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We employ the treatment effect model to examine whether equity market crises are significantly associated with economic growth. By using a variety of indicators of equity market crises, our empirical results show that they have significantly reduced economic growth, especially in developed countries and when the stock market price dropped by 50% or more. This adverse effect was aggravated by the onset of the 2008 global financial crisis. Our empirical results also show that the most important channels of this adverse effect of equity market crises on aggregate growth are consumption and investment.

This paper offers a comparative analysis of regions in the United States (US) and European Union (EU) countries before and during the aftermath of the global financial crisis. By using a regional taxonomy approaching a functional definition, we can compare in a more meaningful way the regions in EU countries and the US. We use of a newly developed OECD functional typology of TL3 (Territorial Level 3) regions, which classifies regions into five categories: two are metropolitan regions (with a very large or large city) and three are regions with accessibility to cities of different sizes. Over the period 2000–17, we assess which types of regions have been most resilient or vulnerable to the effects of the crisis. To identify structural factors, we analyse the evolution of the contributions of regions to aggregate GDP and productivity growth. Some structural patterns emerge, which are then related to the evolution of regional inequalities between 2000 and 2017. Overall, we found that regional inequalities seem mainly related to structural factors rather than macroeconomic shocks, such as the global financial crisis.

China's real estate has been a key engine of its sustained economic expansion This paper argues, however, that even before the COVID‐19 shock, a decades‐long housing boom had given rise to severe price misalignments and regional supply–demand mismatches, making an adjustment both necessary and inevitable We make use of newly available and updated data sources to analyze supply–demand conditions in the fast‐moving Chinese economy The imbalances are then compared to benchmarks from other economies We conclude that the real estate sector is quite vulnerable to a sustained aggregate growth shock, such as COVID‐19 might pose In our baseline calibration, using input–output tables and taking account of the very large footprint of housing construction and real estate related sectors, the adjustment to a decline in housing activity can easily trim a cumulative 5–10 percent from the level of output over a period of years

In this paper, I investigate the effect of financial sector development on the growth volatility by using the data of 50 countries. The empirical results show that the aggregate growth volatility declines from 1997 to 2014 in the global perspective while the advanced countries have much smaller growth volatility than the developing countries. Using the dynamic panel threshold model, I find that financial sector development significantly reduces growth volatility, especially in its lower regime. Besides, financial sector development magnifies the shock of inflation volatility towards growth volatility in its higher regime. My results reveal the importance to keep the financial sector development in one optimal level, which is beneficial to reduce aggregate fluctuations and dampen the inflation shocks.

This study extends a two-sector Kaleckian model of output growth and income distribution by incorporating endogenous labour productivity growth. The model is composed of investment goods and consumption goods production sectors. The impact of a change in wage and profit shares on capacity utilisation and output growth rates at the sectoral and aggregate levels are identified. The study reveals short-run cyclical capacity utilisation rates and productivity growth dynamics. Even if the short-run steady state is stable, the capital accumulation rate in the consumption goods sector must decrease more than that in the investment sector for long-run stability. When simultaneous rises in profit shares in both the sectors affect long-run aggregate economic growth differently at a steady state, the distributional interests between the same class in different sectors may hamper the long-run economic growth. A policy message is that the effect of income distribution on industrial output growth is not always beneficial. These phenomena are specific to two-sector models and cannot be observed when using conventional aggregate growth models.

Population growth has declined markedly in almost all major economies since the 1970s. We argue this trend has important consequences for the process of firm dynamics and aggregate growth. We study a rich semi-endogenous growth model of firm dynamics, and show analytically that a decline in population growth reduces creative destruction, increases average firm size and concentration, raises market power and misallocation, and lowers aggregate growth in the long-run. We also show lower population growth has positive effects on the level of productivity, making the short-run welfare impacts ambiguous. In a quantitative application to the U.S, we find that the slowdown in population growth since the 1980s and the projected continuation of this trend accounts for a substantial share of the fall in the entry and exit rates and the increase in firm size. By contrast, the impact on markups is modest. The effect on aggregate growth is positive for around two decades, before turning negative thereafter.

