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Accounting for Differences in Economic Growth

Author

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  • Bosworth, B.
  • Collins, S.M.
  • Chen, Y.C.
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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bosworth, B. & Collins, S.M. & Chen, Y.C., 1995. "Accounting for Differences in Economic Growth," Papers 115, Brookings Institution - Working Papers.
    • Handle: RePEc:fth:brooki:115
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    Cited by:

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    3. Wesseh, Presley K. & Lin, Boqiang, 2018. "Exchange rate fluctuations, oil price shocks and economic growth in a small net-importing economy," Energy, Elsevier, vol. 151(C), pages 402-407.
    4. 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.
    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.
    12. Ludger J. Loening, 2002. "The Impact of Education on Economic Growth in Guatemala: A Time- Series Analysis Applying an Error-Correction Methodology," Econometrics 0211002, University Library of Munich, Germany.
    13. World Bank, 2001. "Egypt : Social and Structural Review," World Bank Publications - Reports 15535, The World Bank Group.
    14. 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.
    15. Aiello, Francesco, 2002. "Financial stabilization systems, economic growth of developing countries and EU’s STABEX," MPRA Paper 38099, University Library of Munich, Germany.
    16. Tam Bang Vu, 2008. "Foreign direct investment and endogenous growth in Vietnam," Applied Economics, Taylor & Francis Journals, vol. 40(9), pages 1165-1173.
    17. Szirmai, Adam, 2011. "Manufacturing and Economic Development," WIDER Working Paper Series 075, World Institute for Development Economic Research (UNU-WIDER).
    18. World Bank, 2000. "Philippines - Growth with Equity : The Remaining Agenda - A World Bank Social and Structural Review," World Bank Publications - Reports 15142, The World Bank Group.
    19. 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.
    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.
    22. Chu, Amanda M.Y. & Lv, Zhihui & Wagner, Niklas F. & Wong, Wing-Keung, 2020. "Linear and nonlinear growth determinants: The case of Mongolia and its connection to China," Emerging Markets Review, Elsevier, vol. 43(C).
    23. 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.
    24. 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.
    25. 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.

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    More about this item

    Keywords

    ECONOMIC GROWTH; INTERNATIONAL ECONOMY; ECONOMETRICS; PRODUCTIVITY;
    All these keywords.

    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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