GOVERNMENT SIZE AND GROWTH: A SURVEY AND INTERPRETATION OF THE EVIDENCE

Abstract The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach – of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time – reveals a more consistent picture. The most recent studies find a significant negative correlation: an increase in government size by 10 percentage points is associated with a 0.5% to 1% lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth. One hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy. Another explanation is that countries with large governments compensate for high taxes and spending by implementing market‐friendly policies in other areas. Both explanations are supported by ongoing research.     

GOVERNMENT SIZE AND GROWTH: A REJOINDER

In our 2011 survey of the literature in the Journal of Economic Surveys on the effect of government size on economic growth in wealthy countries we find a relatively consistent pattern: An increase in government size by 10 percentage points is associated with a 0.5–1 percentage point lower annual growth rate. This conclusion is questioned by Colombier. In this rejoinder we present a rebuttal of Colombier's argument based on a detailed scrutiny of his own statistical evidence and regression results. Furthermore, we note that several new papers that have appeared since our original paper was published give support to our main conclusion.     

PRODUCTIVE GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH

Abstract.  We provide a comprehensive survey of the recent literature on the link between productive government expenditure and economic growth. We show that an understanding of the core results and the ensuing contributions can be gained from the study of their respective Euler equations. We argue that the existing literature incorporates many relevant aspects; however, policy recommendations tend to hinge on several knife-edge assumptions. Therefore, future research ought to focus more on idea-based endogenous growth models to check the robustness of policy recommendations. Moreover, the inclusion of hitherto unexplored types of government expenditure, e.g. on the 'rule of law', would be desirable.     

ECONOMIC GROWTH AND THE QUANTITY AND DISTRIBUTION OF EDUCATION: A SURVEY

Abstract The focus of this survey is to discuss different attempts at incorporating the distributional dimension of human capital into the theoretical and empirical growth framework. We present a series of models which deviate from the direct link between the aggregate or average level of human capital and economic growth in that they introduce the distribution of education as a new element in explaining the relationship under investigation. After surveying the theoretical literature, we present recent empirical work on the relation between economic performance and the average level, as well as the distribution of education, respectively.     

A SURVEY OF RECENT DEVELOPMENTS IN THE LITERATURE OF FINANCE AND GROWTH

Abstract.  This paper provides a survey of the recent progress in the literature of financial development and economic growth. The survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables. Although the positive role of finance on growth has become a stylized fact, there are some methodological reservations about the results from these empirical studies. Several key issues unresolved in the literature are highlighted. The paper also points to several directions for future research.     

WORDS, DEEDS AND OUTCOMES: A SURVEY ON THE GROWTH EFFECTS OF EXCHANGE RATE REGIMES

Abstract.  Recent studies on the growth effects of exchange rate regimes offer a wide range of different, sometimes contradictory results. In this paper, we systematically compare three prominent contributions in this field. Using a common data set, a common specification and common estimation methods, we argue that the contradictory findings can be explained by the fact that these studies use regime classifications which reflect fundamentally different aspects of exchange rate policy.     

SURVEY OF SOCIAL AND ECONOMIC GROWTH IN SE EUROPE – A NEW CONCEPTUAL FRAME FOR SUSTAINABILITY METRICS

The practice so far has indicated that there is a sensitive relationship that exists between social and economic subsystem of sustainable development, therefore this research suggests comparison of the states of these two subsystems as a new conceptual frame which is essential for strategic conceptualization of development. The research pointed out a rather visible collision between the achieved degree of economic and social development in the countries of South Eastern Europe in respect to Germany and France, which were taken into consideration as two of the most developed countries in the European Union and in the entire world. The indicators which are given in this research point to the necessity of further scientific and practical consideration of strategic conceptualization of relationship between economics and society.     

