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The Channels of Economic Growth: A Channel Decomposition Exercise

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Abstract

This paper formally introduces channel decomposition, a method that systematically decomposes the channels through which the determinants of growth operate, into the analysis of economic growth. Under channel decomposition, the determinants could affect economic growth through physical capital accumulation, through human capital acquisition, and/or through growth in total factor productivity. Thus, by examining the outcomes of the decomposition, we can test alternative models, as different models often imply different channels of operation for the determinants. Methodologically, channel decomposition combines growth accounting with regression analysis, rather than regarding them as alternative approaches. With this method, it becomes clear that technological catch-up, not factor accumulation, accounts for the widely documented phenomenon of conditional convergence. This finding turns out to be extremely robust. In effect, this finding puts the final nails in the coffin of the Neoclassical growth model, as the model can neither explain cross-country growth, nor can it explain conditional convergence. The method also shows that both rich and poor countries converge mainly through technological catch-up, although richer countries converge much faster than the poor.

Suggested Citation

  • Wei-Kang WONG, 2001. "The Channels of Economic Growth: A Channel Decomposition Exercise," Departmental Working Papers wp0101, National University of Singapore, Department of Economics.
  • Handle: RePEc:nus:nusewp:wp0101
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    Cited by:

    1. repec:eco:journ1:2017-05-6 is not listed on IDEAS
    2. Los, Bart & Timmer, Marcel P., 2005. "The 'appropriate technology' explanation of productivity growth differentials: An empirical approach," Journal of Development Economics, Elsevier, vol. 77(2), pages 517-531, August.
    3. Nicole Maestas & Kathleen J. Mullen & David Powell, 2016. "The Effect of Population Aging on Economic Growth, the Labor Force and Productivity," NBER Working Papers 22452, National Bureau of Economic Research, Inc.
    4. Wei-Kang WONG, 2001. "How Good Are Embodied And Disembodied Idea Flows In Bridging Income Gaps And Idea Gaps?," Departmental Working Papers wp0102, National University of Singapore, Department of Economics.
    5. Nicole Maestas & Kathleen J. Mullen & David Powell, 2016. "The Effect of Population Aging on Economic Growth, the Labor Force and Productivity," Working Papers WR-1063-1, RAND Corporation.

    More about this item

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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