Using a comprehensive data set of 22 industries in 86 countries over the period 1980–2012, we empirically identify the effect of inequality on industry-level value added growth. We show that an unequal income distribution increases the growth rates of physical-capital-intensive industries and reduces the growth rates of human-capital-intensive industries by lowering human capital and raising physical capital accumulation. Our study suggests that the empirical difficulty to identify a monotonic relationship between inequality and aggregate growth reflects differences in the relative importance of human and physical capital in a country’s production structure.

The aim of this paper is to present an overview of the results of a recent research project by the Bank of Italy. The paper analyses the interplay between historical origins, congestion costs, and agglomeration benefits in shaping the Italian urban system. It shows that urban agglomeration externalities (on wages, productivity, or innovation) tend to be smaller in Italy than in other developed countries; it also shows that the costs of congestion are relatively high and that high housing cost—explained by both physical constraints and public administration inefficiencies—discourage mobility. These features have a relevant impact on the development of an advanced urban system with possible negative consequences on the country’s ability to grow.

The study conducted a sectoral analysis of the contribution of foreign direct investment on Nigeria economy between 1980-2019. Time series data from Central Bank of Nigeria and World Bank Development Indicators was used to estimate the relationship using Auto Distributed Lag Model (ARDL). It was revealed that foreign direct investment not only exert a direct positive effect on the aggregate growth rate of Nigeria economy but also exert a positive indirect effect through labour. It was also discovered that agriculture sector is the only sector that does not enjoy significant contribution of foreign direct investment in Nigeria while petroleum and Gas experience the greatest growth attributable to foreign direct investment in Nigeria. The study contributed to literature by not only examining the indirect effect of foreign direct investment on Nigeria aggregate growth rate through labour but also the effect of foreign direct investment on the sector-by-sector growth rate.

In low-income countries, labor productivity crucially depends on per capita consumption that contributes to good nutrition, health, and education. A higher level of per capita consumption improves each worker’s labor productivity. This concept of productive consumption was first formulated in the aggregate growth model by Steger (J Econ Dyn Control (2002) 26:1053–1068) and analyzed using numerical simulations. In this chapter, we investigate the stability of the labor-efficiency model of productive consumption by extending Steger’s model to a two-sector model. We find that a steady state uniquely exists and is saddle-point stable, providing theoretical support for Steger’s simulation results.

Large incumbent firms routinely acquire startups. This may stimulate aggregate growth, as acquisitions provide an incentive for startup creation and could transfer ideas to more efficient users. However, large firms do not always implement the ideas of their acquisition targets. Moreover, frequent acquisitions lower competition, which has an ambiguous effect on the innovation incentives of incumbents. To assess the net effect of these forces, we build a new endogenous growth model with heterogeneous firms and acquisitions. We discipline the model by matching aggregate moments and evidence from a rich micro dataset on acquisitions and patenting. Preliminary findings indicate that stricter antitrust policy would trigger somewhat higher growth.

Incorporating skill-biased technological changes and education (skill-acquisition) costs into a simple intergenerational mobility model, this chapter analyzes the dynamics of income inequality and intergenerational mobility, and the effects of technological progress on inequality in an endogenously growing economy. The education cost plays a crucial role in the model. If it does not increase sharply with technological progress, the economy monotonically converges toward the steady state. In this case, the skill-premium puzzle can be explained if human capital greatly contributes technological progress. In contrast, when the cost increases rapidly with technological progress, then aggregate growth, mobility and inequality exhibit cyclical behavior. In addition, a possibility is pointed out that if human capital greatly influences technological progress, then a one-time increase in exogenous technological progress decreases aggregate growth not only in the transition but also at the steady state.

This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995, and subsequently had three distinct peaks -- during the tech boom, the financial crisis, and the coronavirus epidemic. Cross-sectional uncertainty has had a mixed relationship with overall economic activity, and aggregate uncertainty is much more powerful for forecasting aggregate growth. The data and moments can be used to calibrate and test structural models of the effects of uncertainty shocks. In international data, we find similar dynamics and a strong common factor in cross-sectional uncertainty. The data is available on our websites. A companion paper [Dew-Becker and Giglio, "Real-time forward-looking skewness over the business cycle"] finds firm-level skewness is significantly procyclical.

