DynEmp: New cross-country evidence on the role of young firms in job creation, growth, and innovation
Chiara Criscuolo, Peter N. Gal, Carlo Menon, 26 May 2014
Young firms are known to play a central role in job creation. This column presents the results of a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data. It confirms that young firms play a central role in creating jobs, and in enhancing growth and innovation. Public policies can help by enabling firms to experiment, and by fostering the reallocation of resources towards the most productive firms. Structural reforms to product, labour, and capital markets, as well as bankruptcy laws that do not overly penalise failure, are particularly relevant.
Since well before the crisis, many OECD economies have been confronted with sluggish productivity growth. In the aftermath of the crisis, job creation has also stalled and has become an important policy issue. Business dynamics are at the core of the creative destruction process.
Topics: Labour markets, Productivity and Innovation
Tags: business cycles, employment, firms, growth, job creation, OECD, R&D, start-ups
Democracy causes economic development?
Daron Acemoglu, Suresh Naidu, James A Robinson, Pascual Restrepo, 19 May 2014
Many analysts view democracy as a neutral or negative factor for growth. This column discusses new evidence showing that democracy has a robust and sizable pro-growth effect. The central estimates suggest that a country that switches from non-democracy to democracy achieves about 20% higher GDP per capita over the subsequent three decades.
A belief that democracy is bad for economic growth is common in both academic political economy as well as the popular press. Robert Barro’s seminal research in this area concluded that “More political rights do not have an effect on growth...The first lesson is that democracy is not the key to economic growth” (Barro 1997, pp. 1 and 11).
Topics: Development, Economic history, Education
Tags: democracy, growth
Greening Economics: It is time
Carlo Carraro, Marianne Fay, Marzio Galeotti, 26 April 2014
The concept of environmental capital is throughly entrenched in policy dicussions but largely missing from mainstream economic curriculums. This column argues environmental externalities, climate change, and constraints on natural resources will constantly and deeply affect humankind’s future. The teaching of economics, especially growth economics, should stop ignoring them.
Shortly after the inception of the financial crisis, The Economist published an article on the split the crisis had brought about among macroeconomists and on the self-criticism some of the most renowned names of academia were applying to the discipline they have been teaching.
Tags: Green growth, growth, natural capital, policy formation, teaching
Sustainable growth requires a long-term focus
Pascal Lamy, Ian Goldin, 28 March 2014
Excessive short-termism is always a problem for policy, but the Global Crisis has brought it sharply into focus. This column introduces a report that discusses how a shift to longer-term solutions is necessary and possible. A key message is that businesses as well as governments need to take a longer-term view. The report identifies ways to overcome the current impasse in key economic, climate, trade, security, and other negotiations.
Just when we thought high-frequency trading couldn’t get any faster, a US communications company is developing a high-speed laser network between the New Jersey data centres of the New York Stock Exchange and the NASDAQ stock exchange, to shave an additional few nanoseconds off high-frequency trading times.
Topics: Environment, Financial markets, Global crisis, International trade
Tags: climate change, corporate governance, environment, global crisis, growth, high-frequency trading, mark-to-market accounting, short-termism, trade
Redistribution, inequality, and sustainable growth: Reconsidering the evidence
Jonathan D Ostry, Andrew Berg, Charalambos Tsangarides, 6 March 2014
Inequality has the potential to undermine growth. However, greater redistribution requires higher tax rates, which reduce incentives to work and save. Moreover, the evidence that inequality is bad for growth might simply reflect the fact that more unequal societies choose to redistribute more, and those efforts are antithetical to growth. This column presents evidence from a new dataset on pre- and post-tax inequality. The authors find that income equality is protective of growth, and that redistributive transfers on average have little if any direct adverse impact on growth.
Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects (including questions about the consistency of extreme inequality with democratic governance), but also its economic implications.
Topics: Development, Poverty and income inequality
Tags: growth, Inequality, redistribution
Making city lights shine brighter
Shahid Yusuf, Danny Leipziger, 3 March 2014
Urbanisation and GDP per capita are positively correlated across countries. However, when the sample is restricted to developing countries, urbanisation and growth are more loosely related – particularly in Africa. CEPR Policy Insight 71 argues that the low share of manufacturing in developing-country cities may help to explain this discrepancy. Strengthening urban finances, embracing technology, improving skills, and stimulating the formal sector will help cities to promote growth. Since decisions affecting urban development can have lasting impact, longer-term planning deserves greater attention than it is currently receiving.
Vox readers can download CEPR Policy Insight 71 for free here.
Tags: agglomeration, cities, externalities, growth, Inequality, slums, urbanisation
Making city lights burn brighter
Danny Leipziger, Shahid Yusuf, 3 March 2014
Urbanisation and GDP per capita are positively correlated across countries. However, when the sample is restricted to developing countries, urbanisation and growth are more loosely related – particularly in Africa. This column argues that the low share of manufacturing in developing-country cities may help to explain this discrepancy. Strengthening urban finances, embracing technology, improving skills, and stimulating the formal sector will help cities to promote growth. Since decisions affecting urban development can have lasting impact, longer-term planning deserves greater attention than it is currently receiving.
Urbanisation and per capita GDP are well correlated.1 According to a recent estimate by Gilles Duranton using cross-country data for 2012 (see Figure 1), each percentage point of urbanisation is associated with a five-percentage-point increase in GDP per capita, with urbanisation apparently explaining 60% of the variation in incomes.
Tags: agglomeration, cities, externalities, growth, Inequality, slums, urbanisation
Gaps, cracks and lacunae: The finance and growth nexus in low-income countries
Nauro F Campos, Stefan Dercon, 1 March 2014
Financial development and growth have long been linked. This column argues that there remain fundamental lacunae in our understanding of the finance-growth nexus. Three main areas for future research are identified: aid, institutions and technology.
Are quantitative and qualitative improvements in financial markets, institutions, instruments, and intermediaries positively and closely associated to the processes of economic growth and development? Does finance cause growth? Once upon a time, economists were deeply divided on these issues.
Tags: Finance, growth, Low-income countries
The US manufacturing recovery: Uptick or renaissance?
Oya Celasun, Gabriel Di Bella, Tim Mahedy, Chris Papageorgiou, 24 February 2014
The strong rebound of manufacturing production following the Great Recession of 2008–09 has generated renewed interest in the sector among analysts and policymakers. This column argues that a detailed look at the data suggests that claims of a US manufacturing renaissance are unwarranted. Yet, there remain factors that could support a greater contribution from the manufacturing sector to overall US growth in the years ahead.
Amid increasing anecdotes of a ‘renaissance’ in US manufacturing, many commentators have argued that the sector may contribute more significantly to domestic GDP and global industrial output in future (e.g. Financial Times 2012, New York Times 2012, McKinsey Global Institute 2012, Citi Research 2013).
Topics: Global economy
Tags: Great Recession, growth, manufacturing, US
Firm age, investment opportunities, and job creation
Manuel Adelino, Song Ma, David Robinson, 12 February 2014
There is a strong link between entrepreneurship and growth – young firms were responsible for almost all net job creation in the US economy over the last 30 years. This column presents new research into the responsiveness of firms of different ages to investment opportunities. Firms aged 0–23 months create about twice the total number of new jobs in response to local income shocks than firms that are more than six years old.
Economists have long been concerned with understanding how firms respond to changing investment opportunities. Indeed, this question is central to ongoing policy discussions about economic growth and job creation, since the way firms create jobs is by increasing investment and employment in response to new economic opportunities.
Topics: Financial markets, Labour markets, Productivity and Innovation
Tags: employment, entrepreneurship, firm age, growth, job creation, US