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This paper investigates the channels through which the middle class may matter for consumption growth. Using several different middle-class measures and a panel of 105 developing countries spanning the period 1985-2013, we find that a larger middle class influences consumption growth primarily through higher levels of human capital accumulation. There is also a significant direct effect of middle-class size on consumption growth, which is more pronounced in the latter half of the sample, the 2000-2013 period. [ABSTRACT FROM AUTHOR]

Empirical evidence suggests that use of child labor as domestic help has increased significantly in recent years although the overall incidence of child labor across the globe has declined satisfactorily. This should draw the attention of economists and policymakers because domestic child labor is considered as exploitative and in many cases hazardous. This paper purports to explain this apparently perplexing finding theoretically in terms of a three-sector general equilibrium model with a nontraded sector where only child labor is used to render services to the richer section of the society. The analysis shows how FDI-led economic growth increases the size of the services sector although it lowers the overall incidence of child labor in the economy and improves the welfare of the poor families that supply child labor. Finally, a composite policy has been recommended that can deal with all three aspects favorably. [ABSTRACT FROM AUTHOR]

This paper studies the question of whether exchange rate policy affects the impact of remittances on economic growth in recipient countries. The findings indicate that more flexible exchange rate regimes are associated with a greater increase in economic growth following an increase in remittances, but also that the impact of remittances on growth is positive under a fixed regime. The results further show that the effect of remittances under a fixed exchange rate regime is positive in less financially developed countries as well, but do not provide conclusive evidence that this effect varies inversely with exchange rate flexibility in such economies as theorized; the results being sensitive to the choice of financial development indicator. [ABSTRACT FROM AUTHOR]

This paper develops a general equilibrium model to formalize Adam Smith's insight on the relationship between the division of labor, the emergence of money, and economic progress. The model demonstrates that the division of labor is the driving force behind the emergence of money, and the use of money in turn stimulates further division of labor. It also shows that the use of money substitute can improve welfare. [ABSTRACT FROM AUTHOR]

The aim of this paper is to investigate empirically the question of whether financial development leads to economic growth in a small, developing country like Tunisia. The paper focuses on the causal link between finance and economic growth in order to discriminate between several alternative theoretical hypotheses. The results suggest the existence of a stable long-run relationship between the development of the financial sector and the evolution of per capita real output that is consistent with the view that financial development can be an engine of growth in this country. [ABSTRACT FROM AUTHOR]

Many of the problems of privatization in developing countries result from the lack of information about the situation of the economy and from the lack of determination on their path of privatization. This paper addresses the lack of information by presenting a theory of incomplete privatization contracts. It then turns to the lack of determination, dealing with particular problems of partially privatized firms and, finally, postulating an elaborate system of price regulation of privatized monopolies, which typically is missing in developing countries. [ABSTRACT FROM AUTHOR]

The objective of this research is to analyze convergence in incomes per capita in Ecuador over the period 1992–2013. Using the National Oceanic and Atmospheric Administration's satellite data capturing nighttime luminosity by region to proxy income, we undertake an analysis of economic convergence between provinces and cantons in Ecuador over the period 1992–2013. Traditional regression analysis alongside dynamic distribution analysis is used to verify the existence and determine the nature of convergence among Ecuadorian territories. What is found is that economic convergence across Ecuador's provinces can be confirmed with a speed of convergence approximating Barro's iron‐law of 2% per annum. In contrast to the expectations of finding convergence over recent years, the major progress in economic convergence was made over the 1992–2002 period. This was the period with the highest political and economic uncertainty. Investigating convergence in human development indicators such as infant mortality rates suggests that the boom‐financed period of economic prosperity did however coincide with a significant catchup of provinces lagging in human development achievements to leaders in this dimension. [ABSTRACT FROM AUTHOR]

Over 40 years of conventional economic analysis has not reached consensus on the effect of foreign aid on recipient country growth. We provide new insight into this relationship by using a network approach to characterize the topological properties of the Organization for Economic Co‐operation and Development (OECD) foreign aid network. Viewing the OECD foreign aid community as an interdependent and complex system, we characterize not only the amount of aid but also the position of both donor and recipient within the network. We find that the degree centrality of the recipient, with an edge inclusion threshold that sets a minimum share of a donor's aid to a particular recipient, is significantly correlated with the growth impact of that donor's aid. Contrarily, aid is uncorrelated with growth with a recipient‐side filter on the importance of the donor to the recipient. These results suggest that the importance of a recipient within the donor's network, rather than the volume of aid alone, is associated with the growth impact of bilateral aid. We explore mechanisms for these findings that include the complementarity of aid from multiple attentive donors. Our findings speak to the aid–growth puzzle and suggest that network metrics may illuminate non‐obvious channels of aid impact. [ABSTRACT FROM AUTHOR]

