Tests of a more comprehensive model of economic growth in lower middle-income countries

Purpose - The purpose of this paper is to empirically test a more comprehensive model of economic growth using a sample of 28 lower middle-income developing countries. Design/methodology/approach - The authors modify the conventional neoclassical growth model to account for the impact of the increase in the number of people working relative to the total population and that of the increase in the value added per worker over time. The authors then extend this model by incorporating the role of trade, government consumption, and human capital in output growth. Findings - Regression results show that over three quarters of cross-lower middle-income country variations in per capita GDP growth rate can be explained by per capita growth in the share of public expenditures on education in the GDP, per capita growth in the share of government consumption in the GDP, per capita growth in the share of imports in the GDP, per capita growth in the share of manufactured exports in the GDP (not of that of total exports in the GDP), and the growth of the working population relative to the total population. Practical implications - Statistical results of such empirical examination will assist governments in these countries identify policy fundamentals that are essential for economic growth. Originality/value - To address the simultaneity bias, the authors develop a simultaneous equations model and are able to show that such model is more robust and helps explains cross-country variations in per capita GDP growth over the 2000-2014 period.