Cross-Country Evidence on Output Growth Volatility: Nonstationary Variance and GARCH Models

This paper revisits the issue of conditional volatility in real GDP growth rates for Canada, Japan, the United Kingdom, and the United States. Previous studies find high persistence in the volatility. This paper shows that this finding largely reflects a nonstationary variance. Output growth in the four countries became noticeably less volatile over the past few decades. In this paper, we employ the modified ICSS algorithm to detect structural change in the unconditional variance of output growth. One structural break exists in each of the four countries. We then use generalized autoregressive conditional heteroskedasticity (GARCH) specifications modeling output growth and its volatility with and without the break in volatility. The evidence shows that the time-varying variance falls sharply in Canada, Japan, and the U.K. and disappears in the U.S., excess kurtosis vanishes in Canada, Japan, and the U.S. and drops substantially in the U.K., once we incorporate the break in the variance equation of output for the four countries. That is, the integrated GARCH (IGARCH) effect proves spurious and the GARCH model demonstrates misspecification, if researchers neglect a nonstationary unconditional variance.

Church and State

Church and state have historically had an uneasy relationship, sometimes close allies, at others harsh adversaries, and at still others largely independent of one another. This paper develops an economic model of this relationship, where the state's objective is to maximize net tax revenue, while the church provides religious goods. Religious goods benefit the state in two ways: first, they provide utility to citizens, thus allowing the state to extract more taxes before running up against citizens' reservation utility (the point at which they would revolt), and second, they potentially provide legitimacy to the state, thereby lowering the costs of tax collection. If the latter effect is strong enough, the state may find it optimal to take control of the church, either to enhance its legitimizing effect, or to suppress its de-legitimizing effect. To evaluate the model's implications, we use recent cross-country data on the relationship between religion and state, including measures coded from the 2001, 2003, and 2005 International Religious Freedom reports. We also examine in more detail some of the paradigmatic cases indicated by the model, presenting various types of evidence from current and historical examples of each case.

Explaining Economic Growth: Factor Accumulation, Total Factor Productivity Growth, and Production Efficiency Improvement

This paper examines cross-country patterns of economic growth by estimating a stochastic frontier production function for 80 developed and developing countries and decomposing output change into factor accumulation, total factor productivity growth, and production efficiency improvement. In addition, this paper incorporates the quality of inputs in analyzing output growth, where the productivity of capital depends on its average age, while the productivity of labor depends on its average level of education. Our growth decomposition involves five geographic regions - Africa, East Asian, Latin America, South Asia, and the West. Factor growth, especially capital accumulation, generally proves much more important than either the improved quality of factors or total factor productivity growth in explaining output growth. The quality of capital positively and significantly affects output growth in all groups. The quality of labor, however, only possesses a positive and significant effect on output growth in Africa, East Asia, and the West. Labor quality owns a negative and significant effect in Latin America and South Asia.