The presence of crime is often considered as one of the most important social variables to be negatively associated with economic development. As is well known, Italy exhibits an economic divide between its central-northern and southern regions. This paper tries to ascertain whether there is also a divide in the diffusion of crime. To this purpose, Italian provinces are classified into groups by using a new methodology that combines cluster analysis with time series cross-section data. The statistical searches for groups are carried out by using an unbalanced time series cross-section data-set made up of yearly observations. The results of the analysis show that crime is not inextricably tied to certain geographical locations, and not others, as is usually believed. [ABSTRACT FROM AUTHOR]

This paper considers how monopoly power affects the relationship between economic integration and economic growth that is not biased by a scale effect. In a two-country model of trade, productivity growth is generated by firm-level investment in process innovation, and the location of economic activity is determined by relative market size, trade costs and imperfect knowledge diffusion. Equilibrium features the partial concentration of manufacturing and the full concentration of innovation in the larger country. Increased economic integration raises the concentration of manufacturing in the larger country, and when monopoly power is strong, leads to decreased product variety, accelerated productivity growth and greater national welfare. With weak monopoly power, however, it raises product variety and dampens productivity growth, but may benefit or hurt welfare. [ABSTRACT FROM AUTHOR]

This paper introduces foreign direct investment ( FDI) as an endogenous variable based on a neoclassical model of economic growth and investigates the impact of FDI on income convergence in China using provincial panel data from 1991 to 2007. A spatial model is later exploited to further examine the effect of FDI on convergence in China in light of remarkable and positive spatial correlations among neighboring regions. Results of estimates confirm the role of FDI inflow as a significant driving force to promote conditional convergence in China after the early 1990s. They also confirm that the non-spatial classical model underestimates the impact of FDI on regional economic growth and also underestimates the speed of convergence. [ABSTRACT FROM AUTHOR]

Convergence among nations that share the same preferences and technologies is a key result of the closed-economy neoclassical growth framework that has received substantial support in the data. However, Heckscher- Ohlin versions of the two-sector neoclassical growth model predict that nations that differ in their capital-labor ratios may not converge to the same steady state, even if they are identical in all other aspects. This is a puzzling result that warns us about potential dangers of international trade. In this paper we show that when land, an input in fixed supply, is introduced into the model, international trade in goods no longer limits the capacity of poor nations to catch up with the advanced world. [ABSTRACT FROM AUTHOR]

This paper discusses exchange rate policies in East Asia. In particular, we explore whether actual policies that have been implemented by East Asian countries after the Asian Financial Crisis follow or deviate from theoretically 'desirable' policies over the medium and long terms. On theoretical analysis, we show the relative superiority of a basket-peg regime with the basket weight rule when compared with a floating regime implementing the interest rate rule or money supply rule. For countries that currently adopt a fixed exchange rate regime, they would be better off shifting toward either a basket-peg or a floating regime over the medium term. A shift to a basket peg is more preferred when compared with a shift to a floating regime when the exchange rate fluctuations are large. [ABSTRACT FROM AUTHOR]

The paper is devoted to construction of optimal trajectories in the model, which balances growth trends of investments in capital and labor efficiency. The model is constructed within the framework of classical approaches of the growth theory. It is based on three production factors: capital, educated labor and useful work. GDP level is described by a production function of the Cobb- Douglas type. The utility function of the growth process is given by an integral consumption index discounted on the infinite horizon. The optimal control problem is posed to balance investments in capital and labor efficiency. The problem is solved on the basis of dynamic programming principles. A novelty of the solution consists in constructing nonlinear stabilizers constructed on the feedback principle, which leads the system from any current position to a steady state. Growth and decline trends of the simulated trajectories are studied for all components included in the model. [ABSTRACT FROM AUTHOR]

