Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap

This paper explores the empirics of long-run economic growth by studying the pattern of growth for every country in the world between 1950 and 2015. Special emphasis is placed on ascertaining how the pattern of growth has changed over the last 65 years and how growth is related to the level of development. The analysis identifies historical time periods when growth stagnated or exploded and the levels of development where growth has a tendency to either stagnate or explode. Studying these growth episodes provides a number of insights into the question as to whether or not there is such a thing as a middle income trap. Although there are economies at every level of development that have stagnated for long periods, this study finds no evidence that this is systematically or uniquely related to middle income economies. An additional point of emphasis of this study is to highlight how the inclusion or exclusion of the former planned economies of Eastern Europe and the Soviet Union affect these results; and likewise how China’s exceptional performance affects these results. Generally it is found that because of the size and extraordinary performance (both good and bad) of China and the Economies in Transition (EiT), that excluding them from the sample has a quite significant effect on estimates of global long-run growth and trends regarding growth over time and by income level.