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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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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 24 (2010)
Issue (Month): 5 ()
Pages: 533-552

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Handle: RePEc:taf:irapec:v:24:y:2010:i:5:p:533-552

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Keywords: endogenous growth; Okun's Law; Italian regions;

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References

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  1. Blackburn, Keith, 1999. "Can Stabilisation Policy Reduce Long-Run Growth?," Economic Journal, Royal Economic Society, vol. 109(452), pages 67-77, January.
  2. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  4. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  5. Miguel A. León-Ledesma & A. P. Thirlwall, 1998. "The Endogeneity of the Natural Rate of Growth," Studies in Economics 9821, Department of Economics, University of Kent.
  6. Miguel Leon-Ledesma & Anthony P. Thirlwall, 2000. "Is the natural rate of growth exogenous?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 433-445.
  7. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
  8. Attfield, Clifford L. F. & Silverstone, Brian, 1998. "Okun's Law, Cointegration and Gap Variables," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 625-637, July.
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Cited by:
  1. Lanzafame, Matteo, 2011. "The balance of payments constrained growth rate and the natural rate of growth: new empirical evidence," MPRA Paper 33130, University Library of Munich, Germany.

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