Footnote Should States Invest in the Arts as a Tool for Economic Growth

i. Introduction

Many believe that arts activities are straight influenced by the economy. Intuitively, many wait economic growth to boost an increase in the arts activities. For instance, the rapid increment in the Chinese Gross domestic product and the concurrent and unprecedented degree of growth in the Chinese arts marketplace may be interpreted as signifying a positive causal link between GDP and arts activities. In many cases, it seems logical that the arts activities would benefit from high economic growth, just equally other industries do.

Meanwhile, in that location is an intriguing competing interpretation. A few studies (Myerscough, 1988; Whitt, 1987), which have articulated a positive causal link between arts activities and economical growth, have proposed that the economic growth tin can exist attributed to the arts' ability to increase labor productivity past increasing the level of life satisfaction for arts participants.

Both perspectives have garnered scholarly back up. Yet a review of the literature reveals no empirical study that has provided macroeconomic testify to support either of the arguments. Surprisingly, current assumptions about the human relationship between the arts and the economic system await thorough empirical research and fair testing. Left unstudied, doubts nearly the economic impact of the arts (encounter Carstensen et al., 2000; Cohen, 2004; Sterngold, 2004a) may continue to prevail.

Given this groundwork, this study tests the research hypothesis: "arts activities heighten economical growth." As far as is known, this is 1 of very few studies to investigate this suggestion using macroeconomic information. Information technology was only in 2013 that the U.S. Bureau of Economic Analysis (BEA) and the National Endowment for the Arts together adult The U.Due south. Arts and Cultural Production Satellite Business relationship: 1998–2013, a dataset—first of its kind in the United states of america—intended to track the U.S. creative sector's contribution to the U.S. Gross domestic product. In 2018, BEA announced that 'arts and cultural economic activity accounted for 4.2 percent of gross domestic production (Gross domestic product), or 763.vi USD billion, in 2015ʹ (Bureau of Economic Analysis, 2018, p. i). Due to a lack of a properly specified econometric model of arts activities, this research does not test the hypothesis: 'economic growth enhances arts activities."

Information technology should be noted in advance that these examination results are not a decisive measurement for the value of the arts in club; the value of the arts in its amass extends beyond its economical traits. Instead, this enquiry provides an additional anchor to the report of the arts and the economy and how they bear upon ane another.

The residue of this newspaper is organized as follows: Section 2 presents the literature review; Section iii presents the information and the proposed macroeconomic model; Section iv provides the empirical results; and Section 5 concludes the paper.

2. Literature review

ii.1. The evolution of economic impact studies in the arts

Traditionally, researchers have seldom doubted or tested the validity of the supposition that economic growth leads to greater artistic and cultural proliferation. Instead, researchers have tended to measure the impact of economical crises or recessions on the arts. In the analyses of the 2008 economic crisis, for example, many studies accept reported the adverse effects of the crisis on the arts, including an increased unemployment charge per unit for artists (Marlowe, 2010), a decline in arts participation (Miringoff & Opdycke, 2010), reduced private giving for the arts (Courchesne et al., 2014; Helicon Collaborative, 2009), a decrease in cultural organizations' endowment assets (Courchesne et al., 2014), and measurable impairment to the quality of cultural activities (Moldoveanu & Ioan-Franc, 2011). At the aforementioned fourth dimension, some other studies have constitute mixed results concerning the bear upon of the crunch, while still final that the crisis debilitated more than than strengthened the arts sector (Madden, 2009; Nicholls, 2011).

A pregnant impetus for the study of the relationship between the arts and the economy comes from arts stakeholders who advocate for continued fiscal support for the arts. As famously stated by Baumol and Bowen (1966), the arts—especially the performing arts—are believed to suffer an inevitable "toll illness" in the market economy. The arts and cultural sector rely heavily on public and philanthropic giving in order to sustain its operations.

In defense of public and private giving for the arts, arts advocates articulate a mix of justifications. For case, McCarthy et al. (2004) have described the arts every bit delivering a set of "intrinsic" benefits (such as artful values and positive feelings) and a set of "instrumental" benefits (namely cognitive, attitudinal and behavioral, wellness, social, and economical benefits) to both arts participants and the social club at big. Additionally, scholars oftentimes strive to substantiate various benefits of the arts. In doing so, studies that are aimed at quantifying the bear upon of the arts on the economy—often referred to as economical impact studies—have risen every bit one of the almost effective tools in constructing a compelling statement for arts giving over the years.