This article analyses the pattern of capital accumulation in Africa and its interaction with political fragility. Political fragility, defined as armed conflict or civil war, retards or reverses gains with respect to capital accumulation, slowing long‐term economic growth. Many countries experience negative rates of capital accumulation, particularly during periods of acute political instability. In post‐war periods, countries generally continue to experience capital destruction, lending support to the "war ruin hypothesis." This has implications for long‐term economic growth in view of the strong association between capital accumulation and economic performance. The main policy implication of the analysis is that African countries and their international partners should pay more attention to capital accumulation, including capital reconstruction after periods of political instability, to lay the foundations for sustainable economic growth. [ABSTRACT FROM AUTHOR]

Singapore is an interesting example of how the pattern of foreign investment changes with economic development. This paper studies inbound and outbound investment between Singapore and a sample of industrialized and developing countries over the period 1984-2007. Singapore's investments from industrialized nations shifted into skill-seeking activities, while its investments in developing countries became concentrated in labor-seeking production. The knowledge-capital model is used to analyze the determinants of these shifts. The estimates suggest that a 10% increase in Singapore's skill differences with developing countries resulted in a 15.2% increase in outbound stocks of investment to the average recipient nation. A 10% decline in skill differences with industrialized countries after 1995 resulted in a 3.6% increase in inbound stocks from the average parent nation. [ABSTRACT FROM AUTHOR]

This paper presents a New Economic Geography model of structural change, agglomeration and growth. Assuming a non-homothetic preference structure, our results show that a progressive reduction of trade costs allows the economy to pass from a pre-industrialized to an industrialized stage and then, within the latter, from a dispersed to an urbanized regime. However, the introduction of capital accumulation and the dynamic setting of our model opens the door to a richer set of implications. First, an additional stage is introduced as, for some intermediate values of trade costs, a multiple equilibria regime emerges with simultaneously stable symmetric and core-periphery equilibria. Second, the introduction of non-homotheticity introduces a new channel through which growth is affected by trade costs and agglomeration. In particular, integration is always growth-enhancing while agglomeration is growth-detrimental. [ABSTRACT FROM AUTHOR]

This paper performs panel regressions of output per worker, capital intensity, human capital, and total factor productivity in Latin America on measures of economic freedom in five policy areas. Results show that a smaller government raises output per worker in Latin America but not in the OECD. Stronger property rights and a tighter monetary policy also raise output per worker, but greater freedom to trade internationally does not, despite doing so in the OECD. Deregulation lowers output per worker in both Latin America and the OECD. Finally, a tighter monetary policy raises total factor productivity ( TFP) but reduces capital intensity in Latin America, while deregulation raises capital intensity but lowers TFP in both sets of countries. [ABSTRACT FROM AUTHOR]

This paper analyzes the forward linkages of a multinational's investment in a resort that kicks off tourism activity in a less developed country. We show that, under quite natural assumptions, overnight stays are increasing in the number of differentiated tourism-related goods and services. These goods and services, if supplied by the local community, represent forward linkages of FDI in tourism. We investigate the multinational's incentives to promote, reduce or eliminate these forward linkages and the effectiveness of some policy instruments available to a local government to leverage on the presence of FDI and to stimulate domestic entrepreneurship. [ABSTRACT FROM AUTHOR]

Malaria tends to have a negative correlation with national income per capita. Many existing studies emphasize how falling rates of malaria can enhance economic development due to the beneficial effect on human capital. This paper emphasizes that causality may also run in the opposite direction, in particular, that higher incomes-arising for reasons having nothing to do with human capital-may allow for increased prevention and treatment of malaria, and therefore contribute to the negative correlation. We analyze the malaria-income relationship for 100 endemic countries over a 17-year period using a simultaneous equations model that accounts for reverse causality and incidental associations. For most countries, income growth has been the most important driver of the negative correlation between malaria and income. Although reducing malaria may be its own reward, it takes much more than reductions in malaria to foster development. This holds widely for different samples of countries. [ABSTRACT FROM AUTHOR]

The papers in this special issue represent some of the most comprehensive analyses of the implications of climate change for developing countries undertaken to date. The papers employ a bottoms-up systems approach whereby the implications of climate change are evaluated using structural models of agriculture and infrastructure systems. The authors of the paper hail from multiple disciplines. This comprehensive, multi-disciplinary, structural approach is designed to allow for more robust insight into the potential implications of climate change. The approach also allows for experimentation with alternative policy options for achieving development objectives in the context of climate change. [ABSTRACT FROM AUTHOR]

