IDEAS home Printed from https://ideas.repec.org/p/wop/briedp/115.html
   My bibliography  Save this paper

Accounting for Difference in Economic Growth

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://apps89.brookings.edu/views/papers/bdp/BDP115/Bdp115.pdf
    File Function: text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Hanson, James A., 1992. "Opening the capital account : a survey of issues and results," Policy Research Working Paper Series 901, The World Bank.
    3. King, Robert G. & Levine, Ross, 1994. "Capital fundamentalism, economic development, and economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 259-292, June.
    4. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
    5. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
    6. Conway, Patrick, 1994. "An Atheoretic Evaluation of Success in Structural Adjustment," Economic Development and Cultural Change, University of Chicago Press, vol. 42(2), pages 267-292, January.
    7. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    8. Polak, J.J., 1991. "The Changing Nature of IMF Conditionality," Princeton Studies in International Economics 184, International Economics Section, Departement of Economics Princeton University,.
    9. Young, Alwyn, 1994. "Lessons from the East Asian NICS: A contrarian view," European Economic Review, Elsevier, vol. 38(3-4), pages 964-973, April.
    10. Harrison, Ann, 1996. "Openness and growth: A time-series, cross-country analysis for developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 419-447, March.
    11. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, vol. 4(1), pages 49-53, February.
    12. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    13. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    14. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    15. Levine, Ross & Renelt, David, 1991. "Cross-country studies of growth and policy : methodological, conceptual, and statistical problems," Policy Research Working Paper Series 608, The World Bank.
    16. Ram, Rati, 1990. "Imports and Economic Growth: A Cross-Country Study," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 43(1), pages 45-66.
    17. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    18. Havrylyshyn, Oli, 1990. "Trade Policy and Productivity Gains in Developing Countries: A Survey of the Literature," World Bank Research Observer, World Bank Group, vol. 5(1), pages 1-24, January.
    19. Roubini, N. & Sala-I-Martin, X., 1991. "Financial development , the Trade Regime and Economic Growth," Papers 646, Yale - Economic Growth Center.
    20. Jong-Wha Lee, 1993. "International Trade, Distortions, and Long-Run Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 40(2), pages 299-328, June.
    21. Dani Rodrik, 1993. "Trade and Industrial Policy Reform in Developing Countries: A Review of Recent Theory and Evidence," NBER Working Papers 4417, National Bureau of Economic Research, Inc.
    22. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    23. Edward E. Leamer, 1988. "Measures of Openness," NBER Chapters,in: Trade Policy Issues and Empirical Analysis, pages 145-204 National Bureau of Economic Research, Inc.
    24. Greenaway, David, 1993. "Liberalising Foreign Trade through Rose-Tinted Glasses," Economic Journal, Royal Economic Society, vol. 103(416), pages 208-222, January.
    25. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
    26. 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.
    27. Ben-David, Dan, 1996. "Trade and convergence among countries," Journal of International Economics, Elsevier, vol. 40(3-4), pages 279-298, May.
    28. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 369-405.
    29. Nehru, Vikram & Dhareshwar, Ashok & DEC, 1994. "New estimates of total factor productivity growth for developing and industrial countries," Policy Research Working Paper Series 1313, The World Bank.
    30. Jacques J. Polak, 1991. "The Changing Nature of IMF Conditionality," OECD Development Centre Working Papers 41, OECD Publishing.
    31. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
    32. Oulton,Nicholas & O'Mahony,Mary, 1994. "Productivity and Growth," Cambridge Books, Cambridge University Press, number 9780521453455, May.
    33. Grossman, Gene M. & Helpman, Elhanan, 1991. "Trade, knowledge spillovers, and growth," European Economic Review, Elsevier, vol. 35(2-3), pages 517-526, April.
    34. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
    35. Ruffin, Roy J, 1994. "Endogenous Growth and International Trade," Review of International Economics, Wiley Blackwell, vol. 2(1), pages 27-39, February.
    36. Syrquin, Moshe & Chenery, Hollis, 1989. "Three decades of industrialization," MPRA Paper 32771, University Library of Munich, Germany.
    37. John F. Helliwell, 1994. "International Growth Linkages: Evidence from Asia and the OECD," NBER Chapters,in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 7-29 National Bureau of Economic Research, Inc.
    38. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.
    39. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gordon Cordina, 2004. "Economic Vulnerability And Economic Growth: Some Results From A Neo-Classical Growth Modelling Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(2), pages 21-39, December.
    2. Aiello, Francesco, 2002. "Financial stabilization systems, economic growth of developing countries and EU’s STABEX," MPRA Paper 38099, University Library of Munich, Germany.
    3. Areendam Chanda & Beatrice Farkas, 2009. "Technology-Skill Complementarity and International TFP Differences," DEGIT Conference Papers c014_028, DEGIT, Dynamics, Economic Growth, and International Trade.
    4. 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.
    5. F. V. Vieira & M. Holland & C. Gomes da Silva & L. C. Bottecchia, 2013. "Growth and exchange rate volatility: a panel data analysis," Applied Economics, Taylor & Francis Journals, vol. 45(26), pages 3733-3741, September.
    6. Tam Bang Vu, 2008. "Foreign direct investment and endogenous growth in Vietnam," Applied Economics, Taylor & Francis Journals, vol. 40(9), pages 1165-1173.
    7. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
    8. Szirmai, Adam, 2011. "Manufacturing and Economic Development," WIDER Working Paper Series 075, World Institute for Development Economic Research (UNU-WIDER).
    9. World Bank, 2000. "Philippines - Growth with Equity : The Remaining Agenda - A World Bank Social and Structural Review," World Bank Other Operational Studies 15142, The World Bank.
    10. 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.
    11. Haddad, Mona & Pancaro, Cosimo, 2010. "Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long," World Bank - Economic Premise, The World Bank, issue 20, pages 1-5, June.
    12. Sarah Box, "undated". "The Irish Economy: Lessons for New Zealand?," Treasury Working Paper Series 98/01, New Zealand Treasury.
    13. 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.
    14. Yasuba, Yasukichi, 2002. "Rejoinder to Hayami and Ogasawara," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 284-285, June.
    15. 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.
    16. Wei-Kang WONG, 2001. "The Channels of Economic Growth: A Channel Decomposition Exercise," Departmental Working Papers wp0101, National University of Singapore, Department of Economics.
    17. repec:wsi:jicepx:v:04:y:2013:i:02:n:s1793993313500099 is not listed on IDEAS
    18. Ludger J. Loening, 2002. "The Impact of Education on Economic Growth in Guatemala: A Time- Series Analysis Applying an Error-Correction Methodology," Econometrics 0211002, EconWPA.
    19. World Bank, 2001. "Egypt : Social and Structural Review," World Bank Other Operational Studies 15535, The World Bank.
    20. Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank.
    21. Pritchett, Lant, 2000. "The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital," Journal of Economic Growth, Springer, vol. 5(4), pages 361-384, December.
    22. Commander, Simon & Davoodi, Hamid R. & Lee, Une J., 1997. "The causes of government and the consequences for growth and well-being," Policy Research Working Paper Series 1785, The World Bank.
    23. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:briedp:115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: http://edirc.repec.org/data/brookus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.