Introduction to Economic Growth

  1. (OECD), O. for E. C. and D. (2009) “Main Science and Technology Indicators.”
  2. (OECD), O. for E. C. and D. (2006) “Main Science and Technology Indicators.”
  3. Acemoglu, D. (2009) Introduction to Modern Economic Growth. Princeton, NJ: Princeton University Press.
  4. Acemoglu, D. (2002) “Directed Technical Change,” Review of Economic Studies, 69(4), pp. 781–809.
    • Abstract

      For many problems in macroeconomics, development economics, labor economics, and international trade, whether technical change is biased towards particular factors is of central importance. This paper develops a simple framework to analyze the forces that shape these biases. There are two major forces affecting equilibrium bias: the price effect and the market size effect. While the former encourages innovations directed at scarce factors, the latter leads to technical change favoring abundant factors. The elasticity of substitution between different factors regulates how powerful these effects are, and this has implications about how technical change and factor prices respond to changes in relative supplies. If the elasticity of substitution is sufficiently large, the long-run relative demand for a factor can slope up. I apply this framework to discuss a range of issues including: Why technical change over the past 60 years was skill-biased, and why the skill bias may have accelerated over the past twenty-five years. Why new technologies introduced during the late eighteenth and early nineteenth centuries were unskill-biased. Why biased technical change may increase the income gap between rich and poor countries. Why international trade may induce skill-biased technical change. Why a large wage-push, as in continental Europe during the 1970s, may cause capital-biased technical change. Why technical change may be generally labor-augmenting rather than capital-augmenting.

  5. Acemoglu, D. et al. (2012) “The Environment and Directed Technical Change,” American Economic Review, 102(1), pp. 131–66.
    • Abstract

      This paper introduces endogenous and directed technical change in a growth model with environmental constraints. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both “carbon taxes” and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth.

  6. Acemoglu, D. and Robinson, J. (2012) Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York, NY: Crown Publishers.
  7. Acemoglu, D. and Robinson, J. (2005) Economic Origins of Dictatorship and Democracy. Cambridge, UK: Cambridge University Press.
  8. Acemoglu, D. and Zilibotti, F. (2001) “Productivity Differences,” The Quarterly Journal of Economics. Oxford University Press, 116(2), pp. 563–606. Available at: Link.
    • Abstract

      Many technologies used by the LDCs are developed in the OECD economies and are designed to make optimal use of the skills of these richer countries’ workforces. Differences in the supply of skills create a mismatch between the requirements of these technologies and the skills of LDC workers, and lead to low productivity in the LDCs. Even when all countries have equal access to new technologies, this technology-skill mismatch can lead to sizable differences in total factor productivity and output per worker. We provide evidence in favor of the cross-industry productivity patterns predicted by our model, and also show that technology-skill mismatch could account for a large fraction of the observed output per worker differences in the data.

  9. Aghion, P. et al. (2005) “Competition and Innovation: a Inverted-U Relationship,” Quarterly Journal of Economics, 120(2), pp. 701–728.
    • Abstract

      This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model-that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck-are both supported by the data.

  10. Aghion, P. and Howitt, P. (2009) The Economics of Growth. MIT Press.
  11. Ashraf, Q. and Galor, O. (2013) “The ‘Out of Africa’ Hypothesis, Human Genetic Diversity, and Comparative Economic Development,” American Economic Review, (1), pp. 1–46.
    • Abstract

      This research advances and empirically establishes the hypothesis that, in the course of the prehistoric exodus of Homo sapiens out of Africa, variation in migratory distance to various settlements across the globe affected genetic diversity and has had a persistent hump-shaped effect on comparative economic development, reflecting the trade-off between the beneficial and the detrimental effects of diversity on productivity. While the low diversity of Native American populations and the high diversity of African populations have been detrimental for the development of these regions, the intermediate levels of diversity associated with European and Asian populations have been conducive for development.

  12. Banerjee, A. V. and Duflo, E. (2005) “Growth Theory through the Lens of Development Economics,” in Aghion, P. and Durlauf, S. (eds.) Handbook of Economic Growth. Amsterdam: Elsevier, pp. 473–554.
    • Abstract

      Growth theory traditionally assumed the existence of an aggregate production function, whose existence and properties are closely tied to the assumption of optimal resource allocation within each economy. We show extensive evidence, culled from the micro- development literature, demonstrating that the assumption of optimal resource allocation fails radically. The key fact is the enormous heterogeneity of rates of return to the same factor within a single economy, a heterogeneity that dwarfs the cross-country heterogeneity in the economy-wide average return. Prima facie, we argue, this evidence poses problems for old and new growth theories alike. We then review the literature on various causes of this misallocation. We go on to calibrate a simple model which explicitly introduces the possibility of misallocation into an otherwise standard growth model . We show that, in order to match the data, it is not enough to have misallocated factors: there also needs to be important fixed costs in production. We conclude by outlining the contour of a possible non-aggregate growth theory, and review the existing attempts to take such a model to the data.

