth. The key to sustainable economic development in poor economies will be improving the economic integration between frontier and other sectors of the economy, targeting policies to improved resource management in frontier areas and overcoming problems of corruption and rent-seeking in resource sectors.      

Corruption and natural resource rents: evidence from quantile regression

This study examines the impacts of oil rents on corruption for 157 countries. While existing studies have primarily focused on average effects, we employ quantile regression to estimate the effects of natural resource abundance for different corruption levels. We consider the effects of natural resource rents, mainly oil rents and then compare them with those of total and non-oil natural resources rents. The estimation results show that, generally, more oil rents increase corruption. Specifically, impacts are larger in countries with an intermediate level of corruption and smaller in highly corrupt countries. While total resource rents increase corruption significantly, non-oil resource rents do not. This may be due to non-oil resource rent management (mainly inland) being more subject to public scrutiny. Non-oil natural resources are concentrated in the less-developed sub-Saharan African countries, where corruption is prevalent; therefore, the impacts of natural resource rents are unremarkable.     

Corruption and economic growth: New empirical evidence

The nexus between corruption and economic growth has been examined for a long time. Many empirical studies measured corruption by the reversed Transparency International's Perception of Corruption Index (CPI) and ignored that the CPI was not comparable over time. The CPI is comparable over time since the year 2012. We employ new data for 175 countries over the period 2012–2018 and re-examine the nexus between corruption and economic growth. The cumulative long-run effect of corruption on growth is that real per capita GDP decreased by around 17% when the reversed CPI increased by one standard deviation. The effect of corruption on economic growth is especially pronounced in autocracies and transmits to growth by decreasing FDI and increasing inflation.     

FDI and growth in transition economies: Does the mode of transition make a difference?

The countries of Central and Eastern Europe are a unique group of countries. In the process of transformation to market economies, some of them adopted the “shock therapy” while others the “gradualism” mode. Foreign Direct Investment (FDI) plays an important role in economic growth through the addition of physical capital, technological know-how, management skill and marketing network. This paper empirically demonstrates that the mode of transformation definitely affects the effectiveness of FDI in promoting growth. (JEL: P3, P33)     

Rent Protection as a Barrier to Innovation and Growth

We build a model of R&D-based growth in which the discovery of higher-quality products is governed by sequential stochastic innovation contests. We term the costly attempts of incumbent firms to safeguard the monopoly rents from their past innovations rent-protecting activities. Our analysis (1) offers a novel explanation of the observation that the difficulty of conducting R&D has been increasing over time, (2) establishes the emergence of endogenous scale-invariant long-run innovation and growth, and (3) identifies a new structural barrier to innovation and growth. We also show that long-run growth depends positively on proportional R&D subsidies, the population growth rate, and the size of innovations, but negatively on the market interest rate and the effectiveness of rent-protecting activities. An unpublished version of this paper was circulated earlier under the title “Innovation and Rent Protection in the Theory of Schumpeterian Growth.” We thank an anonymous referee and seminar participants in several venues for useful comments and suggestions.     

The effect of corruption on capital accumulation

This paper examines the effect of corruption in infrastructure development as well as in capital and labor markets, on capital accumulation and output in an overlapping generations model. Corruption affects income redistribution, government expenditures on infrastructure, firms’ incentive to invest, and workers’ incentive to supply labor. An increase in corruption in infrastructure development decreases capital accumulation and output if the decrease in the savings of ordinary workers is sufficiently large. An increase in corruption in the capital market decreases capital accumulation and output. An increase in corruption in labor market decreases capital accumulation and output when labor supply is completely inelastic. Simulation results based on plausible parameter values indicate that an increase in corruption in the labor market will also reduce labor supply, capital accumulation and output.      

Economic Growth and (Re-)Distributive Policies in a Non-cooperative World

Many models show that redistribution is bad for growth. This paper argues that in a non-cooperative world optimizing, redistributing (“left-wing”) governments mimic non-redistributing (“right-wing”) policies for fear of capital loss if capital markets become highly integrated and the countries are technologically similar. “Left-right” competition leads to more redistribution and lower GDP growth than “left-left” competition. Efficiency differences allow for higher GDP growth and more redistribution than one's opponent. Irrespective of efficiency differences, however, “left-wing” governments have higher GDP growth when competing with other “left-wing” governments. The results may explain why one observes a positive correlation between redistribution and growth across countries, and why capital inflows and current account deficits may be good for relatively high growth.     

