1. How is the world distribution of income evolving? 2. Do countries converge to steady state paths and, if so, how quickly?

Transcription

1 The new growth evidence The main questions: 1. How is the world distribution of income evolving? 2. Do countries converge to steady state paths and, if so, how quickly? 3. How rapidly do returns to inputs such as physical capital diminish? 4. Are poor countries poor mainly because they lack inputs or because of technology differences? 5. Why do growth rates differ over long periods? 6. What happens in the long run?

2 Plan 1. Stylized facts 2. Convergence 3. Growth accounting versus growth regressions 4. Problems 5. The source of growth - growth regressions - development accounting

3 Figure 1: Cross-Country Density of Output per Worker Distribution of GDP per worker Density GDP per worker relative to USA s 1960 value

4 Distribution of GDP per capita Density GDP per capita relative to USA's 1970 value

5 Figure 2: Output Per Worker: 1960 versus 2000 Relative GDP per worker Log GDP per worker relative to USA, 2000 USA HKG SGP AUT ITA BEL NOR FIN FRA DNK NLD TWN ESP ISR GBR SWE AUS CAN KOR CYP JPN PRT GRC MUS MYS TTO CHL BWA MEX ARG ZAF URY BRA IRN GAB VEN SYR TUR DOMPAN JOR NAM FJI EGY THA GTM SLV CRI MAR ECU COL GUY PRY PER ROM IDN PHL LKA PAK CHN IND BGD PNGGIN HND JAM BOL ZWE NIC CIV CMR COG LSO NPL SEN GMB KEN BEN GHA MRT TCD ZMB MWI UGA BFA TGO MOZ AGO MDG MLI RWA NER CAF GNB ETH NGA TZA BDI ZAR Log GDP per worker relative to USA, 1960

6 Log GDP per capita relative to USA, ETH MLI MOZ Relative GDP per capita NOR SGP LUX CHE IRL HKG AUT DEUNLD USA TWN DNK AUS BEL CAN FINFRA ISL SWE JPN ITA GBR KOR ESP ISR NZL PRT MLT POL HUN CYP GRC ROUMYS ARG CHL BRA BGR PAN TUR URY CHN DOM COL CRI DZA LBN MEX VEN THA EGY MNG ECU JOR ALB ZAF IDN TUNLKA PER SLV PRY AGO MAR GTM JAM PHL MMR LAO VNM IND BOL NGA COG PAK PSE HND SYR NIC SDN ZMB GHA BGD KEN KHM CIV MRT LSO NPL CMR SEN TZA BEN UGA TCD ZWE BFA RWAHTI GIN MDG SLETGO COD MWI BDI LBR NER CAF Log GDP per capita relative to USA, 1970

7 Table 2: Fifteen Growth Miracles, Country Growth Factor increase Taiwan Botswana Hong Kong Korea, Republic of Singapore Thailand Cyprus Japan Ireland China Romania Mauritius Malaysia Portugal Indonesia

8 Table 3: Fifteen Growth Disasters, Country Growth Ratio Peru Mauritania Senegal Chad Mozambique Madagascar Zambia Mali Venezuela Niger Nigeria Nicaragua Central African Republic Angola Congo, Democratic Rep

9 Fifteen growth miracles Country Average growth Factor increase Republic of Korea 6,46% 16,74353 Egypt 5,24% 9, China 5,22% 9, El Salvador 5,15% 9,58044 Mongolia 5,09% 9, Taiwan 5,08% 9, Singapore 5,01% 9, Indonesia 4,73% 7, Romania 4,58% 7, Malta 4,57% 7, Lao People's DR 4,42% 7, Myanmar 4,37% 6, Viet Nam 4,25% 6, Malaysia 4,18% 6, Ireland 4,10% 6,10717 Fifteen growth disasters Country Average growth Factor increase Jamaica 0,31% 1, Burundi 0,25% 1, Benin 0,13% 1, Sierra Leone 0,03% 1, Madagascar -0,16% 0, Guinea -0,18% 0, Chad -0,19% 0, Togo -0,23% 0, Malawi -0,26% 0, Zimbabwe -0,42% 0, Liberia -0,60% 0, Nicaragua -0,74% 0, Niger -1,18% 0, D,R, of the Congo -1,55% 0, Central African Republic -1,87% 0,

