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Economic stagnation, fixed factors, and policy thresholds

Authors
Journal
Journal of Monetary Economics
0304-3932
Publisher
Elsevier
Publication Date
Volume
33
Issue
3
Identifiers
DOI: 10.1016/0304-3932(94)90042-6
Keywords
  • Economic Growth
  • Economic Development

Abstract

Abstract An endogenous growth model with fixed factors predicts that countries will stagnate if policies pass a threshold; initial income does not affect whether a country stagnates. For growing countries, the model has transitional dynamics where growth first accelerates and then decelerates as income rises. The data confirm these predictions: a probit equation predicts well whether countries stagnate as a function of policies but not of income, a truncated regression for growing countries shows a ‘hump-shaped’ relation between initial income and subsequent growth and equality of coefficients on income and other variables between the stagnation and growth regimes is rejected.

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