Organic agricultural products have a unique method of production which protects the environment and minimizes the erosion of soil and thereby reduces pollution by encouraging a balanced system of usage of organic standard for agriculture products in India and other economies. The main objective of this case study is to assess the factors that influence the utilization of the geographical area and export activities of organic products in the Asian continent including India. This case study highlights the issues related to organic farming and is developed by using secondary data to assess the factors that influence agricultural organic products. The secondary data were obtained from exhaustive literature reviews of journals and internet sources. The scope of the case study is limited to the organic products and land areas which are used for its cultivation. The analysis of secondary data reveals that along with the increase in production, there is also an increase in the different varieties o forganic agricultural products. It is evident that organic farming has increased due to increased land usage for the cultivation in recent years in the Asian continent. From the study it is observed that the cumulative aggregate growth rate has increased from 6% to 29%during the year 2010-11 till 2015-16.

We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity of a firm relative to others. In contrast, aggregate growth is linked to average firm‐level productivity growth and firm age. We formalize this intuition through a tractable model of endogenous aggregate growth and firm dynamics where firms realize positive returns to investment with some probability. We find that cross‐country disparities in this probability can account for two‐thirds of the variation in aggregate growth. (JEL D21, D22, E23, O4)

This paper reports some stylised facts on firm dynamics in Hungary for the period 2001–2015. We find that young firms tend to be small. They grow fast, but at the same time they are risky, have a high exit rate and their productivity is lower than that of older firms. Despite their small share in aggregate output, their contribution to aggregate growth is significant. Their dynamism comes from their young age rather than from their small size. Export performance is somewhat different, as older firms remain more active and make a significant contribution to aggregate growth. During the crisis, young firms still made a positive contribution to growth, but the deteriorating performance of older firms dominated the aggregate picture, because of their large share in production. The behaviour of firm groups by size and age varied during the crisis and the recovery. Interestingly, the recovery seems to be dominated by the lower-end of the distribution of firm population; destruction eased and fewer firms exited, but there was no recovery in gross creation. Firm entry kept falling even during the recovery period, which must have contributed to the sluggish, weak recovery.

We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Most sectors were subject to large negative labor supply and demand shocks in March and April 2020, with substantial heterogeneity in the size of shocks across sectors. Our estimates suggest that two-thirds of the drop in the aggregate growth rate of hours in March and April 2020 are attributable to labor supply. We validate our estimates of supply shocks by showing that they are correlated with sectoral measures of telework.

I develop a method to measure and separate the production misallocation caused by failures in factor markets versus financial markets. When I apply the method to rice farming villages in Thailand I find surprisingly little misallocation. Optimal reallocation would increase output in most villages by less than 15 percent. By 2006 most misallocation comes from factor market failures. I derive a decomposition of aggregate growth that accounts for misallocation. Declining misallocation contributes little to growth compared to factor accumulation and rising farm productivity. I use a government credit intervention to test my measures. I confirm that credit causes a statistically significant decrease in only financial market misallocation. (JEL O47, O16, E13)

Trends in aggregate growth and poverty reduction hide a multiplicity of development processes at the local level. The analysis reported in this paper exploits a unique panel dataset of poverty maps covering almost 2400 municipalities in Mexico and spanning 22 years, first, to test hypothesis that there is within-country income convergence. Second, through a decomposition of the poverty convergence elasticity, the analysis investigates whether this convergence, if it exists, has translated into poverty convergence. In a context of overall stagnant economic growth and poverty reduction since 1990, the analysis finds evidence of both income and poverty convergence among municipalities. As a cause of these, the results point to a combination of positive performance among the poorest municipalities and stagnant or deteriorating performance among more well-off municipalities. Redistributive programs such as cash transfers to poor households have played an important role in driving these results by bolstering income growth among the poorest municipalities, while also inducing progressive changes in the distribution of income.

We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Most sectors were subject to large negative labor supply and demand shocks in March and April 2020, with substantial heterogeneity in the size of shocks across sectors. Our estimates suggest that two-thirds of the drop in the aggregate growth rate of hours in March and April 2020 are attributable to labor supply. We validate our estimates of supply shocks by showing that they are correlated with sectoral measures of telework.

