Is Post-War Economic Growth Exponential?

Abstract

In this article, we argue that there are strong reasons for using linear instead of exponential models when analysing post-war economic growth. Incorrect model specifications will lead to misinterpretations of the underlying economic reality and to erroneous economic forecasts. Our argument is based on an empirical investigation of real GDP per capita growth in 25 OECD countries (and three country aggregates) during the post-war period using the Box-Cox transformation method. The conclusion is that per capita growth is generally (more or less) linear (and definitely not exponential) for the level of economic development represented by these countries. Based on this we argue that analyses of growth should use linear instead of exponential models. This change of model could give new insights into problems connected with economic growth.