The first economical impact studies in the arts appointment dorsum to the 1970s when the National Endowment for the Arts (NEA) and other arts-supporting organizations started conducting studies that highlight the arts' contribution to the economy. Since and so, the economic bear on studies take newly characterized the arts sector and arts organizations as an economy-generating industry as opposed to a burdensome luxury to the local economic system. In the following decades, economic bear on studies have been extended to report the arts' utility in urban development (Bianchini, 1993; Brooks & Kushner, 2001; Whitt, 1987) too as in cultural tourism and the creative economic system.

One of the most significant economic bear upon studies for the arts is the Arts and Economic Prosperity (AEP) study conducted by Americans for the Arts (AFTA) in 1994, 2002, 2007, 2012, and 2017. The AEP has been characterized as "the most comprehensive study of its kind" (Americans for the Arts, 2017, p. 1). The nearly contempo AEP (Americans for the Arts, 2017) reported an array of tangible evidence for the economic value of the arts industry. For example, according to the written report, "the nonprofit arts industry generated 166.iii USD billion of economical action in 2015—$63.8 billion in spending by arts and cultural organizations and an additional 102.5 USD billion in consequence-related expenditures by their audiences. This activity supported 4.5 million jobs and generated 27.5 USD billion in revenue to local, state, and federal governments" (Americans for the Arts, 2017, p. 1). The AEP's findings are actively utilized in the AFTA's advocacy endeavors, especially in its lobbying efforts.

2.2. Criticisms for the economical impact studies in the arts

Starting time in the 1980s, however, some researchers (Hunter, 1989; Krikelas, 1992; Mills, 1993; Toepler, 2001) have raised questions regarding the validity of the claims made by some of the economic impact studies. Issues have been raised regarding the capability of inquiry methodology and, subsequently, these studies accept been criticized as inadequate grounds for policymaking decisions. For case, based on the study findings published in 2002, AEP stated that financial support for the arts sector is "a financially wise investment in land and local economies throughout the nation" (Americans for the Arts, 2002, p. 168). Even so, the AEP's claim was soon critiqued by Sterngold who has problematized the validity of AEP (Americans for the Arts, 2002), pointing out that "economic impact analyses that apply only gross measures of touch on, such as the AEP study, fail to provide any evidence to support their claims because the studies overlook the exchange effects of (nonprofit arts and cultural organizations)-related spending" (Sterngold, 2004b, p. 169). In support of his argument, Sterngold quoted other studies (Crompton et al., 2001; Tyrrell & Johnston, 2001) that have also raised issues with the fashion some of the economic impact studies quantify the economic impact of the arts. Although AEP author R. Cohen responded to Sterngold's argument (Cohen, 2004) and Sterngold responded in turn (Sterngold, 2004a), Cohen has not fully answered to the criticism nor has the criticism invalidated the significance of AEP and its findings. This study, in upshot, responds to the demand to farther investigate the validity of the economical touch on instance for subsidizing the arts from the perspective of economic growth promotion as presented past the arts advocates.

iii. The model

three.1. Data

Data on population, real Gross domestic product per capita and investment spending as a fraction of Gross domestic product are from the Penn World Tabular array, World Bank. All estimates reported below are based on Gross domestic product per capita. For consistency with most previous studies, analysis here is based on the Laspeyres alphabetize, base year international prices series on Gdp per capita. This makes sure that the results are comparable to the existing line of literature. As discussed inconclusions are generally insensitive to the use of the concatenation index of income available in the Penn Globe Table and to the use of Gross domestic product per worker. In whatever regression starting and catastrophe years t and T, the steady-state concrete capital aggregating rate southward is measured by the year t to twelvemonth T average ratio of investment to GDP. The steady-state population growth rate n is taken to be the average rate of population growth between years t + ane and T.

Post-obit the notation of Clark (1997), the variable y denotes income (real Gdp) per capita, north denotes exogenous population growth, thousand represents the exogenous rate of growth of labor-augmented technology, $\delta$ is the common rate of depreciation of physical and man capital, and south and h denote the rates of physical and human upper-case letter accumulation, respectively. Post-obit Clark (1993), the sum of capital depreciation and engineering growth $\delta$ +m is assumed to be constant at 0.05. This indicates that the technological progress is proportionate to the rate of capital letter depreciation. Steady-state human being upper-case letter accumulation h is measured past the primary and secondary school enrollment rates at the start of the catamenia (year t).

