Aggregate returns to social capital: Estimates based on the augmented augmented-Solow model

We extend the augmented-Solow model to estimate the aggregate output elasticity and depreciation rate of social capital that characterize aggregate returns. The estimated output elasticity is approximately 0.1. While social capital positively affects economic growth, the magnitude is much smaller than that of other production inputs. The estimated depreciation rate is at least 10% per annum, which is higher than that of physical capital. The median value of the implied aggregate return of social capital is approximately 19.11% at the global level. In OECD countries, it is likely to be considerably smaller than the individual returns, suggesting the fallacy of composition. While there is no systematic relationship between GDP per capita and returns to physical or human capital, the aggregate returns to social capital seem to be negatively related to the level of development.     

Public debt and economic growth: what do neoclassical growth models teach us?

This paper aims to quantify the crowding-out effect of public debt and the related loss in long-run output in neoclassical growth models. To accomplish this task, we incorporate the government sector into the Ramsey–Cass–Koopmans (RCK) model, the Blanchard model and the Solow model, which differ only in their assumptions concerning the consumption behaviour of households. We also introduce a general framework that is capable of gauging the burden of public debt in a neoclassical world in the case of any type of consumption behaviour. Our results are threefold. First, contrary to the RCK model, public debt reduces long-run output in the Blanchard model and the Solow model, although to a different extent: the crowding-out effect is marginal in the former, whereas it can be very large in the latter. Second, the burden of public debt is country-specific depending crucially on the saving rate and the population growth rate. Finally, in developed countries the upper limit of the output loss related to public debt is moderate at best even if distortionary taxes are taken into account.     

Book production and the onset of modern economic growth

We provide a new data set on per capita book production as a proxy for advanced literacy skills, and assess this relative to other measures. While literacy proxies very basic skills, book production per capita is an indicator for more advanced capabilities. Growth theory suggests that human capital formation plays a significant role in creating the ‘wealth of nations.’ This study tests whether human capital formation has an impact on early-modern growth disparities. In contrast to some previous studies which denied the role of human capital as a crucial determinant of long-term growth, we confirm its importance.      

Adding cycles into the neoclassical growth model

We propose a stochastic Solow growth model where a cyclical component is added to the total factor productivity process. Theoretically, an important feature of the model is that its main equation takes a state space representation where key parameters can be estimated via an unobserved component approach without involving capital stock measures. In addition, the dynamic properties of the model are mostly unaffected by the newly introduced cyclical component. Empirically, our novel framework is consistent with secular U.S. empirical evidence.     

Optimal fiscal policy in the neoclassical growth model revisited

This paper studies optimal taxation in a version of the neoclassical growth model in which investment becomes productive within the period, thereby making the supply of capital elastic in the short run. Because taxing capital is distortionary in the short run, the government׳s ability/desire to raise revenues through capital income taxation in the initial period or when the economy is hit with a bad shock is greatly curtailed. Our timing assumption also leads to a tractable Ramsey problem without state-contingent debt, which can give rise to debt-financed budget deficits during recessions.     

Private versus social returns to human capital: Education and economic growth in India

This paper investigates whether differences between private and social returns to education of government sector employees can contribute to an explanation of the “micro–macro paradox” in the literature on education and growth. We hypothesize that in India educated people find privately rewarding jobs in a sector in which social returns are low, namely the government sector. This could help explain high returns to education at the micro level and small or negative coefficients on education growth in growth regressions at the macro level. The empirical results, which are consistent with this hypothesis, are based on an analysis of state-level data from India spanning 40 years.     

Sources of economic growth in China from 2000–2013 and its further sustainable growth path: A three-hierarchy meta-frontier data envelopment analysis

This study, which considers both energy input and CO₂ emissions, develops both theoretical and empirical models to account for the sources of China's economic growth from 2000–2013. The proposed models decompose China's economic growth into five components: the technological change effect, the industrial structure effect, the regional balance development effect, the management effect, and the production factors effect. The empirical results show that during the sample period, the production factors effect increased from approximately 70% in 2001 to nearly 99% in 2010, indicating that economic growth in Mainland China relied heavily on factor accumulation, which was not sustainable. Fortunately, this situation has gradually improved since 2011 because of technological progress and industrial structure optimization. However, the current total-factor productivity in Mainland China remains relatively low because of an inefficient industrial structure, regional balance development, and management inefficiency. In other words, there is a great deal of room for further industrial structural optimization, regional balance development, and management improvement to realize further sustainable economic growth. Because the causes of total-factor production inefficiency and the distribution of economic growth potential show a distinct spatial difference, the focuses for the Chinese provinces to achieve sustainable economic growth should be quite different in the future. Based on the results of this study, recommendations have been made for the Chinese provinces to realize further sustainable economic growth.     

