References and Literature

The growth accounting framework is introduced and applied in Solow (1957). Jorgensen, Gollop and Fraumeni (1987) give a comprehensive development of this framework, empha­sizing how competitive markets are necessary and essentially sufficient for this approach to work.

Regression analysis based on the Solow model has a long history. More recent contribu­tions include Baumol (1986), Barro (1991) and Barro and Sala-i-Martin (1992). Barro (1991) has done more than anybody else to popularize growth regressions, which have become a very commonly-used technique over the past two decades. See Durlauf (1996), Durlauf, Johnson and Temple (2005) and Quah (1993) for various critiques of growth regressions, especially fo­cusing on issues of convergence. Wooldridge (2002) contains an excellent discussion of issues of omitted variable bias and how different approaches can be used (see, for example, Chapters 4, 5, 8, 9 and 10). The difficulties involved in estimating models with fixed effects and lagged dependent variables are discussed in Chapter 11. You should read more about the economic limitations of growth regressions and the econometric problems facing such regressions before embarking upon your own empirical analyses.

The augmented Solow model with human capital is a generalization of the model presented in Mankiw, Romer and Weil (1992). As noted in the text, treating human capital as a separate factor of production this somewhat unusual and difficult to micro-found. Different ways of introducing human capital in the basic growth model are discussed in Chapter 10 below.

Mankiw, Romer and Weil (1992) also provide the first regression estimates of the Solow and the augmented Solow models. A detailed critique of the Mankiw, Romer and Weil is provided in Klenow and Rodriguez (1997). Hall and Jones (1999) and Klenow and Rodriguez (1997) provide the first calibrated estimates of productivity (technology) differences across countries. Caselli (2005) gives an excellent overview of this literature, with a detailed dis­cussion of how one might correct for differences in the quality of physical and human capital 118

across countries. He reaches the conclusion that such corrections will not change the ba­sic conclusions of Klenow and Rodriguez and Hall and Jones, that cross-country technology differences are important.

The last subsection draws on Trefler (1993). Trefler does not emphasize the productivity estimates implied by this approach, focusing more on this method as a way of testing the Heckscher-Ohlin model. Nevertheless, these productivity estimates are an important input for growth economists. Trefler’s approach has been criticized for various reasons, which are secondary for our focus here. The interested reader should look at Gabaix (2000) and Davis and Weinstein (2001).

3.9.