The Success of the Solow Model II

From Mankiw, Romer, and Weil (1992)

Notes:

• The R² of growth is not so good: the model does significantly better at predicting levels than it does at predicting growth rates.

• A very large role for produced means of production:

  • The capital share parameter is 0.48
  • The education parameter is 0.23
  • This leaves only a small role--0.29 for raw labor and for resources.

• Which way does causation run?

  • Are countries poor because they have high rates of population growth or do they have high rates of population growth because they are poor?
  • Do countries have high rates of investment because they are rich, or are they rich because they have high rates of investment?

• Biased and unreliable regression results? Or

• Deep poverty traps

• Conditional vs. unconditional convergence

• And, of course, the Solow model has nothing to say about the rate of long-run growth.

• And, of course, the Solow model has nothing to say about the transition from the old days to the new days
  • And little to say about when and why that transition is made
• And nothing to say about when or if these new days will come to an end.