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Using an error-correction model to test whether endogenous long-run growth exists

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  • Lau, Sau-Him Paul

    (University of Hong Kong)

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    Abstract

    A major empirical interest in growth studies is whether permanent changes in economic fundamentals affect the long-run growth rate. However, a direct time series analysis of this hypothesis may not always be feasible because the permanence of many such changes is rather questionable. This paper explains why examining the long-run effects of temporary changes in investment share on per capita output provides indirectly the answer regarding the effects of (possibly hypothetical) permanent changes in investment share, when per capita output and per capita investment are cointegrated. Applying the proposed method to the post-war data of major industrial countries, it is found that a disturbance to investment share does not produce a positive long-run effect in France, Japan and the UK. The evidence is unfavorable to the class of endogenous growth models.

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    Bibliographic Info

    Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 131.

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    Date of creation: 04 Jun 2003
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    Handle: RePEc:ecj:ac2003:131

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    Keywords: error-correction model; presence or absencece of endogenous growth;

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