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Chapter 12 analyzes how China’s pro-growth tax system and expenditure system, the expansionary fiscal policies, and local government fiscal expansion outside formal budgets have stimulated China’s economic growth in recent decades. It discusses China’s growth perspective and shows that China may become the largest economy in the world in less than a decade. It also exposes the challenges that China faces, such as income inequality, environmental degradation, resource depletion, slowing down economic growth, and the population aging. It finally discusses fiscal reforms needed for equitable and sustainable economic growth, including reinforcing environmental and resource tax laws, curtailing government debt, stimulating private investment, raising transfers to low-income families, and increasing government expenditures on education, healthcare, and welfare.
This paper investigates whether pollution-intensive industries develop faster in a time of economic downturn. Using firm-level panel data from 2005 to 2013, we find supporting empirical results in an analysis of China's manufacturing industries in the 2008 economic crisis. We find that pollution-intensive firms tended to produce more compared with non-pollution-intensive firms in the 2008 economic crisis, with the pre-crisis period as a baseline. We further find that this effect is more pronounced in areas with higher export dependence and a smaller proportion of production from pollution-intensive industries. The relatively faster production expansion in pollution-intensive industries is more evident for state-owned enterprises.
In May 2000 the world’s leading financial weekly announced that there was little hope for the future of Africa. Under the headline ‘The hopeless continent’, The Economist’s cover showed a young man, presumably a rebel, carrying an anti-tank rocket launcher, over a cut-out of the region. The dark background spelled doom.
The Economist was not alone in its Afro-pessimism. In a seminal 1999 paper, development economists Paul Collier and Jan Willem Gunning attributed most of the malaise to Africa’s poor integration in the global economy, a result of import-substitution and exchange controls. They concluded that African countries were left with challenges that ‘are much more difficult to correct than exchange rate and trade policies, and so the policy reform effort needs to be intensified. However, even widespread policy reforms in this area might not be sufficient to induce a recovery in private investment, since recent economic reforms are never fully credible.’
Over the last twenty years, New Institutional Economics (NIE) has been a highly influential model in the study of the Greek and Roman economy. Although both its assumptions and methods are controversial, NIE approaches have changed the agenda of ancient economic history. The overall goal of neo-institutional economic history is to explain economic development, and notably growth, in line with a much-quoted phrase by the Nobel-prize winning economist Douglass North, that it is the task of economic history to explain the structure and performance of economies through time. NIE approaches and methods have therefore stimulated quite specific research directions in ancient economic history. This chapter suggests that NIE offers a fruitful conceptual matrix for asking new questions – with or without the answers necessarily staying within the NIE model. By contrast, the aim of the NIE method to predict and quantify outcomes, and the broader implications of the approach, are far more difficult to accept and defend. Particularly problematic is its commitment to certain kinds of growth as the desirable outcome of economic development, together with the assumption of the universal benefits of that growth, with its end point and golden standard explicitly or implicitly based on successful economies of the modern West.
The extent of material inequality and its relationship to economic development are central questions for historians of all periods. In recent decades, historians of ancient Greece have sought to provide the basis for answering those questions by attempting to estimate the distribution of wealth and income in Athens (and to a lesser degree in other Greek poleis) by reference to statements in ancient texts, proxy data, and simple models. While there remains much room for debate on specifics, we suggest that, for certain periods of Athenian history, very rough, but nonetheless suggestive, estimates can be offered of the distribution of wealth across the citizen population and the distribution of income across the entire population. The chapter briefly sketches ancient Greek economic performance before discussing material inequality in Greece, with special reference to Athens, and in comparison with other premodern economies. It explains how Greek political institutions and competition among individuals and states drove comparatively high levels of growth, while inequality remained comparatively low. Finally, it tests this hypothesis against some more and less familiar facts about Greek history.
On 27 April 1994 Nelson Mandela’s long walk to political freedom came to an end. On that fresh autumn morning 22 million South Africans headed to their nearest voting booths to cast their votes, many for the first time, in the country’s first democratic elections. The mood was festive. After almost a century of political exclusion, black South Africans now had an equal political voice – and they made it count: the African National Congress won 63 per cent of the total vote. Mandela was sworn in a few days later as the country’s first democratically elected president.
But not all freedoms were fulfilled on Freedom Day (as that first democratic election is known). Many South Africans at the time were living in abject poverty, unable to achieve the life they wanted. Almost all of them were black. The new rainbow nation was characterised by stark levels of inequality.