The National Arts Index (NAI) provides a measure for the arts activities in the U.s.a.. NAI is an annual report on the U.Due south. arts and cultural sector creative vitality and economical wellness. The 2016 NAI, which offers a 12-twelvemonth span (2002–2013) of data on the "wellness and vitality of the arts and civilization in the United states of america" (Kushner & Cohen, 2016, p. i) is the sixth and the final publication of the written report. The Index comprises 81 national-level indicators derived from the nearly recent almanac data nerveless by individual research organizations and the U.S. federal regime. The indicators collectively address four dimensions of the arts and cultural sector: (1) fiscal flows; (2) capacity; (iii) arts participation; and (iv) competitiveness. Hence, information technology should be noted that the arts activities in this research include non merely artistic activities (i.e., arts performances and audience participation in the arts) but also economic transactions that event from these creative activities. A score is calculated for each twelvemonth past designating 2003 the baseline year and assigning information technology a score of 100. Differences in each year'south score tin can be represented in percentage points and at that place is no fix maximum alphabetize score.

Updated in November 2016 with the 2013 information, the Index "provides the fullest movie even so of the touch of the Great Recession on the arts—before, during, and afterwards" (Kushner & Cohen, 2016, p. 1). Information technology reveals that in 2012, as the economic system continued to recover, the arts sector too began to come back from the economic meltdown of 2008 (Kushner & Cohen, 2016).

Economic growth and the arts: A macroeconomic study

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Figure 1. National Arts Index: 2001–2013.

Effigy 1. National Arts Index: 2001–2013.

Adjusted from National Arts Index 2016: An Annual Measure of the Vitality of Arts and Civilization in the Usa: 2002–2013, Kushner & Cohen (2016).

As tin exist seen in Effigy 1, the Great Recession of 2008–09 had an immediate negative impact on the arts, reversing gains that had been made from 2002 to 2007 and resulting in a 4-year decline in vitality and economic viability from 2007 to 2011. However, by 2012 and into 2013, recovery was underway equally the NAI score approached the 2003 level: 97.2 in 2012 and 99.8 in 2013 (Kushner & Cohen, 2016).

In its evaluation of the national data, AFTA has identified five overarching trends (Kushner & Cohen, 2016): (one) the arts continued to recover from the Great Recession in 2013; (2) arts nonprofits continued to experience financial challenges; (3) arts attendance was fluid; (4) public funding of the arts stabilized; and (5) prospects are good for continued health in the arts.

The NAI as well identifies changes in audience consumption and participation patterns (Kushner & Cohen, 2016): (one) technology is changing audience engagement and the arts commitment models; (2) arts and music training past higher-bound seniors stabilized, following years of decline; (3) demand for college arts degrees increases; (iv) consumer arts spending is flat at 151 USD billion; and (v) millions of Americans volunteer in the arts.

Finally, the 2016 NAI reveals standing trends and the ongoing challenges the arts sector faces (Kushner & Cohen, 2016): (i) arts employment remains stiff; (two) America'due south arts industries take a growing international audience; and (3) arts organizations foster inventiveness and innovation through new work.

In full, the sample is equanimous of 91 annual observations of macroeconomic variables and NAI from year 2001 to 2013.

3.2. Preliminary assay

Table ane presents the descriptive statistics of Arts Index growth rate and real Gross domestic product growth charge per unit.

Economic growth and the arts: A macroeconomic study

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Table one. Descriptive statistics of arts index growth and real Gross domestic product growth

The Arts Index is designed to be hateful reverting; therefore, it is non surprising to accept nix expected growth charge per unit. Thus, the volatility of the Arts Index growth rate is lower than that of existent GDP growth rate. The Arts Index growth rate is less negatively skewed with lower kurtosis relative to real GDP growth rate.

Table ii presents the correlation between real GDP growth rate and Arts Alphabetize growth charge per unit.

