Cross-country Growth Research Articles

Policy volatility and economic growth: A comparative, empirical analysis

This paper provides a comparative test of different measures of policy volatility in cross-country growth regressions. All variables are tested in the same basic specifications and a number of sensitivity checks of the results are performed. Policy volatility is measured either as the standard deviation, the coefficient of variation or the standard errors of autoregressive processes of macroeconomic variables. The analysis shows that, regardless of the particular indicator used, such measures of fiscal and monetary volatility are negatively and often significantly related to cross-country differences in economic growth. In many cases, however, this relationship proves to be rather sensitive to variations in country samples and to variations in the specifications of the growth regression estimated.

Geography, Demography, and Economic Growth in Africa

This paper presents the effects of climate, topography, and natural ecology on public health, nutrition, demographics, technological diffusion, international trade and other determinants of economic development in Africa. The goal of this paper is to emphasize the need for intensified research on the issues at the intersection of ecology and human society. Geography was given emphasis because of three reasons: the minimal gain from another recitation of the damage caused by statism, protectionism and corruption to African economic performance; negligence of the role of natural forces in shaping economic performance; and tailoring of policies to geographical realities. The paper also discusses the general problems of tropical development and the focus of Africa's problems in worldwide tropical perspectives; demographic trends in Africa; use of standard cross-country growth equations with demographic and geographic variables, to account for the relative roles of geography; and the future growth strategies and the need for urban-based export growth in manufacturing and services. Lastly, the authors provide a summary of conclusions and discuss the agenda for future research.

Economic Growth and Investment in Education: How Allocation Matters

This article proposes an approach to answering two questions: first, does investment in education help growth; second, does the allocation of investment in education matter? I develop a model where individual ability is heterogeneous and education both trains students and reveals their suitability for further training. I use UNESCO data on educational enrollments and spending to estimate the efficiency of existing educational allocations in a panel of countries. A cross-country growth decomposition regression shows that the correlation of human capital capital accumulation and GDP growth is not significant in countries with poor allocations but is significant and positive in countries with better allocations.

The pattern of direct foreign investment and economic growth

This paper examines the relationship between the sectoral pattern of direct foreign investment (DFI) and growth using theoretical and empirical analysis. The theoretical analysis suggests that different patterns of DFI—because of their differential effects on the North-South terms of trade and on Southern technological development—can be expected to affect growth in host countries differently. The empirical analysis using crosscountry growth equations, however, is unable to detect any effects of the pattern of DFI on growth. It is argued that detailed case studies of particular countries would be valuable for exploring the empirical issues involved.

Economic growth and the human capital intensity of government spending

The paper models an economy in which long-run growth is driven by human-capital-intensive, private sector research and development, and shows how government spending affects growth through its impact on relative wages. The more human-capital-intensive government spending is relative to private spending, the greater the derived demand for and relative wage of human capital and, hence, the more costly is research and development. The private sector thus devotes fewer resources to research and development and the rates of innovation and economic growth are lower. The paper argues that these effects are likely to be negative, and possibly substantial, in the U.S. The paper's results also offer a plausible explanation for the insignificance of government spending in cross-country growth regressions in recent empirical studies.

Cultural determinants of economic growth: Theory and evidence

Shortcomings of neoclassical growth theory and growth accounting are viewed as a challenge for cultural economics. Recently, new growth theory has introduced several growth determinants and has closed the gap between theoretical and empirical research. Whether this development leaves space for cultural determinants in explaining economic growth is in the center of this paper. The theoretical analysis shows how an endogenous growth model can be used to explain the impact on economic growth of cultural determinants. The empirical part uses indices from cross-cultural studies to extend recent cross-country growth regressions. Among other Hofstede's uncertainty avoidance index is shown to be significantly correlated with economic growth.

An Alternative Interpretation of Conditional Convergence Results

This paper focuses on the endogeneity of the investment-to-GDP ratio and the population growth rate, two of the most frequently used control variables in cross-country growth regressions for the convergence test. The Summers-Heston data (1988) show that the former rises and the latter declines with income growth. When the indirect, yet endogenous, effects through these control variables are taken into account and simultaneity bias is corrected, relatively high income countries appear to grow faster than low income countries. This interpretation sharply contrasts with the conditional convergence interpretation based on the assumption of exogenous control variables. Copyright 1996 by Ohio State University Press.

