Can you reform your way to higher growth?

There are a lot of plausible policy changes that could raise the potential GDP of the U.S. (or many other countries). Whether those policy changes would lead to an appreciable change in growth rates is unclear, because the force that pushes economies towards a balanced growth path - convergence - operates very slowly. Then again, who says that a balanced growth path even exists?

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Academic References

  1. Barro, R. J. and Sala-i-Martin, X. (1992) “Convergence,” Journal of Political Economy, 100(2), pp. 223–251. Available at: Link.
    • Abstract

      A key economic issue is whether poor countries or regions tend to grow faster than rich ones: are there automatic forces that lead to convergence over time in the levels of per capita income and product? The authors use the neoclassical growth model as a framework to study convergence across the forty-eight contiguous U.S. states. They exploit data on personal income since 1840 and on gross state product since 1963. The U.S. states provide clear evidence of convergence, but the findings can be reconciled quantitatively with the neoclassical model only if diminishing returns to capital set in very slowly. Copyright 1992 by University of Chicago Press.

  2. Barro, R. J. (2016) “Economic Growth and Convergence: Applied to China,” China & World Economy, 24(5), pp. 5–19. doi: 10.1111/cwe.12172.
  3. Barro, R. J. and Sala-i-Martin, X. (1991) “Convergence across States and Regions,” Brookings Papers on Economic Activity, 22(1), pp. 107–182. Available at: Link.
    • Abstract

      No abstract is available for this item.

  4. Jones, C. I. (2002) “Sources of U.S. Economic Growth in a World of Ideas,” American Economic Review, 92(1), pp. 220–239.
    • Abstract

      Rising educational attainment and research intensity in recent decades suggest that the U.S. economy is far from its steady state. This paper develops a model reconciling these facts with the stability of U.S. growth rates. In the model, long-run growth arises from the worldwide discovery of ideas, which depends on population growth. Nevertheless, constant growth can temporarily proceed at a faster rate, provided research intensity and educational attainment rise steadily over time. Growth accounting reveals that these factors explain 80 percent of recent U.S. growth, with less than 20 percent coming from world population growth.

  5. Sala-i-Martin, X. X. (1996) “The Classical Approach to Convergence Analysis,” Economic Journal, 106(437), pp. 1019–1036. Available at: Link.
    • Abstract

      The concepts of sigma-convergence, absolute beta-convergence and conditional beta-convergence are discussed in this paper. The concepts are applied to a variety of data sets that include a large cross-section of 110 countries, the subsample of OECD countries, the states within the United States, the prefectures of Japan, and regions within several European countries. Except for the large cross-section of countries, all data sets display strong evidence of sigma-convergence and absolute beta-convergence. The cross-section of countries exhibits sigma-divergence and conditional beta-convergence. The speed of conditional convergence, which is very similar across data sets, is close to 2 percent per year. Copyright 1996 by Royal Economic Society.

  6. Solow, R. M. (1956) “A Contribution to the Theory of Economic Growth,” The Quarterly Journal of Economics. Oxford University Press, 70(1), pp. pp. 65–94. Available at: Link.
    • Abstract

      I. Introduction, 65.–II. A model of long-run growth, 66.–III. Possible growth patterns, 68.–IV. Examples, 73.–V. Behavior of interest and wage rates, 78.–VI. Extensions, 85.–VII. Qualifications, 91.

  7. Tabarrok, A. and Goldschlag, N. (2015) Is Regulation to Blame for the Decline in American Entrepreneurship? 15-11. George Mason University Working Paper. Available at: Link#.

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