It's Not Factor Accumulation: Stylized Facts and Growth Models

We document five stylized facts of economic growth. (1) The “residual” rather than factor accumulation accounts for most of the income and growth differences across nations. (2) Income diverges over the long run. (3) Factor accumulation is persistent while growth is not persistent and the growth path of countries exhibits remarkable variation across countries. (4) Economic activity is highly concentrated, with all factors of production flowing to the richest areas. (5) National policies closely associated with long-run economic growth rates. We argue that these facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, and that highlight the role of factor accumulation. Empirical work, however, does not yet decisively distinguish among the different theoretical conceptions of “total factor productivity growth.” Economists should devote more effort towards modeling and quantifying total factor productivity.

Africa's growth tragedy : a retrospective, 1960-89

Africa's economic history since 1960 fits the classical definition of tragedy: potential unfulfilled with disastrous consequences. The authors use one mehthodology - cross-country regressions - to account for sub-Saharan Africa's growth performance over the past 30 years and to suggest policies to promote growth over the next 30 years. They statistically quantify the relationship between long-run growth and a wider array of factors than any previous study. They consider such standard variables as initial income to capture convergence effects, schooling, political stability and indicators of monetary, fiscal, trade, exchange rate, and financial sector policies. They also consider such new measures as infrastructure development, cultural diversity, and economic spillovers from neighbors'growth. Their analysis: 1) improves substantially on past attempts to account for the growth experience of sub-Saharan African countries; 2) shows that low school attainment, political instability, poorly developed financial systems, large black-market exchange-rate premia, large government deficits, and inadequate infrastructure are associated with slow growth; 3) finds that Africa's ethnic diversity tends to slow growth and reduce the likelihood of adopting good policies; 4) identifies spillovers of growth performance between neighboring countries. The spillover effects of growth have implications for policy strategy. Improving policies alone boosts growth substantially, but if neighboring countries act together, the effects on growth are much greater. Specifically, the results suggest that the effects of neighbor's adopting a policy change is 2.2 times greater than if a single country acted alone.Economic Conditions and Volatility,Public Health Promotion,Health Monitoring&Evaluation,Economic Theory&Research,Environmental Economics&Policies,Achieving Shared Growth,Governance Indicators,Economic Growth,Economic Conditions and Volatility,Inequality

New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)

The Burnside and Dollar (2000, AER) finding that aid raises growth in a good policy environment has had an important influence on policy and academic debates. We conduct a data gathering exercise that updates their data from 1970 -93 to 1970 -97, as well as filling in missing data for the original period 1970 -93. We find that the Burnside and Dollar (2002, AER) finding is not robust to the use of this additional data.

New Data, New Doubts: Revisiting "Aid, Policies, and Growth"

The Burnside and Dollar (2000) finding that aid raises growth in a good policy environment has had an important influence on policy and academic debates. We conduct a data gathering exercise that updates their data from 1970–93 to 1970–97, as well as filling in missing data for the original period 1970–93. We find that the BD finding is not robust to the use of this additional data.economic policy, economic growth

How do national policies affect long-run growth? : a research agenda

The authors suggest that there are important opportunities to empirically evaluate the theoretically predicted channels from policy to growth. They propose a research agenda based on the endogenous growth literature, designed to address the questions: How do national policies affect long-run growth? Which policies strongly affect long-run growth? Do policies explain why some poor countries have stagnated and others have advanced? Do policies explain successive periods of rapid growth and stagnation in the same country? And to what extent do national policies rather than external influences explain the stagnation of many countries in Africa, Latin America, and Asia in the 1980s? The authors discuss five national policies: fiscal policy; monetary policy; trade intervention; financial policies; and openness to foreign capital. Their analytical framework is based on the simple idea that all factors of production can be increased by investing in human or physical capital. Economic growth will be related to policies that affect the incentive to invest and the efficient use of capital and intermediate inputs. Such a framework can be used to consider which policies affect the long-run growth rate rather than affecting simply the level of income once and for all.Governance Indicators,Economic Conditions and Volatility,Achieving Shared Growth,Environmental Economics&Policies,Economic Growth

Policy, Technology Adoption, and Growth

This paper describes a simple model of technology adoption which combines the two engines of growth emphasized in the recent growth literature: human capital accumulation and technological progress. Our model economy does not create new technologies, it simply adopts those that have been created elsewhere. The accumulation of human capital is closely tied to this adoption process: accumulating human capital simply means learning how to incorporate a new intermediate good into the production process. Since the adoption costs are proportional to the labor force, the model does not display the counterfactual scale effects that are standard in models with endogenous technical progress. We show that our model is compatible with various standard results on the effects of economic policy on the rate of growth.

The European origins of economic development

A large literature suggests that European settlement outside of Europe shaped institutional, educational, technological, cultural, and economic outcomes. This literature has had a serious gap: no direct measure of colonial European settlement. In this paper, we (1) construct a new database on the European share of the population during the early stages of colonization and (2) examine its impact on the level of economic development today. We find a remarkably strong impact of colonial European settlement on development. According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans. One of our most surprising findings is the positive effect of even a small minority European population during the colonial period on per capita income today, contradicting traditional and recent views. There is some evidence for an institutional channel, but our findings are most consistent with human capital playing a central role in the way that colonial European settlement affects development today

The European origins of economic development

A large literature suggests that European settlement outside of Europe shaped institutional, educational, technological, cultural, and economic outcomes. This literature has had a serious gap: no direct measure of colonial European settlement. In this paper, we (1) construct a new database on the European share of the population during the early stages of colonization and (2) examine its impact on the level of economic development today. We find a remarkably strong impact of colonial European settlement on development. According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans. One of our most surprising findings is the positive effect of even a small minority European population during the colonial period on per capita income today, contradicting traditional and recent views. There is some evidence for an institutional channel, but our findings are most consistent with human capital playing a central role in the way that colonial European settlement affects development today