Business cycles in a two-sector model of endogenous growth

Summary. This paper analyzes the impact of cyclical volatility on long-term economic growth: does growth increase or decrease with increased cyclical volatility? We construct a stochastic two-sector model of endogenous growth to analyze this question in detail. We will show that economic growth is higher in the presence of business cycles, since people devote more time to learning activities in an uncertain economic environment. Human capital is a hedge against future income uncertainty. Hence, the rate of economic growth will be higher in a stochastic environment. Based on a calibration of the model, we find that economic growth increases by 0.46%-point as a result of observed business cycle variability. When account is taken of the interaction between the model's general equilibrium and the cycle, welfare gains (measured in units of a permanent percentage increase in consumption) from eliminating business cycle volatility are approximately 1.87%. Received: January 25, 2000; revised version: November 3, 2000     

Population and economic growth with human and physical capital investments

We present a two-sector endogenous growth model with human and physical capital accumulation to analyze the long-run relationship between population growth and real per capita income growth. Formal education and investment in physical capital are assumed to be two separate components of human capital production. Along the balanced growth path equilibrium, population change may have a positive, negative, or else neutral effect on economic growth depending on whether physical and human capital are complementary/substitutes for each other in the formation of new human capital and on their degree of complementarity.

Investment subsidies and redistributive capital income taxation in a neoclassical growth model

How do investment subsidies bear on pure redistribution when coupled with capital income taxes? In a heterogeneous agent, neoclassical growth framework it is found that on impact, with no optimizing behavior, investment subsidies are good for growth but bad for redistribution. The opposite holds for capital income taxes. But when the government acts as a Stackelberg leader vis-à-vis the private sector (the follower), the optimal feedback policy is by construction time-consistent and implies that in a long-run optimum the tax scheme does not distort accumulation. This holds regardless of social preferences. For the feedback Stackelberg equilibrium I find that (pure) redistribution can go either way and capital income taxes are nonzero in the long-run, time-consistent optimum, depending on the social weight of those who receive redistributive transfers, the distribution of pretax factor incomes, and the intertemporal elasticity of substitution. It is argued that investment subsidies may be an important indirect tool for redistribution, and may allow for the separation of “efficiency” and “equity” concerns.     

The impact of artificial intelligence on economic growth and welfare

Focusing on the self-accumulation ability and the nonrival characteristic of artificial intelligence (AI), this paper develops a three-sector endogenous growth model and investigates the impact of the development of AI along the transitional dynamics path and the balanced growth path. The development of AI can increase economic growth along the transitional dynamics path, and can increase household short-run utility if an increase in the accumulation of AI is due to the rising productivity in the goods or AI sector, but can be detrimental to household short-run utility if an increase in the accumulation of AI is because firms use more AI to replace human labor. In addition, the development of AI is not necessarily beneficial to household welfare in the long run. The main results are unaffected when considering the case where AI can improve the accumulation of human capital, the traditional research and development model, and different kinds of physical capital.     

Human capital,innovation capability and economic growth in Portugal, 1960-2001

In maintaining that the main flaw in empirical studies on economic growth derives from the fact that they employ Solow-style neoclassical growth models, rather than testing actual endogenous growth theory, we examine the human capital-innovation-growth nexus, thus testing new growth theory more directly. We test its insights against the economic evolution of an individual country, Portugal, using time series data from 1960 to 2001. Estimates based on vector autoregressive and cointegration analysis seem to confirm that human capital and indigenous innovation efforts were enormously important to the economic growth process in Portugal during the period of study. In particular, the indirect effect of human capital through innovation, emerges here as being critical, showing that a reasonably high stock of human capital is necessary to enable a country to reap the benefits of its indigenous innovation efforts.Received: November 2003, Accepted: November 2004, JEL Classification: C22, J24, O30, O40 Correspondence to: Aurora A.C. TeixeiraThe authors are grateful to two anonymous referees, Paulo Brito and the participants of the 2003 Portuguese Society for Economics Research (SPiE) in Lisbon, Portugal for helpful comments and suggestions. CEMPRE - Centro de Estudos Macroeconómicos e Previsão - is supported by the Fundação para a Ciência e a Tecnologia, Portugal, through the Programa Operacional Ciência, Tecnologia e Inovação (POCTI) of the Quadro Comunitário de Apoio III, which is financed by FEDER and Portuguese funds.     