Why is the economic growth rate so low in poor countries? This paper offers an explanation by using a simple two-sector AK growth model with intersectoral linkages and high relative prices of intermediate goods. Intersectoral linkages lead to two balanced growth paths (BGPs). The high-growth BGP is a source. The low-growth BGP is a sink because it has a small final goods sector, small intersectoral spillovers from the final goods sector to the intermediate goods sector, and small marginal products in the intermediate goods sector, yielding high relative prices of intermediate goods. The low-growth BGP is an attractor and thus development trap. To produce a big push effect, this paper analyzes the first-best policy and finds that a subsidy to own consumption and a provision of public goods to the final goods sector can internalize the external effect and render the low-growth BGP infeasible. As a result, there is only the high-growth BGP. [ABSTRACT FROM AUTHOR]

The link between foreign aid and economic growth has been a controversial issue with no strong consensus so far. This paper argues that a possible reason why some studies may conclude that aid is ineffective in promoting economic growth might be that not all aid is given for development purposes (i.e. aid given for strategic considerations, humanitarian reasons or emergency relief). This study classifies foreign aid into four subcategories: agricultural aid, social infrastructure aid, investment aid, and non-investment aid. Using the generalized method of moments (GMM) estimation technique on a Barro type growth regression with panel data from the aid recipient economies, this paper finds that when aid is directed to the agricultural sector of the developing countries, it is positively and significantly related to growth and can affect economic growth in the short run. [ABSTRACT FROM AUTHOR]

This paper investigates empirically the relationship between two channels of external openness: international trade, foreign direct investment (FDI), and the rate of economic growth implied by the leader-follower model. The predictions of the theory are tested for the group of 97 developing countries in the period of 1974-2006 using static and dynamic panel data estimation methods. The estimation results show that both international trade and FDI positively contribute to growth. [ABSTRACT FROM AUTHOR]

What is the relationship between trade and economic growth? Does trade positively affect economic growth? Owing to the ambiguity of this relationship, the empirical relationship has remained open ( Rodriguez and Rodrik, 2001 ; Baldwin, 2003 ). This paper introduces “trade structure” variables, borrowed from the paper of Lederman and Maloney (2003 ), and applies them to the relationship. A dynamic panel estimation for the data of 66 countries during 1991–2004 is used to verify the validity and robustness of the relationship. Trade structure variables show strong evidence of positive effects on growth. Free-trade agreements/areas (FTAs) also enhance economic growth. East Asia shows a different relationship between trade and growth than the world and reflects a weaker role of FTAs in its growth. [ABSTRACT FROM AUTHOR]

This paper examines the impact of foreign aid on the process of economic development in India by controlling for the degree of financial liberalization. A composite index is constructed using the method of principal component analysis to capture the joint influence of various financial sector policies. The results show that while foreign aid exerts a direct negative influence on output expansion, its indirect effect via financial liberalization is positive. Therefore, an important implication of the findings in this paper is that adequate liberalization in the financial system of the host country is a crucial requirement for effective foreign aid. Our results are robust to a number of control variables and estimation techniques. [ABSTRACT FROM AUTHOR]

Considering sustainability a matter of intergenerational welfare equity, this paper examines whether an optimal development path can also be sustainable. It argues that the general 'zero-net-aggregate-investment' condition for an optimal development path to be sustainable in the sense of the maximin criterion of intergenerational justice is too demanding to be practical, especially in the context of developing countries. It further argues that while the maximin criterion of sustainability may be appealing to the rich advanced industrial countries, for the poor developing countries it implies equalization of poverty across generations, and as such is too costly a moral obligation to be acceptable. The paper suggests that a compromise development policy that follows the optimal growth approach but adopts certain measures to mitigate both the intergenerational and intragenerational welfare inequalities may be more appropriate for these countries. Some of the principal elements of such a policy are highlighted. [ABSTRACT FROM AUTHOR]

This paper continues the study of optimal fiscal policy in a growing economy by exploring a case in which the government simultaneously provides three main categories of expenditures with distortionary tax finance: public production services, public consumption services, and state-contingent redistributive transfers. The paper shows that in a general-equilibrium model with given exogenous fiscal policy, a nonmonotonic relation exists between the suboptimal long-run growth rate in a competitive economy and distortionary tax rates. When fiscal policy is endogenously chosen at a social optimum, the relation between the rate of growth and tax rates is always negative. These two properties suggest that an alternative set of government policy instruments affects the response of private sector investment to fiscal policy. Moreover, the different properties of exogenous and endogenous fiscal policy theoretically account for the difference in the relation between economic growth and fiscal policy in empirical studies. [ABSTRACT FROM AUTHOR]

