The Determinants of Economic Growth in the Short and Long Terms

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The eighties were the decade in which macroeconomists returned to growth theory and turned to development. The new growth theory deals explicitly with development, seeking to account for the apparent non-convergence of per capita income levels between developing and industrialized countries. A hallmark of much of the new literature is the demonstration that distortions and policy interventions that can be shown to affect the level of income in conventional models, can affect the steady state growth rate in the new models. The theory also emphasized the roles of technology, international trade, human capital, economies of scale, and the possible need for a co-ordinated big investment push to break out of a low income equilibrium. The empirical work associated with the new growth theory consists largely of cross-country regressions. But there has been remarkably little focus on the long-term influence of macroeconomic policies on growth. The contribution of this project comes from pulling the different strands of the theoretical and empirical literatures together to achieve as comprehensive an understanding of the development process as possible, and within that framework, to focus on the policy choices that are open to governments. The project will also focus on the influence of macroeconomic policies on developing countries growth rates. More specifically, this program on growth and development: (1) isolates the contributions of physical and human capital investments to growth in different countries, and attempting to explain the determinants of physical investment; (2) identifies the policy choices that governments can make to influence the accumulation of factors and the efficiency of their use; (3) identifies and explains differences in total factor productivity growth among countries; and (4) focuses on the technologies for the accumulation of human capital, and the question of the type of educational policy that is most conducive to economic growth.