Environment,Directed Technical Change and Economic Policy

We study the effects of an economic policy in an endogenous growth general equilibrium framework where production of consumption goods requires two resource inputs: a polluting non-renewable resource and a non-polluting labour resource. The use of the former contributes to the accumulation of pollution in the atmosphere, which affects welfare. There is a specific research sector associated with each of those resources. We provide a full welfare analysis, and we describe the equilibrium paths in a decentralized economy. We go on to study the effects of three associated economic policy tools: a tax on the polluting resource, and two research subsidies. We show that the optimal environmental policy has two main effects; it delays the extraction of the resource and with it the level of polluting emissions and it reallocates research efforts, decreasing the amount put into “grey” research to the benefit of “green” research. We also show that the environmental policy is grey-biased in the short-term, and green-biased in the long-term. Finally, we compute the optimal values for these tools.      

The short-run and long-run effects of corruption control and political stability on forest cover

This article examines how governance, particularly corruption control and political stability, affects deforestation due to agricultural land expansion. We estimate the short-run and long-run effects of corruption control and political stability on deforestation in South American and Asian countries using data from 1990 to 2003 where converting forest land into agricultural land is a significant problem. Political stability has a positive and significant effect on forest cover in the short run but an insignificant effect in the long run. In contrast, corruption control has a negative and significant effect on forest cover in the short run and the long run with a larger magnitude in the former. One possible explanation is that corruption control induces more technological productivity and, if technology and land use are complements, increases in technological development lead to agricultural land expansion.     

The Impact of the Welfare State and Social Policy on the Working Population: The Recent British Experience

This paper focuses on financing the welfare state expenditures in the UK. It offers a comprehensive analysis of social expenditures and taxes paid by the working population families, and an estimation of the net benefits received by them. While the subsequent analysis of the welfare state and its development primarily concentrates on the British experience, it has a broader application to other OECD countries. The UK as the most egalitarian “liberal market economy,” offers an interesting case for the study of the interaction between the welfare state expansion and economic growth. In terms of her capitalist economic structure, (interaction between market and economy) she is relatively closer to the USA and other Angelo-Saxon (liberal market) economies. In terms of her level of social expenditures, she is much closer to the European “social market economies” than the USA and other more egalitarian “liberal market economies.”     

Natural resources, democracy and corruption

We study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions. Our game-theoretic model predicts that resource rents lead to an increase in corruption if the quality of the democratic institutions is relatively poor, but not otherwise. We use panel data covering the period 1980-2004 and 124 countries to test this theoretical prediction. Our estimates confirm that the relationship between resource rents and corruption depends on the quality of the democratic institutions. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. They are also robust across different samples, and to the use of various alternative measures of natural resources, democracy and corruption.     

Winners, Losers, and the Nuclear-Waste Dilemma

This paper explores how property-right assignment affects social efficiency when a public program has both “public good” and “public bad” components. We show that when willingness to accept a public bad exceeds the willingness to pay, the net benefit is unambiguously lower when the property right supports the status quo institutional structure. Thus, Kaldor–Hicks efficiency tests tend to favor public programs and mitigation over the status quo even when mitigation negatively affects another group. To illustrate the result, we develop social-cost estimates for moving nuclear waste from current temporary-storage facilities to a permanent central repository at Yucca Mountain, NV, USA. For a representative city with a population of 226,195, the present value of the external cost of shipping waste is $1.42 billion when those living near temporary nuclear-waste storage facilities are assigned the property right to “health and safety.” That number swells to $5.95 billion when those living near the transport route are assigned the property right. Thus, property-right assignment affects the efficient level of nuclear-waste, and thus nuclear energy, produced.     