We develop an endogenous growth model with heterogeneous firms, intermediate goods, and financial frictions, in which misallocation emerges analytically as a crucial state variable. In equilibrium, misallocation endogenously generates long-run uncertainty about economic growth by distorting innovation decisions, leading to significant welfare losses and risk premia in capital markets. Empirically, we construct a misallocation measure motivated by our model. We find evidence for misallocation-driven low-frequency movements in both aggregate growth and stock returns. A two-factor model with market and misallocation factors prices size, book-to-market, momentum, and bond portfolios with an R-squared and a mean absolute pricing error close to the Fama-French three-factor model.

Existing research on global financial architecture typically focuses on downside corrections in the eventuality of a crisis or on the contribution of financial flows to aggregate economic growth. Such accounts are of limited relevance if the composition of financial flows and aggregate economic growth are heterogeneous. For example, the factors that attract foreign direct investment, foreign portfolio investment, foreign reserve investment and other foreign investments, and the mechanism through which they contribute to economic growth, are often varied. This chapter, by looking at the relationship between the components of financial flows and those of aggregate economic growth, aims to fill a longstanding gap in the literature. Our exposition focuses on two groups of countries, BRICS and the G7, that have notable contrasts across several attributes such as the aggregate growth rates, levels of incomes, patterns of financial flows and demography. The results offer some pertinent guidance for the future development of financial architecture and complementary growth imperatives within both the groups.

Low-molecular-weight (LMW) aggregate is a critical determinant of subsequent protein aggregation, but the aggregate growth kinetics of solid proteins have not been fully characterized. In this study, the high-molecular weight (HMW) aggregate formation process for solid-state proteins and the relationship between aggregation and physical properties of tablets were evaluated using proteins with various initial aggregate ratios. Quantitative changes in monomers, LMW aggregates, and HMW aggregates during storage were measured. The monomer amount decreased uniformly for all proteins. Proteins with low initial LMW aggregates showed remarkable increases in LMW aggregates but little increases in HMW aggregates during storage. Proteins with high initial LMW aggregates showed decreases in LMW aggregates but remarkable increases in HMW aggregates. A correlation analysis and logistic regression indicated that HMW aggregate formation depended on the initial quantity of LMW aggregates. Furthermore, the initial LMW aggregate ratio was related to the disintegratability of protein-containing tablets after storage. These results provide novel insight into solid-state protein aggregation and may guide the prediction of the long-term quality of solid protein-containing pharmaceuticals and foods without storage.

Using a spatial equilibrium model and data of 286 Chinese cities at the prefecture and above- prefecture level from 2002 to 2013, this study estimates the contribution of each city to national GDP growth. The results reveal several interesting patterns. First, what an individual city contributes to aggregate growth is not represented clearly by the city's GDP based on standard accounting calculation. Second, increased real wage dispersion across cities suppressed aggregate GDP by 25.41%. Finally, should cities with high productivity reduce their regulatory constraints to the national level, Chinese GDP would increase by 20.62%.

Using a large firm-level dataset, this paper studies multinational firms׳ performance during the Great Recession. Foreign multinationals grew faster than local firms outside of the crisis, but slower during the crisis. Industry and size differences between domestic and foreign-owned firms account for much of this slowdown. However, multinationals from different countries performed differently during the crisis. The paper then assesses the role of multinationals in the global recession using a quantitative model. Had multinationals׳ relative performance remained unchanged during the crisis, the median country׳s aggregate growth would have been 0.12% higher, with a range of −0.13 to 0.5% across countries.

When does employment growth mirror aggregate growth? Applying a two sector model, where productivity growth differs across sectors of production, this article is concerned with a feature characterising a number of transition economies: a divergence between production and employment growth. In our framework the industrial structure that allows employment growth to mirror output growth is endogenous, and related to a number of industry- and economy-wide characteristics. The article shows how the critical industrial structure necessary for avoiding ‘jobless growth’ is context-specific, questioning a ‘one size fits all’ policy approach when aiming to fulfil the Europe 2020 Strategy.