Foreign direct investment (FDI) is blamed for being one of the main factors widening regional inequality in Chinese regions since it is highly unevenly distributed spatially. If this logic were true, then controlling the scale of FDI could be a solution to reduce regional inequality. However, it is difficult to reconcile the positive effect of FDI on economic growth with its potential “negative” effect on regional inequality. Using the largest panel dataset covering all the Chinese regions over the entire period 1979–2003 and employing an augmented Cobb–Douglas production function, this paper proves that FDI has been an important factor responsible for regional growth differences in China. However, it suggests that FDI cannot be blamed for rising regional inequality. It is the uneven distribution of FDI instead of FDI itself that has caused regional growth differences. The research results have important policy implications on regional development in China relating to FDI. [ABSTRACT FROM AUTHOR]

This paper examines the causal relationship between financial development and economic growth for six Middle Eastern and North African countries (Algeria, Egypt, Israel, Morocco, Syria, and Tunisia), within a quadvariate vector autoregressive framework. We employ four different measures of financial development and apply the augmented vector autoregression vector (VAR) methodology of Toda and Yamamoto to test for Granger causality. Our empirical results strongly support the hypothesis that finance leads to growth in five out of the six countries. Only in Israel could weak support be found for causality running from economic growth to financial development but no causality in the other direction. These findings suggest the need to accelerate the financial reforms that have been launched since the mid 1980s and to improve the efficiency of these countries’ financial systems to stimulate saving/investment and, consequently, long-term economic growth. [ABSTRACT FROM AUTHOR]

In this paper we present an endogenous growth model with foreign transfers for public capital formation in order to analyze the implications for growth maximization when the public sector in recipient countries co-finances investment projects. Our main innovation is to show that, first, there is a unique growth-maximizing absorption rate of funds that decreases with the co-financing ratio and, second, that high amounts of assistance may be an impediment to growth due to the excess domestic taxation required to co-finance investment projects. We then derive a policy rule for designing the growth-maximizing co-financing share under a given level of assistance. Finally, we also highlight some implications for EU regional policies, which aim at fostering growth in poorer EU countries by co-financing public capital formation. [ABSTRACT FROM AUTHOR]

The impressive economic growth in a select group of Asian economies in the last several decades prompts some to argue that authoritarianism helps rapid economic growth while democracy hampers it. In this paper, we used the panel data approach to test this hypothesis for seven Asian economies, including South Korea, Singapore, and China. Our results reject the strong version of this hypothesis but fail to reject the weak version of it. Specifically, we found insignificant impacts of political freedom but significant effects of economic freedom on advancing economic convergence in these economies. [ABSTRACT FROM AUTHOR]

This paper formulates a two-country by two-factor by two-good dynamic Chamberlin–Heckscher–Ohlin model of international trade with endogenous time preferences. After proving the existence, uniqueness and local saddle-point stability of the steady state, we examine the relationship between initial factor endowment and trade patterns in the steady state. It will be shown that (i) given that the representative household in each country supplies an equal amount of labor, only intra-industry trade occurs in the steady state and (ii) other things being equal, the country with higher labor efficiency becomes the net exporter of the labor-intensive good. [ABSTRACT FROM AUTHOR]

This paper utilizes a general equilibrium R&D model of endogenous growth via increasing capital variety to examine the impact of alternative policies on productivity and economic growth. The model is calibrated using data from the Canadian economy. Findings reveal that direct incentives such as subsidies to R&D activities would have the highest productivity impact on the Canadian economy, that an increase in subsidies to the users of R&D capital (output) would have a positive but smaller impact, and trade liberalization would have minimal effects on productivity growth via its impact on international R&D spillovers. [ABSTRACT FROM AUTHOR]

This paper examines the effects of fiscal deficits on the current account deficits in the Indian economy. In many developing countries, fiscal deficits are mostly financed through monetization, causing crowding out of private investment expenditures. However, fiscal deficits in India are mostly financed through official borrowings from various external sources, leading to higher interest payments and outgoings on the external account. Such a policy could eventually precipitate balance of payments crises despite favorable trade account and real exchange rate. Data over three decades for the Indian economy show that, in addition to the real exchange rate and the ratio of private investment to GDP, fiscal deficits significantly contribute to the current account deficits. [ABSTRACT FROM AUTHOR]