  13. Barro, R. and Lee, J.-W. (2010) “A New Data Set of Educational Attainment in the World, 1950-2010.” NBER Working paper 15902.
  14. Becker, G. S. (1960) “An Economic Analysis of Fertility,” in Becker, G. S. (ed.) Demographic and Economic Change in Developing Countries. Princeton, NJ: Princeton University Press.
  15. Broda, C., Greenfield, J. and Weinstein, D. (2006) “From Groundnuts to Globalization: A Structural Estimate of Trade and Growth,” NBER Working Papers, (12512).
    • Abstract

      Starting with Romer [1987] and Rivera-Batiz-Romer [1991] economists have been able to model how trade enhances growth through the creation and import of new varieties. In this framework, international trade increases economic output through two channels. First, trade raises productivity levels because producers gain access to new imported varieties. Second, increases in the number of varieties drives down the cost of innovation and results in ever more variety creation. Using highly disaggregate trade data, e.g. Gabon’s imports of Gambian groundnuts, we structurally estimate the impact that new imports have had in approximately 4000 markets per country. We then move from groundnuts to globalization by building an exact TFP index that aggregates these micro gains to obtain an estimate of trade on productivity growth for each country. We find that in the typical country in the world, new imported varieties account for 15 percent of its productivity growth. These effects are larger in developing countries where the median impact of new imported varieties equals a quarter of national productivity growth.

  16. Clark, G. (2009) “The Macroeconomic Aggregates for England, 1209-2008.” Working paper.
  17. Clark, G. (2007) A Farewell to Alms. Princeton, NJ: Princeton University Press.
  18. Clark, G. (2005) “The Condition of the Working Class in England, 1209–2004,” Journal of Political Economy. The University of Chicago Press, 113(6), pp. 1307–1340. Available at: Link.
    • Abstract

      I use building workers’ wages for 1209–2004 and the skill premium to consider the causes and consequences of the Industrial Revolution. Real wages were trendless before 1800, as would be predicted for the Malthusian era. Comparing wages with population, however, suggests that the break from the technological stagnation of the Malthusian era came around 1640, long before the classic Industrial Revolution, and even before the arrival of modern democracy in 1689. Building wages also conflict with human capital interpretations of the Industrial Revolution, as modeled by Gary Becker, Kevin Murphy, and Robert Tamura; Oded Galor and David Weil; and Robert Lucas. Human capital accumulation began when the rewards for skills were unchanged and when fertility was increasing.

  19. Coe, D. and Helpman, E. (1995) “International R&D Spillovers,” European Economic Review, 39(5), pp. 859–87.
    • Abstract

      Investment in research and development (R&D) affects a country’s total factor productivity. Recently new theories of economic growth have emphasized this link and have also identified a number of channels through which a country’s R&D affects total factor productivity of its trade partners. Following these theoretical developments we estimate the effects of a country’s R&D capital stock and the R&D capital stocks of its trade partners on the country’s total factor productivity. We find large effects of both domestic and foreign R&D capital stocks on total factor productivity. The foreign R&D capital stocks have particularly large effects on the smaller countries in our sample (that consists of 22 countries). Moreover, we find that about one-quarter of the worldwide benefits of investment in R&D in the seven largest economies are appropriated by their trade partners.

  20. David, P. (1990) “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox,” American Economic Review, 80(2), pp. 355–61.
  21. Dell, M. (2010) “The Persistent Effect of Peru’s Mining Mita,” Econometrica, 78(6), pp. 1863–1903.
    • Abstract

      This study utilizes regression discontinuity to examine the long-run impacts of the mita, an extensive forced mining labor system in effect in Peru and Bolivia between 1573 and 1812. Results indicate that a mita effect lowers household consumption by around 25% and increases the prevalence of stunted growth in children by around six percentage points in subjected districts today. Using data from the Spanish Empire and Peruvian Republic to trace channels of institutional persistence, I show that the mita’s influence has persisted through its impacts on land tenure and public goods provision. Mita districts historically had fewer large landowners and lower educational attainment. Today, they are less integrated into road networks, and their residents are substantially more likely to be subsistence farmers.

