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What is Really Good for Long-Term Growth? Lessons from a Binary Classification Tree (BCT) Approach

  • Rupa Duttagupta
  • Montfort Mlachila
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    Although the economic growth literature has come a long way since the Solow-Swan model of the fifties, there is still considerable debate on the "real' or "deep" determinants of growth. This paper revisits the question of what is really important for strong long-term growth by using a Binary Classification Tree approach, a nonparametric statistical technique that is not commonly used in the growth literature. A key strength of the method is that it recognizes that a combination of conditions can be instrumental in leading to a particular outcome, in this case strong growth. The paper finds that strong growth is a result of a complex set of interacting factors, rather than a particular set of variables such as institutions or geography, as is often cited in the literature. In particular, geographical luck and a favorable external environment, combined with trade openness and strong human capital are conducive to growth.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/263.

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    Length: 27
    Date of creation: 01 Dec 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/263
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    1. Oded Galor, 2004. "From Stagnation to Growth: Unified Growth Theory," GE, Growth, Math methods 0409003, EconWPA.
    2. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD Publishing.
    3. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
    4. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
    5. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
    7. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc.
    8. Atish R. Ghosh & Holger Wolf, 1998. "Thresholds and Context Dependence in Growth," NBER Working Papers 6480, National Bureau of Economic Research, Inc.
    9. Rupa Duttagupta & Paul Cashin, 2008. "The Anatomy of Banking Crises," IMF Working Papers 08/93, International Monetary Fund.
    10. Bleaney, Michael & Nishiyama, Akira, 2002. "Explaining Growth: A Contest between Models," Journal of Economic Growth, Springer, vol. 7(1), pages 43-56, March.
    11. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
    12. Kevin D. Hoover & Stephen J. Perez, 2004. "Truth and Robustness in Cross-country Growth Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 765-798, December.
    13. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
    14. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-44, April.
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