Essays on Economic Growth, Firm Productivity, Household Labor Supply and Welfare

Abstract

This dissertation is in three distinct chapters, although not entirely independent. The various chapters present empirical evidence in economic growth and development using data at the country, firm, and household-community levels. Over the years, the United Nations Sustainable Development Goals have given rise to copious theoretical and empirical research. This thesis moves in line with these studies. Specifically, contributing to the subject of ensuring access to affordable, reliable, sustainable, and modern energy for all (SDG 7), provision of full and productive employment and sustained economic growth (SDG 8), availability of financial services and markets (SDG 9), and building sustained development and inclusive institutions (SDG 16). The thesis uses data from various sources at different levels--country, firm, and household--to test important growth and development issues that are considered gray areas that require extensive research. The first chapter is dedicated to investigating the relationship between economic institutions and growth. While the importance of institutions in fostering economic growth and development has not been disputed, there is now a developing literature on the nonlinearity between growth and institutions. This paper examines the existence of nonlinearities between economic institutions and growth and, particularly, the presence of threshold effects for a sample of advanced and developing countries. Using political institutions to instrument economic institutions in a dynamic panel threshold model, the results reveal the existence of institutional-threshold effects in a first difference generalized method of moments (FD-GMM) approach. Specifically, for economic institutions to affect growth, they must on average develop to at least 6 and 8 (out of a score of 10) for developing and advanced economies, respectively. Both the short-run and long-run effects of economic institutions on growth are positive and only significant for developing countries. The results show the primacy of sub-indices of economic institutions such as freedom to trade internationally, legal structures, and property rights for economic growth. Next, I narrow things down to the firm level. The second chapter of this thesis is devoted to searching for transmission channels from finance to firms' productivity and growth in the developing countries context. There is a consensus among economists that financial development fosters economic growth. Among other things, the productivity effect of access to finance by firms is considered one of the important channels through which finance affects growth. This paper empirically investigates the relevance of this channel using firm-level data from the World Bank Enterprise Survey for several developing countries from 2002 to 2020. The results indicate that access to finance is generally limited, although larger firms have better access to finance irrespective of their age. Holding all other factors constant, improved access to finance significantly increases the productivity of young and small-sized firms while reducing their growth in employment. Also, compared to matured and medium-sized but financially constrained firms, the results show that enhanced access to finance significantly boosts the employment growth of old (but small) firms. Lastly, the results show different sources of financing (external, formal, and informal) have varied effects on firms’ growth and productivity. From the results, a long-term growth policy package recommended should therefore include special financing schemes that improve access to finance for young and small firms. In the third chapter, I study the labor supply and welfare benefits of electrification. The share of a country’s population with access to electricity is a good indicator of its growth and development since it has important labor and welfare implications. This paper estimates the causal effect of access to electricity on development outcomes such as employment, wages, and hours of work, as well as the reallocation of labor across the agriculture and non-agricultural sectors in Ghana. First, I demonstrate that topography matters in grid expansion, especially in rural Ghana, using the three most recent waves of the Ghana Living Standard Survey (rounds 5, 6, and 7). I do this by using the slope of the land as an instrumental variable IV. Second, the IV estimates show no significant improvement in general employment and wages, whilst inducing shifts in employment from agriculture to the non-agriculture sectors because of electricity. Also, hours of work increase, especially for those in the non-agriculture sector. An important mechanism through which electrification affects labor and welfare outcomes in Ghana is the increase in underground economic activities.