  22. Diamond, J. (1997) Guns, Germs, and Steel. New York, NY: W. W. Norton and Co.
  23. Dinopoulos, E. and Thompson, P. (1993) “Schumpeterian Growth without Scale Effects,” Journal of Economic Growth, 3(4), pp. 313–335.
    • Abstract

      We incorporate population growth into the model of trustified capitalism, with vertical and horizontal product differentiation, developed by Thompson and Waldo (1994) and generate endogenous long-run Schumpeterian growth without scale effects. Our model extends the analysis of Young (1998) and overturns some key policy and welfare implications of his model. The transitional dynamics of the model can account for the presence of scale effects in preindustrial and early industrial eras.

  24. Durlauf, S., Johnson, P. A. and Temple, J. R. W. (2005) “Growth Econometrics,” in Aghion, P. and Durlauf, S. (eds.) Handbook of Economic Growth. Amsterdam: Elsevier, pp. 555–677.
  25. Easterly, W. and Levine, R. (2003) “Tropics, Germs, and Crops: How Endowments Influence Economic Development,” Journal of Monetary Economics, 50(1), pp. 3–39.
    • Abstract

      Does economic development depend on geographic endowments like temperate instead of tropical location, the ecological conditions shaping diseases, or an environment good for grains or certain cash crops? Or do these endowments of tropics, germs, and crops affect economic development only through institutions or policies? We test the endowment, institution, and policy views against each other using cross country evidence. We find evidence that tropics, germs, and crops affect development through institutions. We find no evidence that tropics, germs, and crops affect country incomes directly other than through institutions, nor do we find any effect of policies on development once we control for institutions.

  26. Galor, O. (2011) Unified Growth Theory. Princeton, NJ: Princeton University Press.
  27. Galor, O. and Weil, D. N. (2000) “Population, technology, and growth: From Malthusian stagnation to the demographic transition and beyond,” The American Economic Review. JSTOR, 90(4), pp. 806–828. Available at: Link.
    • Abstract

      This paper develops a unified growth model that captures the historical evolution of population, technology, and output. It encompasses the endogenous transition between three regimes that have characterized economic development. The economy evolves from a Malthusian regime, where technological progress is slow and population growth prevents any sustained rise in income per capita, into a Post-Malthusian regime, where technological progress rises and population growth absorbs only part of output growth. Ultimately, a demographic transition reverses the positive relationship between income and population growth, and the economy enters a Modern Growth regime, with reduced population growth and sustained income growth.

  28. George, H. (1879 (2009) Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth; The Remedy. Cambridge, UK: Cambridge University Press.
  29. Greenwood, J. and Yorukoglu, M. (1997) “1974,” Carnegi-Rochester Conference Series on Public Policy, 46, pp. 49–95.
  30. Grossman, G. M. and Krueger, A. B. (1995) “Economic Growth and the Environment,” The Quarterly Journal of Economics. Oxford University Press, 110(2), pp. 353–377. Available at: Link.
    • Abstract

      We examine the reduced-form relationship between per capita income and various environmental indicators. Our study covers four types of indicators: urban air pollution, the state of the oxygen regime in river basins, fecal contamination of river basins, and contamination of river basins by heavy metals. We find no evidence that environmental quality deteriorates steadily with economic growth. Rather, for most indicators, economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement. The turning points for the different pollutants vary, but in most cases they come before a country reaches a per capita income of $8000.

  31. Hajnal, J. (1965) “European Marriage Patterns in Perspective,” in Glass, D. and Eversley, D. E. C. (eds.) Population in History. London: Edward Arnold.
  32. Hansen, G. D. and Prescott, E. C. (2002) “From Malthus to Solow,” American Economic Review, 92(4), pp. 1205–1217.
    • Abstract

      A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. This transition is inevitable given positive rates of total factor productivity growth. We use a standard growth model with one good and two available technologies. The first, denoted the capital as inputs. The second, denoted the does not require land. We show that in the early stages of development, only the Malthus technology is used and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable and both technologies are employed. At this point, living standards improve since population growth has less influence on per capita income growth. In the limit, the economy behaves like a standard Solow growth model.

  33. Helpman, E. (1993) “Innovation, Imitation, and Intellectual Property Rights,” Econometrica, 61, pp. 1247–1280.
    • Abstract

      The debate between the North and the South about the enforcement of intellectual property rights in the South is examined within a dynamic general equilibrium framework in which the North innovates new products and the South imitates them. A welfare evaluation of a policy of tighter intellectual property rights is provided by decomposing a region’s welfare change into four components: terms of trade, production composition, available product choice and intertemporal allocation of consumption spending. The paper provides a theoretical evaluation of each one of these components and their relative size. The analysis proceeds in stages. It begins with an exogenous rate of innovation in order to focus on the first two components. The last two components are added by endogenizing the rate of innovation. Finally, the paper considers the role of foreign direct investment.

