Chapter 4: Introducing Real Time with a Narrative
The empirical study of economic growth occupies a position that is notably uneasy. . . . it is also one of the areas in which genuine progress seems hardest to achieve. The contributions of individual papers can often appear slender. Even when the study of growth is viewed in terms of a collective endeavour, the various papers cannot easily be distilled into a consensus that would meet standards of evidence routinely applied in other fields of economics. (Durlauf, Johnson and Temple 2004) There is a need to broaden beyond a theory emphasising proximate causes. Any reasonable explanation of economic growth should consider ultimate factors, those factors which influence the contribution of proximate factors. This means moving beyond conventional neoclassical theory. The capacity of the neoclassical model to explain economic development is limited by its focus on proximate factors. There is a need to consider the full complexity of the development experience and the full range of causative factors in order to produce a persuasive explanation of modern economic development. There are five sections in this chapter. The first identifies the main weaknesses of the neoclassical model, some arising from its failure to explain the behaviour of the real world, others more fundamental – behavioural assumptions whose validity is in doubt. The second section reviews the outcome of attempts to use regression analysis to identify the determinants of economic development and in particular to test neoclassical theory. The third section explores the distinction between proximate and ultimate causation. Two sub-sections indicate the nature of proximate...
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