Economic Growth and Development

governments seem to want more of it, and its causes are so evident, why does

any country experience extended spells of slow economic growth? Remember

how few countries have either originally or subsequently participated in the

Great Divergence. We need to take a step back to a deeper level of analysis and

explain what factors cause or influence the accumulation of factors of produc-

tion or TFP. Figure I.1 illustrates the extended model used by this book.

The deeper determinants of economic growth – culture, openness, geogra-

phy, institutions and colonialism – impact on economic growth indirectly

through the proximate determinants. Culture, for example, can impact

economic growth through its influence on whether countries are receptive to

productivity-enhancing ideas and innovations. Openness can influence

economic growth through its impact on the supply of labour (immigration or

migration) or the supply of Foreign Direct Investment (FDI).

The importance of combining the proximate and deeper determinants of

growth can be seen by reviewing two very influential studies: one by Robert

Barro (an economist) seeking to understand the proximate determinants of

growth, and another by William Darity (a historian) seeking to understand the

deeper determinants of growth. The following discussion of these two

approaches sets the scene for this book, which attempts to combine their

advantages.

Robert Barro and the proximate determinants of growth

The aim of Robert Barro’s 1991 paper, ‘Economic Growth in a Cross-Section

of Countries’, was straightforward – to measure what factors promoted

economic growth and so influence policy-making by comparing the relative

influence of those factors. Barro’s ‘proximate determinants’ method used

cross-country growth regressions, paying due attention to issues of endogene-

ity, robustness and significance. Although these rather forbidding concepts

have deterred non-economists from reading the paper, they canbe explained in

more accessible language.

Barro gathered data on growth rates and those factors considered by

economic theory to be related to economic growth, such as education, invest-

ment, government spending and political stability. Barro used data from 98

Introduction 7

Figure I.1 The deeper and proximate determinants of growth

The deeper

determinants

of growth

The proximate

determinants of

growth

Culture

Openness

Geography

Institutions

Colonialism

Investment

Land

Labour

Productivity (TFP)

Economic

growth

Figure 0.1