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Looking at the facts : what we know about policy and growth from cross-country analysis

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  • Levine, Ross
  • Zervos, Sara

Abstract

What has the profession learned from cross-country regressions about the links between long-run growth and indicators of fiscal, monetary, trade, financial, and exchange-rate policies? The authors find that: indicators of financial development are strongly associated with long-run growth; other individual policy indicators are only weakly linked to growth; and it is particularly difficult to find a consistent relationship between inflation and long-run growth. For example, the inclusion or exclusion of one or two countries (Nicaragua and Uganda) out of more than 100 countries in the sample can lead to reaching three quite different conclusions: (1) that only very high inflation is bad for growth; (2) that very high inflation in itself is not bad for growth, but small increases in inflation in moderate-inflation countries slow growth; or (3) that inflation is unrelated to growth. The connections between policy indicators and growth are quite sensitive to slight alterations in the right-hand-side variables and to small changes in the sample of countries. And the daunting array of methodological problems limiting the ability to interpret cross-country regressions implies that, at best, they suggest interesting empirical regularities. Cross-country regressions should not be used to predict by how much long-run growth will change when policies change. But beliefs about policy and growth that are not supported by cross-country evidence will tend to be viewed skeptically. So, future work on the policy-growth nexus should integrate broad cross-country analyses with country case studies and investigations of specific firms.

Suggested Citation

  • Levine, Ross & Zervos, Sara, 1993. "Looking at the facts : what we know about policy and growth from cross-country analysis," Policy Research Working Paper Series 1115, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1115
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," World Bank Economic Review, World Bank Group, vol. 10(2), pages 323-339, May.
    2. Eduardo Fern·ndez-Arias & Peter Montiel, 2001. "Reform and Growth in Latin America: All Pain, No Gain?," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 1-5.
    3. B. Bosworth & S. M. Collins & Y. Chen, "undated". "Accounting for Difference in Economic Growth," Discussion Papers 115, Brookings Institution International Economics.
    4. repec:jed:journl:v:42:y:2017:i:2:p:51-66 is not listed on IDEAS
    5. Dehn, Jan, 2000. "The effects on growth of commodity price uncertainty and shocks," Policy Research Working Paper Series 2455, The World Bank.
    6. Sanghamitra Bandyopadhyay, 2003. "Convergence Club Empirics: Some Dynamics and Explanations of Unequal Growth across Indian States," STICERD - Distributional Analysis Research Programme Papers 69, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. T. N. Srinivasan, 1995. "Long-Run Growth Theories and Empirics: Anything New?," NBER Chapters,in: Growth Theories in Light of the East Asian Experience, NBER-EASE Volume 4, pages 37-70 National Bureau of Economic Research, Inc.
    8. M.Rosaria Alfano & A. Laura Baraldi, 2008. "The design of electoral rules and their impact on economic growth: the Italian case," Working Papers 3_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    9. Jean-Claude Berthélemy & Aristomène Varoudakis, 1995. "Clubs de convergence et croissance. Le rôle du développement financier et du capital humain," Revue Économique, Programme National Persée, vol. 46(2), pages 217-235.
    10. Ramaprasad Bhar, 2010. "Stochastic Filtering With Applications In Finance:," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7736, October.
    11. Danila Serra, 2006. "Empirical determinants of corruption: A sensitivity analysis," Public Choice, Springer, vol. 126(1), pages 225-256, January.
    12. Rodrigo Suescún, 1995. "Growth, Welfare Costs And Aggregate Fluctuations In Economies With Monetary Taxation," BORRADORES DE ECONOMIA 002775, BANCO DE LA REPÚBLICA.
    13. Dewandaru, Ginanjar & Rizvi, Syed Aun R. & Bacha, Obiyathulla I. & Masih, Mansur, 2014. "What factors explain stock market retardation in Islamic Countries," Emerging Markets Review, Elsevier, vol. 19(C), pages 106-127.
    14. Mustapha Djennas & Mohamed Benbouziane & Meriem Djennas, 2013. "Business Cycle Synchronization in Euro Area and GCC Countries: A Wavelets-GA Approach," Working Papers 772, Economic Research Forum, revised Sep 2013.
    15. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Journal of International Economics, Elsevier, vol. 43(3-4), pages 287-311, November.
    16. Mwangi S. Kimenyi, 2006. "Economic Reforms and Pro-Poor Growth: Lessons for Africa and other Developing Regions and Economies in Transition," Working papers 2006-02, University of Connecticut, Department of Economics.
    17. Böwer, Uwe & Guillemineau, Catherine, 2006. "Determinants of business cycle synchronisation across euro area countries," Working Paper Series 587, European Central Bank.
    18. ZeinabPartow, 2005. "La Relación Inflación-Crecimiento: Un Resumen Con Algunas Implicaciones Para Colombia," BORRADORES DE ECONOMIA 003079, BANCO DE LA REPÚBLICA.
    19. Philippe Jean-Pierre, 1997. "Sélection et tests de seuils de convergence," Revue Économique, Programme National Persée, vol. 48(3), pages 429-440.
    20. Sebastian George, ENE & Danut, CHILAREZ, 2015. "The Influence Of Government Spending, Financial, Monetary And Fiscal Policies On The Gdp. Comparative Analysis Romania – Lithuania," Management Strategies Journal, Constantin Brancoveanu University, vol. 29(3), pages 6-15.
    21. Brunetti, Aymo, 1998. "Policy volatility and economic growth: A comparative, empirical analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 35-52, February.
    22. Zeinab Partow, 1995. "La Relación Inflación-Crecimiento: Un Resúmen con algunas Implicaciones para Colombia," Borradores de Economia 023, Banco de la Republica de Colombia.
    23. repec:eee:riibaf:v:41:y:2017:i:c:p:600-612 is not listed on IDEAS

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