Working Paper: NBER ID: w4474
Authors: William Easterly; Michael Kremer; Lant Pritchett; Lawrence H. Summers
Abstract: Much of the new growth literature stresses country characteristics, such as education levels or political stability, as the dominant determinant of growth. However, growth rates are highly unstable over time, with a correlation across decades of .1 to .3, while country characteristics are stable, with cross-decade correlations of .6 to .9. Shocks, especially those to terms of trade, play a large role in explaining variance in growth. These findings suggest either that shocks are important relative to country characteristics in determining long-run growth, or that worldwide technological change determines long-run growth while country characteristics determine relative income levels.
Keywords: Growth Performance; Temporary Shocks; Country Characteristics
JEL Codes: O11; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary shocks (E32) | country growth performance (O57) |
| terms of trade shocks (F14) | country growth performance (O57) |
| previous growth rates (O41) | current growth rates (O49) |