Growth miracles and failures, panel estimation, and human capital
32 Pages Posted: 27 Nov 2018 Last revised: 23 Jun 2021
This paper follows recent literature that clusters economies by distinct growth regimes they visit over time. Instead of events-studies of transitions between different regimes, it uses long term periods of growth miracles and failures to discover growth factors. To make the data more granular, it studies growth relative to a frontier country and examines periods of catch up or relative convergence (r-convergence) separately from those for falling behind (divergence). A geographical region is chosen due to parameter instability. Sub-Saharan African countries are eminently suitable for this exercise because they experience both r-convergence and divergence copiously and the number of periods for the two experiences is almost the same. We use panel estimation and include the “between” estimator. The main difference of the divergence panels from the r-convergence panels is on the role of human capital. When human capital is contributing to growth in a statistically significant way, follower countries are catching-up in relative income; when it is not, they are falling behind both relatively and absolutely. Examining growth dynamics, it finds TFP to be less important than human capital for both income growth and income levels for follower countries, and the excess-effect of human capital over TFP is about 2.5 times for growth than for income levels.
Keywords: Growth dynamics; fixed effects and the “between” estimators; growth accounting; factors for income growth versus for income levels
JEL Classification: C23, C33, I25, O47
Suggested Citation: Suggested Citation