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

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  • William Easterly
  • Ross Levine

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.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 164.

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Date of creation: Jun 2002
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Handle: RePEc:chb:bcchwp:164

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Cited by:
  1. Dutt, Pushan & Traca, Daniel A., 2005. "Trade and the Skill-Bias - It's Not How Much, But With Whom You Trade," CEPR Discussion Papers 5263, C.E.P.R. Discussion Papers.
  2. Bandeira, Pablo, 2008. "La relación entre las instituciones y el desarrollo económico de las naciones
    [The relationship between institutions and economic development]
    ," MPRA Paper 13371, University Library of Munich, Germany.
  3. Kathuria, Vinish & Seethamma Natarajan, Rajesh Raj & Sen, Kunal, 2010. "State business relations and manufacturing productivity growth in India," MPRA Paper 20314, University Library of Munich, Germany.
  4. Fatás, Antonio & Mihov, Ilian, 2005. "Policy Volatility, Institutions and Economic Growth," CEPR Discussion Papers 5388, C.E.P.R. Discussion Papers.
  5. Breuer, Janice Boucher & McDermott, John, 2013. "Respect, responsibility, and development," Journal of Development Economics, Elsevier, vol. 105(C), pages 36-47.
  6. Pierre-Olivier Gourinchas & Olivier Jeanne, 2004. "The Elusive Gains From International Financial Integration," IMF Working Papers 04/74, International Monetary Fund.
  7. Melleny Black & Melody Guy & Nathan McLellan, 2003. "Productivity in New Zealand 1988 to 2002," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(1), pages 119-150.
  8. Frédéric Docquier & Çaǧlar Özden & Giovanni Peri, 2010. "The Wage Effects of Immigration and Emigration," NBER Working Papers 16646, National Bureau of Economic Research, Inc.
  9. Turner, Chad & Tamura, Robert & Mulholland, Sean, 2008. "How important are human capital, physical capital and total factor productivity for determining state economic growth in the United States: 1840-2000?," MPRA Paper 7715, University Library of Munich, Germany.
  10. Catriona Purfield, 2006. "Mind the Gap," IMF Working Papers 06/103, International Monetary Fund.
  11. Causa, Orsetta & Cohen, Daniel, 2006. "Industrial Productivity in 51 Countries, Rich and Poor," CEPR Discussion Papers 5549, C.E.P.R. Discussion Papers.
  12. Charles Ackah, & Oliver Morrissey, . "Trade Liberalisation is Good for You if You are Rich," Discussion Papers 07/01, University of Nottingham, CREDIT.

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