Characterizing economic growth paths based on new structural change tests

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3 Citations (Scopus)

Abstract

One of the prevalent topics in the economic growth literature is the debate between neoclassical, semi-endogenous, and endogenous growth theories regarding the model that best describes the data. An important part of this discussion can be summarized in three mutually exclusive hypotheses: the "constant trend," the "level shift," and the "slope shift" hypotheses. In this article we propose the characterization of a country's economic growth path according to these break hypotheses. We address the problem in two steps. First, the number and timing of trend breaks is determined using new structural change tests that are robust to the presence, or not, of unit roots, surpassing technical and methodological concerns of previous empirical studies. Second, conditional on the estimated number of breaks and break dates, a statistical framework is introduced to test for general linear restrictions on the coefficients of the suggested linear disjoint broken trend model. We further show how the aforementioned hypotheses, regarding the economic growth path, can be analyzed by a test of linear restrictions on the parameters of the breaking trend model. We apply the methodology to historical per capita gross domestic product for an extensive list of countries. The results support the three alternative hypotheses for different sets of countries.

Original languageEnglish
Pages (from-to)845-861
Number of pages17
JournalEconomic Inquiry
Volume52
Issue number2
DOIs
Publication statusPublished - Apr 2014

Keywords

  • STATIONARY NOISE COMPONENT
  • UNIT-ROOT HYPOTHESIS
  • TIME-SERIES
  • GREAT CRASH
  • TREND
  • MODELS
  • BREAKS
  • PARAMETER
  • ROBUST
  • SHIFTS

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