Faculty Research and Creative Activity

Document Type

Article

Publication Date

January 2014

Abstract

This paper examines the impact of the drivers of economic growth in developing countries. We modify the conventional neoclassical growth model to account for the impact of the increase in the number of people working relative to the total population and that of the increase in the value added per worker over time. Based on data from the World Bank for the 1995-2010 period and a sample of thirty-eight developing economies we find that the growth rate of per capita GDP is linearly dependent on technological progress, gross capital formation, the initial level of output per capita, and labour productivity growth, measured as the growth rate of the value added per worker, as well as human capital formation, measured as the growth rate of the average number of years of formal schooling among all persons aged 15 and above. We observe that all coefficient estimates except one have their expected sign and these explanatory variables except one are found to be statistically significant. We note that the increase in the number of people working, relative to the total population does not help explain cross-country differences in per capita GDP growth in developing economies. Statistical results of such empirical examination will assist governments in developing countries identify policy fundamentals that are essential for economic growth.

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