Economic Growth: Lessons and Puzzles

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Economic GrowthLessons and Puzzles

• Lant Pritchett
• BYU Economics Faculty
• June 17, 2005

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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)

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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

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Micro-mincer are pretty consistent, and downward
sloping (r-S)
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Percentage vs. absolute growth makes a big
difference
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Bils Klenow on S to SK
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Variations in assumptions about ? encompass the
log and level versions
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How about psi?

• If ?0 then (K-L and others)
• But ? is estimated as the slope in the Mincer
  coefficient wrt Sand the t-test of ?0 is over 6

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Partial scatter plot (conditioning out K/W)my
preferred specification
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Same regression, assumption ?0
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Back to the fundamental empirical problem/question
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Same figure for CUDIE
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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

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Boomtowns and Ghost Countries
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Variations in growth of population, GDP per capita
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versus regions within large countries
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Adjustment in Ireland
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Adjustment in Bolivia
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County by county population variation into
contiguous regions
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Variations within the USA
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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
• Argentinas implosion
• Weakness of the response to reform, particularly
  in Latin America
• Continued stagnation in Sub-Saharan Africa
• Rapid growth in the reforming socialists

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Transition recession How long? How Deep?

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Deep, long, and variable
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Markets miss the mark on East Asia
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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
  surpriseit was design.
• What was surprising was that it collapsed in
  spite of every attempt to pre-commit

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

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Steady, rapid growth in China, India, and
Vietnam pretty gradualist reformers from
socialism
EAP
SAR
OECD LAC MNA
AFR ECA
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The star performers in growth are middle of the
pack in many indicators
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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?

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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

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Stylized facts of growth

• Steady and near equal growth of leading countries
  over very long-run (2 percent)
• Divergencewith very low measured TFP
  especially in poor countries
• Huge inter-temporal variance in growth within
  countriesmany growth accelerations and
  decelerations
• Possibilitybut rareof sustained miracle
  growth rates

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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