It's Not Factor Accumulation: Stylized Facts and Growth Models

We document five stylized facts of economic growth. (1) The “residual” rather than factor accumulation,accounts for most of the income and growth differences across nations. (2) Income diverges over the long run. (3) Factor accumulation,is persistent while growth is not persistent and the growth path of countries exhibits remarkable variation across countries. (4) Economic activity is highly concentrated, with all factors of production flowing to the richest areas. (5) National policies closely associated with long-run economic growth rates. We argue that these facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, and that highlight the role of factor accumulation. Empirical work, however, does not yet decisively distinguish among the different theoretical conceptions of “total factor productivity growth.” Economists should devote more effort towards modeling and quantifying total factor productivity. *Easterly: Center for Global Development,and Institute for International Economics (WEasterly@iie.com);