Deep Determinants. Sherif Khalifa. Sherif Khalifa () Deep Determinants 1 / 65

Transcription

1 Deep Determinants Sherif Khalifa Sherif Khalifa () Deep Determinants 1 / 65

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3 There are large differences in income per capita across countries. The differences in income are reflected in differences in the quality of life. There are tremendous variations in living standards around the world. Even within a country, there are large changes in the living conditions over time. Sherif Khalifa () Deep Determinants 3 / 65

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6 Definition Gross Domestic Product GDP is a measure of a nation s income, and is the market value of all final goods and services produced within a country in a given period of time. Definition Real GDP is the value of goods and services measured using a constant set of prices. Real GDP uses constant base year prices to place a value on the economy s production of goods and services. Because real GDP is not affected by changes in prices, changes in real GDP reflect only changes in the quantities produced. Sherif Khalifa () Deep Determinants 6 / 65

7 World map scaled by GDP Sherif Khalifa () Deep Determinants 7 / 65

8 World map scaled by population Sherif Khalifa () Deep Determinants 8 / 65

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10 Countries at the top of the world income distribution are several times wealthier than those in the bottom. Sherif Khalifa () Deep Determinants 10 / 65

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14 Western Europe Western Offshoots Japan Asia Latin America Eastern Europe &USSR Africa Sherif Khalifa () Deep Determinants 14 / 65

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16 Y = AF (L, K, H, N) Y: Output A: Technology L: Labor input K: Physical Capital H: Human Capital N: Natural Endowments Sherif Khalifa () Deep Determinants 16 / 65

17 Y = AF (L, K, H, N) 2Y = AF (2L, 2K, 2H, 2N) 3Y = AF (3L, 3K, 3H, 3N) Productivity = Y ( L = AF 1, K L, H L, N ) L Y L : Productivity K L : Physical capital per worker H L : Human capital per worker : Natural endowments per worker N L Sherif Khalifa () Deep Determinants 17 / 65

18 Robert Barro. "Determinants of Economic Growth in a Panel of Countries." Annals of Economics and Finance, 4: , Sherif Khalifa () Deep Determinants 18 / 65

19 Real GDP per capita growth rates vary enormously across countries over long periods of time. The variations in growth rates make dramatic differences in the living conditions of a country s population. The causes of these variations are a central issue for economic policy and economic analysis. Differences in growth rates relate systematically to a set of quantifiable explanatory variables. Sherif Khalifa () Deep Determinants 19 / 65

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23 The empirical framework relates real GDP per capita growth rate to initial levels of state variables. Such as the stock of physical and human capital in the forms of educational attainment and health. The framework also relates growth rates to policy variables and specific country characteristics. Some of these variables are chosen by the government and some chosen by private agents. The estimation takes account of the endogeneity of the variables by using lagged values as instruments. Sherif Khalifa () Deep Determinants 23 / 65

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28 Convergence Definition Diminishing returns is the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases. Convergence implies that the growth rate tends to be inversely related to the initial level of real GDP per capita. An economy with a higher level of factors of production will grow slower because of diminishing returns. An economy with a lower level of factors of production will grow faster because of diminishing returns. The coeffi cient of means that a one standard deviation decline in the log of GDP per capita (0.98) would increase growth by Sherif Khalifa () Deep Determinants 28 / 65

29 Convergence Sherif Khalifa () Deep Determinants 29 / 65

30 Education School attainment is measured by the average years of male secondary and higher schooling. The coeffi cient of means that a one standard deviation increase in male upper level schooling (1.3 years) increases growth by School attainment for female sceondary and higher schooling has an insignificant coeffi cient. School attainment of males, females and for both sexes, at the primary level has an insignificant coeffi cient. Sherif Khalifa () Deep Determinants 30 / 65

31 Education Sherif Khalifa () Deep Determinants 31 / 65

32 Education A measure of the quality of education is the outcome on internationally comparable examinations. These test scores reflect inputs other than formal education, such as the influences of family members. The coeffi cient of implies that a one standard deviation increase in test scores (by 0.092) would increase growth by Once introduced, the coeffi cient of male upper level educational attainment becomes insignificant. The quality of education is more important for economic outcomes than the quantity or years of education. Sherif Khalifa () Deep Determinants 32 / 65

