THE SOLOW GROWTH MODEL
kα
Production per
worker
Depreciation
Gross investment per worker
Stationary state
δk
skα
k
1
CONVERGENCE: GRAPHICAL APPROACH
Testing for convergence graphically:
Put initial level on horizontal axis (here, income per capita)
Put average growth rate over subsequent period on vertical axis
-1
-.5
0
.5
1
Convergence implies negative slope, divergence positive slope
4
6
8
lggdppc1980
GDP per cap real growth 1980-1990
10
12
Fitted values
2
TESTING FOR CONVERGENCE IN A GROWTH EQUATION
Absolute convergence: typically, no… but
gi   0  1 Yi ,sample start  ui
-
Conditional convergence: typically yes
gi   0  1 Yi ,sample start   2 I i   3 H i  ui
-1
0
1
2
3
-
4
6
8
lggdppc2000
GDP per cap real growth 2000-2010
10
12
Fitted values
3
TOTAL FACTOR PRODUCTIVITY GROWTH & THE EAST ASIAN
MIRACLE
Growth-accounting equation
Yit  t   Kit  Lit  H it 
yit  ln Yit 
kit  ln  Kit 
it
 ln  Lit 
hit  ln  H it 
yit   kit  
  hit  uit
eit  yit  ˆ kit  ˆ it  ˆhit
it
eit  eit  eit 1  TFPGit
Taiwan
Hong-Kong
Corée
Japon
Thailande
Singapour
Malaisie
Am. lat.
Afr. sub-sah.
TFPG moy.,
1970-90 (%
par an)
3.76
3.64
3.10
3.48
2.49
1.19
1.07
0.13
-0.99
4
MEASURING OPENNESS
Crude measure: (X + M)/GDP, biased by country size etc
Residual measure (Leamer)
Xi  Mi
  0  1POPi   2 LLi   3 REMOTENESSi  ...  ui
GDPi
X iβ
oi  ei 
Xi  Mi

X iβˆ
GDPi
predicted openness
residual
The Sachs-Warner (1995) measure of country openness
A country is «closed» if any of the following 5 criteria is met:
1.
2.
3.
4.
5.
Average tariff above 40%
Coverage ratio of non-tariff barriers (quotas, prohibitions etc.) above 40%
Black-market premium on foreign exchange above 20% for a decade in a row
Export monopoly (typically on a commodity export like cocoa, coffee)
Socialist economy
5
SACHS-WARNER CLASSIC RESULT
Significantly higher growth performance for open economies
6
RODRIGUEZ-RODRIK CRITIQUE
But… Rodriguez/Rodrik critique suggests it’s not trade policy that did the trick




7
HOW CROSS-SECTIONAL DATA CAN OBFUSCATE CAUSAL LINKS
Data
Representation
Time averages
“Panel”
3
6
2.5
5
2
4
Growth
Growth
Year
1
2
Average
Country 1
Country 2
Opening Growth Opening Growth
0
0.3
1
1.5
1
5.1
1
2.1
0.5
2.7
1
1.8
1.5
1
3
2
0.5
1
0
0
0.5
Opening
1
0
0
0.5
1
Opening
8
WACZIARG-WELSH 2008: USING PANEL DATA
Wacziarg-Welsh use factual information about trade-policy changes
9
PANEL RESULTS ARE ROBUST
10
WACZIARG WELSH: GROWTH BEFORE & AFTER LIBERLIZATION
11
EXPLAINING THE GROWTH ACCELERATION: INVESTMENT
12