IDEAS home Printed from https://ideas.repec.org/p/fgv/eesptd/305.html
   My bibliography  Save this paper

A time-varying markov-switching model for economic growth

Author

Listed:
  • Morier, Bruno
  • Teles, Vladimir Kuhl

Abstract

This paper investigates economic growth’s pattern of variation across and within countries using a Time-Varying Transition Matrix Markov-Switching Approach. The model developed follows the approach of Pritchett (2003) and explains the dynamics of growth based on a collection of different states, each of which has a sub-model and a growth pattern, by which countries oscillate over time. The transition matrix among the different states varies over time, depending on the conditioning variables of each country, with a linear dynamic for each state. We develop a generalization of the Diebold’s EM Algorithm and estimate an example model in a panel with a transition matrix conditioned on the quality of the institutions and the level of investment. We found three states of growth: stable growth, miraculous growth, and stagnation. The results show that the quality of the institutions is an important determinant of long-term growth, whereas the level of investment has varying roles in that it contributes positively in countries with high-quality institutions but is of little relevance in countries with medium- or poor-quality institutions.

Suggested Citation

  • Morier, Bruno & Teles, Vladimir Kuhl, 2011. "A time-varying markov-switching model for economic growth," Textos para discussão 305, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:eesptd:305
    as

    Download full text from publisher

    File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/8797/1/TD%20305%20-%20Bruno%20Morier%20e%20Vladimir%20Kuhl%20Teles.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    2. Marco Alfo & Giovanni Trovato & Robert J. Waldmann, 2008. "Testing for country heterogeneity in growth models using a finite mixture approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 487-514.
    3. Ruud, Paul A., 1991. "Extensions of estimation methods using the EM algorithm," Journal of Econometrics, Elsevier, vol. 49(3), pages 305-341, September.
    4. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
    5. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
    6. Chih Ming Tan, 2010. "No one true path: uncovering the interplay between geography, institutions, and fractionalization in economic development," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(7), pages 1100-1127, November/.
    7. Desdoigts, Alain, 1999. "Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-330, September.
    8. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2005. "Growth Accelerations," Journal of Economic Growth, Springer, vol. 10(4), pages 303-329, December.
    9. Jerzmanowski, Michal, 2006. "Empirics of hills, plateaus, mountains and plains: A Markov-switching approach to growth," Journal of Development Economics, Elsevier, vol. 81(2), pages 357-385, December.
    10. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-384, Oct.-Dec..
    11. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
    12. Fabio Canova, 2004. "Testing for Convergence Clubs in Income Per Capita: A Predictive Density Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 49-77, February.
    13. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    14. Richard Jong-A-Pin & Jakob de Haan, 2007. "Political Regime Change, Economic Reform and Growth Accelerations," CESifo Working Paper Series 1905, CESifo Group Munich.
    15. Francis X. Diebold & Joon-Haeng Lee & Gretchen C. Weinbach, 1993. "Regime switching with time-varying transition probabilities," Working Papers 93-12, Federal Reserve Bank of Philadelphia.
    16. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    17. Bloom, David E & Canning, David & Sevilla, Jaypee, 2003. "Geography and Poverty Traps," Journal of Economic Growth, Springer, vol. 8(4), pages 355-378, December.
    18. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    19. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, vol. 14(2), pages 221-250, May.
    20. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    21. Andros Kourtellos, 2002. "A Projection Pursuit Approach to Cross Country Growth Data," University of Cyprus Working Papers in Economics 0213, University of Cyprus Department of Economics.
    22. Paap, Richard & Franses, Philip Hans & van Dijk, Dick, 2005. "Does Africa grow slower than Asia, Latin America and the Middle East? Evidence from a new data-based classification method," Journal of Development Economics, Elsevier, vol. 77(2), pages 553-570, August.
    23. Watson, Mark W. & Engle, Robert F., 1983. "Alternative algorithms for the estimation of dynamic factor, mimic and varying coefficient regression models," Journal of Econometrics, Elsevier, vol. 23(3), pages 385-400, December.
    24. ArdIc, Oya PInar, 2006. "The gap between the rich and the poor: Patterns of heterogeneity in the cross-country data," Economic Modelling, Elsevier, vol. 23(3), pages 538-555, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Francesco Lamperti & Clara Elisabetta Mattei, 2016. "Going Up and Down: Rethinking the Empirics of Growth in the Developing and Newly Industrialized World," LEM Papers Series 2016/01, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fgv:eesptd:305. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Núcleo de Computação da FGV/EPGE). General contact details of provider: http://edirc.repec.org/data/eegvfbr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.