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Economic Growth: Lessons and Puzzles

Economic Growth: Lessons and Puzzles. Lant Pritchett BYU Economics Faculty June 17, 2005. Outline: Summarize four recent papers then puzzles and directions. Education and growth (Does Learning to Add up Add up?) Labor mobility and growth (Boomtowns and Ghost Countries)

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Economic Growth: Lessons and Puzzles

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  1. Economic Growth:Lessons and Puzzles Lant Pritchett BYU Economics Faculty June 17, 2005

  2. Outline: Summarize four recent papers then puzzles and directions • Education and growth (Does Learning to Add up Add up?) • Labor mobility and growth (Boomtowns and Ghost Countries) • Lessons of the 1990s (with Roberto Zagha and team) • Growth Accelerations (with Rodrik and Hausmmann)

  3. Does Learning to Add up Add up? • Only reason to use aggregate data is to examine difference between micro (Mincer) and macro returns • Does education explain much of growth? • Not really • Is there evidence of output externalities • Hugely depends

  4. Micro-mincer are pretty consistent, and downward sloping (r-S)

  5. Percentage vs. absolute growth makes a big difference

  6. Bils Klenow on S to SK

  7. Variations in assumptions about Ψ encompass the “log” and “level” versions

  8. How about psi? • If ψ=0 then (K-L and others) • But Ψ is estimated as the slope in the Mincer coefficient wrt S—and the t-test of ψ=0 is over 6

  9. Partial scatter plot (conditioning out K/W)—my preferred specification

  10. Same regression, assumption Ψ=0

  11. Back to the fundamental empirical problem/question

  12. Same figure for CUDIE

  13. Bottom line: Problems with inferring from aggregate data • Education expanded at roughly the same pace in nearly all countries • Estimates of TFP are very low, particularly in developing countries • Attributing any significant fraction of output growth in fast growing countries to education makes TFP negative in others • Heterogeneity in the impact between rich and poor and among poor must be answer

  14. Wages Inelastic labor supply (mobility restricted) Wage fall in Zombie Elastic labor supply (mobility allowed) Large fall in region specific labor demand Population Population fall in Ghost Boomtowns and Ghost Countries

  15. Variations in growth of population, GDP per capita

  16. …versus regions within large countries

  17. Adjustment in Ireland

  18. Adjustment in Bolivia

  19. County by county population variation: into contiguous regions

  20. Variations within the USA

  21. Five disappointments and one pleasant surprise • Length, depth, and variance in the “transition recession” in the FSU/EE countries • Severity and intensity of the financial crises • Argentina’s implosion • Weakness of the response to reform, particularly in Latin America • Continued stagnation in Sub-Saharan Africa • Rapid growth in the “reforming socialists”

  22. Output Depth Duration Beginning Of transition Time Transition recession: How long? How Deep?

  23. Deep, long, and variable

  24. Markets miss the mark on East Asia

  25. Collapse of convertibility in Argentina • The Mexican debt crisis marked the end of one era, the Argentina crisis perhaps the end of another • The severity given the collapse was not a surprise—it was design. • What was surprising was that it collapsed in spite of every attempt to “pre-commit”

  26. Growth came, but did not stay in Latin America, despite steady reform progress

  27. The predicted “renaissance” in Africa recedes into the future… • While there are brief episodes of growth in some SSA countries, there is no “locomotive” to pull the rest along. • This is a disappointment, but a surprise?

  28. Steady, rapid growth in China, India, and Vietnam: pretty “gradualist” reformers from socialism EAP SAR OECD LAC MNA AFR ECA

  29. The star performers in growth are middle of the pack in many indicators

  30. Growth Accelerations • Volatility of growth within countries over time is very large • How common are growth accelerations? • Defined as period of 7 years: • Acceleration of more than 2 • To more than 2.5 • Exceeds previous peak • Are there explanations of their timing?

  31. Accelerations • Large number of episodes of acceleration to rapid growth • The episodes ended very differently (some sustained, some crashes) • Story by story there are some “illustrative” cases (e.g. Indonesia 67, Korea 62, Mauritius 71, Chile 88, China 78) • Regressions have a very hard time predicting accelerations with standard “reforms”

  32. “Stylized facts” of growth • Steady and near equal growth of leading countries over very long-run (2 percent) • Divergence—with very low measured “TFP” especially in poor countries • Huge inter-temporal variance in growth within countries—many growth accelerations and decelerations • Possibility—but rare—of sustained “miracle” growth rates

  33. Puzzles and directions • Why such huge heterogeneity in the output impact (and hence growth adjustment) from policy reform? • “binding constraints” approach • How to reconcile “institutions rule” in very long (levels) and long (40 years) with stability of “institutions” and growth volatility? • “reform is like a box of chocolates”

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