Resource drag in an endogenous growth context: a panel data-based estimation with cross-sectional dependences and structural breaks

Abstract

The article develops a resource drag model based on the endogenous growth theory, and provides fresh empirical evidence to estimate the drags for China by using the recently developed panel model with both cross-sectional dependences and structural breaks. The results indicate that there exists a long-run equilibrium relationship between GDP and its inputs, and both the land and water resources have significantly positive impacts on GDP except from some provinces after allowing for cross-sectional heterogeneities and structure breaks. In addition, the study employs the common correlated effects estimators to investigate the resource drags at both the pooled and individual levels. The result shows that the aggregate drag reduces annual growth rate by about 0.016 percentage points in China as a whole while there exist significant differences in both these disaggregate and aggregate drags for the province-groups, suggesting there is a fair amount of geographic clustering for them.

Keywords:

• resource drag
• endogenous growth model
• panel unit roots and co-integration
• structural breaks
• cross-sectional dependences
• China

JEL Classification:

• C33
• P25
• Q20
• R11

Acknowledgements

The authors would like to especially thank Josep Lluís Carrion-i-Silvestre and Joakim Westerlund for providing the GAUSS codes for their tests and estimators used in this article.

Funding

This work was supported by the National Natural Science Foundation of China [No. 40961009], [No. 41261037], [N0.41110104005], [N0.41210104055[, [N0.41310104007], the National Social Science Foundation of China [No.12AZD042], [No.12FJL002], the New Century Excellent Talents in University of China [No. NCET-12-0750] and the Scientific Project of Jiangxi Provincial Government of China [No. KJLD13016], [No. 20132BBA10009].