1. Economic Growth: Lessons and Puzzles Lant Pritchett BYU Economics Faculty June 17, 2005

2. Outline: Summarize four recent papers then puzzles and directions Education and growth (Does Learning to Add up Add up?) Labor mobility and growth (Boomtowns and Ghost Countries) Lessons of the 1990s (with Roberto Zagha and team) Growth Accelerations (with Rodrik and Hausmmann)

3. Does Learning to Add up Add up? Only reason to use aggregate data is to examine difference between micro (Mincer) and macro returns Does education explain much of growth? –Not really Is there evidence of output externalities –Hugely depends

4. Micro-mincer are pretty consistent, and downward sloping (r-S)

5. Percentage vs. absolute growth makes a big difference

6. Bils Klenow on S to SK

7. Variations in assumptions about Ψ encompass the “log” and “level” versions

8. How about psi? If ψ=0 then (K-L and others) But Ψ is estimated as the slope in the Mincer coefficient wrt S—and the t-test of ψ=0 is over 6

9. Partial scatter plot (conditioning out K/W)—my preferred specification

10. Same regression, assumption Ψ=0

11. Back to the fundamental empirical problem/question

12. Same figure for CUDIE

13. Bottom line: Problems with inferring from aggregate data Education expanded at roughly the same pace in nearly all countries Estimates of TFP are very low, particularly in developing countries Attributing any significant fraction of output growth in fast growing countries to education makes TFP negative in others Heterogeneity in the impact between rich and poor and among poor must be answer

14. Boomtowns and Ghost Countries Population Wages Elastic labor supply (mobility allowed) Inelastic labor supply (mobility restricted) Large fall in region specific labor demand Population fall in Ghost Wage fall in Zombie

15. Variations in growth of population, GDP per capita

16. …versus regions within large countries

17. Adjustment in Ireland

18. Adjustment in Bolivia

19. County by county population variation: into contiguous regions

20. Variations within the USA Region of the United States (contiguous counties) Population 1930 (‘000s) Percent change in population 1930-1990 Ratio of current population to counter factual at rate of natural increase Number of countries (of 192) with smaller area (with examples) Ratio of area per capita income to national average Texlahoma835.8-36.80.31 117/ 192 (Nicaragua, Ban 92.2% Heartland1482.6-34.00.33 117/ 192 85.2% Deep South1558.2-27.90.36 96/ 192 (Jordan) 62.6% Pennsylvani a Coal 1182.9-27.90.36 43/ 192 (Trinidad and Tobago, Mauritius) 84.5% Great Plains North 1068.0-27.70.36 128/ 192 (Great Britain, Ghana) 85.4% Nation123202.6101.9%100.0%

21. Five disappointments and one pleasant surprise Length, depth, and variance in the “transition recession” in the FSU/EE countries Severity and intensity of the financial crises Argentina’s implosion Weakness of the response to reform, particularly in Latin America Continued stagnation in Sub-Saharan Africa Rapid growth in the “reforming socialists”

22. Transition recession: How long? How Deep? Time Beginning Of transition Duration Depth Output

23. Deep, long, and variable

24. Markets miss the mark on East Asia

25. Collapse of convertibility in Argentina The Mexican debt crisis marked the end of one era, the Argentina crisis perhaps the end of another The severity given the collapse was not a surprise—it was design. What was surprising was that it collapsed in spite of every attempt to “pre-commit”

26. Growth came, but did not stay in Latin America, despite steady reform progress

27. The predicted “renaissance” in Africa recedes into the future… While there are brief episodes of growth in some SSA countries, there is no “locomotive” to pull the rest along. This is a disappointment, but a surprise?

28. Steady, rapid growth in China, India, and Vietnam: pretty “gradualist” reformers from socialism AFR ECA OECD LAC MNA SAR EAP

30. The star performers in growth are middle of the pack in many indicators Rank in:Control of corruption Regulatory quality Growth China63943 Vietnam1051354 India8610114 Out of N:151180136

31. Growth Accelerations Volatility of growth within countries over time is very large How common are growth accelerations? –Defined as period of 7 years: Acceleration of more than 2 To more than 2.5 Exceeds previous peak Are there explanations of their timing?

32. Table 1: Episodes of rapid growth classified by growth rates before and after the episode (identified by three letter country acronym and year of acceleration to rapid growth) Growth rate in the ten years from seven years after the initiation of the growth episode (t+7 to t+17) (with at least 7 years of data— no episodes after 1986) Growth rate in the seven years before the initiation of the episode of rapid growth (t, t-7) Negative before (<0) (15/69) Slow before (>=0 & <2) (32/69) Above average before (>=2) (22/69) Negativ e <0 (after) (16/69) GHA65 GNB69 JOR73 NGA67 TCD73 (slow to growth episode back to slow) ECU70 MLI72 MWI70 RWA75 TTO75 COG78 DZA75 IDN87 PAN75 ROM79 SYR74 (fast to growth episode to slow growth) Slow = 2 (after) (16/69) DOM69 PAK62 UGA77 ARG63 ZWE64 AUS61 COL67 GBR82 LSO71 NIC60 NZL57 URY74 BRA67 ISR67 PRY74 THA86 Above average >=2 (after) (37/69) CHL86 CMR72 EGY76 IDN67 MAR58 MUS71 THA57 (slow to growth episode and stays rapid) CAN62 ESP84 PER59 IND82 PRT85 IRL58 SYR69 IRL85 USA61 KOR62 LKA79 MUS83 CHN78 NGA57 COG69 PAK79 DNK57 PAN59 BEL59 TUN68 BWA69 TWN61 ESP59 FIN58 FIN67 ISR57 JPN58 KOR84 MYS70 SGP69 (fast to growth episode (even faster) to fast)

33. Accelerations Large number of episodes of acceleration to rapid growth The episodes ended very differently (some sustained, some crashes) Story by story there are some “illustrative” cases (e.g. Indonesia 67, Korea 62, Mauritius 71, Chile 88, China 78) Regressions have a very hard time predicting accelerations with standard “reforms”

34. “Stylized facts” of growth Steady and near equal growth of leading countries over very long-run (2 percent) Divergence—with very low measured “TFP” especially in poor countries Huge inter-temporal variance in growth within countries—many growth accelerations and decelerations Possibility—but rare—of sustained “miracle” growth rates

35. Puzzles and directions Why such huge heterogeneity in the output impact (and hence growth adjustment) from policy reform? –“binding constraints” approach How to reconcile “institutions rule” in very long (levels) and long (40 years) with stability of “institutions” and growth volatility? –“reform is like a box of chocolates”