Rethinking the Growth of Nations

Raul Santaeulalia-Llopis, Juan Sanchez and Alexander Monge-Naranjo
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Raul Santaeulalia-Llopis: Washington University in St. Louis
Juan Sanchez: Federal Reserve Bank of St. Louis

No 424, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the growth of countries at comparable "states of development". Using data on income levels, structural transformation, political institutions and demographic and human capital levels, we define the state of development of each country in each point in time. Then, we estimate the transition function across states of development (and income growth rates), correcting for the state of the world economy in different points in time. We also control for geographic and other fixed characteristics of countries, and for the relevant state of the world economy for each country-year and estimate the impact of the policies implemented by the country (including market orientation/openness and financial development) and for the policies implemented by all other countries (properly weighted for each country-year). We conduct counterfactual experiments on the impact of those policies on the development path of each country, allowing for different impacts across different states. Our results suggest which policies and under which circumstances can lead developing countries to take off and follow the path of currently successful developed countries. The results also indicate under which states and policies countries would remain stagnant.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:424

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