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John Seater (NC State) left a really interesting comment on one of my recaps of the NBER Growth session papers.
It appears from the summaries in this blog that none of the other five papers was a growth paper. Now, literally anything in economics can have an effect on growth, so one could say that all five papers had implications for growth. However, it sounds as if none of the five papers summarized here addressed those implications. I am curious about why static analysis dominated a meeting ostensibly dedicated to studying economic growth. My impression from the programs for the Growth meeting in recent years is that most of the papers presented there are not about growth. What is going on? Has the Growth meeting ceased to be a growth meeting?
The short answer, John, is yes. The NBER Growth meeting really has ceased to be about growth, per se. I guess the broader question lurking around is whether this is a good or a bad thing. Let me see if I can take a shot at answering it from both directions.
The positive (or neutral) response is that growth papers aren’t about dynamics any more because the dynamics are determined by changes in steady states. People study the comparative statics of steady states in their models. Transition between those steady states – the dynamics – then just depend on the rate of accumulation of capital stocks (human and physical). Those rates don’t seem to be very different, so the transition rate isn’t the interesting aspect to study. The static difference in steady states is what determines the growth rates.
In terms of trend growth rates (how fast the economy grows in steady state), people probably implicitly have in their heads that those trend rates are similar across countries. Why? Because you look at the long-run paths of output per worker in most countries and they seem parallel, growing at the same rate in steady state. So that seems relatively less important in explaining cross-country differences.
The negative (or skeptical) response is that we’re missing something crucial by ignoring variation in growth rates. We’re assuming that the transitional growth rate is the same no matter what causes the static shift in steady states. Maybe that isn’t right. More importantly, maybe the trend growth rate isn’t identical across countries. While a lot of relatively well-off countries grow at very similar rates in steady state, poor countries don’t. Several of them grow very slowly, so slowly that they are falling behind rich countries.
Differential growth rates mean that we cannot just look at static differences across countries. Those differences are growing over time, so our static stories cannot be enough to explain them. We need explicit theories of why poor countries grow slowly, not just why the are poor to begin with.
Furthermore, even if countries do grow at the same rate in steady state, we’re still really interested in what that rate is. Growth at 2% per year doubles income every 35 years. Growth at 1% doubles it every 70. That’s a big difference in living standards over time. So studying growth rates is important in and of itself, outside of the question of cross-country comparisons.
I’ll freely admit that as a field, growth generally has strayed away from studying “growth”, in the traditional sense. But I don’t have a huge problem with where we are on this – I find the “what makes rich countries rich” question to be somewhat more compelling than the “is growth 1 or 2 percent per year” question. But it’s worth remembering that the latter question on growth rates has huge ramifications for absolute living standards over long periods of time – never underestimate compound growth.