10 Figure 3: Growth Versus Initial Income: Convergence Growth, BWA TWN HKG KOR SGP THA CYP CHN ROM JPN IRL MYS MUS IDN PRT COG PAK GRC ESP IND SYR AUT FIN ITA TUR GAB LSO EGY DOMBRA ISR FRA BEL LKAMAR NOR MWI NPLBGD PAN IRN CHLTTO GBR SWE DNK NLD USA GNB AUS UGAZWE ECUGTMJOR MEX CAN BFA CIV PHL NAM TZA GMB PNG GUY FJI ZAF ETH KEN GHA PRY COL URY BEN GIN SLVCRI ARG BDITGOCMR HND RWA JAM MRT BOL PER TCD SEN MDGZMB MOZ MLI NER VEN NGA NIC CAF AGO ZAR Real GDP per worker relative to USA, 1960

11 KOR Convergence Growth MNG SLV EGY SGP CHN TWN LBN IDN MMR ROU MLT LAO VNMTHA MYS IRL NOR ARG HKG COG BRA POL IND DOM JOR PAN HUN MAR PRY TUN BGR ETH LKA NPL ECU ALB CHLCYP LSO PERNGA PRT AUT BOL DEU LUX COL IRN MLI PSE LBRPHL TUR ESPJPN SDN ITA BEL AGO FIN NLD MOZPAK URY ISL GTM CRI GRC GBR ISR FRA SWE DNK CAN AUS BFA RWA CMR BGD KHM SYR HND DZA NZL UGAZMB MEXVEN KEN MDG TZA HTI TGO MRT SEN CIV GHA ZAF BDIBEN TCD SLE ZWE JAM MWI GIN COD NIC NER CAF USA CHE Real GDP per capita relative to USA, 1970

12 Figure 6: Density of Growth Rates across Countries Distribution of growth rates Density Growth of GDP per worker

13 Distribution of growth rates Density Growth of GDP per capita

14 Figure 7: Growth Rates in versus Unpredictable growth? Growth, CHN MUS KOR TWN HKG IRL CYP THA MYS UGA IND BGD ROM SGP LKA PAKIDN GNBNPL PRT CHL NOR EGY DOM TUR FIN JPN BFA GBR DNK USA ISR BEL AUT CAN AUSIRN FRA ITA GIN SWE MWI SYR ESP BEN NLD LSO NZL GUY MAR BRA GRC MOZ SEN SLV FJI ETH NAM URY CHE GMB MEXTTO PNGZAF PAN COG JAM CRI PHLGTM GAB NER ARG GHA KEN JOR MDG RWA HND COL TZA CMR CIV PRY ECU ZWE VEN BDI MLI ZMB BOLTGO PER TCD CAF AGO NIC NGA MRT BWA Growth,

15 Unpredictable growth? Growth NGA SYR EGY MMR VNM CHN MNG IND COG ARG LBR AGO IRL PER NOR IDN VEN LKA BOL ALB CHL PAN LAO THA ZMB KHM JOR MLI POL DOM BRA MYS ROU UGA SDN NPLECU ESPPRY TUN TZA BGD MOZ URY NLD AUT HKG GTM DZAUS DNK BEL LUX JAM COL BEN TCD CRI GRC DEU PRT PSE TUR RWA CHE PAK GHA BFA HND FRA FIN MAR HUN MRT MEX NZL SWE PHL TGO GBR ISR CYP CAN ETHITA NIC ZAF JPN HTI USA BGR KEN ISL LSO MWI CIV NER SEN CMR SLE COD MDG CAF SLV BDI GIN ZWE LBN SGP TWN MLT KOR Growth

16 Summary of the stylized facts Fast growth has occurred over the past 40 years but vast disparities in income levels remain Past growth is a bad predictor of subsequent growth We have observed growth miracles (East Asia) and growth disasters (Africa) Growth deceleration in as compared to and increase in dispersion of growth rates

17 2. Convergence Recall: Solow model Y t = AKt L 1 t with savings S = sy Then with g t = (log y log y t ) =(1 ) y s = x + n + = (1 )(x + n + ) we have the regression g T = a b 1 log y 0 since ; x; n; are assumed to be the same for all countries

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19 Returns to capital and conditional convergence Convergence is conditional on steady state y = s x + n + =(1 ) If some parameters differ, then y will differ across countries Then g T = a b 1 log y 0 +b 2 log s+b 4 log(x+n+)

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21 But: - still not very good t - implies very fast convergence 5