Chapter 6 assesses long-run augmented human development in Africa. Augmented human development experienced sustained gains since 1880, faster between 1920 and 1960, under colonial rule, and at the turn of the century, but remains at the bottom of the world distribution, although the northern and southern regions forged ahead while the rest stayed behind. AHD grew twice as much as per capita GDP, thriving at times of poor economic performance and, unlike GDP per head that fell behind from a higher relative position, AHD was catching up to the OECD since the late 1920s. Schooling was the main driver of AHD gains and catching up, with life expectancy making a significant contribution in the interwar in the early stage of the epidemiological transition, as the diffusion of health practices prevented infectious disease spread and helped reduce infant and maternal mortality. Civil and political liberties made a contribution both at the time of independence and in the 1990s. AHD long-run performance does not support either the pessimistic view of the colonial era or the depiction of ‘lost decades’ for the post-independence era, but there is still a long way to go from an international perspective
How has human development evolved during the last 150 years of globalization and economic growth? How has human development been distributed across countries? How do developing countries compare to developed countries? Do social systems matter for wellbeing? Are there differences in the performance of developing regions over time? Employing a capabilities approach, Human Development and the Path to Freedom addresses these key questions in the context of modern economic growth and globalization from c.1870 to the present. Leandro Prados de la Escosura shows that health, access to knowledge, standards of living, and civil and political freedom can substitute for GDP per head as more accurate measures of our wellbeing.
This chapter develops and tests hypotheses about possible influences that lie outside national borders. There are many good reasons to expect that domestic factors are not the sole determinants. We lay out a theoretical framework that systematically catalogues most of the possible international hypotheses: exogenous shocks and endogenous networks such as those linking neighbors, allies, and colonizers and colonies. We then test selected hypotheses about exogenous shocks and contagion – the spread of democracy outcomes from country to country through various international networks. Surprisingly, contagion at first appears to be real but so small that it could be ignored when studying domestic influences. However, for some kinds of contagion our analysis implies that the long-run effects grow quite large and must be taken into account if we want to understand how democracies develop and decline. This paradox leads us to conclude that international influences are a hidden dimension of democratization.
This edited volume surveys and retests most of the central explanations for democracy outcomes (levels of electoral democracy and upturns and downturns in it) using Varieties of Democracy data. After a chapter describing historical trends, other chapters survey and test hypotheses concerning geography and demography; international influences; economic determinants; institutions; and social forces. The volume concludes with a new theoretical framework emphasizing the historical sequencing of different kinds of causes. The conclusion also uses path analysis to integrate the most promising hypotheses from the preceding chapters into causal sequences explaining levels, upturns, and downturns.
Introducing susceptible-infected-recovered epidemiology dynamics with vaccines into an endogenous growth model, we investigate the impact of government infectious disease policy on macroeconomic performance. We find that any expenditure that improves health, whether to reduce the contact rate or increase the recovery rate or the vaccination rate, and regardless of whether it comes directly from the households or the government, has a positive impact on economic growth, but does not necessarily improve the welfare. The reason people’s health has improved but their welfare has fallen is because government expenditures must be covered by taxes, which will reduce their disposable income and consumption.
Chapter 4 addresses how Latin America has sought to generate socioeconomic welfare since 1880 by making choices about the model of economic development – the region’s strategy to promote economic growth and the material well-being of the populations as a whole. It identifies three periods during which the region adopted distinct models of economic development and assesses the performance of each model. The first model, the market-oriented agro-export model, led to moderate but unequal progress – a mixture of moderate economic growth, a slight improvement in absolute levels of welfare, and an increase in economic inequality. The second model, the statist import-substitution industrialization model, produced strong progress – good economic growth, a big improvement in absolute levels of welfare, and a decrease in economic inequality. Finally, the third model, the market-oriented neoliberal model, still used in the region, has yielded slow progress – languid economic growth, a slight improvement in absolute levels of welfare, and a small reduction in economic inequality. The chapter shows that the question of what is the best development model for Latin America remains open.
This article analyzes the impact of Augusto Pinochet’s autocracy on the Chilean economy. The study compares outcomes under Pinochet’s leadership with those in a synthetic counterfactual made of a weighted average of countries with similar characteristics. It finds that, relative to the control, Chilean income per capita greatly underperformed for at least the first fifteen years after Pinochet’s coup. The results are robust to extending the pool of donor countries and expanding the pretreatment period by switching data sets to capture potential heterogeneity of effects. The evidence suggests that Chile’s remarkable economic growth during the period 1985–1997 did not depend on Pinochet’s autocracy. These results further bring into question the effectiveness of the regime to enhance economic growth and the narrative of the Chilean miracle.
We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965–2010. To do this, we estimate a version of the model proposed by Mankiw, Romer and Weil [(1992) Quarterly Journal of Economics 107, 407–437.] augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique—namely, a Finite Mixture Model—which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model, the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).
