Trends and Transitions in the Long Run Growth of Nations

Abstract

Empirical work on cross-country growth has focussed almost exclusively on the speed of convergence to steady state and the variations in steady state levels. This paper examines the estimated long-run growth rate, i.e. the rate of steady state growth, in a Solow growth model. All estimates of common world steady state growth are shown to be zero or significantly negative under the null model. The null of a common world steady state growth rate is rejected in favor of a modifications of the basic Solow model to allow for heterogeneous long run growth rates across countries. This alternative yields plausible estimates of the capital share and speed of convergence but shows that steady states for different countries are quite diverse in both levels and growth rates. An alternative framework is presented to relate long run growth rates to fundamentals.