There are now many models of endogenous growth in which various factors offset diminishing returns to investment in capital accumulation, so long-run output growth depends on intertemporal preferences. In Discussion Paper No. 850, Theo van de Klundert and Anton van Schaik investigate whether the investment ratio and the rate of employment growth can satisfactorily account for differences in output growth across countries and time-periods and whether such growth has exhibited historical continuity or accelerated after major events such as the two World Wars. They run regressions on a sample of observations for 1870-1989, with eight countries in the core and sixteen in an extended sample. They also include the ratio of a country's labour productivity to that of the leader <196> normally the US <196> as an additional explanatory variable for that country's growth to take account of the `catch-up' effects of international spillovers.

Pooling of time-series and cross-section data requires testing for stability across sub-periods and countries. They find that catch-up is significant only during the 1950s and 1960s, while the constant term never differs significantly from zero. This supports the endogenous growth hypothesis. Historical continuity is also observed: while the 1950s and 1960s witnessed conditional convergence towards US productivity levels, the industrialized countries' slow-down after 1973 marked a return to their `normal', pre-World War II historical track. This contrasts with Scott's result that growth accelerated after World War II, which may reflect his rather special treatment of catch-up in the immediate post-war period.

Van de Klundert and van Schaik also estimate their growth equation on post-World War II data for 95 countries and three sub-periods. These results confirm that endogenous growth theories perform well and that catch-up plays no role after 1973. Its impact is also smaller, which conforms with expectations, since catch-up requires a measure of homogeneity in terms of culture and institutions to be effective; this is naturally lower for the larger sample of countries.

On the Historical Continuity of the Process of Economic Growth
Theo van de Klundert and Anton van Schaik

Discussion Paper No. 850, October 1993 (HR)