Good Policy or Good Luck? Country Growth Performance and Temporary Shocks

William Easterly (), Michael Kremer (), Lant Pritchett () and Lawrence H. Summers

No 4474, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Much of the new growth literature stresses country characteristics, such as education levels or political stability, as the dominant determinant of growth. However, growth rates are highly unstable over time, with a correlation across decades of .1 to .3, while country characteristics are stable, with cross-decade correlations of .6 to .9. Shocks, especially those to terms of trade, play a large role in explaining variance in growth. These findings suggest either that shocks are important relative to country characteristics in determining long-run growth, or that worldwide technological change determines long-run growth while country characteristics determine relative income levels.

Date: Written 1993-09
Note: EFG
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Published as Journal of Monetary Economics, Vol. 32 (1993).

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