On the growth and welfare effects of monopolistic distortions

The most fundamental proposition about growth and competition is that there is a tradeoff between static welfare and long-term growth. This paper reconsiders this basic proposition in an expanding variety endogenous growth model with competitive markets for “old” innovative products and for a traditional good. We shed light on some implications of monopolistic distortions which tend to be ignored by standard models. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though a locally saddle-point stable steady state with positive growth exists if the initial share of “cheap” competitive markets is sufficiently high, as this implies a relatively low demand for “expensive” innovative goods. Third, such a “no-growth trap” may happen in a world economy made up of several countries engaged in free trade with each other. The policy implications are that growth-enhancing policies may be misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.      

The underdevelopment of service industry in china: An empirical study of cities in Yangtze River Delta

The service industry in China is underdeveloped, in comparison with not only the past experience of developed countries at the similar level of GDP per capita, but also other similar developing countries at present. We define this deviation of China’s service industry from the development trend in other countries as the “development deviation puzzle,” and propose a conceptual framework based on the “manufacturing cost disease” hypothesis to understand the reasons behind this puzzle. We test our hypothesis using the data from the urban cluster in Yangtze River Delta. The results indicate that labor productivity growth in service industry is driven by capital investment and the “development deviation puzzle” is indeed rooted in the “manufacturing cost disease.” Our analysis suggests that, to correct the underdevelopment of service industry, the strategy of investment-driven industrialization and urbanization must be changed. Expansion of producer services is important in increasing the intensities of human capital and foreign investment.     

Economic Growth and Development: Towards a Catchup Model

We develop a model for economic growth applicable to a group of countries, constituting around half of the gross global production, that have been consistently “catching up” to the US since 1960 or so. This group can be termed “the convergence club.” The model has a theoretical basis developed in other publications (cited), but the present work is essentially empirical. It demonstrates that there is a very strong correlation between “catchup” growth, with respect to the US, and an energy proxy (EP). The energy proxy that works best is a linear combination of domestic electric power consumption petroleum (oil) consumption, per capita, compared to the US levels. The results presented here do not constitute a theory of growth, but they are consistent with theory presented elsewhere. On a practical level, we argue that consistent “catchup” trends over the past 40 years can safely be extrapolated for a few more decades for scenario construction purposes. We also believe that the observed catchup trends can be regarded as “potential” mid-term or long-term growth trajectories for transition economies and others that have recently been adversely affected by conflict or mismanagement.     

The Influence of Socioeconomic Factors on Economic Growth

The main goal of this paper is to analyse the relationship between social capital and economic growth taking into account the role of fiscal policy from theoretical and empirical points of view. To achieve this goal, “Human Capital and Public Capital Effects on Economic Growth” is focused on the effects of two traditional factors: human capital and public capital effects on economic growth. “Social Capital Effects on Economic Growth” considers qualitative variables introducing some socioeconomic effects on economic growth process analysis. In this case, social capital the main variable will be considered. “Empirical Analysis,” an empirical analysis is developed considering the case of European countries prior to the EU enlargement. Finally, in Conclusions,” the main conclusions will be resumed.      

Purchasing power parity and country characteristics: Evidence from panel data tests

We examine long-run purchasing power parity (PPP) using panel data methods to test for unit roots in US dollar real exchange rates of 84 countries. We find stronger evidence of PPP in countries more open to trade, closer to the United States, with lower inflation and moderate nominal exchange rate volatility, and with similar economic growth rates as the United States. We also show that PPP holds for panels of European and Latin American countries, but not for African and Asian countries. Our findings demonstrate that country characteristics can help explain both adherence to and deviations from long-run PPP.     

The curse of aid

Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the “curse of natural resources” literature. In this paper we discuss this effect and document its magnitude. Using panel data for 108 recipient countries in the period 1960–1999, we find that foreign aid has a negative impact on institutions. In particular, if the foreign aid over GDP that a country receives over a period of 5 years reaches the 75th percentile in the sample, then a 10-point index of democracy is reduced between 0.5 and almost one point, a large effect. For comparison, we also measure the effect of oil rents on political institutions. We find that aid is a bigger curse than oil.