1 / 18

Growth empirics or how do we use growth theory in practice

Growth empirics or how do we use growth theory in practice. Silvia Dal Bianco Advanced Macroeconomics Pavia, A.Y. 2010-2011. (some of ) t he relevant questions. Growth determinants : which factors seem to explain observed differences in growth?

ianna
Download Presentation

Growth empirics or how do we use growth theory in practice

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Growthempiricsor how do weusegrowththeory in practice Silvia Dal Bianco AdvancedMacroeconomics Pavia, A.Y. 2010-2011

  2. (some of) the relevantquestions • Growthdeterminants: which factors seem to explain observed differences in growth? • Convergence question: are contemporary differences in aggregate economies transient over sufficiently long time horizons? • Catch-all question: why is it that so many people are still poor?

  3. 1) Growthdeterminants or modeluncertainty • Canonical cross-country regression: • X=variablesstemmingfrom the originalSolowgrowthmodel(i.e. savingrates) • Z=variablesnotincluded in the originalframework (i.e. institutions–fromcorruptiontodemocracy-, geography, inflation, infrastructure, religion, openess (real and financial), stability, …

  4. Whichofthem are significant? • Overview, Steven Durlauf, and Jonathan Temple (2005) Growth Econometrics , Handbook of economic growth, Appendix 2. around 150 Variables listed!!! • How to choose the relevant ones? • Levine and Renelt (1992, AER): extreme bound analysis only initial GDP and investment ratio are “robust” • Sala-i-Martin et al.(2004, AER): bayesian averaging of classical estimates found instead

  5. 2) Convergencedebate • Whichdefinitionofconvergence? • Whicheconometrictechniqueshouldbeused? • Strugglingempiricalevidence: twin peaksdynamics. The resurgenceof the Galton’s fallancy and non-parametricapproach (Quah, JEG 1993)

  6. Example: cross-regionalconvergence in Italy and convergencedrivingforce • Convergencedrivingforces: capital stock accumulation or technological catch-up? • Regional data, 1980-2003 • The evidenceofcross-regionalconvergenceischallengedby the twin peakdynamics • Result: supportiveevidencefortechnologicalconditionalconvergence

  7. 3) Why some countries are STILL so poor? Are theytrapped? • Poverty traps: Theory • Start with Fundamental Equation of “Solow-Swan”: • Δk=sf(k) - (δ+n) k or • Δk/k=sf(k)/k - (δ+n) • If s and n are constant, and f(.) is neoclassical (concave with inada conditions), then UNIQUE AND STABLE STEADY STATE • Poverty Trap Theory: instead of unique and stable steady state, THREE STEADY STATES and Lower and Upper steady states stable and middle one unstable

  8. Poverty traps: Theory continued • Savings trap (savings rate is close to zero for poor countries for subsistence reasons and then shuts up as income increases) • Nonconvexity in the production function (there are increasing returns for some range of k) • Demographic trap (impoverished families choose to have lots of children)

  9. Savings and non-convexitytrap Stable Stable δ+n Unstable s(k)f(k)/k

  10. Demographic Trap Stable Unstable s(k)f(k)/k Stable δ+n k

  11. Solutiontopovertytrap: AID BIG PUSH STRATEGIES • Big problem: we do notknowwhetheraidiseffective • Aid has some positive effects on growth (Jeffrey Sachs 2004) and needs to be multiplied. • Aid has effect on growth, only under some circumstances (conditional aid) • Conditional on Policies (Craig, Burnside and Dollar (2000), Dalgaard and Tarp (2004)) • Conditional on type: • Infrastructures [Clemens, Radelet, and Bhavnani (2004)] • Education [Michaelova and Weber (2006) and Dreher, Nunnenkamp and Thiele (2007)] • Health [Mishra and Newhouse (2007)] • Aid has NO effect on growth or may even undermine it (Peter Bauer (1972), Bill Easterly (2006))

  12. Aid in Africa, Easterly (2003, JEP)

  13. Whyaidmightnot work? Istherespacefordevelopmenteconomics? • Corruption trap (Easterly, 2006) • More generally: misalignment of incentives. We have donors, WB Bureaucrats, African Bureaucrats, African citizens • All of them have different interests and different incentives and the main baseline problem is that we are not sure on what African citizens need! • Do they need nets against malaria or HIV vaccines? • How development economists can help development? • Frontier in this field is “randomized field experiment”: http://www.povertyactionlab.org/

More Related