22 Augmented Solow model Mankiw, Romer and Weil (1992) Y t = A t K t H t L 1 t Investments in the two types of capital s k Y s h Y Growth rate g t = (log y log y t ) where = (1 )(x + n + ) and y = s k s h (x + n + ) + x technical change n population growth depreciation! 1=(1 )

23 From and y = g t = (log y log y t ) s k s h (x + n + ) +! 1=(1 ) we have the regression g T = a b 1 log y 0 + b 2 log s k + b 3 log s h +b 4 log(x + n + ) where b 1 = = (1 )(x + n + ) Findings - negative coefcient if conditioning - rate of convergence is 2% a year > diminishing returns are very weak

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26 Convergence or regression to the mean? Quah (1993) Suppose growth rates follow a random process A country who had a bad shock will tend to converge to the mean, ie grow faster But there is no convergence in income levels To test convergence we need to look at the world distribution of incomes

27 Figure 1: Cross-Country Density of Output per Worker Distribution of GDP per worker Density GDP per worker relative to USA s 1960 value

28 3. Growth accounting versus growth regressions Growth accounting with Y t = F (K t ; L t ) = A t K t L 1 A t = Growth rates g = 8 < Y : TFP total factor productivity Solow residual Y = K K L + (1 ) L + t A A What we know, Y Y, K K, L L

29 What is the share of capital in GDP? Under perfect (:) r and rk Y = Evidence = 1=3 Then g(tfp) = A A = Y Y 1K 3K 2L 3L and we can assess how much capital accumulation, population growth, and technical change contribute to growth

30 Growth regressions Mankiw, Romer and Weil (1992) Y t = A t K t H t L 1 t Investments in the two types of capital s k Y s h Y Growth rate g t = (log y log y t ) we have the regression g T = a b 1 log y 0 + b 2 log s k + b 3 log s h +b 4 log(x + n + )

31 Ad hoc growth regressions Barro and Sala i Martin g T = a + bx where X is a vector of regressors suggested by the theory For example: - level of education - change in level of education - degree of imperfect competition - R&D expenditures - fertility - inequality - political instability

32 4. Methodological issues Cross-country regressions 1. Integrate developed and developing countries 2. Make intensive use of cross-country variation in growth rates and other variables 3. Questions are inspired by the theoryemphasis in human capital, R&D and policy variables Compare to 1. Historical case studies: problem is quantifying effect of potentially important factors 2. Growth accounting: where does factor accumulation come from? better to estimate parameters of an average production function or impose them from microevidence? (problem: imperfect competition)

33 General consensus: growth regressions are better than growth accounting But still a number of problems 1. Unobserved xed effects - Africa poor because its Africa 2. Parameter heterogeneity - same all over the world? 3. Model uncertainty (fragile variables) - role of K and H unchanged over 30 years? 4. Measurement error - are computers K? 5. Endogeneity - eg. human capital Increasing interest in historical studies

34 5. The sources of growth Growth regressions Barro (1991) Levine and Renelt (1992)

35 Appendix 2: Variables in Cross-Country Growth Regressions +/- = sign of coefficient in the corresponding growth regression? = sign not reported * = claimed to be significant _ = claimed to be insignificant R.H.S. Variables Studies Capitalism Hall and Jones (1999) (+,*) Capital account liberalization Corruption Eichengreen and Leblang (2003) (+,*) Mauro (1995) (-,*) Welsch (2003) (-,*) Minimum levels Barro (1996) (1997) (+,*) Democracy...Higher levels Barro (1996) (1997) (-,*) Overall Alesina et al. (1996) (?,_) Minier (1998) (+,*) Voice Dollar and Kraay (2003) (-,*) Demographic Characteristics Education Share of Population 15 or below Barro and Lee (1994) (-,*) Share of Population 65 or over Barro and Lee (1994) (?,_) Growth of population share Bloom and Sachs (1998) (+,*) College Level Barro and Lee (1994) (-,_) Female (level) Barro and Lee (1994) (-,*) Barro (1996) (1997) (-,*) Caselli, et al. (1996) (+,*) Forbes (2000) (-,*) Female (growth) Barro and Lee (1994) (-,*) Male (level) Barro and Lee (1994) (+,*) Barro (1996) (+,*) Caselli, et al. (1996) (-,*) Forbes (2000) (+,*) Male (growth) Barro and Lee (1994) (+,*)

