tag:blogger.com,1999:blog-17232051.post1676088527206976844..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Government and growth: a Rorschach testNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-17232051.post-49377938733635441972011-07-13T10:00:16.827-04:002011-07-13T10:00:16.827-04:00The Heritage Foundation does something similar by ...The Heritage Foundation does something similar by plotting GDP growth against its 'Index of Economic Freedom'. Its 'Index' consists of 10 separate components. It was easy to use the data and back out which components had positive or negative correlations. Freedom from high taxes actually had a negative correlation (higher taxes -> higher growth), albeit a small one. Far and away the most important factors were corruption and protection of property rights. It does not take a genius to see how corrupt societies with loose regard for individual property rights stunts growth.<br /><br />If you're looking at data and it takes mental gymnastics to prove your point, you might be lying to yourself.<br /><br />It's not a lot of government or a little government that dictates things, it's bad and good government.jimcasertahttps://www.blogger.com/profile/07599825260220591595noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24612457871283080702011-07-13T09:02:42.989-04:002011-07-13T09:02:42.989-04:00Since Joel Slemrod's excellent paper in Brooki...Since Joel Slemrod's excellent paper in Brookings Papers of Economic Activity 1995 there is ongong debate about this subject. I can understant why M. Henrekson is very careful in his suggestions: because his previous papers about the subject with Stefan Fölster has got quite a lot critique from other Swedish economists (see Agell et al. 2006 European economic review p. 211-218). The related question is why the Nordic countries (e.g. Denmark, Norway, Sweden and Finland) with a BIG government have been so successfull what regards to prosperity and equality?Hannu Tanninennoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66560323668296042682011-07-08T11:28:47.467-04:002011-07-08T11:28:47.467-04:00n.b.
I think interpreting growth regressions is ...n.b. <br /><br />I think interpreting growth regressions is a pig, and almost nobody seems to take them seriously as log linearisations of the neoclassical model, in which you really only have 3 things to play with <br /><br />1. a) determinants of the speed of convergence and 1. b) the distance you currently are beneath SS. <br /><br />[1.a) are not estimated but are reflected in size of coefficient on lagged income 1.b) is pinned down by current income and 3.]<br /><br />2. the exogenous steady-state growth rate.<br /><br />(that's a bit like a constant interacted with a time trend)<br /><br />3. determinants of the steady-state.<br /><br />If you take that model seriously, all those variables on the RHS of growh regression are 3., and have nothing to do with how fast you'll grow, despite that being how they are universally interpreted. <br /><br />If you then think, OK screw the neoclassical model, let's say endogenous growth is what's going on, or something else, I don't have the experience to say but I think it's something of a free for all. Incidently if you like this topic, my favorite paper is Kneller Bleaney and Gemmell:<br /><br />http://www.sciencedirect.com/science/article/pii/S0047272799000225Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-43797466836803677112011-07-08T11:09:51.888-04:002011-07-08T11:09:51.888-04:00Hi,
I think interpretation 1. is wrong.
Within...Hi, <br /><br />I think interpretation 1. is wrong. <br /><br />Within the neoclassical framework in which conditional convergence applies, if government is a determinant of the steady-state level of income, the coefficient should be positive if it increases the steady-state and negative if it doesn't. I think. <br /><br />You grow more slowly if you have achieved your steady-state, whatever it is, as opposed to undergoing transition dynamics (converging), but possessing a characteristic that allows a country to attain a higher steady-state (i.e. as hypothesized: a big government) does not tell you whether that steady-state has been achieved, or whether convergence is still happening. <br /><br />If you imagine something happening, like a positive shock that increases a country's steady-state (an increase in government size) then you will grow faster, but in the estimated model that's picked up because the gap between y* and initial income has just gotten bigger (y* has incresed), and it will have gotten bigger if the coefficient on govt. is positive. <br /><br />the model is a log linearisation around steady-state:<br /><br />log (yt) - log (yt-s) =<br />(1 - e^lt)log y* + (e^lt-1)log (yt-s)<br /><br />variables on the RHS are proxies for y*, steady-state income (ignoring steady-state exog growth rate). Something that raises y* should have a positive coefficient, if you have "raised income up to a higher level" then yt-s = y* so both sides of equation = 0. <br /><br />But it won't mean the coefficient on one of the steady-state determinants is negative because you are growing more slowly. <br /><br />many apologies if I have misunderstoodo you and have just commited the sin of teaching grandmother to suck eggs.Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-39394616614113599742011-07-08T07:55:59.119-04:002011-07-08T07:55:59.119-04:00Thanks, good call.Thanks, good call.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-41900976356180610842011-07-08T07:27:52.410-04:002011-07-08T07:27:52.410-04:00Very nice post - but I think your first link is su...Very nice post - but I think your first link is supposed to go to Tyler Cowen´s blog rather than (as now) the paper itself (which is also the second link).Anonymoushttps://www.blogger.com/profile/02388415117249020295noreply@blogger.com