Oded Galor

English

Research Papers in Economics

- 
 
 
Multiple Growth Regimes – Insights 
from Unified Growth Theory
1 
 
 
 
Oded Galor
2 
 
 
 
 
 
Abstract 
 
Unified Growth Theory uncovers the forces that contributed to the existence of multiple growth 
regimes and the emergence of convergence clubs. It suggests that differential timing of take-offs 
from stagnation to growth segmented economies into three fundamental regimes: slow growing 
economies in a Malthusian regime, fast growing countries in a sustained growth regime, and 
economies in the transition between these regimes.  In contrast to existing research that links 
regime switching thresholds to critical levels of income or human capital, UGT associates them 
with critical changes in the rates of technological progress, population growth, and human capital 
formation. 
 
 
JEL Classifications: O40 
 
Keywords:  unified growth theory, Malthusian epoch, sustained growth, convergence clubs, 
demographic transition 
 
 
 
 
                                                 
1 This paper was prepared for a special issue on growth non-linearities of the Journal of Macroeconomics.  I 
wish to thank Quamrul Ashraf, Omer Moav, Stelios Michalopoulos, Andrew Mountford, and Yona 
Rubinstein for valuable comments. 
2 Department of Economics, Brown University, Providence RI 02912.   
1. Introduction 
 
The quest for an empirical determination of the forces that have contributed to the existence of 
multiple growth regimes and the emergence of convergence clubs, although central for the 
understating of the process of development, has not been shared by a portion of researchers in the 
field of economic growth.
3  This dichotomy may reflect fundamental differences in perception 
regarding the significance of these phenomena in the process of development.  
 
Contributors to the empirical literature on multiple growth regimes have faced an increasing 
challenge of motivating their findings in the context of growth models that are widely perceived 
as plausible. The dominating tendency among researchers in the field to rationalize their 
empirical investigations by underlying growth models that generate multiple long-run equilibria 
have undermined this important endeavor and deprived it from the central stage in the growth 
literature.
4 
 
The theoretical framework that has been used to rationalize many of these empirical studies has 
drawn criticism that to a large extent is not unjustified. Many, and perhaps rightly so, have been 
skeptical about the characterization of the world economy in terms of multiple long-term 
equilibria that segment economies into convergence clubs (e.g., Azariadis and Drazen, 1990). If 
indeed, as argued by some, there is a threshold that a country ought to surpass in order to join the 
club of the rich economies, and if this threshold is insurmountable in the absence of an exogenous 
shock (e.g., foreign aid, foreign capital inflow, etc.), then how did the rich economies in today's 
world surpass this threshold in the distant past when their level of development was similar to 
those in poverty traps today?  
 
The recent advance of Unified Growth Theory (UGT) provides an empirically plausible 
framework that could be used to interpret existing empirical findings and guide future empirical 
investigations about the underlying sources of multiple growth regimes and the emergence of 
convergence clubs. The theory suggests that, although the long-run equilibrium may not differ 
across economies, differential timing of take-offs from stagnation to growth segmented 
economies into three fundamental regimes the differ in their growth structure: slow growing 
economies in the vicinity of a Malthusian regime, fast growing countries in a sustained growth 
regime, and a third group of economies in the transition from one regime to another. Convergence 
clubs, therefore, may be temporary, and endogenous forces would permit economies to shift from 
the Malthusian Regime into the sustained growth regime. In contrast to existing research that 
links memberships in each club and the thresholds that permit economies to switch across these 
regimes to critical levels of income or human capital, Unified Growth Theory suggests that they 
are in fact associated primarily with critical changes in the rates of technological progress, 
population growth and human capital formation. 
 
 
 
 
                                                 
3 Growth non-linearities and convergence clubs were explored empirically by Durlauf and Johnson (1995), 
Quah (1997), and Durlauf and Quah (1999). More recent studies include Papageorgiou and Chmelarova 
(2005) and Graham and Temple (2006). 
4 A notable exception is Durlauf and Johnson (1995) who provide a broader interpretation that includes, in 
addition to multiple long-run equilbria, a world characterized by a unique long-run equilibrium, but 
different stages of development.  
2. Unified Growth Theory 
 
The transition from stagnation to growth and the associated phenomenon of the great divergence 
have been the subject of intensive research in the growth literature in recent years.
5 The 
inconsistency of exogenous and endogenous growth models with some of the most fundamental 
features of the process of development has led to a search for a unified theory that would unveil 
the underlying micro-foundations of the entire growth process and would capture in a single 
framework the epoch of Malthusian stagnation that characterized most of human history, the 
contemporary era of modern economic growth, and the driving forces that triggered the recent 
transition between these regimes. 
 