36 Overall (level) Primary Level Azariadis and Drazen (1990) (+,*) Barro (1991) (+,*) Knowles and Owen (1995) (+,_) Easterly and Levine (1997a) (+,*) Krueger and Lindahl (2000) (+,*) Bils and Klenow (2000) (+,*) Sachs and Warner (1995) (+,_) Barro (1997) (-,_) Secondary Level Sachs and Warner (1995) (+,_) Initial Income * Male Schooling Barro (1997) (-,*) Proportion of Engineering Students Murphy, et al. (1991) (+,*) Proportion of Law Students Murphy, et al. (1991) (-,*) Ethnicity and Language Fertility Finance Ethno-Linguistic Fractionalization Language Diversity Stock Markets Easterly and Levine (1997a) (-,*) Sala-i-Martin (1997a,b) (?,_) Alesina, et al. (2003) (-,*) Masters and McMillan (2001) (-,*/_) Barro (1991) (1996) (1997) (-,*) Barro and Lee (1994) (-,*) Levine and Zervos (1998) (+,*) Beckaert, et al. (2001) (+,*) Beck and Levine (2004) (+,*) Banks Beck and Levine (2004) (+,*) Dollarization Edwards and Magendzo (2003) (+,_) Depth Berthelemy and Varoudakis (1995) (+,*) Odedokun (1996) (+,*) Ram (1999) (+,_) Rousseau and Sylla (2001) (+,*) Deidda and Fattouh (2002) (+,_) 140

37 Demetriades and Law (2004) (+,*) Competition*development Repression Sophistication Claessens and Laeven (2003) (+,*) Roubini and Sala-i-Martin (1992) (-,*) Easterly (1993) (-,*) King and Levine (1993) (+,*) Levine and Zervos (1993) (+,robust) Easterly and Levine (1997a) (+,*) Sala-i-Martin (1997a,b) (?,_) Credit Growth rate Volatility Levine and Renelt (1992) (+,not robust) De Gregorio and Guidotti (1995) (+,*) Levine and Renelt (1992) (+,not robust) Foreign Direct Investment Blonigen and Wang (2004) (+,_) Fraction of mining in GDP Hall and Jones (1999) (+,*) Geography Absolute Latitude Disease Ecology Frost days Sala-i-Martin (1997a,b) (+,*) Bloom and Sachs (1998) (+,*) Masters and McMillan (2001) (-,_) Easterly and Levine (2001) (+,*) Rodrik et al. (2004) (+,*) McCarthy, et al. (2000) (+,*) McArthur and Sachs (2001) (+,*) Easterly and Levine (2002) (-,*) Sachs (2003) (-,*) Masters and McMillan (2001)(+,*) Masters and Sachs (2001) (+,*)

38 Land locked Easterly and Levine (2001) (-,*) Coastline (length) Bloom and Sachs (1998) (+,*) Masters and Sachs (2001) (+,*) Bloom, et al. (2003) (+,*) Arable land Masters and Sachs (2001) (+,*) Rainfall Masters and Sachs (2001) (+,*) Bloom, et al. (2003) (+,*) Variance of Rainfall Bloom, et al. (2003) (-,*) Maximum Temperature Bloom, et al. (2003) (-,*) Government Consumption (growth) Consumption (level) Deficits Investment Various Expenditures Military Expenditures Military Expenditures under threat Kormendi and Meguire (1985) (+,_) Barro (1991) (-,*) Sachs and Warner (1995) (-,*) Barro (1996) (-,*) Caselli, et al. (1996) (+,*) Barro (1997) (-,*) Acemoglu, et al. (2002) (-,_) Levine and Renelt (1992) (-,not robust) Fischer (1993) (-,*) Nelson and Singh (1994) (+,_) Easterly and Levine (1997a) (-,*) Bloom and Sachs (1998) (+,*) Barro (1991) (+,_) Sala-i-Martin (1997a,b) (?,_) Kelly (1997) (+,*) Levine and Renelt (1992) (-,not robust) Aizenman and Glick (2003) (-,*) Guaresma and Reitschuler (2003) (-,*) Aizenman and Glick (2003) (+,*) Various Taxes Levine and Renelt (1992) (?,not

