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Economic growth.

Economic Growth

The NBER held a Conference on Economic Growth in Cambridge on October 6-7. Robert J. Barro, NBER and Harvard University, and Paul M. Romer, NBER and University of Chicago, organized the following program:

Jess Benhabib and Boyan Jovanovic, New York

University, "Externalities and Growth Accounting"

Discussant: Stanley Fischer, NBER, MIT, and World

Bank

Robert J. Barro, and Xavier Sala-I-Martin, Harvard

University, "Economic Growth and Convergence

across the United States"

Discussant: Anne O. Krueger, NBER and Duke

University

Dale W. Jorgenson, Harvard University, and Peter J.

Wilcoxen, University of Melbourne,

"Environmental Regulation and U.S. Economic Growth"

Discussant: Timothy J. Kehoe, Federal Reserve Bank

of Minneapolis

Ricardo J. Caballero, Columbia University, and

Richard Lyons, NBER and Columbia University, "The

Role of External Economies in U.S. Manufacturing"

(NBER Working Paper No. 3033) (This paper is

summarized in "Studies of Firms and Industries" in this

issue.)

Discussant: Kevin M. Murphy, NBER and University

of Chicago

Philippe Aghion, MIT, and Peter Howitt, University

of Western Ontario, "A Model of Growth through

Creative Destruction"

Discussant: Nancy Stokey, Northwestern University

Sebastian Edwards, NBER and University of

California at Los Angeles, "Openness, Outward

Orientation, Trade Liberalization, and Economic

Performance in Developing Countries" (NBER Working

Paper No. 2908)

Discussant: Rudiger W. Dornbusch, NBER and MIT

Jeremy Greenwood, Federal Reserve Bank of

Minneapolis, and Boyan Jovanovic, "Financial

Development, Growth, and the Distribution of Income"

Discussant: Kenneth S. Rogoff, NBER and University

of California at Berkeley

Using quarterly and annual postwar U.S. aggregate data on the growth of output, labor, and capital, Benhabib and Jovanovic find no evidence of increasing returns to scale in the aggregate production function, or of a large positive externality on the capital input. This agrees with the findings of most others who look at the microdata on R and D expenditures. They also examine inputs and output over longer periods. They find that the simultaneity problems caused by the correlation between the inputs and the production function disturbance persist in long-run averages of growth rates. The puzzle that the macrodata present, then, is not that externalities are very large but that we need not appeal to externalities at all to understand long-run movements in aggregates.

Do poor countries tend to grow faster than rich ones, so that income and production levels converge over time? Barro and Sala-I-Martin find substantial indications of convergence among the 48 contiguous states: poor states tend to grow faster than rich ones. However, the authors also find that the variance of income across states has not declined over time.

The rate of U.S. economic growth fell sharply in the 1970s and has remained low throughout the 1980s. One factor often held responsible is the increase in environmental regulation. Jorgenson and Wilcoxen analyze the economic impact of pollution controls by simulating the growth of the U.S. economy with and without regulation. They construct a model of the economy that includes the determinants of long-term growth and find that environmental regulation has been an important contributor to the growth slowdown. They also find that the cost of emission controls is more than 10 percent of the total cost of government purchases of goods and services.

Aghion and Howitt present a model in which economic growth results exclusively from technological progress, which in turn is the result of innovations produced by competitive research firms. Each innovation consists of a new line of intermediate goods that can be used to produce final output more efficiently than before. Research firms are motivated by the prospect of monopoly rents. Those rents will be destroyed by the next innovation, which will render obsolete the existing line of intermediate goods. In the model there is an equilibrium with a constant allocation of labor between research and manufacturing. Aghion and Howitt show that laissez-faire may produce too much or too little research and that cyclical equilibriums are possible.

Edwards asks how trade regimes determine economic performance and growth in developing countries. He argues that a key limitation of previous work has been its inability to create measures of trade orientation that are objective, continuous, and comparable across countries. Edwards develops a growth model that relates trade orientation to the ability to absorb technological progress from the rest of the world. He tests the model using a new index of trade orientation that is free of earlier limitations. Edwards finds that countries with a less distorted external sector grow faster than countries with a more distorted external sector.

Greenwood and Jovanovic present a model in which both the extent of financial intermediation and the rate of economic growth are determined endogenously. Financial intermediation promotes growth because it allows a higher rate of return to be earned on capital. Growth in turn provides the means to implement costly financial structures. Thus, financial intermediation and economic growth are inextricably linked. The model also generates a development cycle: in the transition from a primitive, slow-growing economy to a developed, fast-growing one, a nation passes through a stage in which the distribution of wealth across the rich and poor widens.

Also attending the conference were: Costas Azariadis, University of Pennsylvania; Geoffrey Carliner, NBER; Zvi Griliches, NBER and Harvard University; Larry E. Jones and Sergio Rebelo, Northwestern University; Nathaniel H. Leff, Columbia University; Glenn McDonald, University of Western Ontario; Rodolfo E. Manuelli, Stanford University; Ariel Pakes, NBER and Yale University; Edward C. Prescott, Federal Reserve Bank of Minneapolis; Andrei Shleifer, NBER and University of Chicago; and Kenneth L. Sokoloff, NBER and University of California at Los Angeles.
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Title Annotation:conference
Publication:NBER Reporter
Date:Sep 22, 1989
Words:917
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