Elasticity of substitution and growth: normalized CES in the Diamond model

Summary. It is often asserted that the more substitutable capital and labor are in the aggregate production the more rapidly an economy grows. Recently this has been formally confirmed within the Solow model by Klump and de La Grandville (2000). This paper demonstrates that there exists no such monotonic relationship between factor substitutability and growth in the Diamond overlapping-generations model. In particular, we prove that, if capital and labor are relatively substitutable, a country with a greater elasticity of substitution exhibits lower per capita output growth in transit and in steady state. Received: October 27, 2001; revised version: February 25, 2002     

Pandemic effects in the Solow growth model

We show how diseases can affect economic growth in a Solow growth model, with population growth and no technical progress, but modified to include a saving rate that depends on the individual health status. We successively insert this model into the SIS (susceptible–infected–susceptible) and SIR (susceptible–infected–recovered) models of disease spreading. In these two models, the spread of the infection proceeds according to the so-called basic reproductive number. This number determines in which of the two possible equilibria, the disease-free or the pandemic equilibrium, the economy ends. We show that output per capita is always lower in the pandemic steady state, which implies a contraction in the economy's production possibilities frontier.     

Intelligence, Human Capital, and Economic Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach

Human capital plays an important role in the theory of economic growth, but it has been difficult to measure this abstract concept. We survey the psychological literature on cross-cultural IQ tests and conclude that intelligence tests provide one useful measure of human capital. Using a new database of national average IQ, we show that in growth regressions that include only robust control variables, IQ is statistically significant in 99.8% of these 1330 regressions, easily passing a Bayesian model-averaging robustness test. A 1 point increase in a nation’s average IQ is associated with a persistent 0.11% annual increase in GDP per capita.     

Economic integration and growth under intergenerational financing of human-capital formation

This paper examines the patterns of economic integration and endogenous growth in a two-country overlapping-generations world, in which the formation of children's human capital is financed by parents. It explores the influence of cross-border external effects in human capital on growth. Interestingly, world integration can enhance (reduce) long-run growth in both countries if cross-border external effects in human capital are sufficiently strong (weak).     

Solow's Harrod: Transforming macroeconomic dynamics into a model of long-run growth

Modern growth theory derives mostly from Solow's “A Contribution to the Theory of Economic Growth” (1956). Solow's own interpretation locates its origins in his view that Harrod's growth model implied a tendency toward progressive collapse of the economy. He formulates his view in terms of Harrod's invoking a fixed-coefficients production function. We challenge Solow's reading of Harrod's “Essay in Dynamic Theory,” arguing that Harrod's object in providing a “dynamic” theory had little to do with the problem of long-run growth as Solow understood it, but instead addressed medium-run fluctuations, the “inherent instability” of economies. Solow's interpretation of Harrod was grounded in a particular culture of understanding embedded in the practice of formal modelling that emerged in economics in the post-Second World War period. Solow's interpretation, which ultimately dominated the profession's view of Harrod, is a case study in the difficulties in communicating across distinct interpretive communities and of the potential for losing content and insights in the process. Harrod's objects – particularly, of trying to account for a tendency of the economy toward chronic recessions – were lost to the mainstream literature.     

中国贸易发展与经济增长影响机制的经验研究

本文对贸易和人均产出之间的影响机制进行了分析。中国改革开放以来的经验数据证实 ,国际贸易通过提升国家要素禀赋结构和加快制度变革进程对人均产出产生了正面影响 ;但国内贸易则相反 ,国内市场分割的加剧 ,阻碍了国内市场的一体化进程 ,进而对经济产生负面影响。另外 ,本文还发现 ,尽管人力资本对人均产出有着重要而显著的影响 ,但贸易的变化却较少通过这条途径对人均产出产生影响。     

Growth and human capital: good data,good results

We present a new data set for years of schooling across countries for the 1960–2000 period. The series are constructed from the OECD database on educational attainment and from surveys published by UNESCO. Two features that improve the quality of our data with respect to other series, particularly for series in first-differences, are the use of surveys based on uniform classification systems of education over time, and an intensified use of information by age groups. As a result of the improvement in quality, these new series can be used as a direct substitute for Barro and Lee’s (2001; Oxford Economic Papers, 3, 541–563) data in empirical research. In standard cross-country growth regressions we find that our series yield significant coefficients for schooling. In panel data estimates our series are also significant even when the regressions account for the accumulation of physical capital. Moreover, the estimated macro return is consistent with those reported in labour studies. These results differ from the typical findings of the earlier literature and are a consequence of the reduction in measurement error in the series.      

Immigration, fertility, and human capital: A model of economic decline of the West

I show how the influences of unskilled immigration, differential fertility between immigrants and the local indigenous population, and incentives for investment in human capital combine to predict the decline of the West. In particular, indigenous low-skilled workers lose from unskilled immigration even if the indigenous low-skilled workers do not finance redistribution, do not compete with immigrants in the labor market, and do not compete with immigrants for publicly financed income transfers. For the economy at large, high-fertility unskilled immigrants and a low-fertility indigenous population result in economic decline through reduced human capital accumulation and reduced growth of per-capita output.