Stochastic analysis of the economic growth of OECD countries

Hanns De La Fuente-Mella,Ana María Vallina-Hernandez,Rodrigo Fuentes-Solís

doi:10.1080/1331677x.2019.1685397

Abstract

This study examined the determinants of economic development for the 34 member countries of the Organization for Economic Cooperation and Development (OECD) and analysed efficient uses of economic development resource endowments. The methodology included econometric panel data modelling and stochastic frontier analysis, using the Cobb-Douglas production function and trans-logarithmic functional form to analyse data from 2003 to 2012. Economic growth was measured by the gross domestic product (GDP) of each economy. As a result, the determinants of economic development were presented and a ranking of efficiency was obtained for all OECD economies throughout the period of analysis. It was concluded that countries with higher economic growth levels have higher efficiency rankings. For example, countries with higher efficiency rankings were Luxembourg and the U.S.; Chile and Mexico were ranked lower. Finally, there was a positive relationship between growth levels and technical efficiency levels.

Highlights

Economic development is a topic that has been widely studied
Efficiency is measured by utilizing the real gross domestic product (GDP) of each economy in U.S dollars of 2012 as an output variable measured through purchasing power parity
Inputs are expressed by the following variables: labour, measured as the number of workers in each economy; savings, expressed as gross savings in U.S dollars; capital, stated as gross capital formation in dollars; and electricity consumption, which measures the production of power plants and cogeneration plants, minus losses in transmission, distribution and processing, plus the consumption of cogeneration plants

Summary

Introduction

Economic development is a topic that has been widely studied. Two main theoretical approaches are found in the literature: classical and neoclassical, which measure economic growth, as well as other schools of thought that consider non-economic variables. These are used to design public policies aimed at increasing a population’s well-being with a human-centred approach that considers sustainable behaviour as a parameter to ensure development beyond economic growth. This study analysed economic growth-related studies that have assessed parameters for measuring development such as education, health and institutions (Altinay & Karagol, 2005). When a country performs better in these dimensions, it improves its ranking compared to the other countries included in the study

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Conclusion