Working Papers by Topic

Long-Term Economic Growth and Income Gaps

"Institutions, Growth and Human Capital," January, 2021. 

We use the experience of ex-socialist countries to examine the role of macro, meso and micro institutions in catch up/fall behind growth. Greater experience of state-level government fosters growth; the extent of socialist entrenchment measured by years under socialism hurts it; and joining the EU boosts it. The higher than OECD level of human capital at transition is not sufficient to overcome the self-serving behavior of old socialist elite/new opaque business networks that emerge to exploit the complex environment upon communism’s collapse. Accepting and implementing the European Union regulations and norms upon joining it permits building of transparent networks and lifts growth. Human capital is the most important factor for growth, not total factor productivity. Suggesting dichotomy between institutions and human capital is misleading. Skilled labor needs right institutions to create value it is capable of - institutions’ effect on growth is channeled through human capital.

"Long-Term Growth Miracles and Failures and Human Capital (PWT 9.1)" September, 2021.

The recent empirical growth literature has noted that most countries’ incomes do not grow uniformly over periods longer than a decade or so. We ignore the short-term, consider income variations over the long run (up to 65 years) and two growth regimes, and take growth relative to a numeraire country. The two regimes are: periods when a country’s income is catching-up (relative convergence) and when it is falling-behind (both relative and absolute divergence). To minimize parameter heterogeneity, we consider one geographical region, Sub-Saharan Africa (SSA). The average catching-up duration for this region is 19.4 years, average falling-behind is 28.1 years and the number of periods for the two experiences is almost the same. Performing growth accounting by panel estimation separately for the two sets of periods, we find when human capital is contributing to growth in a positive and statistically significant way, countries are catching-up; when it is not, they are falling behind. For the catching-up panels, we find total factor productivity (TFP) to be less important than human capital for both growth and income levels, and the excess-effect of human capital over TFP is about 2.5 times for growth than for income levels.

"South Asia/Frontier Long-Term Income Dynamics and Income-Health Relationships," July 2019.

South Asian (SA) countries’ growth-dynamics since 1951 is examined and compared using the annual catch-up index. Their growth is more volatile than countries in general. It does not experience a stable phase, is sharply divergent, and the country that grows fastest for two decades grows slowest in the following decade, and vice versa. Other than Bhutan, they experienced relative and absolute divergence from the US from the start for 29 (Nepal) to 51 (Pakistan) years. Their still-birth rates (SBR) vary as much as nine times from each other; its rate of decrease is smaller than neonatal mortality’s (NMR), both rates’ dispersion increases, and adding SBR doubles NMR’s “explanation” of life expectancy (LE). NMR and SBR have decreased at a lower rate in the SA country with an initial higher rate; and better performance in income is associated with a worse performance in SBR, NMR, and LE in recent decades

"State of the Developing World: PPP Income, Catching-Up/Falling Behind, and No Growth" November 2018, Cited by two.

The author has recently, defining a catch-up index, growth as catching-up, and deriving an equation for years for absolute convergence, shown Sub-Saharan Africa has fallen behind sharply and, even considering India’s population-weight, South Asia has barely shown any growth since 1951 (growing at 0.16% rate giving 1642 years for convergence). This paper extends the analysis to all developing countries and distinguishes catch-up of a country’s income from absolute poverty and global inter-personal distribution of income on grounds country of residence matters. It shows the developing world (excluding China and one/two countries) consisting of 99/100 countries with 3.9/4.0b. population has not shown any growth since either 1951 or 1971; and its incomes have diverged continuously. It opines that to qualify as economic growth, one should look at data for longer than 20 years: Of the 30 best performers during 1991-2010, ten fell-behind and eight did not catch-up faster than 0.5% annually when their performance is examined over longer periods. If data for 12 excluded countries were available, conclusions would likely be worse.

Globalization and Institutions 

"Multinational Corporations and Institutions" November, 2018.

This paper examines whether the recent conclusion that foreign direct investment (FDI) has a positive effect on institutions in developing countries depends on a country having reached a certain threshold level of institutional quality. The relevant literature has recently coalesced around the view effects of capital account globalization on growth are elusive; its main benefit is likely to be collateral. We examine the collateral impact on institutions of investment through a multinational corporation and using cross-section analysis. We show FDI’s positive effect on institutions in developing countries is driven by upper middle income countries. When the institutional quality is very low, FDI cannot lift it; when it reaches a middle level, it can. In view of persistent global inequality, and failure of developing countries to catch-up, and recent emphasis on “fundamental” causes of growth (like institutions) as distinguished from “proximate” causes like physical capital, labor in efficiency units, and technology of the Solow model, understanding how institutions may be affected is important.

“Foreign Aid and Long-Term Prospects of Recipients,” November 2018.

The central role of institutions in economic growth and international disparities has been recognized in the last two decades. This paper examines the effect of foreign aid in the form of grants and concessional loans on economic institutions. It uses a sample of 127 recipient countries. Institutional data from Doing Business database are employed. Three alternative control variables, including a per capita income variable, are used. We show foreign aid worsens institutions, though this effect is small. Donor countries will be well-advised to design their aid programs to focus on institutions while recipients need to improve their institutions so that foreigners’ charity is not wasted.