Determinants of Economic Growth: Empirical Analysis of the EU

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Presentation transcript:

Determinants of Economic Growth: Empirical Analysis of the EU Michele Kvistad University of Wisconsin-Superior

Introduction Objective: Identify the macroeconomic determinants of economic growth in the European Union EU background

Theories of Economic Growth Solow (1956): Capital accumulation as a factor behind economic growth Model predictions: Convergence in income levels and growth rate Romer (1986): Technological progress as the key driver of economic growth No convergence due to endogenous growth

Empirical Studies Empirical determinants of economic growth: Capital Accumulation (Solow) Technology (Romer) Labor force and human capital (Jones) Institutions (North) Education (Barro) Geographical economics/agglomeration effects (Krugman)

Empirical Study: Panel Data Data Source: PWT variable name variable description Variable Type rgdppc_growth Real GDP Per Capita growth, chained 2005US$ PPP Dependent empl_growth Growth in number of employed Independent hc Human capital index, based on years of schooling (Barro/Lee, 2010) and returns ctfp TFP level at current PPPs (USA=1) laglnrgdppc One-year lag of ln(Real GDP Per Capita) k_growth Growth rate of capital stock memb_dur Duration of membership in the EU (in years) eu_member Dummy=1 if EU member, 0 otherwise

Empirical Model and Hypothesis Hypothesis: Members of the EU grow faster than non-members: dgrowth/dEU membership dummy>0 dgrowth/dEU membership duration>0

Regression 1: EU membership duration

Regression 2: EU dummy

Regression 3: TFP & EU membership duration

Regression 4: TFP & EU dummy

Conclusion EU member-countries tend to grow faster than non-member countries EU economic growth benefits accrue over time Empirical evidence supports the research hypothesis