Public versus private provision of infrastructure in a neoclassical growth model

This article studies the welfare and long run allocation impacts of privatization. There are two types of capital in this model economy, one private and the other initially public (“infrastructure”). A positive externality due to infrastructure capital is assumed, so that the government could improve upon decentralized allocations internalizing the externality, but public investmentis …nanced through distortionary taxation. It is shown that privatization is welfare-improving for a large set of economies and that after privatization under-investment is optimal. When operation inefficiency in the public sectoror subsidy to infrastructure accumulation are introduced, gains from privatization are higherand positive for most reasonable combinations of parameters.

A competitive growth model with endogenous fertility

This paper investigates the interaction between endogenous fertility behavior and the distribution of income and wealth arnong farnilies in a competitive market economy. We construct a growth model in which altruistic dynasties are heterogeneous in their initial stocks of physical capital. Dynasties make choices of farnily size along with decisions about consumption and intergenerational transfers. We show that if the rate of time preference is increasing in the number of children and preferences over nurnber of children satisfy a norrnality assumption, all steady states are characterized by equality of capital stocks and consumption arnong families. We also provide sufficient conditions for uniqueness of the steady state. In order to illustrate these results, we present an example in which preferences over number of children are logarithrnic and the technology is Cobb-Douglas. For this combination of preferences and technology, there exists a unique egalitarian steady state. Moreover, the economy converges to this steady state in only one generation .

Debt and default in a growth model

This paper presents a small open economy model with capital accumulation and without commitment to repay debt. The optimal debt contract specifies debt relief following bad shocks and debt increase following good shocks and brings first order benefits if the country's borrowing constraint is binding. Countries with less capital (with higher marginal productivity of capital) have a higher debt-GDP ratio, are more likely to default on uncontingent bonds, require higher debt relief after bad shocks and pay a higher spread over treasury. Debt relief prescribed by the optimal contract following the interest rate hikes of 1980-81 is more than half of the debt forgiveness obtained by the main Latin American countries through the Brady agreements.

Optimal growth in a two-sector model without discounting: a geometric investigation

We characterize optimal policy in a two-sector growth model with xed coeÆcients and with no discounting. The model is a specialization to a single type of machine of a general vintage capital model originally formulated by Robinson, Solow and Srinivasan, and its simplicity is not mirrored in its rich dynamics, and which seem to have been missed in earlier work. Our results are obtained by viewing the model as a specific instance of the general theory of resource allocation as initiated originally by Ramsey and von Neumann and brought to completion by McKenzie. In addition to the more recent literature on chaotic dynamics, we relate our results to the older literature on optimal growth with one state variable: speci cally, to the one-sector setting of Ramsey, Cass and Koopmans, as well as to the two-sector setting of Srinivasan and Uzawa. The analysis is purely geometric, and from a methodological point of view, our work can be seen as an argument, at least in part, for the rehabilitation of geometric methods as an engine of analysis.

Time-series properties and empirical evidence of growth and infraestructure: revised version

After more than forty years studying growth, there are two classes of growth models that have emerged: exogenous and endogenous growth models. Since both try to mimic the same set of long-run stylized facts, they are observationally equivalent in some respects. Our goals in this paper are twofold First, we discuss the time-series properties of growth models in a way that is useful for assessing their fit to the data. Second, we investigate whether these two models successfully conforms to U.S. post-war data. We use cointegration techniques to estimate and test long-run capital elasticities, exogeneity tests to investigate the exogeneity status of TFP, and Granger-causality tests to examine temporal precedence of TFP with respect to infrastructure expenditures. The empirical evidence is robust in confirming the existence of a unity long-run capital elasticity. The analysis of TFP reveals that it is not weakly exogenous in the exogenous growth model Granger-causality test results show unequivocally that there is no evidence that TFP for both models precede infrastructure expenditures not being preceded by it. On the contrary, we find some evidence that infras- tructure investment precedes TFP. Our estimated impact of infrastructure on TFP lay rougbly in the interval (0.19, 0.27).

The impact of public capital and public investment on economic growth: an empirical investigation

in this anicle we measure the impact of public sector capital and investment on economic growth. Initially, traditional growth accounting regressions are run for a cross-country data set. A simple endogenous growth model is then constructed in order to take into account the determinants of labor, private capital and public capital. In both cases, public capital is a separate argument of the production function. An additional data-set constructed with quarterly American data was used in the estimations of the growth mode!. The results indicate lhat public capital and public investment play a significant role in determining growth rates and have a significant impact on capital and labor returns. Furthermore, the impact of public investment on productivity growth was found to be positive and always significant for bolh samples. Hence. in a fully optimizing modelo we confmn previous results in the literature that lhe failure of public investment to keep pace with output growlh during the Seventies and Eighties may have played a major role in the slowdown of lhe productivity growth in the period. Anolher main outcome concems the output elasticity wilh respect to public capital. The coefficiem estimates are always positive and significant but magnitudes depend on each of lhe two data set used.

Testing production functions used in empirical growth studies

We estimate and test two alternative functional forms, which have been used in the growth literature, representing the aggregate production function for a panel of countries: the model of Mankiw, Romer and Weil (Quarterly Journal of Economics, 1992), and a mincerian formulation of schooling-returns to skills. Estimation is performed using instrumental-variable techniques, and both functional forms are confronted using a Box-Cox test, since human capital inputs enter in levels in the mincerian specification and in logs in the extended neoclassical growth model.