Empirical evidence suggests (i) that the real exchange rates of developing economies show less persistence than do those of more advanced economies, and (ii) that the elasticity of substitution between capital and labor tends to increase from below unity for less developed economies to above one for more advanced economies. This paper shows how the introduction of sectoral adjustment costs in a two-sector model of a small open economy, together with CES production functions, provides a very natural explanation of this empirical regularity. Other aspects of the relationship between the technologies and the speed of convergence of the real exchange rate are also discussed. [ABSTRACT FROM AUTHOR]

This paper studies technology adoption in an optimal growth model with embodied technical change. The economy consists of the final good sector, the capital sector, and the technology sector which role is the imitation of exogenous innovations. Scarce labor resources are allocated to the technology and final good sectors. The final good is allocated to consumption and to the capital sector. The authors analytically characterize the long run optimal allocations. Using a calibrated version of the model, they find that an acceleration in the rate of embodied technical change should not be responded by an immediate and strong adoption effort. Instead, adoption labor should decrease in the short run, and the optimal technological gap is shown to increase either in the short or in the long run. The state of the institutions and policies around the technology sector is key in the design of the optimal adoption timing. [ABSTRACT FROM AUTHOR]

Most international trade models fail to account for the fact that almost all goods must pass through the distribution sector. The authors compare different approaches to modeling distribution within an Applied General Equilibrium framework and find that such modeling may significantly affect trade opening simulations. They also predict large potential gains from streamlining distribution. For instance, a 10% reduction in Japan's final goods distribution margins would benefit it as much as worldwide free trade would. They also find that, compared to trade opening, reducing margins leads to smaller inter-sectoral production shifts and thus may engender less political opposition. [ABSTRACT FROM AUTHOR]

This paper argues that an increase in the inequality of wealth prompts a stronger quest for status that in turn fosters the accumulation of wealth. It proposes a measure for an individual's want of social status. For a given level of a population's wealth, the corresponding aggregate measure of want of social status is shown to be positively related to the Gini coefficient of wealth inequality. Hence, the Gini coefficient and growth are positively correlated, holding the population's wealth constant. [ABSTRACT FROM AUTHOR]

In an overlapping generations economy, households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether a household faces a single or double enforcement problem as a result of its own decision about whether or not to undertake costly information acquisition. The equilibrium choice of contract depends on the state of the economy which, in turn, depends on the contracting regime. Based on this analysis, the paper provides a theory of the joint determination of real and financial development, with the ability to explain both the endogenous emergence of stock markets and the complementarity between debt finance and equity finance. [ABSTRACT FROM AUTHOR]

The relationship between exports and economic growth has been analysed by a number of recent empirical studies. This paper re-examines the sources of growth for the period 1971–2001 for India. It builds upon) model to investigate empirically the relationship between export growth and GDP growth (the export led growth hypothesis), using recent data from the Reserve Bank of India, and by focusing on GDP growth and GDP growth net of exports. We investigate the following hypotheses: (i) whether exports, imports and GDP are cointegrated using the Johansen approach and Breitung's nonparametric cointegration test; (ii) whether export growth Granger causes GDP growth; (iii) and whether export growth Granger causes investment. Finally, a VAR is constructed and impulse response functions (IRFs) are employed to investigate the effects of macroeconomic shocks. [ABSTRACT FROM AUTHOR]

The paper attempts to combine the traditional learning model with the recent theory of economic growth using Maddison's long-run real GDP per capita data of the three fastest growing countries in East Asia: Korea, Taiwan, and Japan. The authors first explain games of catching-up among nations, and then explain the learning coefficients of Taiwan and Korea with Japan and the United States through periods before and after World War II. The model of leaning leads to the logistic model of economic growth of convergence between two countries. Using time-series data, the coefficients of a logistic model are estimated to confirm that the real GDP per capita of Taiwan and Korea are converging to that of Japan and the United States, respectively. Similarly, Japan's GDP per capita converges to that of the United States. The time required for finite convergence for these countries is also estimated. [ABSTRACT FROM AUTHOR]

The paper uses a dynamic equilibrium model to explain the concurrence of economic growth and business cycles. Introducing durable goods into a model with ex-ante identical consumer–producers and economies of specialized learning-by-doing, the author shows that when job-shifting costs, economies of specialized learning-by-doing, and trading efficiency are sufficiently large, a dynamic equilibrium with business cycles and unemployment might be Pareto superior to noncyclical growth patterns. Long-run cyclical unemployment still exists when the credit market is imperfect. Extending the model into overlapping generations framework, the author shows that complete division of labor with business cycles would still occur in equilibrium. [ABSTRACT FROM AUTHOR]