Economic growth and the arts: A macroeconomic study

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Table 2. Correlation analysis

In Table 2, the statistical significance of the correlation approximate is computed in a standard fashion as $t=r\sqrt{\frac{\mathrm{north}-2}{\mathrm{i}-r^{\mathrm{two}}}}$

where t is the t-statistic, r is the correlation approximate, and n is the number of observations. The outcome shown in Table ii indicates at that place is no apparent statistically significant pb and lag human relationship betwixt GDP growth rate and art activity growth rate. All the same, the correlation indicates that at that place is a potential concurrent relationship. Investigation of the correlation between art activity growth charge per unit and GDP growth charge per unit implies that the two are related. However, the fact that there is no clear atomic number 82–lag human relationship does not resolve the question of whether art activities cause economical growth or are but influenced past economical growth.

3.3. Macroeconomic model of Gross domestic product

In lodge to empirically investigate whether art activities tin can enhance economic growth, the model of Mankiw et al. (1992) is employed; information technology is one of the most straightforward macroeconomic models for investigating Gdp growth. Although it is one of the oldest models of Gross domestic product growth, it is notwithstanding i of the most popular models in macroeconomics (see Cuaresma et al., 2019; Hanuschek & Woessmann, 2020). As many subsequent researches emphasize, this simplicity is powerful. The implications from i of the most straightforward, but still very popular model could deliver powerful insights.

As presented in Mankiw et al. (1992), the Solow Growth Model expands the existing models to contain human capital in order to derive a very simple relationship between economic growth and initial income, population growth and the rates of physical and human capital investment. More specifically, the Solow model takes the rates of savings, population growth, and technological progress as exogenous. There are two inputs, uppercase and labor, and a Cobb-Douglas production office is causeless. As a result, they derive the following equation: (1) $ln\left(\frac{y_t}{y_{t-\mathrm{i}}}\right)={\gamma }_0+{\gamma }_1\mathrm{l}\mathrm{n}\left(y_{t-\mathrm{i}}\right)+{\gamma }_{2}ln\left(n_t+g_t+{\delta }_t\right)+{\gamma }_3\mathrm{l}\mathrm{north}\left({\mathrm{due\; south}}_t\right)+{\gamma }_4\mathrm{l}\mathrm{n}\left(h_t\right)+{\epsilon }_t$ (1)

The variable y denotes income (real Gross domestic product) per capita, north denotes exogenous population growth, g represents the exogenous charge per unit of growth of labor-augmented applied science, $\delta$ is the common rate of depreciation of physical and human being capital, and southward and h denote the rates of physical and human upper-case letter accumulation, respectively. As previously stated, $g_t+{\delta }_t$ is assumed to exist constant at 0.05. The model of Equation (ane) is shown by Clark (1997) to be effective in explaining existent Gross domestic product growth rate with the introduction of inflation's effects. Clark (1997) shows that estimates the relationship suffer two robustness problems which plague a multifariousness of model specifications. This newspaper closely follows the model of Clark (1997) but incorporates a time serial aspect, and hence expands the existing analysis. Incorporating time serial component could allow united states to understand whether the explanatory relationship persists over certain menstruation of time.

3.4. Introducing the arts

Now the Arts Index growth rate is incorporated equally an explanatory factor to the higher up model described in Equation (i) and converts the model to time series. The following is derived: (2) $ln\left(\frac{y_t}{y_{t-1}}\right)={\gamma }_0+{\gamma }_1\mathrm{l}\mathrm{due\; north}\left(y_{t-\mathrm{one}}\right)+{\gamma }_{\mathrm{two}}ln\left({\mathrm{due\; north}}_t+m_t+{\delta }_t\right)+{\gamma }_{\mathrm{iii}}\mathrm{50}\mathrm{due\; north}\left({\mathrm{south}}_t\right)+{\gamma }_4\mathrm{l}\mathrm{n}\left(h_t\right)+{\gamma }_{\mathrm{iv}}ln\left(\frac{a_t}{a_{t-1}}\right)+{\epsilon }_t$ (2)

4. Empirical analysis

iv.1. Estimated result

With the information from 2001 to 2013, the model in Equation (2) is estimated. The upshot is presented in Table iii.

Economic growth and the arts: A macroeconomic report

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Table three. Estimated outcome of Equation (two)

The data reveals that the Arts Index growth rate does non provide a statistically meaning explanation for the GDP growth rate. As expected, all other macroeconomic variables have statistically significant explanatory ability over Gdp growth charge per unit.

