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Thresholds and Context Dependence in Growth

  • Atish R. Ghosh
  • Holger Wolf

Is there a single recipe for fast growth? Much of the recent cross-section empirical growth literature implicitly assumes there is. Yet both development and growth theory as well as casual empiricism suggest pervasive non-linearities in the growth process. Low inflation may grease the wheels of commerce' while high inflation may arrest them, secondary education may be crucial for promoting growth in open economies, but be largely ineffective in war-ravaged countries, etc. Such threshold effects and context dependence are difficult to capture in standard multivariate regressions, but are readily identified by classification tree analysis, undertaken here. Our results suggest that both types of non-linearities are indeed pervasive. The findings go some way towards explaining the limited robustness of cross-country growth regressions, and argue against the existence of a universal growth recipe.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6480.

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Date of creation: Mar 1998
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Handle: RePEc:nbr:nberwo:6480
Note: EFG
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  1. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  2. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  3. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
  4. Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April.
  5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  6. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
  7. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  8. Ross Levine, 1990. "Stock markets, growth, and policy," International Finance Discussion Papers 374, Board of Governors of the Federal Reserve System (U.S.).
  9. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  10. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
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