Economic Growth and the Structure of Long-Term Development.

This volume contains the proceedings of a round table conference held by the International Economic Association in Varenna, Italy, during October of 1992. It includes 13 original essays organized into four parts having commentaries by individual reviewers and open discussions by all participants. Filling out the volume is a Part V of final evaluations by the coeditors and others. Indices of names and subjects are provided along with an introduction by Luigi Pasinetti and Robert Solow.

Part I is entitled "Empirical Evidence." Its three papers present facts of economic growth. However, they do more by volunteering a fair amount of analysis. Moshe Syrquin looks at structural transformation and new growth theory and stresses the relevancy of new growth to development issues. Ross Levine and Sara Zervos examine the policy determinants of growth. An especially exciting piece comes from Dan Ben-David. It lucidly shows the connection between the liberalization of trade and the reduced disparity of income across countries. In other words, it shows that trade causes convergence.

Part II, "Models of Long-Term Development," contains six essays and constitutes the lion's share of the volume. Continuing the idea pursued by Levine and Zervos in Part I, William Easterly, Robert King, Ross Levine, and Sergio Rebelo construct an endogenous growth model that supposedly enables a formal study of the effects of policy on growth. The study, however, proceeds in disappointingly inferential terms. Giuseppe Bertola delivers a masterful essay in which he compares old Cambridge growth theories with new growth theories. Paradoxically, he establishes that the two conceptions are similar though different.

Next in Part II is a chapter by Philippe Aghion and Peter Howitt, who bring a Schumpeterian approach to endogenous growth thinking. These authors indicate, albeit in sketchy fashion, how creative destruction can affect growth, and they reach the intuitively appealing conclusion that there can be too much growth. Extending the inquiry begun by Ben-David in the evidence section, Giovanni Dosi, Christopher Freeman, Silvia Fabiani, and Roberta Aversi focus on intercountry convergence and divergence of income. They first explore the facts, including those regarding trade, and highlight the widely divergent development patterns of the East Asian Tigers and countries of Latin America. They then advance a model whose simulations confirm divergence as the dominant pattern.

Further into Part II are two energetic and imaginative essays. The offering by Siro Lombardini and Francesco Donati, like the endeavor by Aghion and Howitt, draws upon Schumpeterian logic and formulates how endogenous technical progress governs input requirements inter alia. It concludes that progress is the essential agent of growth. The companion essay by Michael Landesmann and Richard Goodwin also appeals to Schumpeterian reasoning and to the idea that endogenous progress alters input coefficients. However, it interprets investment and income distribution as critical forces in a dynamic that may lead to volatile macroeconomic responses. Macroeconomic volatility, of course, is hardly new to Goodwin [3].

Part III of the book is called "The Evolving Pattern of International Trade." It encompasses two papers. The first, neatly written by John Helliwell, returns to the question of trade and convergence. But Helliwell frames convergence in terms of technical progress rather than income. To the later delight of Solow, he establishes econometrically that technology differs across countries. Furthermore, he finds that the disparate rates of progress converge through trade. Again, trade causes convergence. The second paper, by Luc Soete and Bart Vetspagen, also covers the ground between trade and convergence. Analogously, it focuses attention on technical progress as it uses regression analysis to verify that progress influences both growth and trade.

Part IV, "Sustainable Growth in the Long Run," has economic growth meet the environment. Two essays shape this exposition. The one by William Nordhaus concentrates nonrigorously on alternative definitions of sustainable growth. That by Karl-Goran Maler imposes rigor by introducing an overlapping generations paradigm to examine optimal growth under a resource constraint.

As may be evident by now, various themes run through the essays. An obvious - and indispensable - subject for a treatise on economic growth is technical progress. Easterly et al. model progress as an endogenous increase in the range of intermediate inputs. Aghion and Howitt model it as the invention of new intermediate goods. Dosi et al. specify it as innovation and imitation, Lombardini and Donati see it as driven by animal spirits while Landesmann and Goodwin see it as prompted by innovation potential. Helliwell judges it as different across countries, and Soete and Verspagen take it as a basis for estimation work. Pasinetti refers to it; Solow refers to it. The pervasiveness of the progress theme bears on the coeditors' uneasiness about the title of the volume. That chosen was the name of the conference. Yet hardly unsuitable would have been The Theory of Technical Progress and Economic Growth if only to underscore the parallelism between the present book and another to emerge from a conference assembled by the International Economic Association. Edited by Lutz and Hague [5], that earlier product known as The Theory of Capital is referenced at several points in the present enterprise making it a standard of comparison.

