The Neoclassical Revival in Growth Economics- Has It Gone Too Far - Klenow Rodriguez

The Neoclassical Revival in Growth Economics- Has It Gone Too Far - Klenow Rodriguez

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Unformatted text preview: This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: NBER Macroeconomics Annual 1997, Volume 12 Volume Author/Editor: Ben S. Bernanke and Julio Rotemberg Volume Publisher: MIT Press Volume ISBN: 0-262-02435-7 Volume URL: http://www.nber.org/books/bern97-1 Publication Date: January 1997 Chapter Title: The Neoclassical Revival in Growth Economics: Has It Gone Too Far? Chapter Author: Peter Klenow, Andrés RodrÃ-guez-Clare Chapter URL: http://www.nber.org/chapters/c11037 Chapter pages in book: (p. 73 - 114) Peter J. Klenow and Andres Rodriguez-Clare GRADUATE SCHOOL OF BUSINESS, UNIVERSITY OF CHICAGO The Neoclassical Revival in Growth Economics: H as I t Gone T oo Far? 1. Introduction Theories endogenizing a country's technology, such as Romer (1990) and Grossman and Helpman (1991), arose from the desire to explain the enormous disparity of levels and growth rates of per capita output across countries. The belief was that differences in physical and human capital intensity were not up to the quantitative task. This belief has been shaken by a series of recent empirical studies. Mankiw, Romer, and Weil (1992) estimate that the Solow model augmented to include human capi- tal can explain 78% of the cross-country variance of output per capita in 1985. Alwyn Young (1994, 1995) finds that the East Asian growth mira- cles were fueled more by growth in labor and capital than by rising productivity. And Barro and Sala-i-Martin (1995) show that the aug- mented Solow model is consistent with the speed of convergence they estimate across countries as well as across regions within the United States, Japan, and a number of European countries.1 In our view these studies constitute a neoclassical revival.2 They suggest We are grateful to Ben Bemanke, Mark Bils, V. V. Chari, Chad Jones, Greg Mankiw, Ed Prescott, David Romer, Julio Rotemberg, Jim Schmitz, Nancy Stokey, and Alwyn Young for helpful comments. 1. Mankiw, Romer, and Weil, and Barro and Sala-i-Martin do not explain the source of country differences in investment rates. Chari, Kehoe, and McGrattan (1996) argue that distortions such as tax rates, bribes, risk of expropriation, and corruption contribute to an effective tax rate which, if it varies in the right (stochastic) way across countries, can explain the levels and growth rates of income observed in the Summers-Heston (1991) panel. 2. We are indebted to Alwyn Young for this phrase. 74 * KLENOW & RODRIGUEZ-CLARE that the level and growth rate of productivity is roughly the same across countries, so that differences in output levels and growth rates are largely due to differences in physical and human capital....
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This note was uploaded on 01/29/2012 for the course ECONOMICS 101 taught by Professor Tikk during the Spring '11 term at University of Toronto.

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The Neoclassical Revival in Growth Economics- Has It Gone Too Far - Klenow Rodriguez

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