Tryggvi Thor Herbertsson

A MIXED BLESSING: Natural Resources and Economic Growth

This paper diagnoses the symptoms of the Dutch disease in a two-sector stochastic endogenous growth model. A productive, low skill-intensive primary sector causes the currency to appreciate in real terms, thus hampering the development of a high skill-intensive secondary sector and thereby reducing growth. Moreover, the volatility of the primary sector generates real exchange rate uncertainty, and may thus reduce investment and learning in the secondary sector and hence also growth. Cross-section and panel regressions based on data for 125 countries in the period 1960–92 confirm a statistically significant inverse relationship between the size of the primary sector and economic growth, but not between the volatility of the real exchange rate and growth.

Does Inflation Matter for Growth

Some channels through which increased inflation tends to reduce economic growth, and vice versa, are studied within a simple model incorporating money into an optimal growth framework with constant returns to capital. The model includes the potential impact of inflation on: (a) saving through real interest rates (or uncertainty); (b) the income velocity of money; (c) the government budget deficit through the inflation tax and tax erosion; and (d) efficiency in production through the wedge between the returns to real and financial capital. The effect of inflation on growth is estimated using the random-effects panel model applied to two sets of unbalanced panel data side-by-side, from the Penn World Tables and from the World Bank, covering 170 countries from 1960 to 1993. The cross-country links between inflation and growth are economically and statistically significant and robust.

Trade surpluses and life-cycle saving behaviour

The national-income account identity and the life-cycle theory of consumption together imply that the current account should be a function of the age structure. A country with a high proportion of young and retired should have current account deficits. Using a panel of 84 countries, we find empirical support for this hypothesis.

Ownership and Growth

This article suggests how state enterprises can be incorporated into the theoretical and empirical growth literature. Specifically, it shows that if state enterprises are less efficient than private firms, invest less, employ less skilled labor, and are less eager to adopt new technology, then a large state enterprise sector tends to be associated with slow economic growth, all else remaining the same. The empirical evidence for 1978-92 indicates that, through a mixture of these channels, an increase in the share of state enterprises in employment by one standard deviation could reduce per capita growth by one to two percentage points a year from one country to another.

The Modigliani ‘puzzle’

Medium- to long-term changes in unemployment appear to be closely correlated with medium- to long-term changes in private investment. This becomes a puzzle once we abandon the Keynesian framework as an explanation for medium-term movements in unemployment and replace it with the natural-rate framework of Friedman and Phelps. It also opens up the possibility that factors affecting private saving and investment may impinge directly on the natural rate of unemployment. One such factor is the age structure of the population. We explore these possibilities and find a surprisingly robust medium- to long-run relationship between investment and unemployment both over time and across countries.

The economics of early retirement

The trend in most of the industrialised countries is in the direction of decreasing labour force participation of older workers. The steady withdrawal of workers from the workforce at a younger age suggests that retirement income is gradually increasing and/or that older workers are increasingly being forced out of the labour market. Regardless of whether early retirement can be traced to the labour supply or the labour demand side of the labour market, it constitutes a withdrawal of resources from production, a lowered tax base, and an increased burden on pension and fiscal systems. This paper identifies and discusses alternative theories on why people retire early.

Accounting for human capital externalities with an application to the Nordic countries

Externalities caused by human capital accumulation have taken up considerable space in theoretical work on economic growth. However, less attention has been paid to this externality in traditional growth accounting exercises. This paper takes up the issue of growth accounting, suggesting a framework for quantifying human-capital externalities and illustrating it empirically using data from the five Nordic countries. Four sources of growth are identified, i.e., capital accumulation, labor force growth, and total factor productivity growth (TFP), where the traditional TFP measure is split into a part explained by human-capital formation and an unexplained part. By doing this I am able to attribute between 12 percent and 33 percent of growth in the Nordic countries to human capital investment.

The Costs of Early Retirement in the OECD

Despite substantial increases in longevity, the age of retirement in the industrialized countries has steadily fallen throughout most of the 20th century. In 13 OECD countries, the employment-population ratio of 55-64-year-old males fell by an average of more than 12 percentage points between 1979 and 1998. Similarly, labor force participation rates for those 65 and above have fallen significantly. The economic cost of the low labor market participation, in terms of lost output, benefit payments, and lower tax base is substantial. However, part of the cost of low labor market participation is cyclical or structural and, hence, separate from the costs of early retirement. This paper develops a simple framework to assess the specific costs of early retirement and applies it using data from the OECD countries.

Policy Rules for Exploitation of Renewable Resources: A Macroeconomic Perspective

A fundamental problem for an economy based on a common property resource is the absence of a market to trade the resource. This implies that private costs will be below social costs. This paper investigates possible government interventions that correct for such distortions in a neoclassical growth model with a production externality in harvesting. The model predicts that the welfare of the representative household increases considerably when a Piguovian tax is implemented. The policy that replicates the command optimum is highly complex and changes over time. On the other hand, a large share of the maximum welfare increase is internalized by introducing a constant quantity tax, suggesting that the potential of such policies is high.

Demographics and Unemployment

This paper introduces the age structure of the population into the analysis of medium term unemployment swings. We incorporate age-related features into the Shapiro-Stiglitz shirking model and find that the observed age pattern of unemployment can be explained in terms of the model. Moreover, we find that changes in the age composition of the population - in particular the ageing of the baby-boom generation - has caused OECD wide unemployment to be 50 basis points lower than what it currently is. The magnitude of his effect varies between countries though but it is never larger than 140 basis points (France and Italy). More importantly, the age effect on the labour participation rate is considerable - the rates would have fallen by almost 5 percent point more than observed in the OECD if the baby-boom generation had not come of age. There is also a statistical relationship between several macroeconomic shocks and demographic factors. In particular, the larger the share of working-age individuals, the higher is the ratio of investment to GDP, and the higher the share of the 25-34 year old cohort, the greater the rise in stock prices in recent years.