The Empirics of Growth: An Update

Barry P. Bosworth and
Barry P. Bosworth Nonresident Senior Fellow - Economic Studies

Susan M. Collins
headshot of Susan Collins
Susan M. Collins President - Federal Reserve Bank of Boston, Former Nonresident Senior Fellow - Economic Studies

September 22, 2003

Over the past decade, there has been an explosion of empirical research on economic growth and its determinants. Despite this large volume of work, many of the central issues of interest remain unresolved. For instance, no consensus has emerged about the contribution of capital accumulation versus improvements in total factor productivity in accounting for differences in economic growth. Nor is there agreement about the role of increased education or the importance of economic policy as determinants of economic growth. Indeed, results from the many studies on a given issue frequently reach opposite conclusions. And two of the main empirical approaches—growth accounting and growth regressions—have themselves come under attack, with some researchers going so far as to label them as irrelevant to policymaking.

In this paper, we argue that, when properly implemented and interpreted, both growth accounts and growth regressions are valuable tools, that can—and have—improved our understanding of growth experiences across countries. We also show that careful attention to issues of measurement and consistency goes a long way in explaining the apparent contradictions among findings in the existing empirical literature. Thus, we combine growth accounts and growth regressions with a focus on measurement and procedural consistency to address the issues raised above. The growth accounts are constructed for 84 countries that represent 95 percent of the world’s GDP and 85 percent of the population, over a period of 40 years from 1960 to 2000. This also enables us to compare growth experiences across two 20-year time periods: 1960-80 versus 1980-2000.

Understanding characteristics and determinants of economic growth requires an empirical framework that can be applied to large groups of countries over a relatively long time frame. Growth accounts and growth regressions provide such frameworks in a way that is particularly informative because the two approaches can be used in concert, enabling researchers to explore the channels (factor accumulation versus factor productivity) through which various determinants influence growth. While the information provided is, perhaps, best considered descriptive, it can generate important insights that are complementary to those gained from indepth case studies of selected countries, or from estimation of carefully specified econometric models that are designed to test specific hypotheses.