  34. Howitt, P. (1999) “Steady Endogenous Growth with Population and R & D Inputs Growing,” Journal of Political Economy. The University of Chicago Press, 107(4), pp. 715–730. Available at: Link.
    • Abstract

      This paper presents a Schumpeterian endogenous growth model in which a steady state exists with a constant growth rate even though population and the inputs to R. & D. are growing. The scale effect of rising population is nullified by product proliferation that fragments the growing demand for intermediate prodcuts, thus preventing the reward to any specific innovation from rising with population. All the ususal comparitive statics results of Schumpeterian growth theory are valid, including the positive effect of R. & D. subsidies on growth.

  35. Hsieh, C.-T. (2002) “What Explains the Industrial Revolution in East Asia? Evidence from the Factor Markets,” The American Economic Review. American Economic Association, 92(3), pp. 502–526. Available at: Link.
    • Abstract

      This paper presents dual estimates of total factor productivity growth (TFPG) for East Asian countries. While the dual estimates of TFPG for Korea and Hong Kong are similar to the primal estimates, they exceed the primal estimates by 1 percent a year for Taiwan and by more than 2 percent for Singapore. The reason for the large discrepancy for Singapore is because the return to capital has remained constant, despite the high rate of capital accumulation indicated by Singapore’s national accounts. This discrepancy is not explained by financial market controls, capital income taxes, risk premium changes, and public investment subsidies.

  36. Hsieh, C.-T. and Klenow, P. J. (2009) “Misallocation and Manufacturing TFP in China and India,” Quarterly Journal of Economics. MIT Press, 124(4), pp. 1403–1448.
    • Abstract

      Resource misallocation can lower aggregate total factor productivity (TFP). We use microdata on manufacturing establishments to quantify the potential extent of misallocation in China and India versus the United States. We measure sizable gaps in marginal products of labor and capital across plants within narrowly defined industries in China and India compared with the United States. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the United States, we calculate manufacturing TFP gains of 30%–50% in China and 40%–60% in India.

  37. Hsieh, C.-T. and Klenow, P. J. (2007) “Relative Prices and Relative Prosperity,” The American Economic Review. American Economic Association, 97(3), pp. 562–585. Available at: Link.
    • Abstract

      The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Investment prices are no higher in poor countries. Thus, the low real investment rates in poor countries are not driven by high tax or tariff rates on investment. Poor countries, instead, appear to be plagued by low efficiency in producing investment goods and in producing consumer goods to trade for them.

  38. Jones, C. I. (2002) “Sources of U.S. Economic Growth in a World of Ideas,” American Economic Review, 92(1), pp. 220–239.
    • Abstract

      Rising educational attainment and research intensity in recent decades suggest that the U.S. economy is far from its steady state. This paper develops a model reconciling these facts with the stability of U.S. growth rates. In the model, long-run growth arises from the worldwide discovery of ideas, which depends on population growth. Nevertheless, constant growth can temporarily proceed at a faster rate, provided research intensity and educational attainment rise steadily over time. Growth accounting reveals that these factors explain 80 percent of recent U.S. growth, with less than 20 percent coming from world population growth.

  39. Jones, C. I. (1995) “Time Series Test of Endogenous Growth Models,” Quarterly Journal of Economics, 110, pp. 495–525.
    • Abstract

      According to endogenous growth theory, permanent changes in certain policy variables have permanent effects on the rate of economic growth. Empirically, however, U.S. growth rates exhibit no large persistent changes. Therefore, the determinants of long-run growth highlighted by a specific growth model must similarly exhibit no large persistent changes or the persistent movement in these variables must be offsetting. Otherwise, the growth model is inconsistent with time series evidence. This paper argues that many AK-style models and R&D-based models of endogenous growth are rejected by this criterion. The rejection of the R&D-based models is particularly strong.

  40. Jones, C. I. (1995) “R&D-Based Models of Economics Growth,” Journal of Political Economy, 103, pp. 759–784.
    • Abstract

      This paper argues that the ’scale effects’ prediction of many recent R&D-based models of growth is inconsistent with the time-series evidence from industrialized economies. A modified version of the Romer model that is consistent with this evidence is proposed, but the extended model alters a key implication usually found in endogenous growth theory. Although growth in the extended model is generated endogenously through R&D, the long-run growth rate depends only on parameters that are usually taken to be exogenous, including the rate of population growth.