33 Education Sherif Khalifa () Deep Determinants 33 / 65

34 Health The health variable used is the reciprocal of life expectancy at birth, at age one, and at age five. If the probability of dying is independent of age, then this reciprocal gives the probability of dying per year. These values correspond to the mortality rate per year if mortality is independent of age. The coeffi cient of the reciprocal of life expectancy at age one of -5.3 indicates that better health predicts economic growth. A reduction in the reciprocal of life expectancy at age one by is estimated to increase growth by Sherif Khalifa () Deep Determinants 34 / 65

35 Health Sherif Khalifa () Deep Determinants 35 / 65

36 Health The reciprocal of life expectancy at birth has an insignificant effect on growth. The reciprocal of life expectancy at age five has an insignificant effect on growth. The infant mortality rate is the number of deaths of children under a certain age per 1000 live births. The infant mortality rate has an insignificant effect on growth. The variable for the incidence of malaria in 1966 has an insignificant effect on growth. Sherif Khalifa () Deep Determinants 36 / 65

37 Government Government consumption are expenditures that do not affect productivity but entail distortions of private decisions. These distortions involve the adverse effects from government activities and the associated public finance. A higher value of the ratio of real government consumption to real GDP leads to a lower growth rate. The variable was adjusted by subtracting spending on defense and education, because they affect productivity. The estimated coeffi cient of implies that a reduction in the ratio by would increase growth by Sherif Khalifa () Deep Determinants 37 / 65

38 Government Sherif Khalifa () Deep Determinants 38 / 65

39 Government The variable involves government consumption less outlays on education and defense. The last two components enter separately as ratios of real spending to real GDP. The coeffi cient for government spending on education is insignificant. The coeffi cient of government defense spending is positive at Sherif Khalifa () Deep Determinants 39 / 65

40 Investment The effect of the saving rate is measured by the ratio of real gross domestic investment to real GDP. The ratio used is the real gross private plus public domestic investment. The coeffi cient of implies that a one standard deviation increase in the investment ratio (by 0.078) would increase growth by Sherif Khalifa () Deep Determinants 40 / 65

41 Investment Sherif Khalifa () Deep Determinants 41 / 65

42 Institutions Maintenance of the rule of law implies enhanced protection of property rights. Enhanced property rights create an incentive for higher investment and growth. The data for the rule of law are adjusted to a zero-to-one scale. One reflects the most favorable environment for the rule of law. The coeffi cient of means that a one standard deviation increase in the rule of law (by 0.26) would increase growth by Sherif Khalifa () Deep Determinants 42 / 65

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44 Institutions The variable on the extent of offi cial corruption has an insignificant effect on growth. The variable for the quality of bureaucracy has an insignificant effect on growth. The linear and squared civil liberties variable has an insignificant effect on growth Sherif Khalifa () Deep Determinants 44 / 65

45 Governance The effect of democratic governance on economic growth is ambiguous. Political freedoms foster economic ones, in the form of free markets and protection of property rights. Democracy limit the potential of public offi cials to implement unpopular policies or nonproductive investments. Democracies improve the quality of policy-making by submitting politicians to public scrutiny. Democracy allows for a peaceful transfer of power and ensures political stability that foster economic growth. Sherif Khalifa () Deep Determinants 45 / 65

46 Governance Democracy include the propensity to implement taxation and redistribution policies that can deter investment. Democracies tend to be trapped in a gridlock that can impede the adoption of growth promotion policies. The variable used refers to electoral rights, and the data is adjusted to a zero-to-one scale. One indicating a full representative democracy and zero a totalitarian system. The square of democracy is included to allow for a nonlinear effect on economic growth. Sherif Khalifa () Deep Determinants 46 / 65

47 Governance The coeffi cients of and imply that Increases in democracy tends to stimulate growth. Democratization appears to enhance growth for countries that are not very democratic. Democratization appears to deter growth for countries that have achieved a substantial level of democracy. Sherif Khalifa () Deep Determinants 47 / 65

48 Governance Sherif Khalifa () Deep Determinants 48 / 65

49 Globalization The degree of international openness is measured by the ratio of exports plus imports to GDP. This measure is highly sensitive to country size, as large countries tend to be less open. Because internal trade offers a large market that can substitute for international trade. The variable used filters out the relationship between openness and the logs of population and area. This variable reflects the influences of government policies, such as tariffs and trade barriers, on trade. The coeffi cient estimate of implies that an increase in the openness ratio of 0.40 would increase growth by There is weak statistical evidence that greater international openness stimulates economic growth. Sherif Khalifa () Deep Determinants 49 / 65

