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Estimating and testing the multicountry endogenous growth model

Stef De Visscher, Markus Eberhardt () and Gerdie Everaert ()

Journal of International Economics, 2020, vol. 125, issue C

Abstract: We estimate Cobb-Douglas production functions that parameterize unobserved total factor productivity as a global technology process interacted with country-specific absorptive capacities. In contrast to the existing literature we do not require proxies for these absorptive capacities but instead estimate them as time-varying stochastic processes. Our implementation allows us to test the contrasting predictions of alternative growth models and our results for a panel of advanced economies support the multicountry endogenous growth model in that an enhancement in absorptive capacity raises a country's long-run productivity level but not its growth rate. This finding is confirmed in an extended model where we allow a set of policy variables (financial development, human capital, competition policy, and knowledge stock) to affect absorptive capacity, none of which induce permanent growth effects. The proxies for financial development and knowledge stock stand out for their significant level effects.

Keywords: Multicountry endogenous growth model; Total factor productivity; Absorptive capacity; Common factor model; Time-varying parameters; MCMC (search for similar items in EconPapers)
JEL-codes: O33 F43 F60 C23 C21 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jinteco.2020.103325

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