Economic Growth in a Cross Section of Countries

Abstract

For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial (1960) level of real per capita GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions. In neoclassical growth models, such as Solow [1956], Cass [1965], and Koopmans [1965], a country's per capita growth rate tends to be inversely related to its starting level of income per person. In particular, if countries are similar with respect to structural parameters for preferences and technology, then poor countries tend to grow faster than rich countries. Thus, there is a force that promotes convergence in levels of per capita income across countries.' The main element behind the convergence result in neoclassi-cal growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. ' This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology. The hypothesis that poor countries tend to grow faster than rich countries seems to be inconsistent with the cross-country evidence, which indicates that per capita growth rates have little

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• Harvard University Press US

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