Nonlinear Dynamics, Spillovers and Growth in the G7 Economies: An Empirical Investigation

Abstract

This paper proposes an empirical growth model which is consistent with a stochastic steady‐state labour productivity level varying over time and across countries, where the disequilibrium mechanism leading to long‐run equilibrium follows a nonlinear equilibrium correction model. Using data for the G7 economies during the postwar period since 1950, the empirical analysis yields a long‐run model which implies plausible estimates of the production function parameters. Postwar economic growth in each of the G7 countries appears to be well characterized by a nonlinear equilibrium correction model where the dynamic adjustment towards long‐run equilibrium is governed by a logistic function, while also capturing spillover effects in growth dynamics.