We provide an analysis that parses out the conditions under which diffusion indices based on disaggregated information are informative about overall economic activity. Building on work by Pinto, Sarte, and Sharp (2015), we highlight the fact that diffusion indices, appropriately scaled, capture contributions of changes in the extensive margin -- e.g. how many sectors are growing or declining rather than by how much individual sectors are growing or declining -- to aggregate growth. In the Fifth Federal Reserve District, for example, this margin captures the bulk of variations in aggregate employment growth. We then show that the Fifth District employment index, produced in real time using firm-level surveys, closely tracks a synthetic diffusion index constructed ex post using observed data. However, we also underscore that diffusion indices have their limitations. In the Fifth District, for example, the growth rate of average wages (relative to its mean) is frequently of a sign opposite to that indicated by changes in the extensive margin. Finally, we explore some of the implications of producing diffusion indices at a more localized level.

The aim of this work was to develop a theoretical model and its computer simulation for the prediction of plant cell aggregate size distribution change with time in batch suspension cultures. We combined the theory of the particle size distribution with the Monod kinetics to describe the plant cell aggregate growth. Since plant cell aggregates can grow to be large, we also included in the model the option to account for the intra-particle molecular diffusional resistance to glucose which was the carbon substrate needed for growth. We obtained the values of the kinetic parameters from the batch growth of Capsicum frutescens (chilli pepper) cell cultures. The maximum specific growth rate was 0.31 day –1 and the Monod constant 16.67 g L –1 . We also measured the aggregate size distributions during batch growth which covered a range of 0.25–7.5 mm. Despite the simplifying assumptions, the simulated size distribution curves followed the experimental trends reasonably. The intra-aggregate mass transfer resistance became important only for the later stages of the batch culture. The model and computer algorithms can serve as a starting point and can be adapted to investigate other plant, animal and microbial systems that show aggregated growth behaviour.

Over an extremely long period of time, real compensation growth does track real output growth. However, for many years the level of male compensation was unusually high relative to productivity, so much of what has happened since 1973 has been a course correction where productivity catches up. Income concentration has risen, but, typically, in the United States periods of increasing concentration have been periods of higher median income growth. The data suggest that the share of earnings going to the top 1 percent peaked around 2000, and that upward income mobility in the United States has not diminished, and is comparable to that in other nations. We do need policy changes to promote upward mobility, both indirectly by encouraging aggregate growth and targeting those that help poor children move ahead.

The paper presents a critical assessment of the Schumpeterian macroeconomic approach to economic growth. Taking as reference a representative sample of important works within this tradition, the paper identifies the main contributions and limitations of the macroeconomic Schumpeterian literature to understanding economic growth. More specifically, the literature review carried out in this paper focuses on three of Schumpeter’s ideas that have become particularly influential in macroeconomic growth theory: (i) the role of technological transfer in productivity growth in follower countries; (ii) the importance of research intensity for technical progress; and (iii) the prominence of technological competitiveness for trade performance. The contribution of the paper is twofold: (i) it provides an organized review of the macroeconomic literature until its present state; and (ii) it indicates important gaps in this literature that should be the focus of further research.

Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.

In this chapter we attempt to find the overall growth rate either from the original set of observations or from the growth rate of each component. The focus of the chapter is to find the aggregate growth rate from the individual growth rates. We have also discussed how the calculation of growth rates can be done using regression technique. Moreover, the formula can compute average growth rate even when there are some zero or negative growth rate. The treatments of cross section data and the time series data are usually quite different. The present chapter unifies the methods in such a way that the formula can be applied both in cross section and time series data. The modified growth rate happens to be an intermediate growth rate, because it lies between geometric and arithmetic mean when all the individual growth rates are positive.

Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.