The empirical results stand in agreement with the concern that overemphasizing or exaggerating the arts' economic bear on could potentially backfire on arts advocacy endeavors if non supported with thorough research and audio evidence. Arts advocacy endeavors may not be able to withstand inquisitions into the legitimacy of public subsidy for the arts without continued substantiation of the noneconomic (or extraeconomic) value of the arts.

four.2. Robustness examination: Leading relationship

Thus, there is not enough empirical evidence to conclude that the concurrent Arts Alphabetize growth rate can explain the GDP growth rate. However, investigation into whether the previous period arts activities tin can explicate the electric current period GDP growth rate is needed. If this is the example, information technology tin can be argued that art activities enhance economical growth. Therefore the following model is estimated: (3) $ln\left(\frac{y_t}{y_{t-\mathrm{one}}}\right)={\gamma }_0+{\gamma }_1\mathrm{l}\mathrm{north}\left(y_{t-\mathrm{ane}}\right)+{\gamma }_{\mathrm{ii}}ln\left(n_t+{\mathrm{thousand}}_t+{\delta }_t\right)+{\gamma }_3\mathrm{l}\mathrm{due\; north}\left(s_t\right)+{\gamma }_4\mathrm{l}\mathrm{n}\left(h_t\right)+{\gamma }_{\mathrm{iv}}ln\left(\frac{a_{t-1}}{a_{t-2}}\right)+{\epsilon }_t$ (3)

The estimated effect is presented in Tabular array 4.

Economic growth and the arts: A macroeconomic study

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17 August 2020

Table iv. Estimated upshot of Equation (3)

Thus, the lagged Arts Index growth rate does not have statistically significant explanatory power over the Gdp growth rate. This assures that the change in arts activities does not accept statistically significant explanatory power over Gdp growth charge per unit.

five. Conclusion

Using the U.S. GDP and NAI, this written report tested the proposition that arts activities enhance economic growth. First, a positive correlation was found between Gdp and NAI between 2002 and 2013 leading to the determination that arts activities and economic growth appear to exist positively related at the national level. Test result interpretations signal that the arts grow with the economy in the United States, suggesting that the arts are an integral part of U.Southward. society in which economic growth does not constrain creative activities, nor do artistic activities hamper economical growth. Rather, the vitality of the arts sector seems to reflect the strength of the national economy and vice versa.

At the same time, the examination results do non provide statistically significant support for the view that an increase in arts activities spurs economical growth. No lead-lag human relationship between U.S. GDP and NAI between 2002 and 2013 has been confirmed by the test results either. Rather, they suggest that a causal human relationship between arts activities and economic growth may non be as axiomatic or present as believed, at least at the national level.

In light of the mixed study conclusions on the arts' impact on the economic system equally previously described in this research, several interpretations and implications may be proposed for the test results. Foremost, the test results prolong an unsettlement in the evaluation of the impact of the arts on the national economy. Hence, the exam results support Sterngold's concern that overemphasizing or exaggerating the arts' economic impact could potentially backfire on arts advocacy endeavors if not supported with sound bear witness (Sterngold, 2004b). At this time, given the thin macroeconomic evidence available, information technology is suspected that arts advocates may non be able to effectively counter challenges to the legitimacy of public subsidy for the arts if the noneconomic benefits of the arts are underestimated and undervalued by arts administrators, legislators, and the public.

In the meantime, interpreting the test results every bit invalidating the arts' economic impact argument may evidence to be a error for at least two reasons. First, given the confirmed positive correlation between GDP and NAI in this research, one or more intervening variables may farther clarify or ostend a causal touch of arts activities on economical growth. Second, although the NAI has well served the purpose of testing the inquiry hypothesis at the macroeconomic level, the fact that the NAI encompasses a broad assortment of arts activities in its formulation–including some fading industries–should exist noted in the evaluation of the test results' generalizability. Different types of arts activities may have different sets of impact on the economy. Hence, it is proposed to use a test that utilizes subsets of the 81 NAI indicators. Such an approach would betrayal multiple layers of specificity that this macrolevel study has not revealed, showing different clusters of arts activities or arts industries as having varying impacts on economic growth.

As previously mentioned, the results of this research practice non constitute a conclusive measurement for the value of the arts. From an economical standpoint, yet, these findings call for a more critical approach to evaluating the ramifications of economical touch studies. The relationship between the arts and the economy has been dynamic and continues to evolve. Continued scholarly investigation is required for extending the current debate on the impact of the arts on the economy in a style that amend assists effective and legitimate policymaking.

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Source: https://www.tandfonline.com/doi/full/10.1080/23311975.2020.1807203

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