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51 Globalization The growth rate of the terms of trade, or the export prices relative to the import prices, interacted with openness. The terms of trade variable measure the effect of changes in international prices on the income position of the country s residents. This real income position would increase with higher export prices and would fall with higher import prices. If an increase in the price of the items that a country produces tends to generate more output, the effect of the terms of trade on growth would be positive. The coeffi cient of imply that a one standard deviation increase in the terms of trade variable (by 0.017) would increase growth by Sherif Khalifa () Deep Determinants 51 / 65

52 Globalization Sherif Khalifa () Deep Determinants 52 / 65

53 Macroeconomics The inflation variable is the average rate of retail price inflation. The average inflation rate is a measure of macroeconomic stability. The coeffi cient of implies that a one standard deviation increase in the inflation rate (0.33) lowers growth by The main force driving the estimated relationship is the behavior at high rates of inflation not at moderate ones. Sherif Khalifa () Deep Determinants 53 / 65

54 Macroeconomics Sherif Khalifa () Deep Determinants 54 / 65

55 Macroeconomics The black market premium on the foreign exchange is included as a proxy for a class of market distortions. This indicator can also proxy for macroeconomic instability that relates to the balance of payments. The coeffi cient of this variable is and marginally significant. This is an indication that the distortion variable has inverse predictive power for economic growth. Sherif Khalifa () Deep Determinants 55 / 65

56 Demographics The fertility rate is the total lifetime live births for the typical woman over her expected lifetime. The fertility rate has a significant influence on population growth rates. Higher fertility reflects more resources directed to child rearing, which impedes growth. The coeffi cient of implies that a one standard deviation decline in the fertility rate by (0.54) is estimated to increase growth by Sherif Khalifa () Deep Determinants 56 / 65

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58 Demographics The population variable is intended to see whether the scale of the country is pertinent for growth outcomes. Thecoeffi cient is insignificant which implies that here is no indication that country size matters for economic growth. Output per person is expected to be higher if a larger fraction of the population is in the prime age category of Output per person is expected to be lower if a larger fraction of the population is in the categories of under 15 and over 65. The population share variables for under 15 and over 65 are also jointly insignificant. Sherif Khalifa () Deep Determinants 58 / 65

59 Demographics Sherif Khalifa () Deep Determinants 59 / 65

60 Fractionalization Indicators of ethnic, linguistic, and religious heterogeneity influence the likelihood of conflict and growth. Heterogeneity also affects the provision of public goods, the level of corruption, and the quality of bureacracy. Heterogeneity is estimated by an ethnic, linguistic, and religious fractionalization indicators. Fractionalization gives the probability that two randomly chosen persons in a country will come from different groups. The measures of fractionalization have negative insignificant coeffi cients when added to the growth equations. Sherif Khalifa () Deep Determinants 60 / 65

61 Financial Development Studies stressed the special role of the domestic financial system as an engine of growth. The variables used are the ratio of credit to GDP and the ratio of deposits to GDP. The development of the financial system is endogenous to the overall economic development level. The coeffi cients of the financial proxies are insignificantly different from zero. Sherif Khalifa () Deep Determinants 61 / 65

62 Legal Origins The British common law tradition is superior as a basis for economic development to the French civil law. Common law is derived from custom and judicial precedent, while civil law is a statury law codified by legislators. Dummy variables for different types of legal traditions: British, French, Scandinavian, German, and socialist. Dummy variables for the British and French legal traditions turn out to have little explanatory power for growth. The French system seems to be somewhat more favorable for growth than the British one. Sherif Khalifa () Deep Determinants 62 / 65

63 Colonial Heritage Colonial heritage has been argued to be important for growth. Influences are thought to derive from inherited legal or other institutions. Influences are thought to derive from the depth of colonial economic exploitation. Dummies for British, French, Spanish or Portuguese, and other colonial origins are insignificant. Sherif Khalifa () Deep Determinants 63 / 65

64 Geography One geographical element that is stressed is the absolute value of degrees latitude. Those close to the equator have bad climate from the standpoint of excessive heat and humidity. Too great a departure from the equator signifies excessive cold, the analysis includes the square of latitude. The coeffi cients on the linear and squared terms of latitude are significant at and The landlocked status is important from the standpoint of discouraging trade and other communication with the world. The coeffi cient on landlocked status is significantly negative at Sherif Khalifa () Deep Determinants 64 / 65

65 Geography Whether the explanatory variables measure the growth consequences of being located in a particular area. The variable is a dummy variable that equals to one if the country is located in a specific area. The dummy variables for sub-saharan Africa, for Latin America, and for the OECD are insignificant. The dummy variable for East Asia is significant with a coeffi cient of Sherif Khalifa () Deep Determinants 65 / 65