39 Growth Rate Health of the G-7 Countries in the Previous Period Life expectancy Change in Malaria Infection Rate robust) Alesina, Ozler, Roubini, and Swagel (1996) (+,*) Easterly, et al. (1993) (+,_) Alesina, et al. (1996) (+,*/_) Barro and Lee (1994) (+,*) Bloom and Malaney (1998) (+,*) Bloom and Sachs (1998) (+,*) Bloom and Williamson (1998) (+,*) Hamoudi and Sachs (1999) (+,*) Gallup et al. (2000) (+,*) Gallup, Mellinger and Sachs (2000). Adult Survival Rate Bhargava et al. (2001) Industrial Structure % Small and Medium Enterprises Beck, et al. (2003) (+,_) Ease of entry and exit Beck, et al. (2003) (+,*) Inequality Inflation Democratic Countries Non-Democratic Countries Overall Growth Persson and Tabellini (1994) (-,*) Persson and Tabellini (1994) (+,_) Alesina and Rodrik (1994) (-,*) Forbes (2000) (+,*) Knowles (2001) (-,*) Kormendi and Meguire (1985) (-,*) Level Levine and Renelt (1992) (-,not robust) Levine and Zervos (1993) (?,not robust) Barro (1997) (-,*) (in the range above 15%) Bruno and Easterly (1998) (-,*) 143 Motley (1998) (-,*)

40 Li and Zou (2002) (-,*) Variability Infrastructure Proxies Initial Income Investment Ratio Levine and Renelt (1992) (-,not robust) Fischer (1993) (-,*) Barro (1997) (+,_) Sala-i-Martin (1997a,b) (?,_) Hulten (1996) (+,*) Easterly and Levine (1997a) (+,*) Esfahani and Ramirez (2003) (+,*) Kormendi and Meguire (1985) (-,*) Barro (1991) (-,*) Sachs and Warner (1995) (-,*) Harrison (1996) (?,_) Barro (1997) (-,*) Easterly and Levine (1997a) Barro (1991) (+,*) Barro and Lee (1994) (+,*) Sachs and Warner (1995) (+,*) Barro (1996) (+,_) Caselli, et al. (1996) (+,*) Barro (1997) (+,_) Investment Type Equipment or Fixed Capital Non-Equipment DeLong and Summers (1993) (+,*) Blomstrom, et al. (1996) (-,_) Sala-i-Martin (1997a,b) (+,*) DeLong and Summers (1991) (+,*) Productivity Growth Lichtenberg (1992) (+,*) Labor Productivity Quality Hanushek and Kimko (2000) (+,*) Labor Force Part. Rate Blomstrom, et al. (1996) (+,*) Luck External Debt Dummy Easterly, et al. (1993) (-,_) External Transfers Easterly, et al. (1993) (mixed,_)

41 Improvement in Terms of Trade Easterly, et al. (1993) (+,*) Fischer (1993) (+,*) Barro (1996) (+,*) Caselli, et al. (1996) (+,*) Barro (1997) (+,*) Blattman, et al. (2003) (+,*) ( Money Growth Neighboring Countries' Education Proxies, Initial Incomes, Investment Ratios and Population Growth Rates Political Instability Proxies Kormendi and Meguire (1985) (+,_) Ciccone (1996) (*) Barro (1991) (-,*) Barro and Lee (1994) (-,*) Sachs and Warner (1995) (-,_) Alesina, et al. (1996) (-,*) Caselli, et al. (1996) (-,*) Easterly and Levine (1997a) (-,*) Political Rights and Civil Liberties Indices Political Institutions Civil Liberties Kormendi and Meguire (1985) (+,_) Levine and Renelt (1992) (?,not robust) Barro and Lee (1994) (-,*) Overall Sachs and Warner (1995) (+,*) Political Rights Barro (1991) (?,_) Barro and Lee (1994) (+,*) Sala-i-Martin (1997a,b) (+,*) Constraints on Executive Acemoglu, et al. (2001) (+,*) Judicial Independence Feld and Voigt (2003) (+,*) ICRG index Knack (1999) (+,*) Property Rights Expropriation Risk Acemoglu, et al. (2001) (+,*) Macarthur and Sachs (2001) (+,*) Population Density Sachs and Warner (1995) (+,_) Growth Kormendi and Meguire (1985) (-,*)

