Productivity tends to rise if governments do better at maintaining private property rights, if the judicial system runs more smoothly, and if official corruption declines.
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Recent Research on the Determinants of Economic Growth
First, if we hold fixed k* (by holding fixed the variables that influence k*), the growth rate of capital per worker, Δk/k, should exhibit convergence.
That is, for given k*, a lower k(0) should match up with a higher Δk/k.
Second, any variable that raises or lowers k* should correspondingly raise or lower Δk/k for given k(0).
Chapter 5 Conditional Convergence and
Long-Run Economic Growth
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Conditional Convergence in Practice
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Conditional Convergence in Practice
Three variables that influenced k*: Saving rate, s. Technology level, A. Population growth r Research on the Determinants of Economic Growth
Δk/k = φ[k(0), k*].
(-) (+)
The idea is to measure an array of variables, each of which influences a country’s steadystate capital per worker, k*.
• measures of investment in education and health;
• the average rate of inflation, which is an indicator of macroeconomic policy.
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Recent Research on the Determinants of Economic Growth
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Conditional Convergence in Practice
A broader view of the technology level, A.
Productivity depends on the degree of market efficiency.
Greater international openness tends to raise productivity.
• a measure of the saving rate; • the fertility rate for the typical woman (which
influences population growth); • subjective measures of maintenance of the
Growth rate of real GDP per person rises in response to
a higher saving rate, lower fertility, better maintenance of the rule of law, smaller government consumption, greater international openness, improvement in the terms of trade, greater quantity and quality of education, better health, and lower inflation.
• the extent of international openness, measured by the volume of exports and imports;
• changes in the terms of trade, which is the ratio of prices of exported goods to prices of imported goods;
rule of law and democracy; • the size of government, as gauged by the
share of government consumption expenditures in GDP;
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Recent Research on the Determinants of Economic Growth
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Recent Research on the Determinants of Economic Growth
Democracy has a less clear effect—if a country starts from a totalitarian system, increases in democracy seem to favor economic growth.
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Recent Research on the Determinants of Economic Growth
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Recent Research on the Determinants of Economic Growth
Hold constant a list of variables that influence k*.