Erich Gundlach

The Decline of Schooling Productivity in OECD Countries

Based on Baumols cost-disease model, we develop two alternative measures of the change in the productivity of schooling. Both productivity measures are based on changes in the relative price of schooling. We find that in most OECD countries the price of schooling has increased faster in 1970-94 than would be compatible with constant schooling productivity. In addition, we show that the average performance of pupils has remained constant at best in most OECD countries. Our results imply a larger decline in the productivity of schooling in many OECD countries than in the United States.

The role of human capital in economic growth: New results and alternative interpretations

ConclusionRecent empirical research on the empirics of growth has demonstrated that an augmented Solow model provides a fairly good description of cross-country data on output per worker. Re-estimating this model by using a proxy for the stock of human capital rather than a flow measure, I find a substantially higher share of human capital in income than MRW. Given the data at hand, this result does not seem to suffer from a simultaneous equation bias, and the MRW result does not seem to suffer from measurement error. Therefore, a modified augmented Solow model is suggested that can reconcile the competing empirical estimates. For an income share of physical capital of about 1/3, the implication of this new growth model is that the impact of human capital formation on output per worker is twice as high as the positive impact of physical capital formation and the negative impact of population growth. The MRW model is less optimistic in this respect: The impact of human and physical capital accumulation is predicted to be the same, and only half as large as the negative impact of population growth.

Openness and Economic Growth in Developing Countries

Openness appears to have a strong impact on economic growth especially in DCs, which typically exhibit a high share of physical capital in factor income and a low share of labor. In the neoclassical growth model with partial capital mobility, physical capitals share in factor income determines the difference in the predicted convergence rates for open and closed economies. With a 60 percent share as in developing countries, the convergence rates should differ by a factor of about 2.5. My regression results for a sample of open and closed DCs roughly confirm this hypothesis.

Some Consequences of Globalization for Developing Countries

Globalization improves the prospects for developing countries (DCs) to catch up economically with industrialized countries. Depending on economic policies with respect to openness and factor accumulation, globalization may increase capital and technology flows to DCs, thereby generating a higher rate of income growth than would be possible in a less integrated world economy. Nevertheless, many observers draw an overly pessimistic picture of the perspectives of DCs in the era of globalization, mainly for three reasons. First, DC membership in institutionalized regional integration schemes such as in Europe and North America is sometimes considered to be a necessary precondition for economic success. Second, a low level of interfirm technology cooperation between rich and poor countries is feared to delink DCs from technological progress. Third, a relatively high concentration of foreign direct investment flows on a few advanced DC hosts is said to limit the development prospects for the majority of DCs. The paper shows that such concerns are largely unfounded.

Accounting for the stock of human capital: Selected evidence and potential implications

Accounting for the Stock of Human Capital: Selected Evidence and Potential Implications. — Given the observed distribution of output and labor across countries, most capital flows should be from rich to poor countries. As is shown for a limited sample of countries, accounting for differences in the stock of human capital substantially reduces the implicit cross-country rate of return differentials. Additionally, accounting for human capital externalities based on independent empirical evidence, turns around the predicted rate of return differentials in favor of rich countries. Hence, the world economy may converge to a rather unequal distribution of incomes as long as human capital accumulation is neglected as the key variable limiting economic development.ZusammenfassungBerücksichtigung des Humankapitalbestandes: Einige ausgewählte Befunde und mögliche Implikationen. — Angesichts der beobachteten Verteilung von Produktion und Arbeit zwischen den Ländern müßten die meisten Kapitalströme von den reichen zu den armen Ländern fließen. Der Autor zeigt für eine begrenzte Auswahl von Ländern, daß sich die impliziten Ertragsdifferenzen zwischen ihnen erheblich verringern, wenn Unterschiede im Humankapitalbestand berücksichtigt werden. Außerdem führt die Berücksichtigung der auf unabhängigen empirischen Studien beruhenden Externalitäten des Humankapitals dazu, daß sich die vorhergesagten Ertragsdifferenzen zugunsten der reichen Länder umkehren. Demgemäß kann es in der Weltwirtschaft zu einer ziemlich ungleichen Einkommensverteilung kommen, solange die Akkumulation von Humankapital als Schlüsselvariable für die wirtschaftliche Entwicklung vernachlässigt wird.

