Stolpe, Michael

English

Research Papers in Economics

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Stolpe, Michael
Book Review
[Book Review of] Barro, Robert J. ... :
Economic growth : New York, McGraw-
Hill, 1995
Weltwirtschaftliches Archiv
Provided in cooperation with:
Institut für Weltwirtschaft (IfW)
Suggested citation: Stolpe, Michael (1996) : [Book Review of] Barro, Robert J. ... : Economic
growth : New York, McGraw-Hill, 1995, Weltwirtschaftliches Archiv, ISSN 0043-2636, Vol. 132,
Iss. 3, pp. 586-587, http://hdl.handle.net/10419/2216LITERATUR - LITERATURE
REZENSIONEN - BOOK REVIEWS
Barro, Robert J., Xavier Sala-i-Martin, Economic Growth. New York, St. Louis, San
Francisco, Auckland 1995. McGraw-Hill. XVIII, 539 pp.
The encompassing title ofthis graduate level textbook oneconomic growth and the
authors' famous names raise high expectations, on which the text itself only partly
delivers. The authors, who are both very active at the frontier of growth research, set
out to present the state ofthe art in the theory and the empirics ofeconomic growth
and to suggest an agenda for further research. Yet, while the text largely succeeds in its
assessment ofold and new growth theory, especially in its exceptionally clear treatment
ofthe mathematical methodology ofmodel building, the book's chapters on the empir-
ics of growth fail to give a balanced account ofresearch advances in recent years.
The excellent exposition ofrecent strides in the craft ofmodelling economic growth
provides a compelling reason even for the experienced researcher to add this text to his
bookshelf. The central ideas behind the new models ofendogenous growth are elegantly
traced to their historical roots in the older neoclassical theory ofgrowth, in particular
to the Solow-Swan model, the Ramsey growth model with intertemporal consumer
optimization and the overlapping-generations model. The analysis of endogenous
growth logically proceeds from one-sector models, with special attention to the role of
government services, via two-sector models, with special attention to the role ofhuman
capital, on to models ofendogenous technological change, which is interpreted in one
chapteras anexpandingvariety and in another as a rising quality ofproducts. This tour
de force on growth theory is supplemented by two smaller chapters which analyze the
diffusion of technology across countries and sketch several ways of endogenizing an
economy's supply of labour (namely via the choice between labour and leisure, via
labour migration and via families' choice of fertility, thus endogenizing population
size).
While the technical exposition ofthese models is generally excellent, their economic
interpretation sometimes suffers from being obsessed with the question whether per
capita income levels ofcountries will converge in the growth process. It is almost as if
no empirical implications other than convergence could be derived from growth theo-
ries. Moreover, the authors say surprisingly little aboutthe models' policy implications,
almostas ifgovernments could notdo much to enhance orobstructgrowth. Inselecting
models for inclusion in their book, the authors seem to have screened a vast literature
for those models which either directly predict convergence orcanconveniently be made
compatible with the convergence hypothesis. Obsession with convergence, it seems, has
led the authorsto ignore dissenting theoreticaldevelopments andsome ofthe important
controversies of recent years. For example, the authors ignore both the critique of
Maurice FitzGerald Scott (1989) who rejects the practice ofdescribing an economy by
an aggregate production function, which underlies all the models in Barro and Sala-i-
Martin's text, and the work of Steven Durlauf (1993) on nonergodic growth and
path-dependence in aggregate output.
Even more one-sided is the empirical part ofthe book. Here, the authors choose to
put their own, methodologically controversial work into the foreground and ignore
other approaches which emphasise that growth is essentially a time-series rather thanRezensionen - Book Reviews 587
a mere cross-section phenomenon (see Quah 1993a). The time-series dimension of
economic growth is given some attention only in a relatively briefreview and critique
ofgrowth accounting. But the two major empirical chapters focus predominantly on
the cross-section ofgrowth rate differentials, first in the context oflong-term regional
data sets for U.S. states, Japanese prefectures andEuropeanregions, andthen ina large
cross-section ofcountries' average growth rates during the period from 1965 to 1985.
The authors interpret their empirical finding of 'conditional convergence' as con-
firming not only the Solowand Ramsey growth models with exogenous technical
progress, but also as confirming two-sector models of endogenous growth, where
convergence is attributed to initial imbalances in economies' endowments with physical
and human capital, and as confirming open economy models with endogenous techno-
logical change and diffusion across countries. At this point, even the most gullible
reader may begin to wonder what he has ultimately learned about economic growth
from all themodels andthewealthofdatapresentedinthis bookifnoneofthe reported
empirical work effectively helps to discriminate between the different models. Other
readers may even question whether 'conditional convergence' has been established,
given the authors' choice ofan empirical methodology which has actually been shown
to be flawed precisely as a test ofthe convergence hypothesis (see Quah 1993 b).
One problem with the authors' interpretation oftheir empirical results is that the
many observations in their cross-sections ofregions or countries are from interdepen-
dent, and notjustopen, economies so that these observations can hardly be considered
as statistically independent from each other. As a consequence, the reported degrees of
freedom in the various regressions are almost certainly overstated. An alternative view
ofgrowth might postulate a unique historical process, which is interdependent across
economies via an ongoing process ofspecialization (in the wake ofchanging compara-
tive advantages or path-dependent technological accumulation). But the empirical
researchofBarroand Sala-i-Martinessentiallyexplores the stylized implications ofjust
one generic model, namely the neoclassical model and some of its recent extensions,
without seriously formulating an alternative hypothesis. In particular, the implications
ofmultiple equilibria and pathdependence, which are essential features in many recent
models ofendogenous growth in interdependent economies, are ignored in Barro and
Sala-i-Martin's empirical work.
Nevertheless, the book'sempiricalpartdeserves some praise- namely for taking up
the old growth accounting practice ofdescribing the available data sets on economic
growth in a detailed fashion, and for even reproducing large parts ofthese data sets in
tables so that students can immediately begin to use them in their own work.
References
Durlauf, S. N. (1993). Nonergodic Economic Growth. Review 01 Economic Studies
60(2):349-366.
Quah, D. (1993 a). Empirical Cross-Section Dynamics in Economic Growth. European
Economic Review 37(2/3):426-434.
- (1993 b). Galton's Fallacy and Tests ofthe Convergence Hypothesis. Scandinavian
Journal 01Economics 95(4):427-443.
Scott, M. F. (1989). A New View 01 Economic Growth. Oxford: Clarendon Press.
Michael Stolpe

A New View 01 Economic Growth.

a). Empirical Cross-Section Dynamics in Economic Growth.

b). Galton's Fallacy and Tests ofthe Convergence Hypothesis.

Nonergodic Economic Growth.

[Book Review of] Barro, Robert J. ... : Economic growth : New York, McGraw-Hill, 1995.

http://www.econstor.eu/bitstream/10419/2216/3/262275465.pdf

[Book Review of] Barro, Robert J. ... : Economic growth : New York, McGraw-Hill, 1995.

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