MAPPING THE EVOLUTION OF ENERGY‐GROWTH NEXUS: SYNERGIES AND TRADE‐OFFS

The study explores the intellectual structure, development and evolution of energy crisis and economic growth research through bibliometric analysis of research articles on energy‐growth nexus from 2000 to 2017 by using Citespace where Gephi is used to analyse the authors collaboration. The analysis incorporates 27,152 references cited by 344 authors, in 1165 articles and from 330 journals. The results of study quantitatively present the most cited articles, authors, countries, institutions and intellectual structure with data visualization in the knowledge domain of energy‐growth nexus. The study categorizes the major research areas in energy‐growth nexus research as carbon dioxide emission, electricity consumption, heterogeneous Panel, real income, renewable energy and financial development. The study discusses emerging trends which provide the future research fronts and intellectual development within the framework of energy‐growth nexus.     

PUBLIC R&D POLICIES AND PRIVATE R&D INVESTMENT: A SURVEY OF THE EMPIRICAL EVIDENCE

The importance of R&D investment in explaining economic growth is well documented in the literature. Policies by modern governments increasingly recognise the benefits of supporting R&D investment. Government funding has, however, become an increasingly scarce resource in times of financial crisis and economic austerity. Hence, it is important that available funds are used and targeted effectively. This paper offers the first systematic review and critical discussion of what the R&D literature has to say currently about the effectiveness of major public R&D policies in increasing private R&D investment. Public policies are considered within three categories, R&D tax credits and direct subsidies, support of the university research system and the formation of high‐skilled human capital, and support of formal R&D cooperations across a variety of institutions. Crucially, the large body of more recent literature observes a shift away from the earlier findings that public subsidies often crowd‐out private R&D to finding that subsidies typically stimulate private R&D. Tax credits are also much more unanimously than previously found to have positive effects. University research, high‐skilled human capital, and R&D cooperation also typically increase private R&D. Recent work indicates that accounting for non‐linearities is one area of research that may refine existing results.     

THE IMPACT OF FISCAL DECENTRALIZATION: A SURVEY

In this paper, we offer a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. Our first target is the examination of two crucial and yet unsolved issues in the empirical literature on decentralization: the proper measurement of decentralization itself and its potential endogeneity in econometric estimates. Then, we discuss the main existing findings on the effects of decentralization on a relevant list of socio-economic issues. The impact of fiscal decentralization reforms on political institutions and public policies is also considered. Complete answers on the impact of fiscal decentralization are not likely to be certain but, overall, there are reasons to be optimistic about the net positive result. Our survey by necessity has to be selective but it presents a balanced view of what is known and what is not yet known opening room for further research and practice on fiscal decentralization.     

ENTREPRENEURS' LOCATION CHOICE AND PUBLIC POLICIES: A SURVEY OF THE NEW ECONOMIC GEOGRAPHY

Abstract The aim of this paper is to survey what has been done by the New Economic Geography (NEG) on a regional scale in order to answer the three following questions: What are the predictions of the NEG concerning the future of regions in the triad? Are these predictions robust? What can be the optimal public policy on a regional and national scale in a world characterized by agglomeration, trade liberalization and mobility of entrepreneurs? In surveying the most recent contributions in this area, the paper sheds light on several shortcomings of the NEG literature in order to point out new directions for further research, with particular reference to studies concerning welfare and tax competition.     

ECONOMIC TRANSITION AND LABOUR MARKET DYNAMICS IN CHINA: AN INTERPRETATIVE SURVEY OF THE ‘TURNING POINT’ DEBATE

Has the Chinese economy approached the ‘Lewisian turning point’ that marks the ending of the initial phase of industrial transformation fuelled by surplus labour? In this paper we undertake an interpretative survey of the literature on this issue, in the context of China's labour market conditions prior to the reforms and structural change of the past three decades. The available evidence is mixed, and our assessment makes a strong case for probing institutional constraints to labour mobility from an economy‐wide perspective, going beyond the confines of the rural economy.     

