Cumulative Growth and the Catching-Up Debate From a Disequilibrium Standpoint

The economic growth debate of the 1980s and 1990s has opened the door to a greater range of ideas about why and how growth rates differ across countries and regions. The main achievement from a theoretical viewpoint is the construction of models that allow growth rates to be positive in the steady state without the help of any exogenous variable. Growth can be positive in the long run and depends on the investment decisions of individual economic agents. This may seem obvious to the amateur economic growth practitioner. However, this intuitive idea clashes with the complications and constraints that both real data and mathematical models impose for the theoretician of economic growth. How can we explain the continuous growth of output without the generation of an explosion in per capita income that cannot be observed in the data? What factors lie behind this possibility? ‘New’ growth theory has indeed contributed to specifying growth models in which both questions are addressed. Technical progress, either disembodied or embodied in capital goods, has been placed at the centre of the analysis. National specific non-exogenous factors may now explain why some countries have been more successful than others. Even more, a world of diverging per capita incomes has been more plausibly explained by this more recent analysis.