1124 The Methods of Growth Econometrics
the transitions to modern economic growth that have been seen elsewhere. The
idea that countries have divided across two distinct paths is weakly supported by
evidence in Durlaufet al.(2005) that correlations of growth rates across decades
are tending to increase over time. Perhaps more directly and persuasively, it is sup-
ported by the finding that the proportion of countries that have stagnated over
a 20-year period has gradually increased since the 1960s. It remains to be seen
whether the strong world growth and commodity boom of the early 2000s, which
has clearly benefited some of the countries in sub-Saharan Africa, will help to
overturn this finding.
Even this brief overview of the stylized facts reveals that there is much of interest
to be investigated and understood. The field of growth econometrics has emerged
through efforts to interpret and understand these facts, partly in the light of pre-
dictions made by simple growth models. The complexity of the growth process
and the limitations of the available data combine to suggest that scientific stan-
dards of proof are unattainable. Perhaps the best this literature can hope for is to
constrain what can legitimately be claimed, but that in itself would be an achieve-
ment. As a direct consequence of growth econometrics, there are now various
claims about the world – for example, that growth is independent of the extent
of financial development – that are harder to sustain than would once have been
the case.
Researchers such as Levine and Renelt (1991) and Wacziarg (2002) have argued
that, seen in this more modest light, growth econometrics can provide a signpost
to interesting patterns and partial correlations. Ultimately, this helps to rule out
some versions of the world that might otherwise seem plausible, and shift the
burden of proof in particular debates. Seen in terms of establishing stylized facts,
empirical studies also help to shape the demands made of future theories, and can
act as a discipline on quantitative investigations using calibrated models. These are
important contributions. In discussing them further, we first describe the models
that are usually applied in empirical growth research.
24.3 Cross-country growth regressions: from theory to empirics
The stylized facts of economic growth have led to two major themes in the devel-
opment of the literature. The first theme is the study of convergence, and we review
this work in our companion chapter. The second theme concerns the identification
of growth determinants. This has been the more active area in recent research, and
will be our central focus in this chapter. Section 24.3.1 provides a general theoret-
ical framework for understanding growth dynamics. The framework is explicitly
neoclassical and leads to a model which is the basis for most empirical growth
research. Section 24.3.2 examines the relationship between this model and the
specification of a growth regression. This also provides relevant background for
section 24.3.3, which focuses on the “levels regression” that has become a popu-
lar alternative in the recent literature. We will argue that its advantages, relative
to growth regressions, have sometimes been exaggerated. Finally, Section 24.3.4
discusses the interpretation of error terms in growth regressions.