Analysis of variability and correlation in long-term economic growth rates

Abstract

Quantifying the uncertainty in future climate change is an important input into policy decisions. Two important sources of uncertainty are economic growth and technological change, which in turn contribute to uncertainty in future emissions. In this paper, we focus on uncertainty in one type of technical change: productivity growth. Estimates of uncertainty in future growth must necessarily include expert judgment, since the future will not necessarily look like the past. But previous uncertainty studies have taken expert judgments based on annual national growth rates, and applied them to models with regional aggregations and multi-year time steps, and often have made crude assumptions about the correlation between regions. This paper analyzes data on the variability and covariability of historical economic productivity growth rates, and investigates the effect of spatial and temporal aggregation on variance. The results are intended to inform participants in expert elicitation exercises on future economic growth uncertainty.