APPENDIX: Sample and Data Definitions
Ahmad, Sultan, “Regression Estimates of Per Capita GDP Based on Purchasing Power Parities,” unpublished, International Economics Department, World Bank, April 1992.
Aschauer, David A. (1989b), “Public Investment and Productivity Growth in the Group of Seven,” Economic Perspectives: A Review from the Federal Reserve Bank of Chicago, September/October 1989.
Baumol, W.J., “Productivity Growth, Convergence, and Welfare: What the Long-Run Data Show,” American Economic Review, December 1986.
Blejer, Mario I., and Mohsin S. Khan, “Government Policy and Private Investment in Developing Countries,” IMF Staff Papers, June 1984.
Chibber, Ajay, and Sweder van Wijnbergen, “Public Policy and Private Investment in Turkey,” World Bank PPR Working Paper, World Bank, October 1988.
Coe, David T., and Reza Moghadam, “Capital and Trade as Engines of Growth in France: An Application of Johansen’s Cointegration Methodology,” IMF Working Paper 93/11, February 1993.
Coutinho Rui, and Giampiero Gallo, “Do Public and Private Investment Stand in Each Other’s Way,” 1991 WDR Background Paper, World Bank, October 1991.
Edwards, Sebastian, “Trade Orientation, Distortions and Growth in Developing Countries,” Journal of Development Economics, 39, 1992.
Khan, Mohsin S., and Carmen M. Reinhart, “Private Investment and Economic Growth in Developing Countries,” World Development, January 1990.
King, R., and S. Rebelo, “Traditional Dynamics and Economic Growth in the Neoclassical Model,” NBER Working Paper No. 3185, November 1989.
Knight, Malcolm, Norman Loayza, and Delano Villanueva, “Testing Theories of Economic Growth: A Panel Data Approach,” IMF Staff Papers (1993), forthcoming.
Koopmans, T.C., “On the Concept of Optimal Economic Growth,” in The Econometric Approach to Development Planning, (Amsterdam, North Holland, 1965).
Lal, Deepak, and Sarath Rajapatirana, “Foreign Trade Regimes and Economic Growth in Developing Countries,” World Bank Research Observer, Vol. 2, No. 2, July 1987.
Levine, Ross, and David Renelt, “A Sensitivity Analysis of Cross - Country Growth Regressions,” American Economic Review, September 1992.
Mankiw, N.A., D. Romer and D.N. Weil, “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics, May 1992.
Ram, Rati, “Exports and Economic Growth: Some Additional Evidence,” Economic Development and Cultural Change, Vol. 33, No. 1, January 1985.
Romer, Paul M., (1989a), “Capital Accumulation in the Theory of Long-run Growth, in R. Barro, ed., Modern Business Cycle Theory, (Harvard University Press, Cambridge, 1989).
Rubin, L.S., “Productivity and the Public Capital Stock: Another Look,” Working Paper No. 118, Board of Governors of the Federal Reserve System, 1991.
Serven, L., and A. Solimano, “Private Investment and Macroeconomic Adjustment: Theory, Country Experience, and Policy Implications,” unpublished, Macroeconomic Adjustment and Growth Division, World Bank, 1990.
Summers, Robert, and Alan W. Heston, “A New Set of International Comparisons of Real Product and Price Levels: Estimates for 130 Countries 1950-1985,” Review of Income and Wealth, March 1988.
Summers, Robert, and Alan W. Heston, “The Penn World Tables (Mark V): An Expanded Set of International Comparisons, 1950-88,” Quarterly Journal of Economics, May 1991.
White, Herbert L., “A Heteroscedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroscedasticity,” Econometrica, XLVIII, 1980.
The authors are grateful to Bankim Chadha, David Coe, Jose De Gregorio, Robert Ford, Norman Loayza, and Jonathan Ostry for very helpful comments and suggestions. They would also like to thank Catherine Fleck for editorial assistance and Shahbaz Khan and Toh Kuan for excellent programming and research assistance.
For a more extended discussion of the respective roles of public and private investment in the growth process, see Khan and Reinhart (1990). Other studies on this issue include Coutinho and Gallo (1991) and Serven and Solimano (1990).
Since the main objective of the paper is to analyze the determinants of performance across individual countries, these data are unweighted averages. However, the broad picture remains unchanged if weighted averages, with weights corresponding to the countries’ relative income levels, are used.
This is based on an unweighted average for the OECD countries (excluding Turkey) for the 1980s.
See Blejer and Khan (1984). For industrial countries, Aschauer (1989a, 1989b) finds that investment in infrastructure has had a very strong positive effect on private sector productivity. However, these findings remain controversial largely because the marginal productivity of infrastructure implied by the estimates is implausibly high (see, for example, Ford and Poret (1991), and Rubin (1991)).
See, for instance, Chibber and van Wijnbergen (1988), who discuss the case of Turkey in the 1980s where, despite very high real interest rates, private investment boomed because of investment by public sector enterprises.
It might be argued that public capital stock, especially in infrastructure, depreciates at a different rate compared with the private capital stock. While such an extension complicates the analysis, it does not change the conclusions significantly. For simplicity, therefore, the restriction of equality of depreciation rates is maintained.
As Lucas (1988) points out, level effects can be drawn out through adjustment costs of various kinds, but not so as to produce increases in growth rates that are both large and sustained. Although Harberger (1984) identifies dynamic effects, it is only the recent literature that provides a formal rationale of how the removal of inefficiencies sets in train factors that have growth effects.
There is, in general, a negative relationship between the export ratio and country size as measured by GDP, reflecting, in part, the greater need of smaller countries to engage in foreign trade. In view of this, an alternative measure used the residual from the regression of export share on GDP (involving both linear and quadratic terms).
Standard errors based on White’s (1980) heteroscedasticity-consistent covariance matrix differed little from those obtained by OLS and reported here.
Mankiw, Romer, and Weil (1992) obtain virtually an identical estimate for capital share, which they also consider suggests a problem for the basic model. Their sample consists of a large number of industrial countries, and for these such a figure may be regarded as exceptionally high. See also Levine and Renelt (1992).
The slope dummies take the value of the investment ratio for countries in the given region and zero otherwise.
These results are consistent with those reported by Khan and Reinhart (1990) for a smaller sample of 24 developing countries for the 1970s.
See Barro (1991) for the relationship between the rate of convergence, and the speed with which the gap between rich and poor countries is narrowed.
See Knight, Loayza, and Villanueva (1993) for a detailed discussion of estimates of the basic Solow model using panel data.
When the average is for 3 years, there are 6 observations per country, giving a pooled sample for the 95 countries of 570 observations. With a 6-year average, there are 3 observations per country giving a sample of 285 observations.