  41. Jones, C. I. and Vollrath, D. (2013) Introduction to Economic Growth. 3rd ed. W. W. Norton and Co.
  42. Kaufmann, D., Kraay, A. and Mastruzzi, M. (2010) “Worldwide Governance Indicators.” Link.
  43. Keller, W. (2004) “International Technology Diffusion,” Journal of Economic Literature. American Economic Association, 42(3), pp. 752–782. Available at: Link.
    • Abstract

      This paper surveys what is known about the extent of international technology diffusion and channels through which technology spreads. Productivity differences explain much of the variation in incomes across countries, and technology plays a key role in determining productivity. The pattern of worldwide technical change is determined largely by international technology diffusion because a few rich countries account for most of the world’s creation of new technology. Cross-country income convergence turns on whether technology diffusion is global or local. There is no indication that international diffusion is inevitable or automatic, but rather, domestic technology investments are necessary. Better understanding of what determines the effectiveness of technology diffusion sheds light on the pace at which the world’s technology frontier may expand.

  44. Kortum, S. S. (1997) “Research, Patenting, and Technological Change,” Econometrica. The Econometric Society, 65(6), pp. 1389–1419. Available at: Link.
    • Abstract

      This paper develops a search-theoretic model of technological change that accounts for some puzzling trends in industrial research, patenting, and productivity growth. In the model, researchers sample from probability distributions of potential new production techniques. Past research generates a technological frontier representing the best techniques for producing each good in the economy. Technological breakthroughs, resulting in patents, become increasingly hard to find as the technological frontier advances. This explains why patenting has been roughly constant as research employment has risen sharply over the last forty years. Productivity is determined by the position of the technological frontier and hence by the stock of past research. If researchers sample from Pareto distributions, then productivity growth is proportional to the growth of the research stock. The Pareto specification accounts for why productivity growth has neither risen as research employment has grown nor fallen as patenting has failed to grow. The growth of research employment itself is driven, in equilibrium, by population growth. Calibrating the model’s four parameters, the implied social return to research is over twenty percent.

  45. Landes, D. S. (1969) The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1975 to the Present. Cambridge, UK: Cambridge University Press.
  46. Maddison, A. (2010) “Historical Statistics of the World Economy, 1-2008 A.D.” Link.
  47. Malthus, T. (1798) An Essay on the Principle of Population. London: J. Johnson.
  48. Mankiw, N. G., Romer, D. and Weil, D. N. (1992) “A Contribution to the Empirics of Economic Growth,” The Quarterly Journal of Economics. Oxford University Press, 107(2), pp. pp. 407–437. Available at: Link.
    • Abstract

      This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts.

  49. McEvedy, C. and Jones, R. (1978) Atlas of World Population History. New York, NY: Penguin Books.
  50. Mitch, D. F. (1992) The Rise of Popular Literacy in Victorian England: The Influence of Private Choice and Public Policy. Philadelphia, PA: University of Pennsylvania Press.
  51. Mitchell, B. R. (1975) European Historical Statistics, 1750-1970. New York, NY: Columbia University Press.
  52. Mokyr, J. (2002) The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton, NJ: Princeton University Press.
  53. Nordhaus, W. D. (2007) “A Review of the ‘Stern Review on the Economics of Climate Change,’” Journal of Economic Literature. American Economic Association, 45(3), pp. 686–702. Available at: Link.
    • Abstract

      How much and how fast should we react to the threat of global warming? The "Stern Review" argues that the damages from climate change are large, and that nations should undertake sharp and immediate reductions in greenhouse gas emissions. An examination of the Review’s radical revision of the economics of climate change finds, however, that it depends decisively on the assumption of a near-zero time discount rate combined with a specific utility function. The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today’s marketplace real interest rates and savings rates.

  54. Nunn, N. (2008) “The Long-Term Effects of Africa’s Slave Trades,” The Quarterly Journal of Economics. Oxford University Press, 123(1), pp. 139–176. Available at: Link.
    • Abstract

      Can part of Africa’s current underdevelopment be explained by its slave trades? To explore this question, I use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during Africa’s slave trades. I find a robust negative relationship between the number of slaves exported from a country and current economic performance. To better understand if the relationship is causal, I examine the historical evidence on selection into the slave trades and use instrumental variables. Together the evidence suggests that the slave trades had an adverse effect on economic development.

