Is There Endogenous Long-Run Growth? Evidence from the U.S. And the U.K.

Federal Reserve Bank of New York Staff Report No. 17

Posted: 17 May 2000

See all articles by Kei-Mu Yi

Kei-Mu Yi

University of Houston - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Narayana Kocherlakota

University of Minnesota - Twin Cities - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 1996

Abstract

The key features of endogenous growth models is that they imply that permanent changes in government policy can have permanent effects on growth rates. In this paper, we develop and implement an empirical framework to test this implication. In a regression of growth rates on current and lagged policy variables, the sum of the slope coefficients for each policy variable should be nonzero (zero) for endogenous (exogenous) growth models. In our estimation, we use time series data spanning up to 100 years for the United States and 160 years for the United Kingdom. We find that the implication for exogenous growth is usually rejected when both a tax variable and a public capital variable are include in the regression; failing to include both variables biases the results in favor of exogenous growth models. Our findings show that it is possible to have exogenous growth even when U.S. and U.K. GDP growth rates appear to be stable over time. We conclude that at the aggregate level, the production function appears to exhibit constant returns to scale in reproducible inputs.

JEL Classification: E32, O47

Suggested Citation

Yi, Kei-Mu and Kocherlakota, Narayana, Is There Endogenous Long-Run Growth? Evidence from the U.S. And the U.K. (December 1996). Federal Reserve Bank of New York Staff Report No. 17. Available at SSRN: https://ssrn.com/abstract=48279

Kei-Mu Yi (Contact Author)

University of Houston - Department of Economics

Houston, TX 77204-5882
United States

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Narayana Kocherlakota

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5318 (Phone)
612-624-0209 (Fax)

HOME PAGE: http://www.econ.umn.edu/~nkocher/

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