Italian Abstract: Lo scopo di questo lavoro e presentare una panoramica dei risultati di un recente progetto di ricerca della Banca d’Italia. Il lavoro inizia discutendo come il sistema urbano italiano sia stato, in passato, plasmato dall’interazione tra geografia e eventi storici. Piu recentemente, la crescita delle citta e, in particolare, di quelle piu grandi e stata significativamente condizionata dai costi di congestione. Tali costi, elevati anche nel confronto internazionale, dipendono sia da vincoli fisici allo sviluppo residenziale sia da inefficienze della Pubblica amministrazione e dei sistemi di mobilita. A fronte di cio, i benefici dell’agglomerazione (in termini di salari, produttivita o innovazione) sono in Italia minori rispetto a quelli stimati in altre economie avanzate. Queste caratteristiche hanno un impatto rilevante sullo sviluppo di un sistema urbano avanzato, con possibili conseguenze negative sulla capacita di crescita del paese. English Abstract: The aim of this paper is to present an overview of the results of a recent research project by the Bank of Italy. The paper analyses the interplay between historical origins, congestion costs, and agglomeration benefits in shaping the Italian urban system. It shows that urban agglomeration externalities (on wages, productivity, or innovation) tend to be smaller in Italy than in other developed countries; it also shows that the costs of congestion are relatively high and that high housing cost – explained by both physical constraints and public administration efficiency – discourage mobility. These features have a relevant impact on the development of an advanced urban system with possible negative consequences on the country’s ability to grow.

This paper extends the standard Schumpeterian model of creative destruction by allowing the cost of innovation for followers to increase in their technological distance from the leader. This assumption is motivated by the observation that the more technologically advanced the leader is, the harder it is for a follower to leapfrog without incurring extra cost for using leader’s patented knowledge. Under this R &D cost structure, leaders have an incentive to play an “endpoint strategy": they increase their technological advantage, counting on the fact that followers will eventually stop innovating—allowing leadership to prevail. We find that several results in the standard model fail to hold. In addition to the high-growth steady state in which only followers innovate, there now exists a second saddle-path-stable steady state: a low-growth steady state that features both leaders and followers innovating. A policy that increases monopolistic rents or extends parent duration can push the economy toward the low-growth steady state, causing, in some cases, irreversible harm to long-run growth.

In the late 1990s, China’s industrial sector was dominated by state-owned firms. We document how this changed after 1998. More than 80 percent of the state-owned firms in 1998 were shut down or privatized by 2007. Among firms we classify as state-controlled in 2007, many were restructured and registered as private firms with a controlling share held by a state-owned conglomerate or were new firms established after 1998. In 2007, almost half of the state-controlled firms were registered as private firms, and about 40 percent were new firms established after 1998. The privatization and convergence in labor productivity decelerated after 2007, but the establishment of new state-owned firms continued at roughly the same rate. When we interpret these facts through the lens of an equilibrium model of heterogeneous firms, we find that the transformation of firms that remained under state control and the creation of new state-controlled firms together account for 21 percent of China’s growth from 1998 to 2007 and 18 percent of its growth from 2007 to 2012. However, the exit and privatization of state-owned firms had a negligible effect on aggregate growth.

The distinctive financial goals and constraints of ultra-high-net-worth individuals together with their aggregate growth in assets have led to the emergence of “New Institutional” investing, which includes the best practices from institutional investors but also incorporates the critical element of tax management. The authors design New Institutional asset allocations that incorporate traditional investment metrics in a tax-aware setting. Specifically, they show how risk and after-tax returns need to be combined from inception when seeking an optimal after-tax asset allocation. Diversification is especially important for taxable investors because low asset class correlations can facilitate the inclusion of attractive but tax-inefficient asset classes in a tax-aware allocation.

We examine the asset pricing implications of a production economy whose long-term growth prospects are endogenously determined by innovation and R&D. In equilibrium, R&D endogenously drives a small, persistent component in productivity that generates long-run uncertainty about economic growth. With recursive preferences, households fear that persistent downturns in economic growth are accompanied by low asset valuations and command high-risk premia in asset markets. Empirically, we find substantial evidence for innovation-driven low-frequency movements in aggregate growth rates and asset market valuations. In short, equilibrium growth is risky.