  55. Olson, M. (1996) “Distinguished Lecture on Economics in Government: Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor,” The Journal of Economic Perspectives. American Economic Association, 10(2), pp. 3–24. Available at: Link.
    • Abstract

      Some research presumes that, when rational parties bargain, nothing is left on the table, so that social outcomes are efficient and leave countries on the frontiers of their aggregate production functions. A study of differences in per capita incomes across countries shows that this cannot be the case. Countries’ endowments of natural and human resources do not explain any significant part of the variation in incomes and the mobility of capital assures that it is impartially available to all countries. National differences in the quality of policies and institutions across countries mainly account for differences in per capita incomes.

  56. Peretto, P. (1998) “Technological Change and Population Growth,” Journal of Economic Growth, 3(4), pp. 283–311.
    • Abstract

      What is the relationship between the rate of population growth and the rate of technological change? To answer this question, I discuss a model where increasing returns generate long-run growth but where the scale effect is absent. More precisely, the model predicts that steady-state productivity growth does not depend on population size because an increase in population size leads to entry. The resulting crowding-in effect generates dispersion of R&D resources across firms and offsets the positive effect of the scale of the economy on the returns to R&D. Changes in population size have only transitory effects on productivity growth. This desirable property allows me to introduce population growth in the model and study the effects of demographic shocks. The predicted patterns of growth, entry, and change in industrial structure match the experience of several industrialized countries. In addition, they match several of the empirical observations cited as evidence against standard models of endogenous technological change.

  57. Popp, D. (2002) “Induced Innovation and Energy Prices,” The American Economic Review. American Economic Association, 92(1), pp. 160–180. Available at: Link.
    • Abstract

      I use U.S. patent data from 1970 to 1994 to estimate the effect of energy prices on energy-efficient innovations. Using patent citations to construct a measure of the usefulness of the existing base of scientific knowledge, I consider the effect of both demand-side factors, which spur innovative activity by increasing the value of new innovations, and supply-side factors, such as scientific advancements that make new innovations possible. I find that both energy prices and the quality of existing knowledge have strongly significant positive effects on innovation. Furthermore, I show that omitting the quality of knowledge adversely affects the estimation results.

  58. Ramondo, N. and Rodriguez-Clare, A. (forthcoming) “Trade, Multinational Production, and the Gains from Openness,” Journal of Political Economy.
    • Abstract

      This paper quantifies the gains from openness arising from trade and multinational production (MP). We present a model that captures key dimensions of the interaction between these two flows: Trade and MP are competing ways to serve a foreign market; MP relies on imports of intermediate goods from the home country; and foreign affiliates of multinationals can export part of their output. The calibrated model implies that the gains from trade can be twice as high as the gains calculated in trade-only models, while the gains from MP are slightly lower than the gains computed in MP-only models.

  59. Restuccia, D. and Rogerson, R. (2008) “Policy Distortions and Aggregate Productivity with Heterogeneous Plants,” Review of Economic Dynamics, 11(4), pp. 707–720.
    • Abstract

      We formulate a version of the growth model in which production is carried out by heterogeneous establishments and calibrate it to U.S. data. In the context of this model we argue that differences in the allocation of resources across establishments that differ in productivity may be an important factor in accounting for cross-country differences in output per capita. In particular, we show that policies which create heterogeneity in the prices faced by individual producers can lead to sizeable decreases in output and measured total factor productivity (TFP) in the range of 30 to 50 percent. We show that these effects can result from policies that do not rely on aggregate capital accumulation or aggregate relative price differences. More generally, the model can be used to generate differences in capital accumulation, relative prices, and measured TFP.

  60. Romer, P. M. (1990) “Endogenous Technological Change,” Journal of Political Economy. The University of Chicago Press, 98(5), pp. pp. S71–S102. Available at: Link.
    • Abstract

      Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

  61. Romer, P. M. (1986) “Increasing Returns and Long-Run Growth,” Journal of Political Economy. The University of Chicago Press, 94(5), pp. pp. 1002–1037. Available at: Link.
    • Abstract

      This paper presents a fully specified model of long-run growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change. In contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries. Long-run evidence is offered in support of the empirical relevance of these possibilities.

  62. Sala-i-Martin, X. (2006) “The World Distribution of Income: Falling Poverty and... Convergence, Period,” The Quarterly Journal of Economics. Oxford University Press, 121(2), pp. 351–397. Available at: Link.
    • Abstract

      We estimate the World Distribution of Income by integrating individual income distributions for 138 countries between 1970 and 2000. Country distributions are constructed by combining national accounts GDP per capita to anchor the mean with survey data to pin down the dispersion. Poverty rates and head counts are reported for four specific poverty lines. Rates in 2000 were between one-third and one-half of what they were in 1970 for all four lines. There were between 250 and 500 million fewer poor in 2000 than in 1970. We estimate eight indexes of income inequality implied by our world distribution of income. All of them show reductions in global inequality during the 1980s and 1990s.

