IDEAS home Printed from https://ideas.repec.org/p/ukc/ukcedp/9821.html
   My bibliography  Save this paper

The Endogeneity of the Natural Rate of Growth

Author

Listed:
  • Miguel A. León-Ledesma
  • A. P. Thirlwall

Abstract

The aim of this paper is to estimate the sensitivity of the natural rate of growth to the actual rate of growth for 15 OECD countries over the period 1961 to 1995, on the hypothesis that the natural rate of growth is not exogenously given. To do this we estimate the natural rate of growth and, then, how it changes when the actual growth rate is different from the natural rate. As a side test of the endogeneity hypothesis, we also test for the direction of causality between national output and factor inputs for the same set of countries. Our results support the idea that the natural rate of growth is responsive to the actual rate of growth and bring to the fore the importance of focusing on demand as well as supply for an understanding of growth rate differences between countries.

Suggested Citation

  • Miguel A. León-Ledesma & A. P. Thirlwall, 1998. "The Endogeneity of the Natural Rate of Growth," Studies in Economics 9821, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:9821
    as

    Download full text from publisher

    File URL: https://www.kent.ac.uk/economics/repec/9821.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    3. Granger, Clive W J, 1997. "On Modelling the Long Run in Applied Economics," Economic Journal, Royal Economic Society, vol. 107(440), pages 169-177, January.
    4. Targetti, Ferdinando & Foti, Alessandro, 1997. "Growth and Productivity: A Model of Cumulative Growth and Catching Up," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 21(1), pages 27-43, January.
    5. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    7. A. P. Thirlwall, 2015. "A Model of Regional Growth Rate Differences on Kaldorian Lines," Palgrave Studies in the History of Economic Thought, in: Essays on Keynesian and Kaldorian Economics, chapter 12, pages 286-301, Palgrave Macmillan.
    8. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-191, January.
    9. Daniele Besomi, 1998. "Failing to Win Consent: Harrod’s Dynamics in the Eyes of His Readers," Palgrave Macmillan Books, in: Giorgio Rampa & Luciano Stella & A. P. Thirlwall (ed.), Economic Dynamics, Trade and Growth, chapter 2, pages 38-88, Palgrave Macmillan.
    10. Kaldor, Nicholas, 1970. "The Case for Regional Policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 17(3), pages 337-348, November.
    11. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    12. A. P. Thirlwall, 1989. "Development and Underdevelopment," Palgrave Macmillan Books, in: Growth and Development, edition 0, chapter 0, pages 3-64, Palgrave Macmillan.
    13. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    14. Krugman, Paul, 1989. "Differences in income elasticities and trends in real exchange rates," European Economic Review, Elsevier, vol. 33(5), pages 1031-1046, May.
    15. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    16. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    17. A. P. Thirlwall, 2015. "Keynes, Economic Development and the Developing Countries," Palgrave Studies in the History of Economic Thought, in: Essays on Keynesian and Kaldorian Economics, chapter 6, pages 149-177, Palgrave Macmillan.
    18. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-162, April.
    19. Giorgio Rampa & Luciano Stella & A. P. Thirlwall (ed.), 1998. "Economic Dynamics, Trade and Growth," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-26931-0, December.
    20. Setterfield, Mark, 1997. "'History versus Equilibrium' and the Theory of Economic Growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 21(3), pages 365-378, May.
    21. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miguel A. León-Ledesma, 2002. "Cumulative Growth and the Catching-Up Debate From a Disequilibrium Standpoint," Palgrave Macmillan Books, in: John McCombie & Maurizio Pugno & Bruno Soro (ed.), Productivity Growth and Economic Performance, chapter 8, pages 197-218, Palgrave Macmillan.
    2. Carton, Christine, 2007. "Un modèle de croissance cumulative étendu á l’éducation: une validation empirique pour la région asiatique [A model of cumulative growth extended to education: an empirical assessment for the Asian," MPRA Paper 20549, University Library of Munich, Germany.
    3. Utku Utkulu & Durmus Özdemir, 2005. "Does Trade Liberalization Cause a Long Run Economic Growth in Turkey," Economic Change and Restructuring, Springer, vol. 37(3), pages 245-266, September.
    4. Lena Vogel, 2009. "The endogeneity of the natural rate of growth - an empirical study for Latin-American countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(1), pages 41-53.
    5. Miguel A. LeÛn-Ledesma, 2002. "Accumulation, innovation and catching-up: an extended cumulative growth model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 26(2), pages 201-216, March.
    6. Johannes W. Fedderke & John M. Luiz, 2005. "Does Human Generate Social and Institutional Capital? Exploring Evidence From Time Series Data in a Middle Income Country," Working Papers 029, Economic Research Southern Africa.
    7. Abo-Zaid Salem M, 2011. "The Trade-Growth Relationship in Israel Revisited: Evidence from Annual Data, 1960-2004," Review of Middle East Economics and Finance, De Gruyter, vol. 6(3), pages 63-93, February.
    8. Carton, Christine, 2008. "Crecimiento economico en America Latina: Evidencias desde una perspectiva Kaldoriana [Economic growth in Latin America: Evidence from a Kaldorian perspective]," MPRA Paper 8696, University Library of Munich, Germany.
    9. João Prates Romero, 2018. "A Kaldor-Schumpeter Model Of Cumulative Growth: Combining Increasing Returns And Non-Price Competitiveness With Technological Catch-Up And Research Intensity," Anais do XLIV Encontro Nacional de Economia [Proceedings of the 44th Brazilian Economics Meeting] 75, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Fulvio Castellacci, 2002. "Technology Gap and Cumulative Growth: Models and outcomes," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(3), pages 333-346.
    11. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2003. "Government expenditures, military spending and economic growth: causality evidence from Egypt, Israel, and Syria," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 567-583, September.
    12. Johannes Fedderke & John Luiz & Raphael Kadt, 2008. "Using fractionalization indexes: deriving methodological principles for growth studies from time series evidence," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 85(2), pages 257-278, January.
    13. Christine Carton Madura, 2009. "Mecanismos kaldorianos del crecimiento regional: Aplicación empírica al caso del ALADI (1980-2007)," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 8, pages 1-24, May.
    14. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.
    15. Mark Roberts & Mark Setterfield, 2010. "Endogenous Regional Growth: A Critical Survey," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 21, Edward Elgar Publishing.
    16. Fátima Diniz & Elias Soukiazis, 2015. "Economies to Scale and the Importance of Human Capital in the Moulds Industry in Portugal: A Micro Panel Data Approach," GEMF Working Papers 2015-11, GEMF, Faculty of Economics, University of Coimbra.
    17. Knaap, T., 1998. "A survey of complementaries in growth and location theories," Research Report 98C44, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    18. Pascal Ricordel, 2024. "Domestic or export: What is basic at the NUTS 2 regional level? A spatial endogenous regional growth model applied in the EU," Growth and Change, Wiley Blackwell, vol. 55(1), March.
    19. repec:dgr:rugsom:98c44 is not listed on IDEAS
    20. William Darity & Lewis S. Davis, 2005. "Growth, trade and uneven development," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 29(1), pages 141-170, January.
    21. Jin, Jang C., 2009. "Economic research and economic growth: Evidence from East Asian economies," Journal of Asian Economics, Elsevier, vol. 20(2), pages 150-155, March.

    More about this item

    Keywords

    Natural Rate of Growth; Actual Rate of Growth; Endogeneity; Causality; Inputs; Output;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:9821. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr Anirban Mitra (email available below). General contact details of provider: https://www.kent.ac.uk/economics/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.