CORRUPTION'S DIRECT EFFECTS ON PER‐CAPITA INCOME GROWTH: A META‐ANALYSIS

Corruption is a symptom of weak institutional quality and could have potentially adverse effects on economic growth. However, heterogeneity in reported findings makes it difficult to synthesize the evidence base with a view to test competing hypotheses and/or support evidence‐based policy and practice. To address this issue, we have extracted 327 estimates of corruption's direct effect on per‐capita GDP growth from 29 primary studies, following a peer‐reviewed and pre‐published systematic review protocol. Precision‐effect and funnel asymmetry tests indicate that corruption has a negative effect on per‐capita GDP growth after controlling for publication selection bias and within‐study dependence. However, multivariate meta‐regression analysis results indicate that the overall effect is not robust to inclusion of moderating variables through a general‐to‐specific procedure for model specification. We report that the marginal effect of corruption on per‐capita GDP growth is more adverse when the primary study estimates relate to long‐run growth, are based on low‐income‐country data only, and extracted from journal papers. The effect is less adverse in studies that use the International Country Risk Guide corruption perceptions index and in those reporting estimates from two‐stage least‐squares estimations.     

THE STOCK MARKET, HOUSING AND CONSUMER SPENDING: A SURVEY OF THE EVIDENCE ON WEALTH EFFECTS

Abstract.  This paper examines the time-series and micro-econometric evidence on the relationship between stock and house prices and consumer spending. The time-series studies distinguish between short-run and long-run links between consumption, income and wealth. They allow us to identify which variables adjust to restore the long-run equilibrium in the case of a shock, and to determine the time taken by the adjustment process. The micro-econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses – of direct wealth effect, common causality and collateral channel – that have been proposed to explain this relationship. The relationship between wealth and consumer spending appears to be strong, but there is some disagreement as to its size and nature. Furthermore, there appear to be some important differences across countries, which should be allowed for by policy makers when appraising the policy implications of a change in asset prices.     

OLIGOPOLY GAMES AND THE COURNOT–BERTRAND MODEL: A SURVEY

Traditional oligopoly models hold that firms compete in the same strategic variable, output (Cournot) or price (Bertrand). Alternatively, a hybrid model allows some firms to compete in output and other firms to compete in price, also known as the Cournot–Bertrand model. When the choice of strategic variable is endogenous, the established dominant strategy is output competition. A growing body of work demonstrates, however, that the Cournot–Bertrand outcome can be a subgame‐perfect Nash equilibrium in the presence of market asymmetries. Observations of real‐world markets consistent with Cournot–Bertrand behavior bolster justification for the model and have stimulated an impressive and evolving literature on advances and applications. We lay out the roots of the Cournot–Bertrand model and explore a number of model developments. We categorize 12 primary models in the literature based on alternative assumptions. In particular, some authors consider when the timing of play as well as the choice of strategic variable are endogenous. Altogether, this research identifies when Cournot–Bertrand behavior can emerge in a dynamic setting and under alternative market conditions. We also review the Cournot–Bertrand model applications in the fields of international economics, industrial organization, labor, and public economics. We expect the literature to continue to expand in the future.     

THE DEBATE ABOUT THE REVIVED BRETTON‐WOODS REGIME: A SURVEY AND EXTENSION OF THE LITERATURE

This paper surveys the literature dealing with the thesis put forward by Dooley, Folkerts‐Landau and Garber (DFG) that the present constellation of global exchange‐rate arrangements constitutes a revived Bretton‐Woods regime. DFG also argue that the revived regime will be sustainable, despite its large global imbalances. While much of the literature generated by DFG's thesis points to specific differences between the earlier regime and revived regime that render the latter unstable, we argue that an underlying similarity between the two regimes renders the revived regime unstable. Specifically, to the extent that the present system constitutes a revived Bretton‐Woods system, it is vulnerable to the same set of destabilizing forces – including asset‐price bubbles and global financial crises – that marked the latter years of the earlier regime, leading to its breakdown. We extend the Markov switching model to examine the relation between global liquidity and commodity prices. We find an evidence of commodity‐price bubbles in both the latter stages of the earlier Bretton‐Woods regime and the revived regime.     

