Volume 73, Issue 1

Several studies have tested semi-endogenous versus Schumpeterian growth models using different methodological approaches. This paper critically reviews these studies including their approaches and provides new evidence on this issue, by analyzing both time-series data from the United States and panel data from 19 OECD countries over the period 1980–2014. The review finds much support for Schumpeterian growth theory, but shows that all studies reviewed have several limitations. These limitations include conceptual problems associated with the use of the number/stock of patents as a measure of the flow/stock of knowledge, the possibility of spurious regressions due to non-stationary data, potential mismeasurement of R&D inputs due to possible interpolation and deflation errors, misspecification problems that can arise in difference models when variables are cointegrated, and potential spurious rejections of the unit root hypothesis for R&D intensity when the lag length in unit root tests is too small. The present study avoids these limitations and finds strong evidence in favor of semi-endogenous growth.

A method is proposed for estimating the effect of transaction costs on volatility, using the tick size as a proxy. The method involves three steps: (1) collect only the cases in which the tick size changes from one regime to another; (2) estimate the effect with and without the order book size; and (3) use local data on the tick size and volatility but instruments from international markets. The first step handles stationarity and dependence. The second step is used to infer the effect of a symmetric transaction cost as the tick size is a revenue and not a cost for liquidity providers. Regressions with and without the order book may therefore indicate the extent to which this asymmetry is likely to affect the result. The third step handles endogeneity. The method is applied to intraday data from the Norwegian Stock Exchange. The results show that both the tick size and the inferred transaction costs have no significant effect on volatility.

The global economy is in the midst of an unprecedented slump caused by the coronavirus pandemic. This systemic risk like no other at a time of record-breaking debt levels, especially among non-financial firms across the world, could exacerbate corporate vulnerabilities, deepen macro-financial instability, and cause long-lasting damage to economic potential. Using data on more than 3.7 million non-financial firms from 58 countries during the period 1997–2019, we develop a two-pronged approach to investigate the relationship between corporate leverage and fixed investment spending. The empirical analysis, robust to a battery of sensitivity checks, confirm corporate leverage is highly vulnerable to disruptions in profitability and cash flow at the firm level and economic growth at the aggregate level. These findings imply that corporate debt overhang could become a strenuous burden on non-financial firms, especially if the COVID-19 pandemic lingers and global downturn becomes protracted.