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Good Policy or Good Luck? Country Growth Performance and Temporary Shocks

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Author Info
William Easterly
Michael Kremer
Lant Pritchett
Lawrence H. Summers

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Abstract

Much of the new growth literature stresses country characteristics, such as education levels or political stability, as the dominant determinant of growth. However, growth rates are highly unstable over time, with a correlation across decades of .1 to .3, while country characteristics are stable, with cross-decade correlations of .6 to .9. Shocks, especially those to terms of trade, play a large role in explaining variance in growth. These findings suggest either that shocks are important relative to country characteristics in determining long-run growth, or that worldwide technological change determines long-run growth while country characteristics determine relative income levels.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4474.

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Date of creation: Sep 1993
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Publication status: published as Journal of Monetary Economics, Vol. 32 (1993).
Handle: RePEc:nbr:nberwo:4474

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  4. Boyan Jovanovic & Saul Lach, 1991. "The Diffusion of Technology and Inequality Among Nations," NBER Working Papers 3732, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June. [Downloadable!] (restricted)
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  8. Levine, Ross, 1990. "Stock markets, growth, and policy," Policy Research Working Paper Series 484, The World Bank. [Downloadable!]
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  18. Torsten Persson & Guido Tabellini, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," NBER Working Papers 3599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May. [Downloadable!] (restricted)
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  21. Robert E. Lucas, Jr., 1989. "On the Mechanics of Economic Development," NBER Reprints 1176, National Bureau of Economic Research, Inc.
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  23. Rivera-Batiz, Luis A. & Romer, Paul M., 1991. "International trade with endogenous technological change," European Economic Review, Elsevier, vol. 35(4), pages 971-1001, May. [Downloadable!] (restricted)
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