Convergence is a second obvious theme traceable across essays. Joining Ben-David, Dosi et al., and Helliwell in that discussion are Levine and Zervos along with Soete and Verspagen, whose regressions support the notion of conditional convergence. Elhanan Helpman notes that a substantial portion of the new empirical research on growth has been devoted to the convergence issue, and Solow closes the exchanges by observing that the issue hinges on the questionable hypothesis that all countries share the same technology.

A more obscure theme is rational expectations; more precisely, the inappropriateness of the rational expectations hypothesis. A rather strong statement in this regard is made by Aghion and Howitt, who reiterate a previous position of Howitt [4] by asserting that people learn "through some combination of experience, experimentation, intuitive guessing and creative extrapolation. There is no guarantee in general that such learning processes converge quickly, or at all, to the truth . . ." [p. 125]. Dosi et al. express a similar sentiment in retreating behind inertial behavior reminiscent of the bounded rationality principle advanced by Simon [6]. Pasinetti too has misgivings about rational expectations. Such sobering thoughts should comfort those who argue that expectation adjustment can take a long time.

To borrow a metaphor from Aghion and Howitt, this volume throws cold water on rational expectations. It also throws cold water on endogenous growth theory itself as the limitations of that perspective are mentioned repeatedly. Syrquin criticizes it for reinventing wheels whereas Aghion and Howitt cite it for its faith in rational expectations. Likewise, Dosi et al. and later Nordhaus challenge its lack of relevance. Pasinetti goes further by reciting a litany of limitations that include the theory's reliance on the production function. That charge is not surprising given Pasinetti's roots in Cambridge doctrine. Solow adds to the list by writing that the new growth view of endogenous progress is rather crude.

From the contents of the separate essays to the themes that run through them, this volume has much to offer. Still, it leaves the impression of important matters missed.

One matter is capital accumulation. Indeed, some essays do accent accumulation in the growth process. Syrquin, for instance, insists that the realization of a country's growth potential requires investment, and Easterly et al. together with Dosi et al. document the point empirically. Quite commendably, Landesmann and Goodwin hold that capital accumulation is critical both as a conduit for progress and as a component of aggregate demand. But on balance accumulation is given second-class status. Helpman explains that treatment by saying that the profession already has a "reasonably good understanding of the role of factor accumulation in economic growth . . ." [p. 369]. Nonetheless, it seems odd that a publication which places such heavy emphasis on technical progress should place so little emphasis on the very mechanism by which much progress becomes operative.

Along the same line, the collection fails to recognize the imaginative work of the pioneers who brought endogenous technical progress to growth theory. New growth really is not new, but this volume, by ignoring the splendid accomplishments of Amano [1], Drandakis and Phelps [2], and others, invites the opposite conclusion. Only a nod from Nordhaus salutes the earlier innovators.

Finally, the most notable absence involves the coeditors, who elect to remain on the periphery of the proceedings rather than to place themselves toward the center with an essay of their own. Their choice, though admirable, is unfortunate because it deprives the profession of precious insights from two of the leading architects of contemporary growth theory. More of Pasinetti and Solow on growth never could be too much, and more surely would have pushed the volume closer to the high standard set by The Theory of Capital.

James H. Gapinski Florida State University 

References

1. Amano, Akihiro, "Induced Bias in Technological Progress and Economic Growth." Economic Studies Quarterly, March 1967, 1-17.

2. Drandakis, E. M. and E. S. Phelps, "A Model of Induced Invention, Growth and Distribution." Economic Journal, December 1966, 823-40.

3. Goodwin, Richard M. "Secular and Cyclical Aspects of the Multiplier and Accelerator," in Income, Employment and Public Policy: Essays in Honor of Alvin H. Hansen. New York: W. W. Norton and Company, Inc., 1948, pp. 108-32.

4. Howitt, Peter, "Activist Monetary Policy under Rational Expectations." Journal of Political Economy, April 1981, 249-69.

5. Lutz, F. A. and D. C. Hague, editors. The Theory of Capital. London: Macmillan and Company, Ltd., 1961.

6. Simon, Herbert A. Models of Man. New York: John Wiley and Sons, Inc., 1957.