Empirical evidence for alternative growth models: time series results

Empirical Evidence for Alternative Growth Models: Time Series Results. - Recent attempts to discriminate between alternative models of economic growth have led to a full circle of results by focussing on cross-section data. In this paper, the author shows that the time series evidence is inconclusive as well, depending on the specification of the test equation with respect to its functional form and its dynamic modelling, and on the estimation technique used. Hence, given the data at hand, attempts to devise explicit tests of alternative growth models seem to lead to dead ends.ZusammenfassungEmpirische Befunde für alternative Wachstumsmodelle. Ergebnisse aus Zeitreihenanalysen. - Jüngere Versuche, mit Hilfe von Querschnittsdaten zwischen alternativen Wachstumsmodellen zu unterscheiden, haben zu widersprüchlichen Ergebnissen geführt. In diesem Aufsatz zeigt der Verfasser, daβ die Befunde aus Zeitreihenanalysen ebenfalls nicht schlüssig sind und davon abhängen, wie die Testgleichung im Hinblick auf ihre funktionale Form und ihre dynamische Gestalt spezifiziert wird und welche Schätztechnik benutzt wird. Bei den gegebenen Daten scheinen deshalb Versuche, Tests für alternative Wachstumsmodelle explizit zu entwerfen, in die Irre zu führen.

The Democratic Transition: A Study of the Causality Between Income and the Gastil Democracy Index

The paper considers the transformation of the political system as countries pass through the Grand Transition from a poor developing country to a wealthy developed country. In the process most countries change from an authoritarian to a democratic political system. This is shown by using the Gastil democracy index from Freedom House. First, the basic pattern of correlations reveals that a good deal of the short- to medium-run causality appears to be from democracy to income. Then a set of extreme biogeographic instruments is used to demonstrate that the long-run causality is from income to democracy. The long-run result survives various robustness tests. We show how the Grand Transition view resolves the seeming contradiction between the long-run and the short- to medium-run effects.

The Primacy of Institutions Reconsidered: The Effects of Malaria Prevalence in the Empirics of Development

I reconsider the primacy of institutions over geography as an explanatory factor of cross-country differences in economic performance, which has recently been postulated by Acemoglu et al. (2001) and others. My estimates show that the reported missing direct performance effects of a measure of geography such as malaria prevalence are not robust to alternative specifications and samples. Unbiased estimates of the relative performance effects of institutions and malaria prevalence are difficult to obtain due to a lack of independent instrumental variables. Conditional on a restricted effect of institutions, my estimates suggest that malaria prevalence exhibits a large negative direct impact on economic performance, as postulated by Sachs (2003) and others.

Interpreting Productivity Growth in the New Economy: Some Agnostic Notes

The growth rate of total factor productivity seems to have increased recently, at least in the United States. Higher US productivity growth may justify higher stock market valuations than in the past and thus herald an emerging New Economy. However, the size of the estimated growth rate of total factor productivity depends on an assumption about the factor-augmenting properties of technological change. Simulations based on alternative properties of technological change produce a wide range of implied stock market valuations. As long as the rate of technological change cannot be observed directly, justifying the emergence of a New Economy with residual measures of total factor productivity growth will prove to be a futile exercise.

The Agricultural and the Democratic Transitions Causality and the Roundup Model

Long-run development (in income) causes a large fall in the share of agriculture commonly known as the agricultural transition. We confirm that this conventional wisdom is strongly supported by the data. Long-run development (in income) also causes a large increase in democracy known as the democratic transition. Elsewhere we have shown that it is almost as strong as the agricultural transition. Recently, a method has been presented to weed out spuriousness. It makes the democratic transition go away by turning income insignificant, when it is supplemented by a set of formal controls. We show that the same method makes the agricultural transition go away as well. Hence, it seems to be a method that kills far too much, as suggested by the subtitle. This suggestion leads to a discussion of the very meaning of long-run causality.