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Accounting for Difference in Economic Growth

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  • B. Bosworth
  • S. M. Collins
  • Y. Chen

Abstract

This paper uses a combination of growth accounting and regression analysis to examine economic growth experiences of 88 developing and industrial economies over the period 1960-1992. The decomposition shows that increases in total factor productivity (TFP) have been surprisingly small in developing countries, and that accumulation of physical and human capital account for most of the growth per worker. This reinforces a finding of some previous authors, but for a much larger sample of countries. Further, the fact that countries with high rates of factor accumulation do not have unusually high rates of TFP growth provides little support for the new endogenous growth theories. Our analysis also uncovers significant difficulties with the use of investment rates and school enrollment rates as proxies for capital accumulation, highlighting a reason why some previous studies have understated the importance of accumulation. Our regression results strongly support the growing consensus that stable, orthodox macroeconomic policy, combined with outward oriented trade policies foster economic growth. We explore the channels through which determinants of growth operate. Among other findings, we show that larger budget deficits slow growth through reducing capital accumulation, while real exchange rate volatility operates mainly through slowing TFP growth. Outward orientation appears to work through both channels.

Suggested Citation

  • B. Bosworth & S. M. Collins & Y. Chen, "undated". "Accounting for Difference in Economic Growth," Discussion Papers 115, Brookings Institution International Economics.
  • Handle: RePEc:wop:briedp:115
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    5. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
    6. W. J. McKibbin & T. J. Bok, "undated". "The Impact on the Asia-Pacific Region of Fiscal Policy of the United States and Japan," Discussion Papers 120, Brookings Institution International Economics.
    7. Szirmai, Adam, 2012. "Industrialisation as an engine of growth in developing countries, 1950–2005," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 406-420.
    8. Sarah Box, 1998. "The Irish Economy: Lessons for New Zealand?," Treasury Working Paper Series 98/01, New Zealand Treasury.
    9. Lopez, Ramon, 2003. "The Policy Roots of Socioeconomic Stagnation and Environmental Implosion: Latin America 1950-2000," World Development, Elsevier, vol. 31(2), pages 259-280, February.
    10. Pierre van der Eng, 2008. "The sources of long-term economic growth in Indonesia, 1880-2007," ANU Working Papers in Economics and Econometrics 2008-499, Australian National University, College of Business and Economics, School of Economics.
    11. Nicolás Magud & Sebastián Sosa, 2013. "When And Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease And Growth," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 1-27.
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    15. Aiello, Francesco, 2002. "Financial stabilization systems, economic growth of developing countries and EU’s STABEX," MPRA Paper 38099, University Library of Munich, Germany.
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    17. Szirmai, Adam, 2011. "Manufacturing and Economic Development," WIDER Working Paper Series 075, World Institute for Development Economic Research (UNU-WIDER).
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    20. Qusai Mohammad Qasim Alabed & Fathin Faizah Said & Zulkefly Abdul Karim & Mohd Azlan Shah Zaidi & Mohammed Daher Alshammary, 2021. "Energy–Growth Nexus in the MENA Region: A Dynamic Panel Threshold Estimation," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    21. Yasuba, Yasukichi, 2002. "Rejoinder to Hayami and Ogasawara," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 284-285, June.
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    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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