The Growth of Nations

Abstract

AVERAGE INCOMES in the world's richest countries are more than ten times as high as in the world's poorest countries. It is apparent to anyone who travels the world that these large differences in income lead to large differences in the quality of life. Less apparent are the reasons for these differences. What is it about the United States, Japan, and Germany that makes these countries so much richer than India, Indonesia, and Nigeria? How can the rich countries be sure to maintain their high standard of living? What can the poor countries do to join the club? After many years of neglect, these questions are again at the center of macroeconomic research and teaching. Long-run growth is now widely viewed to be at least as important as short-run fluctuations. Moreover, growth is not just important. It is also a topic about which macroeconomists, with their crude aggregate models, have something useful to say. My goal here is to assess what we now know about economic growth. The scope of this paper is selective and, to some extent, idiosyncratic. The study of growth has itself grown so rapidly in recent years that it would take an entire book to discuss the field thoroughly. In this paper, I do not try to lay out the many different views in the large literature on economic growth. Instead, I try to present my own views, as cogently as I can, on what we know about the growth of nations. Textbook Neoclassical Theory Most students of economics begin their study of long-run growth with the neoclassical model of capital accumulation. When discussing what we know about growth, this model is the natural place to start.