This paper sheds light on two problems in the Penn World Table
(PWT) GDP estimates. First, we show that these estimates vary substantially
across different versions of the PWT despite being derived from very similar
underlying data and using almost identical methodologies; that this
variability is systematic; and that it is intrinsic to the methodology
deployed by the PWT to estimate growth rates. Moreover, this variability
matters for the cross-country growth literature. While growth studies that
use low frequency data remain robust to data revisions, studies that use
annual data are less robust. Second, the PWT methodology leads to GDP
estimates that are not valued at purchasing power parity (PPP) prices. This
is surprising because the raison d’ętre of the PWT is to adjust national
estimates of GDP by valuing output at common international (purchasing power
parity [PPP]) prices so that the resulting PPP-adjusted estimates of GDP are
comparable across countries. We propose an approach to address these two
problems of variability and valuation.
Are structural reforms growth enhancing? Is the effectiveness of reforms constrained by a country's
institutional environment or by its distance from the technological frontier? This paper takes a new
and comprehensive look at these questions by employing a novel dataset that includes several kinds of
real (trade, agriculture and networks) and financial (domestic finance, banking, securities, and capital account)
reforms for an extensive list of developed and developing countries, going back as far as the 1960s. The main
finding of the paper is twofold. First pass evidence based on growth acceleration episodes and on growth regressions
suggest that both real- and financial-sector reforms are positively associated with growth. Second, the positive
reform-growth relationship is heterogeneous and influenced by a country's constraints on the authority of the
executive power and by its distance from the technological frontier.
Recent research on macroeconomic growth has been focused on resolving several key issues,
two of which, specification uncertainty of the growth process and variable uncertainty, have
received much attention in the recent literature. The standard procedure has been to assume
a linear growth process and then to proceed with investigating the relevant variables that
determine growth across countries. However, a more appropriate approach would be to recognize
that a misspecified model may lead one to conclude that a variable is relevant when in fact it
is not. This paper takes a step in this direction by considering conditional variable uncertainty
with full blown specification uncertainty. We use recently developed nonparametric model selection
techniques to deal with nonlinearities and competing growth theories. We show how
one can interpret our results and use them to motivate more intriguing specifications within the
traditional studies that use Bayesian Model Averaging or other model selection criteria. We
find that the inclusion of nonlinearities is necessary for determining the empirically relevant
variables that dictate growth and that nonlinearities are especially important in uncovering key
mechanism of the growth process.
In their seminal contribution Galor and Zeira (1993) show that income inequality can have a
major effect on economic development and prompted a vast literature investigating alternative
channels and mechanism through which the inequality-development relationship may work. In
this paper we test one of such channels, namely the inequality-human capital-development hypothesis.
Using a sample of 46 countries for the period 1970-2000 we obtain results that lend
strong support to this relationship. Our baseline results are shown to be unaffected from several
robustness checks.
We examine the relationship between the rapid pace of trade and financial globalization
and the rise in income inequality observed in most countries over the past two decades. Using
a panel of 51 countries over a 23 year period from 1981-2003, we find that technological
progress has had a greater impact than globalization on inequality. The limited overall impact
of globalization reflects two offsetting tendencies: whereas trade globalization is associated with
a reduction in inequality, financial globalization – and foreign direct investment in particular – is
associated with an increase in inequality. We find that policies aimed at reducing barriers to
trade and broadening access to education and credit can allow the benefits of globalization to be
shared more equally. A key finding is that both globalization and technological changes increase
the returns on human capital, underscoring the importance of education and training in both
developed and developing countries in addressing rising inequality.
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