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Accounting for Difference in Economic Growth

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  • B. Bosworth
  • S. M. Collins
  • Y. Chen

Abstract

This paper uses a combination of growth accounting and regression analysis to examine economic growth experiences of 88 developing and industrial economies over the period 1960-1992. The decomposition shows that increases in total factor productivity (TFP) have been surprisingly small in developing countries, and that accumulation of physical and human capital account for most of the growth per worker. This reinforces a finding of some previous authors, but for a much larger sample of countries. Further, the fact that countries with high rates of factor accumulation do not have unusually high rates of TFP growth provides little support for the new endogenous growth theories. Our analysis also uncovers significant difficulties with the use of investment rates and school enrollment rates as proxies for capital accumulation, highlighting a reason why some previous studies have understated the importance of accumulation. Our regression results strongly support the growing consensus that stable, orthodox macroeconomic policy, combined with outward oriented trade policies foster economic growth. We explore the channels through which determinants of growth operate. Among other findings, we show that larger budget deficits slow growth through reducing capital accumulation, while real exchange rate volatility operates mainly through slowing TFP growth. Outward orientation appears to work through both channels.

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Paper provided by Brookings Institution International Economics in its series Discussion Papers with number 115.

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Handle: RePEc:wop:briedp:115

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Citations

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Cited by:
  1. Szirmai, Adam, 2012. "Industrialisation as an engine of growth in developing countries, 1950–2005," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 406-420.
  2. Commander, Simon & Davoodi, Hamid R. & Lee, Une J., 1997. "The causes of government and the consequences for growth and well-being," Policy Research Working Paper Series 1785, The World Bank.
  3. Sarah Box, . "The Irish Economy: Lessons for New Zealand?," Treasury Working Paper Series 98/01, New Zealand Treasury.
  4. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
  5. Szirmai, Adam, 2011. "Manufacturing and Economic Development," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Areendam Chanda & Beatrice Farkas, 2009. "Technology-Skill Complementarity and International TFP Differences," DEGIT Conference Papers c014_028, DEGIT, Dynamics, Economic Growth, and International Trade.
  7. Haddad, Mona & Pancaro, Cosimo, 2010. "Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long," World Bank - Economic Premise, The World Bank, issue 20, pages 1-5, June.
  8. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.
  9. Wei-Kang WONG, 2001. "The Channels of Economic Growth: A Channel Decomposition Exercise," Departmental Working Papers wp0101, National University of Singapore, Department of Economics.
  10. Lopez, Ramon, 2003. "The Policy Roots of Socioeconomic Stagnation and Environmental Implosion: Latin America 1950-2000," World Development, Elsevier, vol. 31(2), pages 259-280, February.
  11. McKibbin, W.J. & Bok, T.J., 1995. "The Impact on the Asia-Pacific Region of Fiscal Policy in the United States and Japan," Papers 120, Brookings Institution - Working Papers.
  12. F. V. Vieira & M. Holland & C. Gomes da Silva & L. C. Bottecchia, 2013. "Growth and exchange rate volatility: a panel data analysis," Applied Economics, Taylor & Francis Journals, vol. 45(26), pages 3733-3741, September.
  13. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank.
  14. Ludger J. Loening, 2002. "The Impact of Education on Economic Growth in Guatemala: A Time- Series Analysis Applying an Error-Correction Methodology," Econometrics 0211002, EconWPA.
  15. Pierre van der Eng, 2008. "The sources of long-term economic growth in Indonesia, 1880-2007," ANU Working Papers in Economics and Econometrics 2008-499, Australian National University, College of Business and Economics, School of Economics.
  16. Gordon Cordina, 2004. "Economic Vulnerability And Economic Growth: Some Results From A Neo-Classical Growth Modelling Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(2), pages 21-39, December.
  17. Aiello, Francesco, 2002. "Financial stabilization systems, economic growth of developing countries and EU’s STABEX," MPRA Paper 38099, University Library of Munich, Germany.
  18. World Bank, 2001. "Egypt : Social and Structural Review," World Bank Other Operational Studies 15535, The World Bank.
  19. Yasuba, Yasukichi, 2002. "Rejoinder to Hayami and Ogasawara," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 284-285, June.
  20. World Bank, 2000. "Philippines - Growth with Equity : The Remaining Agenda - A World Bank Social and Structural Review," World Bank Other Operational Studies 15142, The World Bank.
  21. Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank.

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