Modeling and Measuring Economic Reality: Reply to the Reviews

To begin with, we'd like to express our appreciation to our three commentators for their thoughtful and helpful reviews. Like the founders of the subject, we believe, and our reviewers seem to agree, that structural econometrics has the potential to enable us to develop serious working models of how different economies actually operate, and also to tell us something about the changing patterns of their growth and transformation. But both we and our reviewers agree that there is a great deal wrong with the way econometrics is practiced today.     

Firm heterogeneity, productivity and spatially bounded knowledge externalities

In this paper, we argue that conceptually disentangling the ‘context versus composition’ aspects of regional growth is a multilevel issue. By applying multilevel models (also called random-effects models), we show (1) the importance of considering firm-specific characteristics simultaneously with region-specific characteristics, as we find that a large part of what is traditionally assigned to the impact of the region should be assigned to firm-specific characteristics and (2) that existing single-level methodologies can be problematic, as they are vulnerable to the charge of estimating significance levels that are too liberally assigned and promote exaggerations. This is illustrated empirically by showing that single-level approaches would lead to the conclusion that innovation spillovers are highly significant in a setting of Dutch urban growth differentials, while multilevel analyses shows less liberally assigned significance levels. We conclude that multilevel-effect models better fit research questions that combine firm and spatial characteristics simultaneously, especially because they allow firm-specific characteristics to be differently linked to their regional contexts.     

On the tourism-led growth hypothesis in the UAE: a bootstrap approach with leveraged adjustments

The emerging market of the UAE has chosen attracting international tourism as one of the main strategies during the recent decades in order to diversify its economy. The main goal has been to achieve sustainable growth without overreliance on the volatile oil sector. This article investigates the impact of tourism on economic performance in the UAE by using bootstrapped causality tests with leverage adjustments. The results show that the tourism-led growth hypothesis can be supported empirically. Thus, the conducted policy by the UAE government to promote international tourism for achieving economic growth might be considered as a sustainable strategy.     

The internal dynamic of Indian economic growth

A stylised fact of India's economic history since 1950 is that the rate of growth of the economy has accelerated periodically and across policy regimes. In this paper we present a theoretical framework that can generate such a pattern due to cumulative causation through positive feedback. The growth process is then investigated using cointegration analysis. We are able to establish the existence of positive feedback which is at the centre of cumulative causation. We are also able to date the onset of this mechanism which has driven growth in India for close to half a century by now. This leads us to conclude that the internal dynamics are at least as important as the policy regimes to understand growth over the long term in this country.     

制度创新与经济增长——一个理论分析框架及实证检验

任何经济增长过程都是在一定的制度环境中进行的，有必要将制度因素纳入经济增长理论当中。在新古典经济学框架下，本文通过理论模型分析，认为稳态下的经济增长率跟制度创新有着紧密的正向关的关系。在理论分析的基础上，本文基于1978～2012年的省际面板数据，利用半参数估计和线性回归估计方法，实证分析结果表明：国家财政干预的增强、国有经济的强化和垄断作用加强从整体上抑制了我国以及不同地区的经济增长，提高市场开放度和对产权的保护程度则对经济增长产生了积极的正向促进作用，制度差异是引起我国区域经济增长差异的重要因素之一，制度创新仍是当前我国经济增长的关键。     

The impact of governance and transparency on firm investment in Vietnam

A large literature asserts a causal relationship between the quality of economic governance and economic performance. However, attempts to establish such a link at an aggregate level have met with considerable methodological criticism. This paper seeks to overcome this limitation. We match a panel of Vietnamese enterprises from 2006 to 2010 with a unique panel dataset measuring sub‐national economic governance to estimate a relationship between local governance and private investment. We do not find a significant relationship between investment and most traditional forms of governance. However, there is one important exception – transparency, especially the public posting of planning documents, is strongly associated with higher investment across a range of different specifications. Our results have significant implications for policy, given the prevailing theory that changes in the quality of local economic governance will spur improved economic performance.     

Multiple equilibria in the Aghion–Howitt model

We show that the simple Aghion–Howitt model exhibits oscillatory indeterminacy in the process of creative destruction as firms undertaking new research do not internalize their effect on existing firms. A simple calibration shows that indeterminacy occurs for quite plausible parametrizations of the share of the intermediate good.     

Creating an Environment for Economic Growth: Creativity,Entrepreneurship or Human Capital?

Scholars and policymakers interested in the growth and prosperity of regions have long recognized that talent and knowledge are fundamental. Yet the question is what types of talent are needed in a growing twenty‐first‐century economy: human capital, creativity and innovation, or entrepreneurship? The latter we define broadly to include any type of risk taking, and not only radical innovation. The literature does not clearly point to one factor as being the most essential. This study assesses this question separately for rural and urban United States (US) counties. We find that human capital––measured by educational attainment––is considerably more conducive to employment growth than the share of creative occupations. Likewise, the share of small and medium businesses is also very conducive to local growth, although this does not apply to the self‐employment share. Rural and urban areas experience similar patterns, although the magnitude thereof tends to be larger for urban counties, whereas high‐technology employment share has had a positive effect in rural areas. Policy conclusions suggest that enhancing small business development and increasing educational attainment are the two strategies that are most likely to succeed.     

The productivity of agricultural credit in India

This study examines the nature of the relationship between formal agricultural credit and agricultural Gross Domestic Product (GDP) in India, specifically the role of the former in supporting agricultural growth, using state level panel data covering the period 1995–1996 to 2011–2012. The study uses a mediation analysis framework to map the pathways through which institutional credit relates to agricultural GDP relying on a control function approach to tackle the problem of endogeneity. The findings from the analysis suggest that over this period, all the inputs are highly responsive to an increase in institutional credit to agriculture. A 10% increase in credit flow in nominal terms leads to an increase by 1.7% in fertilizers (N, P, K) consumption in physical quantities, 5.1% increase in the tonnes of pesticides, 10.8% increase in tractor purchases. Overall, it seems quite clear that input use is sensitive to credit flow, whereas GDP of agriculture is not. Credit seems therefore to be an enabling input, but one whose effectiveness is undermined by low technical efficiency and productivity.