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Why are Some Countries Richer than Others? A Reassessment of Mankiw-Romer-Weil's Test of the Neoclassical Growth Model

Author

Listed:
  • Jesus Felipe

    (Asian Development Bank)

  • John McCombie

    (Downing College Cambridge)

Abstract

This paper provides evidence of a problem with the influential testing and assessment of Solow's (1956) growth model proposed by Mankiw et al. (1992) and a series of subsequent papers evaluating the latter. First, the assumption of a common rate of technical progress maintained by Mankiw, Romer, and Weil (1992) is relaxed. Solow's model is extended to include the different levels and rates of technical progress of each country. This increases the explanatory power of the cross-country variation in income per capita of the Organisation for Economic Co-operation and Development (OECD) countries to over 80%. The estimates of the parameters are statistically significant and take the expected values and signs. Second, and more important, it is shown that the estimates merely reflect a statistical artifact. This has serious implications for the possibility of actually testing Solow's growth model.

Suggested Citation

  • Jesus Felipe & John McCombie, 2002. "Why are Some Countries Richer than Others? A Reassessment of Mankiw-Romer-Weil's Test of the Neoclassical Growth Model," ADB Economics Working Paper Series 19, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0019
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    References listed on IDEAS

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    1. Quah, D., 1990. "Galton'S Fallacy And The Tests Of The Convergence Hypothesis," Working papers 552, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Srinivasan, T. N., 1994. "Data base for development analysis Data base for development analysis: An overview," Journal of Development Economics, Elsevier, vol. 44(1), pages 3-27, June.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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