1166 The Methods of Growth Econometrics
Renelt (1991). It would be premature to say that econometric approaches should
be entirely replaced by calibration or “quantitative theory,” but the two methods
could inform each other more often than at present. Calibrated models can help
to interpret parameter estimates, not least in comparing the magnitude of the esti-
mates with the implications of plausible models. At the same time, the partial
correlations identified in growth econometrics can help to act as a discipline on
model-building and can also indicate where model-based quantitative investiga-
tions are most likely to be fruitful. This role for growth econometrics is likely to
be especially useful in areas where the microeconomic evidence used to calibrate
structural models is relatively weak, or standard behavioral assumptions may be
flawed.
The need for a tighter connection between theory and evidence is especially
apparent in certain areas. Most empirical growth papers are based on the one-
sector, closed-economy Solow model, which leaves out aspects of interdependence
that are surely important. Howitt (2000) has shown that standard empirical growth
models can be reinterpreted in the light of a multi-country theoretical model with
a role for technology diffusion. More generally, there is a need for researchers to
develop frameworks that are consistent with international flows of goods, capital
and knowledge. These issues are partly addressed by the theoretical analyses of
Barro, Mankiw and Sala-i-Martin (1995) and Howitt (2000), and empirical work
that builds on such ideas deserves greater prominence. Here especially, research
that draws on the quantitative implications of specific theoretical models, as in
the work of Eaton and Kortum (1999, 2001) on technology diffusion and the role
of imported capital goods, could be an important advance.
The neglect of open economy models is just one example of the narrowness with
which empirical growth models are often conceived. Much of the empirical liter-
ature uses a theoretical framework that was originally developed to explain the
long-run growth experiences of the US and other developed nations. This frame-
work is routinely applied to study developing countries, while incorporating few
of their distinctive features. A list of these could include the potentially important
roles of agricultural employment, dualism, and structural change; a relatively large
informal sector, which often accounts for a substantial share of total employment;
and periods of extensive state involvement in production, sometimes reflect-
ing the legacy of nationalist movements and many years of socialist economic
policies.
The narrowness of focus in existing studies has many limitations. For example,
the conventional use of one-sector models depends on unrealistic assumptions
about aggregation. It also prevents many relevant and interesting questions from
even being asked, including the role of changes in sectoral and occupational
structure in productivity growth. Given the scope for more general and more infor-
mative models, empirical growth researchers have really only scratched the surface,
with a few recent exceptions. Temple (2005, 2006) and Temple and Wößmann
(2006) discuss some of the relevant issues, and provide further references.
Some of these issues are closely linked to an especially important research
agenda, namely the need to distinguish between different types of growth and