Paul Johnson, Steven Durlauf and Jonathan Temple 1167their distributional consequences. For example, the general equilibrium effects of
productivity improvements in agriculture may be very different to those in services
and industry. Identifying the nature of “shared growth” will require more detailed
attention to particular features of developing countries. It will also require an effort
to understand how these influence the forms taken by growth, and their distribu-
tional consequences. Given that the main source of income for the poor is usually
labor income, there is a need to integrate theoretical and empirical growth models
with theory and evidence from labor economics, in order to study how growth
and labor markets interact. Agénor (2004) and Temple (2005) consider some of the
relevant issues. Partly because of the weaknesses of data on income distribution,
too little work in growth econometrics has differentiated between types of growth,
even though the policy relevance of these questions is clear.
Ideally, research along these various lines will utilize not only statistical methods,
but also the power of case studies in generating hypotheses, and in deepening our
understanding of the economic, social and political forces at work in determining
growth outcomes. Case studies may be especially valuable in at least two areas.
The first of these is the study of technology transfer. As emphasized in the survey
by Klenow and Rodriguez-Clare (1997), we do not know enough about why some
countries are more successful than others in climbing the “ladder” of product qual-
ity and technological complexity. What are the relative contributions of human
capital, foreign direct investment and trade? In recent years some of these issues
have been intensively studied at the microeconomic level, especially the role of
foreign direct investment and trade, but there remains work to be done in relating
firm and sector-level evidence to aggregate implications.
A second area where case studies may be especially valuable is the study of polit-
ical economy, in its modern sense. It is a truism that economists, particularly
those considering development, have become aware of the need to account for the
two-way interaction between economics and politics. A case can be made that the
theoretical literature has outpaced the empirical literature in this regard. Analyt-
ical case studies of individual countries, drawing on both economic theory and
political science, would help to close this gap.
Thus far, we have highlighted a number of limitations of existing work, and
directions in which further research seems especially valuable. Some of the issues
we have considered were highlighted much earlier by Levine and Renelt (1991).
The extent to which limitations have stubbornly persisted over time might lead to
pessimism over the long-term prospects of this literature.^28 This also shows that our
prescriptions for future research could seem rather pious, since the improvements
we recommend are easier said than done. But the literature has also evolved in some
interesting and unpredictable ways, and we will end our review by considering
some areas in which genuine progress has been made, and where further progress
appears likely.
One reason for optimism is the potential of recently developed model averaging
methods. These help to address the model selection and robustness issues that have
been identified as a major weakness of cross-country growth research since at least
Levine and Renelt (1992). By framing the problem explicitly in terms of model