Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains

Abstract

The historical path of gross domestic product (GDP) per capita in the United States is, except for the interlude of the Great Depression, well characterized by reasonably stable exponential trend growth with modest cyclical deviations: graphically, it is a modestly sloping, slightly bumpy hill. However, almost nothing that is true of U.S. GDP per capita (or that of other countries of the Organisation for Economic Co-operation and Development) is true of the growth experience of developing countries. A single time trend does not adequately characterize the evolution of GDP per capita in most developing countries. Instability in growth rates over time for a single country is great, relative to both the average level of growth and the variance across countries. These shifts in growth rates lead to distinct patterns. While some countries have steady growth (hills and steep hills), others have rapid growth followed by stagnation (plateaus), rapid growth followed by decline (mountains) or even catastrophic falls (cliffs), continuous stagnation (plains), or steady decline (valleys). Volatility, however defined, is also much greater in developing than in industrial countries. These stylized facts about the instability and volatility of growth rates in developing countries imply that the exploding econometric growth literature that makes use of the panel nature of data is unlikely to be informative. In contrast, research into what initiates (or halts) episodes of growth has high potential.