Empirical Analysis of an Augmented Schumpeterian Endogenous Growth Model

This study conducts an empirical analysis of an augmented Schumpeterian endogenous growth theory using aggregate-level data from 1981 to 2017 for 31 OECD countries. Despite a considerable number of studies analysing endogenous growth, cross-country analyses utilising estimators robust to endogeneity-bias and controlling for the macroeconomic effect of institutions are still rare. In this paper, we employ a relatively consistent estimator to analyse an augmented neoclassical production function that links output per worker to capital accumulation, technological progress, and institutions. Our results from the extended system of generalised method of momentS estimation align with the mainstream consensus that capital accumulation and technological progress or innovation, in the form of R&D activities, determine the level of output per worker in the long run. But in addition, we find that effective institutions underlie the innovation effect. On average, the impact of R&D activities on output per worker is higher in countries with more effective institutions

Does Increasing Product Complexity and Diversity Cause Economic Growth in the Long-Run? A GMM Panel VAR Evidence

Using aggregate data from 31 Organization for Economic Co-operation and Development (OECD) countries covering periods from 1982 to 2017, this study examines the notion that the level of product complexity is a good determinant of economic growth in the long run. We use the impulse-response function (IRF) computed from the consistent generalized method of moment panel vector autoregressive (GMM pVAR) model to estimate the response of the real output growth to a change in the economic complexity index. The IRF shows that the economic complexity index has a significant impact on economic growth; a 1 standard deviation shock to the economic complexity index at time 0 contributes around 2.34 percentage points to the average rate of growth of output within the first period. The point estimates are positive and significant up to the third period. The cumulative IRF shows that the aggregate impact on economic growth is about 4.4% in the long run. Compared to some widely used innovation proxies such as the gross expenditure on research and development and secondary school enrollment, the economic complexity index performs relatively better in our model in determining economic growth in the long run