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The Channels of Economic Growth: A Channel Decomposition Exercise (2001)
| Citations: | 10 - 1 self |
BibTeX
@MISC{Wong01thechannels,
author = {Wei-kang Wong and Jel O O and James Powell and Chris Meissner and Julian Di},
title = {The Channels of Economic Growth: A Channel Decomposition Exercise},
year = {2001}
}
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Abstract
Abstract: This paper formally introduces channel decomposition, a method that systematically decomposes the channels through which the determinants of growth operate, into the analysis of economic growth. Under channel decomposition, the determinants could affect economic growth through physical capital accumulation, through human capital acquisition, and/or through growth in total factor productivity. Thus, by examining the outcomes of the decomposition, we can test alternative models, as different models often imply different channels of operation for the determinants. Methodologically, channel decomposition combines growth accounting with regression analysis, rather than regarding them as alternative approaches. With this method, it becomes clear that technological catch-up, not factor accumulation, accounts for the widely documented phenomenon of conditional convergence. This finding turns out to be extremely robust. In effect, this finding puts the final nails in the coffin of the Neoclassical growth model, as the model can neither explain cross-country growth, nor can it explain conditional convergence. The method also shows that both rich and poor countries converge mainly through technological catch-up, although richer countries converge much faster than the poor.
Keyphrases
economic growth channel decomposition exercise channel decomposition technological catch-up conditional convergence total factor productivity alternative approach growth operate final nail regression analysis physical capital accumulation human capital acquisition cross-country growth poor country different model alternative model channel decomposition combine growth accounting factor accumulation different channel neoclassical growth model
