What have we learned from a decade of empirical research on growth? It's Not Factor Accumulation: Stylized Facts and Growth Models

The article documents five stylized facts of economic growth.(1) The "residual" (total factor productivity, TFP) rather thanfactor accumulation accounts for most of the income and growthdifferences across countries. (2) Income diverges over the longrun. (3) Factor accumulation is persistent while growth is not,and the growth path of countries exhibits remarkable variation.(4) Economic activity is highly concentrated, with all factorsof production flowing to the richest areas. (5) National policiesare closely associated with long-run economic growth rates.These facts do not support models with diminishing returns,constant returns to scale, some fixed factor of production,or an emphasis on factor accumulation. However, empirical workdoes not yet decisively distinguish among the different theoreticalconceptions of TFP growth. Economists should devote more efforttoward modeling and quantifying TFP.     

Internationalization and Stock Market Liquidity*

What is the impact of internationalization (firms raising capital and trading in international markets) on the liquidity of the remaining firms in domestic markets? To address this question, we assemble a panel database of nearly 2,900 firms from 45 emerging economies over the period 1989–2000, constructed from annual and daily data. First, we find evidence of migration. The domestic trading of firms that cross-list or issue depositary receipts in foreign public exchanges tends to decrease, while a significant proportion of their trading activity concentrates in international markets. Second, this migration is negatively related to the liquidity of the remaining firms in their home market through two separate channels. There are liquidity spillovers within markets: Aggregate domestic trading activity is positively associated with the liquidity of individual firms in the same market. Moreover, the proportion of trading abroad is negatively related to the liquidity of firms in the domestic market. * The paper was revised while Schmukler was visiting the IMF Research Department. We thank Tatiana Didier and Juan Carlos Gozzi Valdez for truly outstanding research assistance. We are grateful to Franklin Allen and Marco Pagano for very useful and detailed comments. We also received very helpful suggestions from Gordon Alexander, Luca Benzoni, Stijn Claessens, Peter Henry, Eduardo Loyo, Ugo Panizza, Valery Polknichenko, Helene Rey, Michael Schill, Frank Warnock, two anonymous referees, seminar participants at Dartmouth College, the Econometric Society Meetings (Chile), the NBER IASE Meeting in PUC-Rio (Brazil), the University of Minnesota, the University of Virginia (Darden School of Business), the University of Zurich, and the World Bank. For help with the data, we thank particularly Florencia Moizeszowicz and also Pamela Dottin, Monica Erpen, Dori Flanagan, Marina Halac, Angela Marshall, Konstantinos Tzioumis, Richard Webster-Smith, and Cheryl Workman. Levine is grateful for generous financial support from the BSI Gamma Foundation. Schmukler thanks the World Bank Latin American Regional Studies Program and Research Support Budget for ample financial support. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank.     

Governance and bank valuation

This paper assesses the impact of the ownership structure of banks and shareholder protection laws on bank valuations while controlling for differences in bank regulations. Except in a few countries with very strong shareholder protection laws, banks are not widely held. Rather, families or the State control banks. Furthermore, (i) larger cash-flow rights by the controlling owner boost valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash-flow rights mitigate the adverse effects of weak shareholder protection laws on valuations. These results suggest that ownership structure is an important mechanism for governing banks.     

Learning to play Bayesian games

This paper discusses the implications of learning theory for the analysis of games with a move by Nature. One goal is to illuminate the issues that arise when modeling situations where players are learning about the distribution of Nature's move as well as learning about the opponents' strategies. A second goal is to argue that quite restrictive assumptions are necessary to justify the concept of Nash equilibrium without a common prior as a steady state of a learning process.     

A remark on serial correlation in maximum likelihood

Maximum likelihood estimation can be consistent and asymptotically normal despite serial correlation in the residuals. The usual estimator of the asymptotic covariance of the parameter estimator is inconsistent, but an alternative consistent estimator is derived.     

The effect of scale size on obtaining information in preference testing

The effect of scale size upon response is the subject of this study. The same questions (regarding preferences) were put to four equal-sized groups measuring preference with four different scale lengths; a three-point scale, a five-point scale, a seven-point scale, and a nine-point scale. This paper describes the results obtained.     

2003 Lawrence R. Klein Lecture The Case Against Intellectual Monopoly*

In the modern theory of growth, monopoly plays a crucial role both as a cause and an effect of innovation. Innovative firms, it is argued, would have insufficient incentive to innovate should the prospect of monopoly power not be present. This theme of monopoly runs throughout the theory of growth, international trade, and industrial organization. We argue that monopoly is neither needed for, nor a necessary consequence of innovation. In particular, intellectual property is not necessary for, and may hurt more than help, innovation and growth. We argue that, as a practical matter, it is more likely to hurt.     

Does sustainable development lead to sustainability?

The shortcomings and contradictions of the present understanding of sustainable development as a concept and a strategy suggest that the very idea of sustainable development must be subjected to the most thorough-going reevaluation. In rejecting simplistic versions of sustainable development strategy, this paper offers the strategy of sustainable cities both as an alternative strategy and as a catalyst to long-term global sustainability. In so doing, it seeks not to replace all components of the strategy of sustainable development but instead to place them within a restructured strategic framework locating the design and building of sustainable cities at its centre.