The growing finance wage premium is related to a modest net reallocation of skilled workers from non-finance sectors into finance in a broad sample of 24 countries over 35 years. The reallocation is higher when the finance wage premium grows faster than the contribution of the financial sector to the economy, which we proxy with the relative value added of finance. More innovative sectors and sectors exhibiting lower labor-transition costs face a higher reallocation of skilled workers. Yet, the growing finance wage premium is unrelated to sectoral or aggregate growth, to countries’ innovative capacity, to student enrollment in STEM degrees, and to the riskiness, efficiency, and competitiveness of banking sectors. Overall, the reallocation of skilled labor implied by a growing finance wage premium appears too modest to materially affect economic growth.

Recent decades have seen a substantial increase in the size and influence of the financial industry in advanced economies. Mainstream theory states that the financial sector can increase the efficiency and stability of the real economy by reducing informational asymmetries and transaction costs. Nevertheless, the rise of the financial industry has been accompanied by lower aggregate growth, increased inequality and declining financial stability. With this in mind, the main aim of the present article is to provide a different perspective on the rise of finance in developed countries, by focusing on the impact of financial markets on aggregate growth and economic (in)stability. Specifically, we analyse the role of the bargaining power of financial intermediaries in promoting (or reducing) the entrance of new enterprises in the market and find that the financial sector is essential for the good functioning of the real economy, but that an overdeveloped financial industry can reduce the incentive for new firms to start production, resulting in a negative impact on aggregate growth and economic stability.

Well-financed opposition parties can exert their organizational strength to undercut the territorial advantages of political machines and clientele networks. In the first decade of the twenty-first century, leftist parties in Brazil’s Northeast region brought conservative dominance to an end. The Workers’ Party (Partido dos Trabalhadores, PT) led this shift, not only garnering regional majorities in presidential elections but also winning multiple governorships and increasing its share of federal and state legislative seats in the region. In contrast to arguments attributing recent electoral shifts in the Northeast to civil society, aggregate growth, and conditional cash transfers, we argue that the territorial expansion of the PT organization played a central role. A spike in party finances between 2001 and 2003 enabled the PT, for the first time, to establish party offices in northeastern municipalities from the top down. Drawing from underutilized data and sources, we show that the PT leadership eroded conservatives’ monopoly on rural territory in the Northeast by strategically targeting hundreds of conservative-dominated municipalities and investing resources to stimulate the formation of local offices. The study demonstrates that this top-down territorial targeting produced considerable electoral gains for PT candidates across federal and state races. RESUMO: Partidos de oposicao com amplos recursos financeiros podem exercer seu poder organizacional para enfraquecer as vantagens territoriais de maquinas politicas e redes clientelistas. Nos anos 2000, partidos de esquerda na regiao Nordeste do Brasil (NE) puseram fim ao dominio conservador. O Partido dos Trabalhadores (PT) liderou essa mudanca, obtendo maiorias regionais em eleicoes presidenciais, ganhando governos estaduais e aumentando a proporcao de petistas que representam o nordeste nos diversos niveis do legislativo. Ao contrario de argumentos que atribuem essas mudancas eleitorais a sociedade civil, ao crescimento economico ou as transferencias condicionais de renda, argumentamos que a expansao territorial do PT teve um papel central. Um aumento no orcamento partidario no inicio dos anos 2000 possibilitou que o PT, pela primeira vez, estabelecesse escritorios partidarios em municipios por toda a regiao nordestina. Com base em dados e fontes pouco explorados, demostramos que o PT corroeu o monopolio conservador do territorio rural no NE, estrategicamente identificando centenas de municipios dominados por partidos conservadores e investindo recursos para estimular a formacao de escritorios locais. O artigo demostra que essa penetracao territorial produziu ganhos eleitorais substanciais em eleicoes federais e estaduais.

This paper investigates the effects of R&D subsidies on aggregate product variety and endogenous productivity growth without scale effects. In a two-country model with imperfect knowledge diffusion, the larger country has a greater share of firms with higher productivity levels. The concentration of relatively productive firms increases knowledge flows between firms, causing an increase in firm-level employment in innovation. Accordingly, the aggregate growth rate is higher when counties are asymmetric than when they are similar in size. The larger scale of firm-level innovation activity reduces market entry, however, and aggregate product variety falls. In this framework, national R&D subsidies have positive effects on the industry share, relative productivity, and wage rate of the implementing country. If the smaller country introduces an R&D subsidy, aggregate product variety rises and productivity growth falls. If the larger country introduces an R&D subsidy, productivity growth rises, but aggregate product variety may rise or fall.

