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It´s Not Factor Accumulation: Stylized Facts and Growth Models

In: Economic Growth: Sources, Trends, and Cycles

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  • William Easterly

    (National Bureau of Economic Research)

  • Ross Levine

    (Brown University)

Abstract

We document five stylized facts of economic growth. (1) The “residual” rather than factor accumulation accounts for most of the income and growth differences across nations. (2) Income diverges over the long run. (3) Factor accumulation is persistent while growth is not persistent and the growth path of countries exhibits remarkable variation across countries. (4) Economic activity is highly concentrated, with all factors of production flowing to the richest areas. (5) National policies closely associated with long-run economic growth rates. We argue that these facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, and that highlight the role of factor accumulation. Empirical work, however, does not yet decisively distinguish among the different theoretical conceptions of “total factor productivity growth.” Economists should devote more effort towards modeling and quantifying total factor productivity.

(This abstract was borrowed from another version of this item.)

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This chapter was published in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Economic Growth: Sources, Trends, and Cycles, , chapter 3, pages 061-114, 2002.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v06c03pp061-114.

Handle: RePEc:chb:bcchsb:v06c03pp061-114

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