Economic Growth Analysis When Balanced Growth Paths May Be Time Varying

Mountford, Andrew (2024): Economic Growth Analysis When Balanced Growth Paths May Be Time Varying.

Abstract

The determinants of an economy's growth path for income per head may vary over time. In this paper we apply unobserved components analysis to an otherwise standard panel model of economic growth dynamics so that an economy's long run relative income per head can change at any point of time. We apply this model to data for US states for 1929-2021 and the world economy for 1970-2019. In both datasets an economy's initial relative income per head is a good predictor of its long run relative income per head. Relatively poor economies on average remain relatively poor

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian Econometrics, Economic Growth, State Space Models, Macroeconomics
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

Acemoglu, D., Naidu, S., Restrepo, P. and Robinson, J. (2019), `Democracy Does Cause Growth', Journal of Political Economy, Vol. 127, pp. 47-100.

Acemoglu, D and Molina, C. (2022), `Comment', in Editors: Eichenbaum, M., Hurst. E, and Parker, J. (eds) NBER Macroeconomics Annual, Vol. 36, pp. 425-442.

Andrés, J., Boscá, J. and Doménech, R. (2004), `Convergence in the OECD: Transitional Dynamics or Narrowing Steady-State Differences?', Economic Inquiry, Vol. 42, pp. 141-149.

Barro, R. and Sala-i-Martin, X. (1991), `Convergence Across states and Regions', Brooking Papers on Economic Activity, pp. 107-182.

Caselli, F., Esquivel, G. and Lefort, F. (1996), `Reopening the Convergence Debate: A New Look at Cross Country Growth Empirics', Journal of Economic Growth, Vol. 1, pp. 363:389.

Canova, F. (2007), `Methods for Applied Macroeconomic Research', Princeton University Press.

Canova, F. (2022), `Should we trust cross-sectional multiplier estimates?', Journal of Applied Econometrics, Forthcoming.

Canova, F. and Marcet, A. (1995), `The Poor Stay Poor: Non-convergence Across Countries and Regions', Discussion Paper No. 1265, CEPR.

Cerra, V. and Saxena, S. (2008), `Growth Dynamics: The Myth of Economic Recovery', American Economic Review, Vol. 98, pp. 439-57.

Chan,J., Koop, G. and Potter S. (2013), `A New Model of Trend Inflation', Journal of Business & Economic Statistics}, Vol. 31, pp. 94-106.

Chan, J., Koop, G., Poirier, D. and Tobias, J. (2019), Bayesian Econometric Methods, Second Edition, Cambridge University Press.

Chen, S., Chernozhukov, V. and Fernández-Val, I. (2019), `Mastering Panel Metrics: Causal Impact of Democracy on Growth', AEA Papers and Proceedings, Vol. 109, pp. 77-82.

Imam, P. and Temple, J. (2023), `Political Institutions and Output Collapses', Working Paper, Vol 2023, No. 036, International Monetary Fund.

Koop, G (2003), Bayesian Econometrics, John Wiley and Sons Ltd.

Kremer, M., Willis, J. and You Y. (2022), `Converging to Convergence', in Editors: Eichenbaum, M., Hurst. E, and Parker, J. (eds) NBER Macroeconomics Annual, Vol. 36, pp. 337-412.

Mankiw, G., Romer, D. and Weil, D. (1992), `A Contribution to the Empirics of Economic Growth', The Quarterly Journal of Economics, Vol. 107, pp. 407-437.

Patel, D., Sandefur, J. and Subramanian, A. (2021), `The New Era of Unconditional Convergence', Journal of Development Economics, Vol. 152

Shioji, E. (2004), `Initial Values and Income Convergence: Do "The Poor Stay Poor"?', The Review of Economics and Statistics, Vol. 86, pp. 444-446.

Startz, Richard, (2020), The next hundred years of growth and convergence, Journal of Applied Econometrics, 35: 99-113

Wacziarg, R. and Welch, K. (2008), `Trade Liberalization and Growth: New Evidence', The World Bank Economic Review, Vol 22, pp 187-231.