Why are Some Countries Richer than Others? A Reassessment of Mankiw-Romer-Weil's Test of the Neoclassical Growth Model

Jesus Felipe () and John McCombie ()
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John McCombie: Downing College Cambridge

No 19, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper provides evidence of a problem with the influential testing and assessment of Solow's (1956) growth model proposed by Mankiw et al. (1992) and a series of subsequent papers evaluating the latter. First, the assumption of a common rate of technical progress maintained by Mankiw, Romer, and Weil (1992) is relaxed. Solow's model is extended to include the different levels and rates of technical progress of each country. This increases the explanatory power of the cross-country variation in income per capita of the Organisation for Economic Co-operation and Development (OECD) countries to over 80%. The estimates of the parameters are statistically significant and take the expected values and signs. Second, and more important, it is shown that the estimates merely reflect a statistical artifact. This has serious implications for the possibility of actually testing Solow's growth model.

Keywords: common rate; cross-country variation; growth model; statistical artifact; technical progress (search for similar items in EconPapers)
JEL-codes: C21 O11 O40 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2002-08-01
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