This chapter asks how ageing populations in EU Member States will affect the making of migration and asylum law. It tests the hypothesis that asylum and immigration law and policy in European states may become increasingly exclusionary towards large groups of immigrants due to its being interlocked in a vicious circle of economic and political consequences of population ageing. The interposition of law with democracy, demography and economic growth, is at the core of the argument that the restriction of migrants’ rights is but a symptom of this vicious circle, as ageing European societies undermine their own resource base for achieving economically tenable, politically stable and sufficiently egalitarian communities. By itself, the chapter posits, the law cannot provide for resilience against restrictive migration policies, given this context. While the law is a useful tool in single cases and the short term, it emerges from the same foundational assumptions that lie behind a long-term and amplifying trend of restrictionist politics.
China registered double-digit GDP growth for more than three decades. Recently, the rate has slowed down considerably. The slow growth period, which Chinese policymakers refer to as the 'new-normal', has created enormous curiosity among scholars and policymakers. In particular, scholars often tend to project if China is destined to follow Japan's fate. Insufficient reforms in the banking sector in commensuration with the real economy in Japan resulted in an unprecedented financial catastrophe. Similarly, an asymmetric development between the Chinese banking sector and the real economy is observed. This leads to an interesting question: is China destined to meet Japan's legacy? This Element attempts to answer this question. In so doing, it delves deep into the banking sector reforms of China. The Element concludes that China is not on course to meet an immediate financial chaos, but the country needs further banking reforms to avoid a potential crisis.
This study introduces automation into a Schumpeterian growth model to explore the effects of R&D and automation subsidies. R&D subsidy increases innovation and growth but decreases the share of automated industries and the degree of capital intensity in the aggregate production function. Automation subsidy has the opposite effects on these macroeconomic variables. Calibrating the model to US data, we find that raising R&D subsidy increases the welfare of high-skill workers but decreases the welfare of low-skill workers and capital owners, whereas increasing automation subsidy increases the welfare of high-skill workers and capital owners but decreases the welfare of low-skill workers. Therefore, whether the government should subsidize innovation or automation depends on how it evaluates the welfare gains and losses of different agents in the economy.
PM2.5 has more complex sources and formation processes than SO2, creating a greater regulatory challenge. The chapter lays out new policies and standards to curb PM2.5. Shen then uses both satellite-based and officially reported data on PM2.5 concentration to examine its interplay with growth, stability, and regulation. Officially reported data reflect what subordinate leaders wish their superiors to know, while satellite-based data are more objective. The results show that before PM2.5 control entered promotion criteria, local leaders were incentivized to gradually order laxer regulation of polluters during their tenure for social stability and (reported) economic gains, resulting in political pollution waves. However, after certain prefectures’ evaluation criteria incorporated gradually more aggressive PM2.5 reduction, political pollution waves continued based on satellite-based statistics, though officially reported local monitor readings seemed to suggest much-attenuated pollution waves. Thus, changing incentives of local cadres and monitoring was insufficient to dampen PM2.5 pollution waves. The nature and complexity of individual pollutants matter for effective regulation.
What are the normative implications of political regulation waves? Based on quantitative counterfactual estimation and qualitative case description, this chapter assesses the hard tradeoffs imposed by political regulation waves – between social stability, employment, economic growth, and health and longevity among local populations. Local leaders face incentives to signal competence by promoting laxer environmental regulation to benefit jobs and the economy, imposing a measurable human cost due to dirtier air. Conversely, when local leaders seek to move up the political ladder by strengthening the implementation of regulations in pursuit of blue skies, air quality improves, but firms suffer profit losses, and many people lose their jobs and are forced to spend brutal winters without heating. One form of the political regulation wave is not inherently better than another. These are difficult tradeoffs.
Policymakers in China have paid attention to SO2 emissions reduction since the 1990s, as adverse environmental effects such as acid rain devastated large parts of the country. Shen empirically tests the “political regulation wave” theory based on temporal patterns in SO2 regulation between 2001 and 2010. During this time, reduction targets were nonbinding during 2001-5 but binding during 2006-10. Since SO2 emissions management entails a low level of ambiguity, regulatory efforts translate well into regulatory effectiveness. Results based on official data from statistical yearbooks and on satellite-based statistics concur that top prefectural leaders whose prefectures received high reduction targets were incentivized to produce an incremental yet steady decrease in regulation during 2001-5 to accommodate economic and stability goals, consistent with theoretical predictions. Later, when binding SO2 reduction targets became tied to local leaders’ career prospects, they fostered a more consistent regulatory implementation during their tenures.