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The endogeneity of the natural rate of growth in the regions of Italy

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  • Matteo Lanzafame

Abstract

Following Leon-Ledesma and Thirlwall (2002a), this paper examines the hypothesis that the natural rate of growth of the Italian regions is endogenous to and positively affected by the actual growth rate. Relying on fixed-effects and SUR estimation techniques and using annual data for the 20 Italian regions over the period 1977-2003, we find strong support for the endogeneity hypothesis suggesting that faster actual growth raises the natural rate of growth of the average Italian region by about 3-3.7 percentage points. Furthermore, in line with recent findings in the literature, our analysis provides evidence of asymmetries in Okun's Law. In particular, the asymmetric Okun coefficient in the high-growth regime turns out to be positive in several cases, implying the unemployment rate may become pro-cyclical when actual growth rises above a certain threshold rate.

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  • Matteo Lanzafame, 2010. "The endogeneity of the natural rate of growth in the regions of Italy," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(5), pages 533-552.
    • Handle: RePEc:taf:irapec:v:24:y:2010:i:5:p:533-552
    DOI: 10.1080/02692170903426039
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    Cited by:

    1. Mendieta-Muñoz, Ivan, 2017. "On The Interaction Between Economic Growth And Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 21(4), pages 982-1022, June.
    2. Mendieta-Muñoz, Ivan, 2015. "Is potential output growth falling?," MPRA Paper 68278, University Library of Munich, Germany.
    3. Valadkhani, Abbas & Smyth, Russell, 2015. "Switching and asymmetric behaviour of the Okun coefficient in the US: Evidence for the 1948–2015 period," Economic Modelling, Elsevier, vol. 50(C), pages 281-290.
    4. Robert A. Blecker, 2022. "New advances and controversies in the framework of balance‐of‐payments‐constrained growth," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 429-467, April.
    5. Matteo Lanzafame, 2014. "The balance of payments-constrained growth rate and the natural rate of growth: new empirical evidence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(4), pages 817-838.
    6. Matteo Lanzafame, 2016. "Potential Growth in Asia and Its Determinants: An Empirical Investigation," Asian Development Review, MIT Press, vol. 33(2), pages 1-27, September.
    7. Miguel A. León-Ledesma & Matteo Lanzafame, 2010. "The Endogenous Nature of the ‘Natural’ Rate of Growth," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 10, Edward Elgar Publishing.
    8. Senay, Acikgöz & Mert, Merter, 2015. "The endogeneity of the natural rate of growth: An alternative approach," Economics Discussion Papers 2015-2, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    endogenous growth; Okun's Law; Italian regions;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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