Essays in Honour of A.P. Thirlwall
Edited by Philip Arestis, John S.L. McCombie and Roger Vickerman
Chapter 8: The Nature of Economic Growth and the Neoclassical Approach: More Questions than Answers?
John McCombie Introduction The study of economic growth is back in fashion. Mankiw (1995, p. 275) has commented ‘after many years of neglect, these questions [about economic growth] are again at the centre of macroeconomic research and teaching. […] Moreover, growth is not just important. It is also a topic which macroeconomists, with their crude aggregate models, have something useful to say’. Of course, concern with the determinants of economic growth, and why some countries are rich and others poor, goes back a long time; at least to Adam Smith’s Wealth of Nations (1776), if not before. Concern with problems of development has never has really been off the economists’ agenda. But Mankiw is referring here solely to neoclassical growth theory and there has indeed been a revival since the mid-1980s, with renewed emphasis on the augmented Solow growth model and also the development of endogenous growth models. Parallel with this has been the rapid increase in Barro-type regression analyses drawing on the greater availability of data, such as the Penn World Tables. Whether or not neoclassical growth theory has led to a greater understanding of the nature of economic growth is the question that I shall address in this chapter. While there have been disagreements within the neoclassical framework (such as the convergence debate), Mankiw’s comments accurately represent the consensus amongst neoclassical economists. Expositions of neoclassical growth theory are now central to many macroeconomic textbooks as a theory of the long run (e.g., Romer, 2001; Mankiw, 2002) rather than being...
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