Between 1973 and 2007 the twenty rich nations in the following chart averaged a 2% per year growth rate of per capita GDP. But some of them grew faster than others.
One reason is “catch-up”: partly because they could borrow technology from the leaders, countries that began with a lower per capita GDP tended to grow more rapidly. The growth rates shown here adjust for this.
What else matters? The list of hypothesized causes is lengthy. It includes investment, consumption, education, natural resources, macroeconomic policy, levels of taxation, welfare state size and structure, industrial policy, government regulations, the distribution of income, interest group organization, corporatist concertation, the partisan complexion of government, interest group-government coherence, cooperation-promoting institutions, and institutional coherence, among others.
In a chapter in the Oxford Handbook of Comparative Institutional Analysis, I take a stab at assessing the merits of some of these hypotheses. Many turn out to be of little use in understanding the cross-country variation in catchup-adjusted growth. Two that do seem to help are business and labor participation in policy making (“corporatism”) and limited product and labor market regulations, yet these go only a small part of the way toward accounting for the country differences.
An interesting element of the story is the tendency of countries that do well for a while to then lapse. During the course of these four decades an array of national models have gone in and out of fashion, first performing effectively and then falling on hard times: Germany (“modell Deutschland”) and Japan (“Japan Inc.”) in the 1970s and 1980s; the United States in the 1980s and 1990s; the Netherlands (“Dutch miracle”) in the 1990s; Denmark (“flexicurity”) and Ireland (“Celtic tiger”) in the 1990s and 2000s. Some later rebound, such as Sweden in the 2000s.
My conclusion: we know far less than we’d like to about this very important issue.