The yeast Saccharomyces cerevisiae has emerged as an ideal model system to study the dynamics of prion proteins which are responsible for a number of fatal neurodegenerative diseases in humans. Within an infected cell, prion proteins aggregate in complexes which may increase in size or be fragmented and are transmitted upon cell division. Recent work in yeast suggests that only aggregates below a critical size are transmitted efficiently. We formulate a continuous-time branching process model of a yeast colony under conditions of prion curing. We generalize previous approaches by providing an explicit formula approximating prion loss as influenced by both aggregate growth and size-dependent transmission.

We explore the effect of political uncertainty on innovation. In particular, we examine the differential effects of two sources of uncertainty – leaders’ education levels and political regimes (i.e., presidential vs. parliamentary) – on patent applications. We posit that firms react to political uncertainty caused by the unexpected departure of a national leader by investing in patents as growth options. The empirical design analyzes a panel with information from over 62 million patent applications at the aggregated applicant level. Results show that leaders’ unexpected departures cause, on average, increases of approximately 9% in the aggregate growth of patent applications. We also find that the leader’s level of education and the country’s political regime system have significant effects on the relationship between political uncertainty and innovation. The difference between leaders with high and low levels of education accounts for 21% of the change in the growth of patent applications. Further, the effect of political uncertainty on innovation is amplified in presidential systems, which grant leaders more power and make electoral transitions less predictable. The differences between presidential and parliamentary systems account for approximately 16% of the change in the growth of patent applications. As a robustness check, we utilized a subsample of more than 170,000 firms with local and foreign patent applications, as well as a panel of over 5700 government non-profits, universities, and hospitals with local patent applications. Consistent with our theory, the former react to political uncertainty by investing in patents, while the latter remain unaffected. We contribute by showing the theoretical mechanisms linking leader and regime characteristics with patent applications.

Regional allocation of investment might lead to high rates of aggregate growth accompanied with unequal distribution of income across regions and vice versa. This issue can be tackled using the theory of optimal control. The necessary conditions for an optimal allocation policy are developed in this paper.

Financial factors have been found highly important in influencing firms’ real activities and in promoting aggregate growth. Yet, the linkage between finance and firm-level productivity has been overlooked in the literature. We fill this gap using a panel of 130,840 Chinese manufacturing firms over the period 2001–2007 to estimate a TFP model augmented with cash flow. We find that, especially for illiquid foreign and private firms, productivity is strongly constrained by the availability of internal finance. Furthermore, contrary to private firms, foreign non-exporters display higher dependence of productivity on cash flow than exporters.

We explore education's role in improving the allocation of labor between China's agricultural and nonagricultural sectors and measure the portion of China's recent growth attributable to this channel. Building from micro-level estimates, we find that education's impact on labor reallocation between sectors accounts for about 9 percent of Chinese growth, whereas its impact on within-sector human capital growth explains only 2 percent. Our findings suggest that, when frictions cause large productivity gaps across sectors and returns to education are greater in higher-productivity sectors, education policy may be a useful tool for increasing efficiency.

This paper examines the economic contribution of high-growth firms after their high-growth event. While the central role of high-growth firms for job creation is well-established, little is known about their dynamic development in coming periods. We address this question for the first time by comparing absolute with relative growth measures and use data on private firms in Bulgaria for three consecutive 3-year periods (2001-2004, 2004-2007, and 2007-2010). Next to calculating transition probability matrices to investigate growth in employees in coming periods, we model future employment growth by means of a two-part model with separate equations for the probability of survival and exit as well as for growth of survivors and growth of exits. The decomposition of aggregate growth effects shows that it is central for outcomes whether growth is measured in absolute or relative terms. High-growth firms defined according to an absolute measure show the biggest potential for job creation in coming periods while those measured in relative terms without size threshold tend to be outperformed by other firms. In that regard, both public support programs for high-growth firms as well as researchers should refrain more from exclusively applying relative growth measures.