  63. Sala-i-Martin, X., Doppelhofer, G. and Miller, R. I. (2004) “Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach,” The American Economic Review. American Economic Association, 94(4), pp. 813–835. Available at: Link.
    • Abstract

      This paper examines the robustness of explanatory variables in cross-country economic growth regressions. It introduces and employs a novel approach, Bayesian Averaging of Classical Estimates (BACE), which constructs estimates by averaging OLS coefficients across models. The weights given to individual regressions have a Bayesian justification similar to the Schwarz model selection criterion. Of 67 explanatory variables we find 18 to be significantly and robustly partially correlated with long-term growth and another three variables to be marginally related. The strongest evidence is for the relative price of investment, primary school enrollment, and the initial level of real GDP per capita.

  64. Segerstrom, P. S. (1998) “Endogenous Growth without Scale Effects,” The American Economic Review. American Economic Association, 88(5), pp. 1290–1310. Available at: Link.
    • Abstract

      This paper presents a simple R&D-driven endogenous growth model to shed light on some puzzling economic trends. The model can account for why patent statistics have been roughly constant even though R&D employment has risen sharply over the last 30 years. The model also illuminates why steadily increasing R&D effort has not led to any upward trend in economic growth rates, as is predicted by earlier R&D-driven endogenous growth models with the "scale effect" property.

  65. Segerstrom, P. S., Anant, T. C. A. and Dinopoulos, E. (1990) “A Schumpeterian Model of the Product Life Cycle,” The American Economic Review. American Economic Association, 80(5), pp. 1077–1091. Available at: Link.
    • Abstract

      This paper presents a dynamic general equilibrium model of North-South trade in which research and development races between firms determine the rate of product innovation in the North. Tariffs designed to protect dying industries in the North from Southern competition reduce the steady-state number of dominant firms in the North, reduce the rate of product innovation, and increase the relative wage of Northern workers.

  66. Sokoloff, K. L. and Engerman, S. L. (2000) “History Lessons: Institutions, Factors Endowments, and Paths of Development in the New World,” The Journal of Economic Perspectives. American Economic Association, 14(3), pp. 217–232. Available at: Link.
    • Abstract

      The explanations offered for the contrasting records of long-run growth and development among the societies of North and South America most often focus on institutions. The traditional explanations for the sources of these differences in institutions, typically highlight the significance of national heritage or religion. We, in contrast, argue that a hemispheric perspective across the wide range of colonies established in the New World by the Europeans suggests that although there were many influences, factor endowments or initial conditions had profound and enduring effects on the long-run paths of institutional and economic development followed by the respective economies.

  67. Stern, D. I. (2004) “The Rise and Fall of the Environmental Kuznets Curve,” World Development, 32(8), pp. 1419–1439.
    • Abstract

      This paper chronicles the story of the environmental Kuznets curve (EKC). The EKC proposes that indicators of environmental degradation first rise, and then fall with increasing income per capita. However, recent evidence shows that developing countries are addressing environmental issues, sometimes adopting developed country standards with a short time lag and sometimes performing better than some wealthy countries, and that the EKC results have a very flimsy statistical foundation. A new generation of decomposition models can help disentangle the true relations between development and the environment.

  68. Stern, N. (2007) The Economics of Climate Change: The Stern Review. Cambridge, UK: Cambridge University Press.
  69. Stokey, N. L. (1998) “Are There Limits to Growth?,” International Economic Review. Blackwell Publishing for the Economics Department of the University of Pennsylvania and Institute of Social and Economic Research – Osaka University, 39(1), pp. 1–31. Available at: Link.
    • Abstract

      A simple theoretical model of pollution is developed that generates an inverted U-shape relationship between per capita income and environmental quality. This model is then used to study long-run growth. The same inverted U-shape is shown to appear in time series, and the prospects for sustained growth are shown to hinge on whether increasingly strict environmental regulation is compatible with a constant rate of return on capital. Implementation is also studied. Tax and voucher schemes are shown to have an advantage over direct regulation because they provide the correct incentives for capital accumulation.