42 Price Distortions Consumption Price Investment Price Levine and Renelt (1992) (-,not robust) Mankiw, et al. (1992) (-,*) Barro and Lee (1994) (+,_) Kelley and Schmidt (1995) (-,*) Bloom and Sachs (1998) (-,*) Easterly (1993) (+,_) Harrison (1996) (-,*) Barro (1991) (-,*) Easterly (1993) (-,*) Price Levels Consumption Price Easterly (1993) (+,_) Investment Price Easterly (1993) (-,*) Sachs and Warner (1995) (-,*) Real Exchange Rate Black Market Premium Distortions Levine and Renelt (1992) (-,not robust) Barro and Lee (1994) (-,*) Barro (1996) (-,*) Harrison (1996) (-,*) Easterly and Levine (1997a) (-,*) Sala-i-Martin (1997a,b) (-,*) Dollar (1992) (-,*) Easterly (1993) (-,_) Harrison (1996) (-,_) Sala-i-Martin (1997a,b) (-,*) Acemoglu, et al. (2002) (-,_) Variability Dollar (1992) (-,*) Regional Effects Absolute Latitude Barro (1996) (+,*) East Asia Dummy Barro and Lee (1994) (+,_) Barro (1997) (+,_) Former Spanish Colonies Dummy Barro (1996) (-,*) Latin America Dummy Barro (1991) (-,*) Barro and Lee (1994) (-,*) Barro (1997) (-,_) Easterly and Levine (1997a) (-,*) Sala-i-Martin (1997a,b) (-,*)

43 Sub-Saharan Africa Dummy Barro (1991) (-,*) Barro and Lee (1994) (-,*) Barro (1997) (-,_) Easterly and Levine (1997a) (-,*) Sala-i-Martin (1997a,b) (-,*) Buddhist Barro (1996) (+,*) Catholic Sala-i-Martin (1997a,b) (-,*) Masters and Sachs (2001) (+,*) Confucian Barro (1996) (+,*) Religion Muslim Protestant Religious belief Attendance Barro (1996) (+,*) Sala-i-Martin (1997) (+,*) Masters and Sachs (2001) (+,_) Barro (1996) (+,*) Sala-i-Martin (1997) (-,*) Masters and Sachs (2001) (+,*) Barro and McCleary (2003) (+,*) Barro and McCleary (2003) (-,*) Rule of Law Indices Barro (1996) (+,*) Acemoglu, et al. (2001) (+,*) Easterly and Levine (2001) (-,*) Dollar and Kraay (2003) (+,_) Alcala and Ciccone (2004) (+,_/*) Rodrik et al. (2004) (+,*) Scale Effects Total Area Total Labor force Barro and Lee (1993) Sala-i-Martin (1997a,b) (?,_) Barro and Lee (1993) Sala-i-Martin (1997a,b) (?,_) Social Capital and Related Social Infrastructure Hall and Jones (1999) (+,*) Citizen Satisfaction with Government Helliwell and Putnam (2000) (+,*) (within Italy) Civic Participation Helliwell (1996) (,_) (within Asia)

44 Knack and Keefer (1997) (+,*) Groups as defined by Putnam (1993) Keefer and Knack (1997) (-,_), Groups - as defined by Olson (1982) Keefer and Knack (1997) (+,_), Institutional Performance Helliwell and Putnam (2000) (+,*) (Italy) Civic Community (index of Participation newspaper readership, political behavior) Helliwell and Putnam (2000) (+,*) (Italy) Trust Granato, et al. (1996) (+, *) Helliwell (1996) (,_)(Asia) Knack and Keefer (1997) (+,*), La Porta et al (1997) (+, *) Beugelsdijk and van Schalk (2001) (,_) Zak and Knack (2001) (+,*) Social Development Index Temple and Johnson (1998) Extent of Mass Communication Temple and Johnson (1998) Kinship Temple and Johnson (1998) Mobility Temple and Johnson (1998) Middle Class Temple and Johnson (1998) Outlook Temple and Johnson (1998) Social capital (WVS) Rupasingha, Goetz, and Freshwater (2000) (+,*) Social capital (WVS) Whiteley (2000) (+,*) Social Achievement Norm Granato, et al. (1996b) (+,*) Swank (1996) (-,*) Capability Temple and Johnson (1998) (+,*) Trade Policy Import Penetration Levine and Renelt (1992) (?,not