The paper analyzes the impact on economic growth of public investment spending and other relevant variables (such as human capital) for nine major Latin American nations over the 1983–93 period. The results suggest that both public and private investment spending contribute to economic growth. Overall central government consumption expenditures, on the other hand, are found to have a negative effect on private investment and growth. Finally, public expenditures on education and healthcare are found to have a positive and statistically significant effect on private capital formation and long–term economic growth. From a policy standpoint, the results suggest that indiscriminate cuts in public and private investment spending are likely to be counterproductive in the long run, and more importantly, scarce public expenditures should be channeled to the promotion of new human capital (via primary and secondary education) and the maintenance of existing human capital (through healthcare expenditures). [ABSTRACT FROM AUTHOR]

The paper dissects the hypothesis that democracy is inimical to economic development. The historical origin of this perspective is presented and its key theoretical and empirical assumptions are examined and assessed. The chief conclusion is that there is no necessary tradeoff between democracy and development. When compared to authoritarian regimes, democracy is more likely to foster an environment that facilitates the innovative and entrepreneurial process so essential for sustained development. On the other hand, democracy is better for development only when accompanied by an expansion of markets and competition. Democracy without markets is unlikely to deliver significant growth. In this context, liberalized international trade can act in a productive symbiosis with democratic institutions to promote development by facilitating bilateral flows of ideas, knowledge, goods, services, and technology. [ABSTRACT FROM AUTHOR]

This introduction to a special issue of the Review of Development Economics provides a contextual setting to a collection of articles that originated in a conference on "Democracy, Participation, and Development" that was sponsored by the Program in Economic Policy Management (PEPM) at Columbia University in April 1999. [ABSTRACT FROM AUTHOR]

The paper examines how democracy affects long-run growth by influencing the quality of governance. Empirical evidence is first presented showing that measures of the quality of governance are substantially higher in more democratic countries. A general-equilibrium, endogenous growth model is then built to show how a governance-improving democracy raises growth. In this model, stronger democratic institutions influence governance by constraining the actions of corrupt officials. Reducing corruption, in turn, stimulates technological change and spurs economic growth. Empirical evidence is presented showing that democracy is in fact a significant determinant of total factor productivity (TFP) growth between 1960 and 1990 in a cross-section of countries. But this contribution occurs only insofar as stronger democratic institutions are associated with greater quality of governance. [ABSTRACT FROM AUTHOR]

Using data from the Qing dynasty, we investigate the long‐run impact of early development on today's living standards in China. We use city‐level population density in 1776 as a measure of early economic prosperity, and examine how it is associated with today's development indicators such as the average night light density, GDP per capita, average years of schooling, and trade openness. We find that cities which were more prosperous during the Qing dynasty are now also brighter, richer, more educated, and more open. [ABSTRACT FROM AUTHOR]

We show that a fertility rebound can occur as the female wage rate rises concomitantly with economic development. Under plausible conditions, capital accumulation raises the marginal product of labor and hence the female wage rate. Unless the economy is trapped in a lower equilibrium, the fertility rate starts to decline at a certain level of the female wage rate and then turns upward at a higher wage level, presenting a fertility rebound. For such fertility rebounds to appear without policy intervention, the availability of external child care at high female wage rates is crucially important. The external child‐care price must be lower at high female wage rates. Otherwise the fertility rate might continue to decline. [ABSTRACT FROM AUTHOR]

Abstract: China's abundant supply of cheap labor has played an important role in its remarkable economic and social development. Recently, however, China has experienced a labor shortage and rising wages, implying that the country's long‐lasting competitive advantage based on its “unlimited” labor supply and low costs is vanishing. We find that structural demographic changes, regional economic growth disparities and the household registration system may have caused the labor shortage. Furthermore, China's continued low wages, relatively low labor share of gross national income, declining proportion of household consumption to GDP, and productivity improvements as well as increasing unit labor costs can be used to explain the recent wage increases. The dramatic development of its labor market signals that China is entering a new stage of economic development. The country's prior successful model of economic development needs to be adjusted to adapt to the new situation in its labor market to achieve sustainable economic development. [ABSTRACT FROM AUTHOR]