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Economic Growth as a Nonlinear and Discontinuous Process

Listed author(s):
  • Hossein Abbasi-Nejad

    (university of tehran)

  • Mahmoud Motavasseli

    (university of tehran)

  • Shapour Mohammadi

    (university of tehran)

Structural changes were the main focus of many studies in recent years. Changes which alter the socio-economic status of a nation from deprived and traditional nature to a developed and modern one. The main hypothesis of this study is that, the economic development does not occur through a regular flow of life (linear fashion), and without resilience, but it certainly needs to pass through a momentum and exceed a minimum threshold. We apply catastrophe and other theories to show the nonlinearity and jump in the economic growth path. Empirical results of the catastrophe models imply that sudden jumps and nonlinearity is a case for NICs economic growth. The CUSP model is a superior one among the other catastrophe models which verifies the nonlinearity of the growth path. In addition to more than 500 regressions with different control variables in each regression for individual countries, some panel regression for all countries data confirms validity of individual results. Chaos models in logistic form results in negative Lyapunov exponent but not significant statistically which can't be reliable. However, Lyapunov exponent estimation by means of Matlab gives negative exponent that are reliable for some of the countries. Terasvirta and White nonlinearity test reject linearity in growth path for Singapore and Thailand. Also jump test agree with our hypothesis which involve with existence of sudden jumps in growth path for all of NICs. Having these results, the policy prescriptions for LDCs could be; targeting nonlinear growth path in development plans, and appealing to foreign resources as well as constructive changes in institutions, polity and incentive structure.

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Paper provided by EconWPA in its series Econometrics with number 0510008.

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Length: 24 pages
Date of creation: 30 Oct 2005
Handle: RePEc:wpa:wuwpem:0510008
Note: Type of Document - pdf; pages: 24
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