Endogenous Aggregate Elasticity of Substitution

In the literature studying aggregate economies the aggregate elasticity of substitution (AES) between capital and labor is often treated as a constant or “deep” parameter. This view contrasts with the conjecture put forward by Arrow et al. (1961) that AES evolves over time and changes with the process of economic development. This paper evaluates this conjecture in a simple dynamic multi-sector growth model, in which AES is endogenously determined. Our findings support the conjecture, and in particular demonstrate that AES tends to be positively related to the state of economic development, a result consistent with recent empirical findings.

CAN TRANSITION DYNAMICS EXPLAIN THE INTERNATIONAL OUTPUT DATA?

This paper studies the transition dynamics predictions of an R&D-based growth model, and evaluates their performance in explaining income disparities across nations. We find that the fraction of the observed cross-country income variation explained by the transitional dynamics of the model is as large as the one accounted by existing steady-state level regressions. Our results suggest that the traditional view of a world in which nations move along their distinct balanced-growth paths is as likely as the one in which countries move along adjustment paths toward a common (very long-run) steady state.Transition Dynamics; Income Disparities; Growth.

Initial Conditions, European Colonialism and Africa's Growth

We investigate the role of initial conditions at colonial independence on economic growth in Africa in the post-independence period using Bayesian Model Averaging (BMA). A key innovation in our estimation methodology is that we incorporate parameter heterogeneity in model averaging as well as try to mitigate the endogeneity problem present in growth regressions. In order to ensure that differences in the growth determinants between Africa and the world are not driven by experiences of an alternative group of countries, we also control for the presence of OECD countries and former European colonies in the global sample. We find that the impact of different initial conditions on growth in Africa is strikingly different from the world. We argue that these initial conditions reflect the state of development at the close of the colonial era and are therefore inherently related with the legacy of colonialism.