Environmental protection and economic growth

This paper explores the link between environmental policy and economic growth by employing an extension of the AK Growth Model. We include a state equation for renewable natural resources. We assume that the change in environmental regulations induces costs and that economic agents also derive some utility from capital stock accumulation vis-`a-vis the environment. Using the Hopf bifurcation theorem, we show that cyclical environmental policy strategies are optimal, providing theoretical support for the Environmental Kuznets Curve.

Stochastic growth and monetary policy: the impacts on the term structure of interest rates

This paper builds a simple, empirically-verifiable rational expectations model for term structure of nominal interest rates analysis. It solves an stochastic growth model with investment costs and sticky inflation, susceptible to the intervention of the monetary authority following a policy rule. The model predicts several patterns of the term structure which are in accordance to observed empirical facts: (i) pro-cyclical pattern of the level of nominal interest rates; (ii) countercyclical pattern of the term spread; (iii) pro-cyclical pattern of the curvature of the yield curve; (iv) lower predictability of the slope of the middle of the term structure; and (v) negative correlation of changes in real rates and expected inflation at short horizons.

Testing production functions used in empirical growth studies

We estimate and test two alternative functional forms representing the aggregate production function for a panel of countries: the extended neoclassical growth model, and a mincerian formulation of schooling-returns to skills. Estimation is performed using instrumentalvariable techniques, and both functional forms are confronted using a Box-Cox test, since human capital inputs enter in levels in the mincerian specification and in logs in the extended neoclassical growth model. Our evidence rejects the extended neoclassical growth model in favor of the mincerian specification, with an estimated capital share of about 42%, a marginal return to education of about 7.5% per year, and an estimated productivity growth of about 1.4% per year. Differences in productivity cannot be disregarded as an explanation of why output per worker varies so much across countries: a variance decomposition exercise shows that productivity alone explains 54% of the variation in output per worker across countries.

The exhaustion of the brazilian growth cycle

O Brasil recebeu muita atenção na última década, sua ascensão ao status de grande potência e uma das maiores economias mundiais tem sido enfatizada. No entanto, existem sinais de que essa prosperidade recente está chegando ao fim, sugerindo que houve um excesso de otimismo em relação ao aparente sucesso econômico do país e a possiblidade de crescimento contínuo. O Brasil focou na exportação de produtos primários e em um modelo de crescimento baseado no consumo, que se tornaram as locomotivas da economia. Uma pujante economia mundial demandando produtos primários e um amplo e inexplorado mercado interno ajudam a explicar o crescimento brasileiro na década passada. Não obstante, esse modelo apresenta diversas limitações. A inflação, mais uma vez, está em alta e os gargalos que impedem o desenvolvimento econômico não foram resolvidos. O objetivo desta dissertação é demonstrar que o atual ciclo de crescimento da economia brasileira está no fim. Dados de diversas fontes, nacionais e internacionais, serão usados para indicar que, novamente, o país teve um crescimento efêmero e não possui uma estrutura econômica adequada para promover o desenvolvimento de longo prazo. Uma breve análise dos fundamentos econômicos, clima de negócios e outros tópicos relacionados ao crescimento e desenvolvimento será apresentada, articulando dados e fatos para encontrar causas e explicações para a atual inversão de tendência econômica.

Growth,distribution and school policy

This paper investigates the relationship between growth, income inequality, and educational policies. An endogenous growth model is built in which there are two types of labor, skilled and unskilled, and the quality of the labor force (measured by the fraction of skilled workers) will ultimately determine the economic growth rate. We show that multi pIe inequality and growth paths may arise. Countries will not necessarily converge to the same economic growth and income distribution. When the proportion of skilled workers is low, the economy grows slow, and the Gini coeflicient is high. Low expected growth rate inhibits investments in human capital and the quality of the labor force tomorrow turns out to be low again, keeping the economy in the bad equilibrium. We then analyze the effects on growth and inequality of two types of government intervention: introduction of public schools and vouchers. Both types can induce the economic agents to invest more in education. The consequence will be an increase in the quality of the labor force, leading to higher growth rates and less inequality. Finally, we examine the welfare consequences of these interventions and conclude that they may be Pareto improving.

Monopolies life cycle, bureaucratization, and Schumpeterian growth

This paper analyzes the links between the internaI organization of firms and macroeconomic growth. We present a Schumpeterian growth model in which firms face dynamic agency costs. These agency costs are due to the formation of vertical collusions within the organization. To respond to the opportunity of internaI collusion, firms go through a whole life cycle, getting more bureaucratized and Iess efficient over time. vVeak creative destruction in the economy facilitates informal collusion inside firms and exacerbates bureaucratization. As bureaucratization affects the firms' profitability and the return to innovation, stationary equilibrium growth depends in turn on the efficiency of collusive side-contracts within firms.

Financial globalization and economic growth

Capital mobility leads to a speed of convergence smaller in an open economy than in a closed economy. This is related to the presence of two capitals, produced with specific technologies, and where one of the capitals is nontradable, like infrastructures or human capital. Suppose, for example, that the economy is relatively less abundant in human capital, leading to a decrease of the remuneration of this capital during the transition. In a closed economy, the remuneration of physical capital will be increasing during the transition. In the open economy, the alternative investment yields the international interest rate, corresponding to the steady state net remuneration of physical capital in the closed economy. The nonarbitrage condition shows a larger difference in the remuneration of the two capitals in the closed economy. It leads to a higher accumulation of human capital and thus to a faster speed of convergence in the closed economy. This result stands in sharp contrast with that of the one-sector neoclassical growth model, where the speed of convergence is smaller in the closed economy.