This paper analyzes the relationship between public education spending, long-run growth and income inequality. We propose an endogenous growth model with occupational choice and an endogenous supply of teachers and education quality. We show that endogenous school quality alters the shape of those relationships in a way that has new policy implications. First, growth depends on the level of public education expenditures and on the shape of the human capital distribution. Second, the relationship between public education and inequality can be either positive or negative. Calibrating our model to US state data, we find that a significant share of states faces a trade-off between increasing growth and decreasing inequality through public education spending. We find that this trade-off is overall more likely in states with higher public education expenditures, teacher employment share and relative wage, and intergenerational mobility. Finally, the existence of such a trade-off depends on how public education spending is financed.

The firm size distribution (FSD) is one of the most well-known economic empirical regularity in market economies. Its functional form, postulated in macroeconomic models with heterogenous firms, can be approximated by a parametric distribution. However, the parametric approximations proposed in the literature have long been contested due to the lack of unbiased databases and robust statistical methods. This paper adresses these shortcomings. First, a robust estimation method is proposed to test the fit of parametric distributions and to determine the one offering the best fit at different truncation thresholds. Then, by applying it to a comprehensive database of Belgian firms for the period 2006-2012, the results show that the lognormal distribution is a better approximation of the empirical FSD than the Pareto distribution. These results hold true at the aggregate, sectoral and regional levels establishing that the shape of the aggregate distribution is not an aggregation artefact arising from the potential distributional heterogeneity of sectoral or regional subsets. This empirical evidence is essential information for tracing the root causes of a plausible underlying stochastic model explaining firm dynamics.

Innovation is the human capacity to give an idea the power to change the course of events and to push back the frontiers of the possible. If innovation is nowadays praised in the West and even beyond, it has long had a negative connotation in a semantic field limited to politics and religion. It is with the Enlightenment and the faith in the progress of the human condition that innovation, instrument of disruptive change, takes on a positive meaning. Its semantic field then widens to other domains such as science, arts or society before the word “innovation” becomes an essential concept in economics, the creative force that the economic system generates and that transforms it. This belated confidence in the beneficial effects of innovation may have reached its limits with the ecological crisis.

The shape of the firm size distribution (FSD) looks similar in all market economies but its approximation by a parametric distribution, a necessary information to build a general model of firm dynamics, remains much debated. In this paper, we use an exclusive comprehensive database on Belgian firms. We show that the lognormal distribution is a better approximation of the empirical FSD than the power law distribution. This result holds true at the aggregate, sectoral and regional levels.

Shift-share analysis is a decomposition technique widely used in regional studies to quantify an industry-mix effect and a competitive effect on the growth of regional employment (or any other relevant variable) relative to the national average. This technique has always been subject to criticism for its lack of theoretical basis. This paper presents a critical assessment of the methods suggested by Dunn (1960) and by Esteban-Marquillas (1972) and proposes a new shift-share method, which separates out the two effects unambiguously. By way of illustration, we provide an application to manufacturing employment in the Belgian provinces between 1995 and 2007.

This paper aims at analysing the importance of local determinants to foreign direct investment (FDI) in three European regional case studies. The originality of the approach lies in the use of disaggregated data by sector and by region. The results are threefold. First, regional demand and productivity are fundamental FDI determinants, confirming most studies with national data. Second, regional FDI inflows are more dependent on regional than national determinants. Finally, the effect of market potential measured with absolute GDP on regional FDI diminishes linearly with distance and does not when measured with GDP per capita.

In a two-region model, we formalize Kindlebergerrsquos idea that wealth breeds first more wealth, and then decline: when one region leads, its inhabitants develop consumption habits incompatible with the necessary investment in knowledge to remain the leader. This gives the other region a window of opportunity to gain economic primacy. The theory suggests that differences across regions that have similar characteristics may persist even if physical capital flows from rich to poor regions. We study patterns of overtaking, alternating primacy, irreversible decline, and monotonic convergence, according to the initial dispersion of knowledge and the strength of consumption habits. Even though exogenous factors may matter on some occasions, we show that they are not necessary to reverse economic leadership.