  70. Syverson, C. (2004) “Product Substitutability and Productivity Dispersion,” Review of Economics and Statistics, 86(2), pp. 534–550.
    • Abstract

      Tremendous differences in producer productivity levels exist, even within narrowly defined industries. This paper explores the influence of product substitutability in an industry on this disparity. When consumers can easily switch between producers, inefficient (high-cost) producers cannot operate profitably. Thus high-substitutability industries should exhibit less productivity dispersion and have higher average productivity levels. I demonstrate this mechanism in a simple industry equilibrium model and test it empirically using producer-level data from 443 U.S. manufacturing industries. I find evidence that substitutability measured in several ways’is indeed negatively related to within-industry productivity dispersion and positively related to median productivity.

  71. Voigtländer, N. and Voth, H.-J. (2013) “The Three Horsemen of Riches: Plague, War, and Urbanization in Early Modern Europe,” Review of Economic Studies, 80(2), pp. 774–811.
    • Abstract

      How did Europe escape the "Iron Law of Wages?" We construct a simple Malthusian model with two sectors and multiple steady states, and use it to explain why European per capita incomes and urbanization rates increased during the period 1350–1700. Productivity growth can only explain a small fraction of the rise in output per capita. Population dynamics – changes of the birth and death schedules – were far more important determinants of steady states. We show how a major shock to population can trigger a transition to a new steady state with higher per-capita income. The Black Death was such a shock, raising wages substantially. Because of Engel’s Law, demand for urban products increased, and urban centers grew in size. European cities were unhealthy, and rising urbanization pushed up aggregate death rates. This effect was reinforced by diseases spread through war, financed by higher tax revenues. In addition, rising trade also spread diseases. In this way higher wages themselves reduced population pressure. We show in a calibration exercise that our model can account for the sustained rise in European urbanization as well as permanently higher per capita incomes in 1700, without technological change. Wars contributed importantly to the ’Rise of Europe,’ even if they had negative short-run effects. We thus trace Europe’s precocious rise to economic riches to interactions of the plague shock with the belligerent political environment and the nature of cities.

  72. Vollrath, D. (2011) “The agricultural basis of comparative development,” Journal of Economic Growth, 16(4), pp. 343–370.   Paper
    • Abstract

      This article shows, in a two-sector Malthusian model of endogenous population growth, that output per capita, population density, and industrialization depend upon the labor intensity of agricultural production. Because the diminishing returns to labor are less pronounced, high labor intensity (as in rice production) leads not only to a larger population density but also to lower output per capita and a larger share of labor in agriculture. Agronomic and historical evidence confirm that there are distinct, inherent differences between rice and wheat production. A calibration of the model shows that a relatively small difference in labor intensity in agriculture can account for a large portion of the observed differences in industrialization, output per capita, and labor productivity between Asia and Europe prior to the Industrial Revolution. Significantly, these differences can be explained even though sector-level total factor productivity levels and the efficiency of factor markets are held constant in the two regions.

  73. Williamson, S. H. (2009) “An Index of the Wage of Unskilled Labor from 1774 to the Present.” Link.
  74. Young, A. (1998) “Growth without Scale Effects,” Journal of Political Economy. The University of Chicago Press, 106(1), pp. 41–63. Available at: Link.
    • Abstract

      An increase in the size (scale) of an economy increases the total quantity of rents that can be captured by successful innovators, which, in equilibrium, should lead to a rise in innovative activity. Conventional wisdom and the theoretical predictions of models of endogenous innovation suggest that this increased research effort should lead to more rapid growth. As noted by Charles Jones, this prediction is at odds with the postwar experience of the OECD, where the growth of the market has indeed led to an increased R & D effort that, however, has been translated into stagnat or declining growth rates. Drawing on the remarkable insights of the museum curator Seabury C. Gilfillan, this paper modifies models of endogenous innovation to allow for the possibility that a rise in the profitability of innovative activity could lead to an increased variety of differentiated solutions to similar problems. An increased variety of technologies (e.g., an increase in the number and types of contraceptives) will increase the level of utility of the average consumer. If, however, continued improvement of this increased variety of technologies requires increased research input, a rise in the scale of the market could raise the equilibrium quantity of R & D without increasing the economy’s growth rate.

  75. McKinsey Global Institute (2001) “India: The Growth Imperative.” Report, McKinsey Global Institute.
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  77. U.S. Bureau of Labor Statistics (2010) “Preliminary Multifactor Productivity Trends.” USDL-11-0723.
  78. U.S. Energy Information Administration (2011) “Annual Energy Review. DOE/EIA-0384(2010).”
  79. U.S. Environmental Protection Agency (2011) “National Emissions Inventory.”
  80. U.S. Geological Survey (2000) “Executive Summary, World Energy Assessment.”
  81. U.S. Patent and Trademark Office (2011) “U.S. Patent Activity, Calendar Years 1790 to the Present.”

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