Does high technology matter? An application to United States regional growth

This paper studies the influence of"high technology"on the growth of output by using cross-section data on U.S. states. An eclectic approach to the"sources-of-growth"literature leads to the estimate of a"base"equation which explains about half of the differences in per capita GSP growth rates of the 48 contiguous states in the decade 1976-86. Through the use of micro-data on employment in high-tech activities, tests are then conducted to see whether the importance of high-tech, as measured by employment creation in new firms, enhances the explanation of growth differences. The results obtained confirm first, the importance of starting income levels and of changes in the investment share in output, as well as of participation rate changes, in influencing regional growth rates. In addition, it appears that a high overall birth rate of firms, on average during the period, is negatively related to growth during that period. However, the share of employment created in new firms that occurs in high-tech activities does have a powerful and positive influence on per capita income growth. This provides support for the hypothesis that innovative activity at the frontier of technology contributes to rising living standards.Achieving Shared Growth,Environmental Economics&Policies,Health Monitoring&Evaluation,Governance Indicators,Economic Growth

Did China follow the East Asian development model?

China is located in East Asia and, just as Japan, Taiwan or (South) Korea at earlier stages of their development, has now grown very rapidly for some three decades. That is not enough, however, for it to qualify for membership of the club. The East Asian development model has a number of additional and important characteristics. Four are selected for discussion: the almost constant encouragement given to investment, the manufacturing sector and external competitiveness, and pursued via a variety of fairly interventionist industrial, trade and financial policies; a concomitant belief in the virtues of intense domestic (Japan and Taiwan) and foreign (Korea) competition; a set of broadly sensible and appropriate macroeconomic policies; and a number of favourable (pre-)conditions, such as the presence of a homogeneous population, a relatively high stock of human capital, reasonable income equality and fairly authoritarian governments. China, since reforms began in the late 1970s, has shared some of these characteristics, but not all. In particular, it is still much more of a command economy than the other three countries have ever been, yet, at the same time, has embraced globalization with, arguably, much greater enthusiasm than was done, in earlier times, by Japan, Taiwan or Korea. If China's experience, however, is compared with that of other, more or less successful, developing countries, the similarities with the East Asia development model would seem to dwarf such differencesChina, Growth, East Asia, Economic Policy

Can we return to rapid growth?

The projections for economic growth in the industrial countries during 1985-95 have been revised steadily downward - to a pessimistic 2.5 percent a year. The crucial element in achieving high growth rates is a rising rate of investment, itself a reflection of confidence in the economy. The conditions that stimulate higher investment can result from sharp changes in economic policy. Chances that the former will occur, while slim, depend on putting in place policies that favor a surge in investment led growth. Maintaining low inflation rates and strong demand are equally important. Despite the existence of many of these conditions for some time, growth has slowed even further. Expansionary government policies may be a more plausible route, although the pace is crucial. One possible solution is to strive for international policymaking and to regain some degree of exchange rate stability. This kind of international coordination could be the impulse for rapid growth, as it was after the Second World War.Environmental Economics&Policies,Achieving Shared Growth,Economic Growth,Health Monitoring&Evaluation,Economic Theory&Research

Italy, Germany, Japan: From Economic Miracles to Virtual Stagnation

Over the last six decades, economic developments in the three countries that were defeated in World War II look strikingly similar. First came rapid reconstruction. Then followed the economic miracles of the Golden Age. The years that went from the first oil shock to the mid-1990s still saw fairly robust, and relatively similar, economic developments. Finally, during the last 15 years, the three countries held the dubious record of having the lowest output growth rates in the OECD area. The paper looks primarily at Italy, using the examples of Germany and Japan to search for parallels and contrasts. Among similarities, the main one lies in overall macroeconomic trends. The main differences are in economic policies (where Germany and Japan followed a much more orthodox stance than Italy), in institutional set-ups (with Italy much less efficient than Germany and Japan), in labour market relations (with much greater conflict in Italy than in the other two countries), and in regional developments (where Italy was handicapped by the presence of the Mezzogiorno, while Germany and Japan were hardly touched by regional differentials, at least until unification in Germany. Indeed, had Italy's government institutions, labour market relations and regional differentials been less problematic, Italy's growth performance might well have been superior to that of both Germany and Japan.Comparative economic history

Why East Germany Did Not Become a New Mezzogiorno

Economic integration is generally thought to favour convergence in the economic performance of previously separated regions; but this is far from universally true, as the experience of the members of the Eurozone testifies. The paper considers the two sharply contrasting cases of East and West German convergence following reunification and the enduring poverty of the Italian Mezzogiorno since Italian unification a century and a half ago. In both countries, political integration delivers much higher consumption in the lagging relative to the leading region than of per capita GDP. Consumption convergence can be supported by transfers but ‘production’ convergence ultimately requires catch-up in the production of tradeables. The paper demonstrates the radically different performance of the tradeable sector in the two cases, and suggests that this may be the result of differences in labour market flexibility, in investment performance and in the social norms required for the production of complex manufacturing

Why Has Europe Not Co-ordinated Its Fiscal Policies?

Traditionally, economic policy cooperation in Europe has taken the form of setting common rules rather than taking discretionary action. This picture did not change in the 1980s. Despite high unemployment and decelerating inflation the EEC countries refrained from any coordinated expansionary fiscal policy. One reason for this may have been the surprisingly divergent views held by the policymakers of the four major economics on how such policies operated. While expansionary fiscal stances were universally condemned, the reasons given diverged widely. More important, however, than such intellectual confusion, was a common political determination to reduce public debts and public expenditure, diminish the role of the welfare state and restore the power of market forces

Southern and Eastern Europe in the Eurozone: convergence or divergence?

A number of studies have concluded that, contrary to expectations, European monetary union has not reduced income disparities among the 12 Western European member countries. In fact, incomes per capita between Southern and Northern Eurozone members have diverged since the Eurozone was created, in contrast to earlier trends which had seen rapid convergence in living standards across Western Europe. The paper revisits this issue and investigates whether something similar occurred in the five Eastern European countries (Estonia, Latvia, Lithuania, Slovakia and Slovenia) which joined the Eurozone between 2007 and 2015. The conclusion is that, despite similarities with Southern Europe in some areas, overall developments in Eastern Europe were different and led to convergence rather than divergence. Important reasons for this were Eastern Europe’s relatively high levels of institutional quality, a politically motivated determination to anchor these countries to the West and, possibly, the legacy of pre-war history

China--Can Rapid Economic Growth Continue?

Between 1978 and 2000, Chinese GDP expanded more than seven-fold; present official projections suggest a further four-fold expansion to 2020. Is this feasible and, if so, what would be the consequences for the rest of the world? China has a huge catch-up potential and a vast resource of cheap labor. Policies are improving. The fiscal, employment and regional disparity problems, while serious, seem manageable. Hence, further rapid growth is possible. For the world economy this is bound to be beneficial thanks to resource reallocation, the growth of a large market and likely terms of trade gains. Developing countries, particularly in Asia, will, however feel a strong competitive challenge