Robert J. Barro

TL;DR: The Wealth of Religions as mentioned in this paper provides insights into the vital interplay between religion, markets, and economic development, showing that places with firm beliefs in heaven and hell measured relative to the time spent in religious activities tend to be more productive and experience faster growth.

Abstract: My view in the early 1970's of Keynesian, non-market-clearing-type models was that the soundness of their theoretical structure hinged on an as yet absent theory of the stickiness of wages or prices. The application of contracting theory to macro analysis seemed promising in this respect. The presence of employee risk aversion or of transaction costs associated with market arrangements which could include elements of capital that were specific to employment or other aspects of production and exchangeseemed to motivate some long-term, implicit or explicit agreements about wages or prices. In particular, a sluggish adjustment of wages to current economic conditions could be rationalized by this approach. Further consideration of the contracting model suggests that its rationale for sticky wages and prices-as far as it goes does not explain the key features of Keynesian analysis with regard to the determination of employment and output. For example, long-term labor agreements do not imply a failure of employment to increase when all parties to the agreements perceive that they could be made better off by such a change. The socalled involuntary unemployment of Keynesian models that is, a situation where everyone perceives accurately that the marginal product of labor exceeds the marginal value that potential workers place on their time-is not compatible with efficient labor agreements. Even in contracts that specify, ex ante, the value of nominal wages over some interval of time, it would be mutually advantageous for workers and firms to determine levels of employment in an efficient manner. The contracting approach may rationalize some departures of real wages from the marginal product of labor and/or the marginal value of worker time, but it does not imply that levels of employment would differ significantly from the (efficient) values that would have been attained under flexible wages. Rather than rationalizing the non-marketclearing model as a useful "as if" approach, contracting analysis suggests that-despite the possible existence of "sticky" wages-the continuous market-clearing model may provide a satisfactory framework for the analysis of employment and output. Notably, the approach suggests that such market features as sticky wages or the apparent non-price, quantity rationing associated with layoffs would be of secondary interest in analyses of business cycles. Since the prevailing wage need not represent the marginal product of labor, the presence of "excess labor supply" at this wage need not signal involuntary unemployment in any economic sense. The conclusions derived from the contracting model can be generalized by observing that the key assumption of Keynesian analysis is the inefficiency of some aspects of private sector activity in comparison to corresponding activities carried out by the government. This central feature is, of course, the underlying basis for the policy activism that typifies Keynesian thinking. In some simple "disequilibrium" macro models, relative private sector inefficiency is represented by sticky wages or prices, in contrast to the flexibility of such government policy instruments as the money supply, taxes, or expenditures. Technical limitations of the private market in the coordination of production and exchange-as reflected in wage-price stickiness and the associated determination of employment and output through a non-price rationing process-are remedied through the superior coordinating *University of Rochester. I have benefited from comments by Herschel Grossman, Bob Hall, and Ben McCallum. The National Science Foundation has supported this research.

TL;DR: In this paper, the authors examined the predicted relationships of endogenous economic growth, investment in physical and human capital, and population growth using a cross-country sample that expands on the Summers-Heston set of about 120 countries.