Concluding remarks

The transition from stagnation to growth and the associated phenomenon of the great di­vergence have been the subject of an intensive research in the growth literature in recent years.

The advancement of unified growth theory was fueled by the conviction that the un­derstanding of the contemporary growth process would be limited and distorted unless growth theory would be based on micro-foundations that would reflect the qualitative aspects of the growth process in its entirety. In particular, the hurdles faced by less developed economies in reaching a state of sustained economic growth would remain obscured unless the origin of the transition of the currently developed economies into a state of sustained economic growth would be identified and its implications would be modified to account for the additional economic forces faced by less developed economies in an interdependent world.

Unified growth theory suggests that the transition from stagnation to growth is an inevitable outcome of the process of development. The inherent Malthusian interaction between the level of technology and the size and the composition of the population ac­celerated the pace of technological progress, and ultimately raised the importance of human capital in the production process. The rise in the demand for human capital in the second phase of industrialization and its impact on the formation of human capital, as well as on the onset of the demographic transition, brought about significant techno­logical advancements along with a reduction in fertility rates and population growth, en­abling economies to convert a larger share of the fruits of factor accumulation and tech­nological progress into growth of income per capita, and paving the way for the emer­gence of sustained economic growth.

Variations in the timing of the transition from stagnation to growth and thus in economic performance across countries (e.g., England’s earlier industrialization in comparison to China) reflect initial differences in geographical factors and historical accidents and their manifestation in variations in institutional, demographic, and cul­tural factors, trade patterns, colonial status, and public policy. In particular, once a technologically driven demand for human capital emerged in the second phase of in­dustrialization, the prevalence of human capital promoting institutions determined the extensiveness of human capital formation, the timing of the demographic transition, and the pace of the transition from stagnation to growth. Thus, unified growth theory provides the natural framework of analysis in which variations in the economic perfor­mance across countries and regions could be examined based on the effect of variations in educational, institutional, geographical, and cultural factors on the pace of the tran­sition from stagnation to growth.

Further advancements of unified growth theory would necessitate refinements of some of the central building blocks of the theory as well as additional empirical and quantitative examinations of the fundamental hypothesis based on contemporary and historical data. In particular, while the micro foundations for fertility decisions, popula­tion growth, and to a lesser extent human capital formation, appears profound in existing unified theories, the modeling of the factors that govern technological progress could be enhanced using recent insights from the theory of endogenous technological change as well as from the recent advancements in the study of the role of human capital and in­stitutional factors in technological progress.

The most promising and challenging future research in the field of economic growth in the next decades would be the exploration of the interaction between human evo­lution and the process of economic development. This research will revolutionize our understanding of the process of economic development as well as the process of human evolution, establishing socio-biological evolutionary foundations to the growth process.

Acknowledgements

The author wishes to thank Philippe Aghion, Graziella Bertocchi, Carl Johan Dalgaard, Matthias Doepke, Hagai Etkes, Moshe Hazan, Nils-Petter Lagerlof, Sebnem Kalemli- Ozcan, Daniel Mejia, Joel Mokyr, Omer Moav, Andrew Mountford, Nathan Sussman, and David Weil for valuable discussions and detailed comments, and Tamar Roth for excellent research assistance. This research is supported by a NSF Grant SES-0004304.

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