45 robust) Leamer's Intervention Index Years-Open Levine and Renelt (1992) (-,not robust) Sachs and Warner (1996) (+,*) Sala-i-Martin (1997a,b) (+,*) Openness Indices (growth) Harrison (1996) (+,*) Indices Trade Statistics Openness Indices (level) Outward Orientation Tariff Fraction of Export/Import/Total-Trade in GDP Fraction of Primary Products in Total Exports Growth in Export-GDP Ratio Levine and Renelt (1992) (?,not robust) Sachs and Warner (1995) (+,*) Harrison (1996) (+,*) Wacziarg and Welch (2003) (+,*) Levine and Renelt (1992) (?,not robust) Sala-i-Martin (1997a,b) (?,_) Barro and Lee (1994) (-,_) Sala-i-Martin (1997a,b) (?,_) Levine and Renelt (1992) (+,not robust) Easterly and Levine (1997a) (?,_) Frankel and Romer (1999) (+,*) Dollar and Kraay (2003) (+,_) Alcala and Ciccone (2004) (+,*) Rodrik et al. (2004) (+,_) Sachs and Warner (1996) (-,*) Sala-i-Martin (1997) (-,*) Feder (1982) (+,*) Kormendi and Meguire (1985) (+,*) 20+ studies others FDI inflows relative to GDP Blomstrom, et al. (1996) Machinery and Equipment Import Romer (1993) (+,*) Volatility of Shocks Growth Innovations Kormendi and Meguire (1985) (-,*) Ramey and Ramey (1995) (-,*)

46 Monetary Shock Kormendi and Meguire (1985) (-,*) Casualties per Capita Easterly, et al. (1993) (-,_) War Dummy Barro and Lee (1994) (-,_) Easterly and Levine (1997a) (?,_) Sala-i-Martin (1997a,b) (-,*) Duration Barro and Lee (1994) (+,_)

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48 The sources of growth Investment in physical capital: there are diminishing returns Human capital: (i) imperfect proxies (ii) endogeneity (iii) time lags R&D: weak correlation between growth rates and R&D expenditures. Are there strong diminishing returns? Trade: problem of quantifying trade regimes Finance: nancial depth is one of the most robust regressors in growth equations Government size: weak, depends on measure Inequality: very unstable results, mechanism is unclear Social and political factors: especially political instability

49 But despite substantial convergence in growth rates, income gaps across countries remain high

50 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 GDP Per Capita World GDP Per Capita

51 Divergence Figure 2. Variance of Log- Per Capita Income: 125 Countries Variance of Log Per Capita Income Across Countries

52 Development accounting Hall and Jones (1999) rewrite as y i = Y i = K i (A i H i ) 1 =(1 Ki Y i ) h i A i with y = Y=L and h = H=L Growth accounting with = 1=3 Richest 5 to poorest 5 countries in the world Contribution from y i (K i =Y i ) =(1 ) h i A i

53 Can institutions explain output differences? Hypothesis: institutions > productivity, factor accumulation > output Run log y i = Ins i with Ins = institutions or social infrastructure Results R 2 = 0:58 log y i = 0 + 5:14Ins i Decomposition Dependent variable (K i =Y i ) =(1 ) h i A i Ins

54 New directions: Data availability in increasing Initial work: data World Penn Tables: Possibility of exploring panel dimension More sophisticated methods can be used Recent work has started asking Do all countries follow the same growth process? Is the data better explained by a model with one single group or with various groups? Are there different growth regimes?

55 Owen, Videras and Davies J of Economic Growth 2009 Suppose g = α + β x + it( k ) k k it v it where k is a group and k=1, N. Suppose also that group membership is endogenous Define it in terms of probability that country i belongs to group k π + i( k ) = θzi ε i Result: data is best described by a model with two growth regimes

56 Very promising directions of research Determinants of growth at different levels of development may not be the same Can countries change growth regime? Can policies affect in which growth regime a country is? Flachaire, García Peñalosa, Konte, Journal of Comparative Economics forthcoming

57 Table 5 Mixture models. Mixture 1 Mixture 2 Group 1 (57%) Group 2 (43%) Group 1 (50%) Group 2 (50%) Intercept (1.669) (6.986) (1.519) (6.072) log (gdp 0 ) (0.274) (0.433) (0.283) (0.399) log (pop 5 ) (0.31) (2.523) (0.266) (2.322) log (inv 5 ) (0.395) (0.737) (0.392) (0.689) log (educ 0 ) (0.359) (0.562) (0.292) (0.537) eco (0.134) (0.279) dem (0.042) (0.085) (0.055) (0.074) Concomitant variables Intercept (1.659) (1.868) dem (0.083) eco (0.297) (0.359) Nb obs Nb countries R BIC CAIC Note: The dependent variable is the output growth rate. Estimations include time dummies. Standard erro goodness of fit of the different estimations. Significant at 10%. Significant at 5%. Significant at 1%.