REAL‐TIME DATA AND FISCAL POLICY ANALYSIS: A SURVEY OF THE LITERATURE

This paper surveys the empirical research on fiscal policy analysis based on real‐time data. This literature can be broadly divided into four groups that focus on: (1) the statistical properties of revisions in fiscal data; (2) the political and institutional determinants of projection errors by governments; (3) the reaction of fiscal policies to the business cycle and (4) the use of real‐time fiscal data in structural vector autoregression (VAR) models. It emerges that, first, fiscal revisions are large and initial releases are biased estimates of final values. Secondly, strong fiscal rules and institutions lead to more accurate releases of fiscal data and smaller deviations of fiscal outcomes from government plans. Thirdly, the cyclical stance of fiscal policies is estimated to be more ‘counter‐cyclical’ when real‐time data are used instead of ex post data. Fourthly, real‐time data can be useful for the identification of fiscal shocks. Finally, it is shown that existing real‐time fiscal data sets cover only a limited number of countries and variables. For example, real‐time data for developing countries are generally unavailable. In addition, real‐time data on European countries are often missing, especially with respect to government revenues and expenditures. Therefore, more work is needed in this field.     

THE DEMAND FOR BEER,WINE AND SPIRITS: A SURVEY OF THE LITERATURE

Abstract The demand for alcohol literature is vast and much conflicting information about the nature of the demand for alcoholic beverages has been published. This paper presents a survey of the literature, and then uses the technique of meta‐regression analysis to establish insights into the nature of the demand for beer, wine and spirits. Unlike previous meta‐studies of the demand for alcoholic beverages this study adjusts for the precision of each elasticity estimate. The analysis presented suggests reported elasticity estimates will be influenced by such factors as estimation technique, data frequency and time period under consideration. With respect to time, the findings suggest that the demand for alcoholic beverages has become less inelastic since the mid‐1950s and that the income elasticity has been falling since the mid‐1960s. The analysis also found support for the idea that alcohol as a commodity group is a necessity, and that consumers respond to price discounting with inventory behaviour rather than true substitution behaviour. Little support is found for the idea that the demand for alcoholic beverages varies fundamentally across most countries, although wine may be an exception.     

GLOBALIZATION AND PRODUCTIVITY: A SURVEY OF FIRM‐LEVEL ANALYSIS

Abstract Recent empirical studies which utilize plant‐ or establishment‐level data to examine globalization's impact on productivity have discovered many causal mechanisms involved in globalization's impact on firms’ productivity. Because these pathways have been broad, there have been few attempts to summarize the several and detailed mechanisms of self‐selection and learning at the same time. This paper examines seven pathways so that the clear‐cut consequences of the broad picture of globalization become visible. This strategy is useful for detecting missing links within and across the existing studies as well as for finding possible synergy effects among different mechanisms. Insightful policy implications may be derived from the comprehensive comparisons between the seven different pathways of globalization.     

THE RISE AND DECLINE OF ECONOMIC POLICY AS AN AUTONOMOUS DISCIPLINE: A CRITICAL SURVEY

After Adam Smith's statement of market virtues, the process of gestation of economic policy as a rational set of rules for public agenda has been rather slow. Until not so long ago, economic policy as a discipline was often confined to prescribing practical rules intended to explain technical procedures of government intervention. Economic policy– as a coherent and to some extent autonomous discipline–only emerged in the late 1950s in Scandinavia, the Netherlands and Italy, when solid foundations indicating not only microeconomic but also macroeconomic market failures and a theory about the conditions for policy effectiveness and design were consistently developed. This paper intends to explain the reasons for the emergence of the discipline, the circumstances that favoured its diffusion, the reasons for its apparent setback and some factors that could facilitate its diffusion in the next years