Economic growth: A review essay

The last decade has seen an explosion of research on economic growth. Based on a selective review of this literature and the recent book on Economic Growth by Robert Barro and Xavier Sala-i-Martin, we see four main challenges for future research. First, to more tightly link theory and evidence. We think a good way of achieving this would be to follow the methodology common in the business cycle literature of simulating models to compare their predictions to the data. Second, to develop new ways to empirically distinguish between competing theories of endogenous growth. Third, to develop more theories of international productivity differences. Finally, to collect detailed country data bearing on the process of technology diffusion.     

High-tech R&D subsidies Estimating the effects of Sematech

Sparked by concerns about their shrinking market share, 14 leading U.S. semiconductor producers, with the financial assistance of the U.S. government in the form of $100 million in annual subsidies, formed a joint R&D consortium — Sematech — in 1987. Using Compustat data on all U.S. semiconductor firms, we estimate the effects of Sematech on members' R&D spending, profitability, investment, and productivity. In so doing we examine two hypotheses: the ‘commitment’ hypothesis that Sematech obligates member firms to spend more on high-spillover R&D, and the ‘sharing’ hypothesis that Sematech reduces duplication of member R&D spending. Whereas the commitment hypothesis provides a rationale for the government subsidies, the sharing hypothesis does not. We find that Sematech induced members to cut their overall R&D spending on the order of $300 million per year, providing support for the sharing hypothesis.     

Indiaʼs mysterious manufacturing miracle

Using data on formal manufacturing plants in India, we report a large but imprecise speedup in productivity growth starting in the early 1990s (e.g., 1993–2007 compared to 1980–1992). We trace it to productivity growth within large plants (200 workers or more), as opposed to reallocation across such plants. As many economists believe Indian reforms during this era improved resource allocation, the absence of a growth pickup from reallocation is surprising. Moreover, when we look across industries we fail to robustly relate productivity growth to prominent reforms such as industrial de-licensing, tariff reductions, FDI liberalization, or lifting of small-scale industry reservations. Even under a generous reading of their effects, these reforms (at least as we measure them) account for less than one-third of the rapid productivity growth in Indian manufacturing from 1980–2007.     

What have we learned from a decade of empirical research on growth? Comment on "It's Not Factor Accumulation: Stylized Facts and Growth Models," by William Easterly and Ross Levine

William Easterly and Ross Levine document five stylized factsabout growth and argue that they imply a bigger role for totalfactor productivity (TFP) and technology than for physical andhuman capital. I agree with the first four of their facts andbelieve facts 1 and 3 provide strong support for their conclusionthat TFP should be the focus of growth research.