The advance of Unified Growth Theory was fuelled by the conviction that the understanding of 
the contemporary growth process would be fragile and incomplete unless growth theory would be 
based on proper micro-foundations that reflect the various qualitative aspects of the entire growth 
process and their central driving forces. Moreover, it has become apparent that a comprehensive 
understanding of the hurdles faced by less developed economies in reaching a state of sustained 
economic growth would remain obscure unless the factors that prompted the transition of the 
currently developed economies into a state of sustained economic growth could be identified and 
modified to account for the differences in the growth structure of less developed economies in an 
interdependent world. Unified growth theory explores the fundamental factors that generated the 
remarkable escape from the Malthusian epoch and their significance in understanding the 
contemporary growth process of developed and less developed economies. Moreover, it sheds 
light on the perplexing phenomenon of the great divergence in income per capita across regions 
of the world in the past two centuries that ultimately led to the clustering of countries into 
convergence clubs.  
 
Unified Growth Theory (Galor and Weil, 1999; 2000; Galor and Moav, 2002 and Galor 2005) 
suggests that the transition from stagnation to growth is largely an inevitable outcome of the 
process of development. The inherent Malthusian interaction between the level of technology and 
the size and the composition of the population accelerated the pace of technological progress and 
ultimately raised the importance of human capital in the production process. The rise in the 
demand for human capital in the second phase of industrialization and its impact on the formation 
of human capital as well as on the onset of the demographic transition brought about significant 
technological advances along with a reduction in fertility rates and population growth. It enabled 
economies to convert a larger share of the fruits of factor accumulation and technological 
progress into growth of income per capita, rather than population growth, paving the way for the 
emergence of sustained economic growth.  
 
Differences in the timing of the take-off from stagnation to growth across countries contributed 
significantly to the great divergence and to the emergence of convergence clubs. These variations 
reflect initial differences in geographical factors and historical accidents and their manifestation 
in the diversity of institutional, demographic, and cultural factors, as well as in trade patterns, 
colonial status, and public policy across countries and regions. In particular, once a 
technologically driven demand for human capital emerged in the second phase of 
industrialization, the prevalence of human capital-promoting institutions or policies determined 
the extensiveness of human capital formation, the timing of the demographic transition, and the 
                                                 
5 See Galor and Weil (1999; 2000), Galor and Moav (2002), Lucas (2002), Hansen and Prescott (2002), 
Hazan and Berdugo (2002), Doepke (2004), Boucekkine, de la Croix and Peeters (2006), and Lagerlof 
(2006). pace of the transition from stagnation to growth.
6 Thus, unified growth theory provides the 
natural framework of analysis in which differences in the economic performance across countries 
and regions could be examined based on the effect of variations in educational, institutional, 
geographical, and cultural factors on the pace and the timing of the transition from stagnation to 
growth.
7 
 
 
3. Implication for Multiple Growth Regimes 
 
 
Consistently with contemporary evidence about the existence of multiple growth regimes, the 
existence of variations in the timing of the transition from stagnation to sustained economic 
growth across countries suggests that in any time period in which the universal transition has not 
been completed, countries would be observed in different stages of development. Economies 
would be segmented into three fundamental groups. Two convergence clubs of rich and poor 
economies and a third group of countries in the transition from one club to another. Importantly, 
this segmentation does not reflect the long-run steady-state of these economies, as would be 
implied by models characterized by multiple steady-state equilibria. Rather, it is a reflection of 
variations in the timing of the escape from a Malthusian trap and thus in the position of countries 
along the growth trajectory from Malthusian stagnation to sustained economic growth.  
 
Technological leaders largely experience a monotonic increase in the growth rates of their per 
capita incomes along the process of development. Their growth is slow in early stages of 
development, it increases rapidly during the take-off from the Malthusian epoch, and it continues 
to rise, often stabilizing at higher levels in the sustained growth regime. In contrast, technological 
followers that made the transition to sustained economic growth more recently experience a non-
monotonic increase in the growth rates of their per capita incomes. Their growth rate is slow in 
early stages of development and it increases rapidly during their take-off from the Malthusian 
epoch, boosted by the adoption of technologies from the existing technological frontier. However, 
once these economies reach the technological frontier, their growth rates drop to the level of the 
technological leaders.  
 