Reopening the convergence debate: A new look at cross-country growth empirics

There are two sources of inconsistency in existing cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate a variety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10 percent per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2 percent. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior reults, we reject both the standard and the augmented version of the model.

A note on cross-country growth regressions

A large and growing literature searches for the determinants of economic growth, employing cross-country regression analysis. This approach implicitly assumes that countries possess similar structu...

The growing gap between rich and poor countries: A proposed explanation

Making use of data in the Penn World Table (Mark 5), this study seeks to explain the widely reported pattern of increasing divergence of per capita income levels between high and low-income countries and among low-income countries. Tests based on one-on-one comparisons of real growth in 1960–1988 with starting levels of income per capita imply that increasing divergence of per capita income levels was largely due to differences between population growth and labor force growth that varied with income level. Further evidence is provided in the form of crosscountry growth regressions in which, with population growth divided into labor force growth and the amount by which population growth exceeds labor force growth, only the part of population growth that represents changes in the dependency ratio is closely linked to long-term growth.

Misspecification and cross–country growth regressions

Cross–country growth studies are commonly used to empirically investigate the neoclassical convergence hypothesis, the determinants of growth and the impact of policies on growth performance. While questions have been raised concerning the reliability of data and the specification of the explanatory variables, little attention has been paid to the derivation of growth rates. The standard method employs time series regressions to estimate average annual growth rates, which are then used as the dependent variable in the cross–section analysis. This procedure is only valid if the growth rate equations are well specified and the growth rates are stable over the time period in question. Using data for 75 countries for the period 1950 to 1992, we present much evidence to show that neither of the above propositions is supported; growth rate regressions are commonly misspecified and suffer from parameter instability. These results cast doubts on the validity of cross–country growth studies.

Stock Market Development and Long-Run Growth

Is the financial system important for economic growth? One line of research argues that it is not; another line stresses the importance of the financial system in mobilizing savings, allocating capital, exerting corporate control, and easing risk management. Moreover, some theories provide a conceptual basis for the belief that larger, more efficient stock markets boost economic growth. This article examines whether there is a strong empirical association between stock market development and long-run economic growth. Cross-country growth regressions suggest that the predetermined component of stock market development is positively and robustly associated with long-run economic growth.

R&D activity and cross-country growth comparisons

R&D activity and cross-country growth comparisons

Comments on Barro and Lee

Beginning with Barro’s (1991) paper, we have seen a large number of cross-country growth regressions. In the present paper Barro and Lee make use of their recently assembled data set (Barr0 and Lee, 1993) on educational attainment, and they focus on the extent to which a few variables can distinguish between fastand slow-growing countries. The new data set is a valuable contribution and the empirical results are sensible (with one exception, which I will come back to). A weakness of the regression framework, however, is that it can say nothing about the channels through which various factors operate. I will begin my remarks by relating growth regressions to growth accounting, which allows one to speculate in a disciplined way about those channels, suggests some alternative interpretations of the current empirical results beyond those that the authors stress, and also suggests factors that may be useful to include in future work. The only peculiar empirical results in Barro and Lee’s work are the coefficients on the female schooling variables. Those variables behave oddly in almost all of the regressions, and I will conclude by offering an explanation for that behavior. On a purely mechanical level, growth in output must be generated by growth in inputs or by improvements in technology or by some combination of the two. Other factors that “cause” or “influence” growth government policy, market distortions, foreign trade, and so forth must work through these channels. Consider the aggregate production function

Why does schooling generate economic growth?

This paper examines the relationship between schooling and GNP growth found in cross-country growth regressions. Using a standard decompositional technique, I divide education's effect on economic growth into three parts: (1) an effect from the change in the returns to schooling over time; (2) an indirect effect coming from schooling's positive effect on schooling growth; and (3) a direct effect coming from education's raising income growth even holding education growth constant. The lion's share of the schooling-GDP growth connection comes from the schooling-schooling growth connection.