Mean-Reversion in Growth Rates and Convergence

The Growth Economics Blog

Brad DeLong posted about the recent paper by Pritchett and Summers (PS) on “Asiaphoria” and mean-reversion in growth rates. PS found several things:

  • Growth rates are not persistent. The growth rate over the last 10 years has very little information about the growth rate over the next 10 years. Growth rates “regress to the mean” as PS say.
  • Growth in developing countries tends to take place in bursts of growth and bursts of stagnation. This is different from rich countries where growth variation tends to consist of mild variation around a trend rate.
  • There is no reason to believe that rapidly growing economies today (China and India) will necessarily continue to grow rapidly.

Brad’s response is to take their evidence as a fundamental challenge to the standard Solow model explanation for why growth rates differ.

Lant Pritchett and Larry Summers are now trying to blow this up: to say that…

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