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The Endogeneity of the Natural Rate of Growth

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  • Miguel A. León-Ledesma

    ()

  • A. P. Thirlwall

    ()

Abstract

The aim of this paper is to estimate the sensitivity of the natural rate of growth to the actual rate of growth for 15 OECD countries over the period 1961 to 1995, on the hypothesis that the natural rate of growth is not exogenously given. To do this we estimate the natural rate of growth and, then, how it changes when the actual growth rate is different from the natural rate. As a side test of the endogeneity hypothesis, we also test for the direction of causality between national output and factor inputs for the same set of countries. Our results support the idea that the natural rate of growth is responsive to the actual rate of growth and bring to the fore the importance of focusing on demand as well as supply for an understanding of growth rate differences between countries.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/9821.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9821.

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Date of creation: Nov 1998
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Handle: RePEc:ukc:ukcedp:9821

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: Natural Rate of Growth; Actual Rate of Growth; Endogeneity; Causality; Inputs; Output;

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  1. Dixon, R & Thirlwall, A P, 1975. "A Model of Regional Growth-Rate Differences on Kaldorian Lines," Oxford Economic Papers, Oxford University Press, vol. 27(2), pages 201-14, July.
  2. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  3. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
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  6. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
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  8. Granger, Clive W J, 1997. "On Modelling the Long Run in Applied Economics," Economic Journal, Royal Economic Society, vol. 107(440), pages 169-77, January.
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  10. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  11. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  12. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  13. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
  14. Kaldor, Nicholas, 1970. "The Case for Regional Policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 17(3), pages 337-48, November.
  15. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  17. Targetti, Ferdinando & Foti, Alessandro, 1997. "Growth and Productivity: A Model of Cumulative Growth and Catching Up," Cambridge Journal of Economics, Oxford University Press, vol. 21(1), pages 27-43, January.
  18. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
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