Unified Growth Theory suggests that two major transformations in the growth process would 
determine the thresholds between the club of the slow growing economies, countries in a 
transition from one club to another, and the club of the fast growing economies.   The first 
threshold is associated with rapid increase in the rates of technological progress and population 
growth, and the second with significant rise in human capital formation along with a rapid decline 
in population growth.  
 
Variations in the levels of income, human capital, and population growth across countries, in 
contrast, would not be indicative of these thresholds, and would only reflect the specific 
characteristics of countries (e.g., geographical factors and historical accidents and their 
manifestation in the diversity of institutional, demographic, and cultural factors, as well as in 
trade patterns, colonial status, and public policy) rather than their actual stage of development.  
For instance, although during the 18
th century education levels were significantly lower in 
England than in continental Europe, England was the first to industrialize and to take-off towards 
                                                 
6 Galor and Moav (2006), Galor, Moav and Vollrath (2006), O'Rourke, and Williamson (2005), Lord and 
Rangazas (2006), and Voigtländer
  and Voth (2006)  
7 See Galor and Mountford (2003, 2006), and Ashraf and Galor (2007). a state of sustained economic growth.
8 Similarly, the demographic transition that marked a 
regime switch to a state of sustained economic growth occurred in the same decade across 
Western European countries that differed significantly in their income per capita. In 1870, on the 
eve of the demographic transition, England was the richest country in the world, with a GDP per 
capita of $3191.
9 In contrast, Germany that experienced the decline in fertility in the same years 
as England, had in 1870 a GDP per capita of only $1821 (i.e., 57% of that of England). Sweden's 
GDP per capita of $1664 in 1870 was 48% of that of England, and Finland's GDP per capita of 
$1140 in 1870 was only 36% of that of England, but their demographic transitions, and hence 
their switch to the sustained growth regime, occurred in the same decade as well.  
 
Thus,  unlike existing research that attempts to link the thresholds between the various 
convergence clubs to critical levels of income or human capital, Unified Growth Theory suggests 
that they are in fact associated primarily with critical changes in the rates of technological 
progress, population growth and human capital formation. 
 
  
 
                                                 
8 The early development of public education occurred in the western countries of continental Europe (e.g., 
Prussia, France, Sweden, and the Netherlands) well before the Industrial Revolution. The provision of 
public education at this early stage was motivated by several goals such as social and national cohesion, 
military efficiency, enlightenment, moral conformity, sociopolitical stability as well as religious reasons. 
9 Measured in 1990 international dollars, Maddison, (2001). References 
 
Ashraf, Q., Galor O., 2007. Cultural assimilation, cultural diffusion, and the origin of the wealth 
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Boucekkine, R., de la Croix, D., Peeters, D., 2006. Early Literacy Achievements, Population 
Density, and the Transition to modern Growth, Journal of the European Economic 
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Doepke, M., 2004. Accounting for fertility decline during the transition to growth. Journal of 
Economic Growth 9, 347–83. 
Durlauf, S.N., and Johnson, P.A., 1995. Multiple regimes and cross-country growth behavior. 
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Durlauf, S.N., Quah, D., 1999. The new empirics of economic growth. In Taylor J.B., Woodford 
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  and Voth, H-J., 2006.
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Accounting for fertility decline during the transition to growth.

Child labor, fertility and economic growth.

Cultural assimilation, cultural diffusion, and the origin of the wealth of nations. Working Paper 2007-03,

Das human-kapital: a theory of the demise of the class structure.

Early Literacy Achievements, Population Density, and the Transition to modern Growth,

Fertility and development: the roles of schooling and family production,

From Malthus to Ohlin: Trade, industrialization and distribution since 1500.

From Malthusian stagnation to modern growth.

Inequality in land ownership, the emergence of human capital promoting institutions, and the great divergence.

Malthus to Solow.

Multiple regimes and cross-country growth behavior.

Natural selection and the origin of economic growth.

Nonlinearities in capital–skill complementarity.

Population, technology and growth: from the Malthusian regime to the demographic transition and beyond.

The Galor–Weil model revisited: a quantitative exploration.

The Industrial Revolution: Past and Future.

The new empirics of economic growth.

The transition from stagnation to growth: Unified growth theory.

The World Economy: A Millennia Perspective.

Threshold externalities in economic development.

Trade and the great divergence: the family connection.

Trading population for productivity.

Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution.

Multiple Growth Regimes-Insights from Unified Growth Theory

http://www.brown.edu/Departments/Economics/Papers/2007/2007-8_paper.pdf

Multiple Growth Regimes-Insights from Unified Growth Theory

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