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How useful is the Theoretical and Empirical Growth Literature for Policies in the Developing Countries?

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  • B. Bhaskara Rao
  • Arusha Cooray

Abstract

This paper examines a recent view of Pritchett (2006) that there is a wide gap between the theoretical and empirical growth literature and the policy needs of the developing countries. Growth literature has focussed on the long term growth outcomes but policy makers of the developing countries need rapid improvements in the growth rate in the short to medium terms. We think that this gap can be reduced if attention is given to the dynamic effects of policies. With data on Singapore, Malaysia and Thailand we show that an extended version of the Solow (1956) model is well suited for this purpose. We found that the short to medium term growth effects of investment ratio are much higher than its long run effects and persist. Dynamic simulations for Singapore showed that these short and medium run growth effects are significantly higher than the steady state growth rate for up to 10 years.

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Bibliographic Info

Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2008_09.

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Length: 38 pages
Date of creation: 29 Oct 2008
Date of revision:
Handle: RePEc:eei:rpaper:eeri_rp_2008_09

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Keywords: Solow Growth Model; Endogenous Growth; Dynamic Growth Effects of Investment Rate; Policies for Developing Countries.;

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  1. Luintel, Kul B. & Khan, Mosahid & Arestis, Philip & Theodoridis, Konstantinos, 2008. "Financial structure and economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 86(1), pages 181-200, April.
  2. Thomas F. Cooley & Jeremy Greenwood & Mehmet Yorukoglu, 1994. "The replacement problem," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 95, Federal Reserve Bank of Minneapolis.
  3. Steven N. Durlauf & Andros KOURTELLOS & Chih Ming Tan, 2007. "Are Any Growth Theories Robust?," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0703, Department of Economics, Tufts University.
  4. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
  5. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(1), pages 49-123, January.
  6. Greenwood, Jeremy & Krusell, Per, 2007. "Growth accounting with investment-specific technological progress: A discussion of two approaches," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(4), pages 1300-1310, May.
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