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Looking at the facts : what we know about policy and growth from cross-country analysis

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Author Info
Levine, Ross
Zervos, Sara

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Abstract

What has the profession learned from cross-country regressions about the links between long-run growth and indicators of fiscal, monetary, trade, financial, and exchange-rate policies? The authors find that: indicators of financial development are strongly associated with long-run growth; other individual policy indicators are only weakly linked to growth; and it is particularly difficult to find a consistent relationship between inflation and long-run growth. For example, the inclusion or exclusion of one or two countries (Nicaragua and Uganda) out of more than 100 countries in the sample can lead to reaching three quite different conclusions: (1) that only very high inflation is bad for growth; (2) that very high inflation in itself is not bad for growth, but small increases in inflation in moderate-inflation countries slow growth; or (3) that inflation is unrelated to growth. The connections between policy indicators and growth are quite sensitive to slight alterations in the right-hand-side variables and to small changes in the sample of countries. And the daunting array of methodological problems limiting the ability to interpret cross-country regressions implies that, at best, they suggest interesting empirical regularities. Cross-country regressions should not be used to predict by how much long-run growth will change when policies change. But beliefs about policy and growth that are not supported by cross-country evidence will tend to be viewed skeptically. So, future work on the policy-growth nexus should integrate broad cross-country analyses with country case studies and investigations of specific firms.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1115.

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Date of creation: 31 Mar 1993
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Handle: RePEc:wbk:wbrwps:1115

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Keywords: Governance Indicators Economic Theory&Research Economic Conditions and Volatility Environmental Economics&Policies Pro-Poor Growth and Inequality

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Birdsall, Nancy, 1989. "Economic Analyses of Rapid Population Growth," World Bank Research Observer, Oxford University Press, vol. 4(1), pages 23-50, January.
  2. Bos, Eduard & Bulatao, Rodolfo, 1990. "Projecting fertility for all countries," Policy Research Working Paper Series 500, The World Bank. [Downloadable!]
  3. Grossman, Gene M & Helpman, Elhanan, 1990. "Trade, Innovation, and Growth," American Economic Review, American Economic Association, vol. 80(2), pages 86-91, May. [Downloadable!] (restricted)
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  4. 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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  5. Psacharopoulos, George, 1989. "Time trends of the returns to education: Cross-national evidence," Economics of Education Review, Elsevier, vol. 8(3), pages 225-231, June. [Downloadable!] (restricted)
  6. Roubini, N. & Sala-I-Martin, X., 1991. "Financial development , the Trade Regime and Economic Growth," Papers 646, Yale - Economic Growth Center.
  7. Gome-Neto, J.B. & Hanushek, E.A., 1991. "The Causes and Effects of Grade Repetition: Evidence from Brazil," RCER Working Papers 295, University of Rochester - Center for Economic Research (RCER).
  8. King, Elizabeth M. & Bellew, Rosemary T., 1989. "The effects of Peru's push to improve education," Policy Research Working Paper Series 172, The World Bank. [Downloadable!]
  9. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October. [Downloadable!] (restricted)
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  10. King, Elizabeth M. & Lillard, Lee A., 1987. "Education policy and schooling attainment in Malaysia and the Philippines," Economics of Education Review, Elsevier, vol. 6(2), pages 167-181, April. [Downloadable!] (restricted)
  11. Behrman, Jere R & Deolalikar, Anil B, 1991. "School Repetition, Dropouts, and the Rates of Return to Schooling: The Case of Indonesia," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 467-80, November.
  12. Fischer, Stanley, 1979. "Anticipations and the Nonneutrality of Money," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 225-52, April. [Downloadable!] (restricted)
  13. Shah, Anwar & Larsen, Bjorn, 1992. "Carbon taxes, the greenhouse effect, and developing countries," Policy Research Working Paper Series 957, The World Bank. [Downloadable!]
  14. Kugler, Bernardo & Psacharopoulos, George, 1989. "Earnings and education in Argentina: an analysis of the 1985 Buenos Aires Household Survey," Economics of Education Review, Elsevier, vol. 8(4), pages 353-365, August. [Downloadable!] (restricted)
  15. Gomez-Castellanos, Luisa & Psacharopoulos, George, 1990. "Earnings and education in Ecuador: Evidence from the 1987 household survey," Economics of Education Review, Elsevier, vol. 9(3), pages 219-227, September. [Downloadable!] (restricted)
  16. Velez, Eduardo & Psacharopoulos, George, 1987. "The external efficiency of diversified secondary schools in Colombia," Economics of Education Review, Elsevier, vol. 6(2), pages 99-110, April. [Downloadable!] (restricted)
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  18. De Gregorio, Jose, 1992. "The effects of inflation on economic growth : Lessons from Latin America," European Economic Review, Elsevier, vol. 36(2-3), pages 417-425, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mwangi S. Kimenyi, 2006. "Economic Reforms and Pro-Poor Growth: Lessons for Africa and other Developing Regions and Economies in Transition," Working papers 2006-02, University of Connecticut, Department of Economics. [Downloadable!]
  2. Palle Andersen & David Gruen, 1995. "Macroeconomic Policies and Growth," RBA Research Discussion Papers rdp9507, Reserve Bank of Australia. [Downloadable!]
  3. Martijn Brons & Henri L.F.M. de Groot & Peter Nijkamp, 1999. "Growth Effects of Fiscal Policies - A Comparative Analysis in a Multi-Country Context," Tinbergen Institute Discussion Papers 99-042/3, Tinbergen Institute. [Downloadable!]
  4. B. Bosworth & S. M. Collins & Y. Chen, . "Accounting for Difference in Economic Growth," Discussion Papers 115, Brookings Institution International Economics. [Downloadable!]
  5. Uwe Böwer & Catherine Guillemineau, 2006. "Determinants of business cycle synchronisation across euro area countries," Working Paper Series 587, European Central Bank. [Downloadable!]
  6. Zeinab Partow, . "La Relación Inflación-Crecimiento: Un Resúmen con algunas Implicaciones para Colombia," Borradores de Economia 023, Banco de la Republica de Colombia. [Downloadable!]
  7. Dehn, Jan, 2000. "The effects on growth of commodity price uncertainty and shocks," Policy Research Working Paper Series 2455, The World Bank. [Downloadable!]
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