Mankiw, Romer and Weil: A Contribution to the Empirics of Economic Growth

NG Mankiw, D Romer, and DN Weil, “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics 107, no. 2 (1992): 407-437.

"This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts" (407).


"This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two variables determine the steady-state level of income per capita. Because saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country" (407).


These authors argue that, on the whole, the Solow model gets it right: when savings are up, income is up; when population growth is up, income is down. However, they also argue that the most basic Solow model left out some important variables that help to define growth: the accumulation of both human capital and physical capital. "First, for any given rate of human capital accumulation, higher saving or lower population growth leads to a higher level of income and thus a higher level of human capital; hence, accumulation of physical capital and population growth have greater impacts on income when accumulation of human capital is taken into account. Second, human-capital accumulation may be correlated with saving rates and population growth rates; this would imply that omitting human-capital accumulation biases the estimated coefficients on saving and population growth" (408).

"It appears that the augmented Solow model provides an almost complete explanation of why some countries are rich and other countries are poor" (408).

The authors then explore the phenomena of convergence, finding that there is little evidence for this and that countries will eventually settle at different steady-states of personal income relative to the amount of physical capital, savings and human capital.

"Overall, the findings reported in this paper cast doubt on the recent trend among economists to dismiss the Solow growth model in favor of endogenous-growth models that assume constant or increasing returns to scale in capital...This conclusion does not imply, however, that the Solow model is a complete theory of growth: one would like also to understand the determinants of saving, population growth, and worldwide technological change, all of which the Solow model treats as exogenous. Nor does it imply that endogenous-growth models are not important, for they may provide the right explanation of worldwide technological change. Our conclusion does imply, whoever, that the Solow model gives the right answers to the questions it is designed to address" (409).

They then work out their equations.

"Over the past few years economists studying growth have turned increasingly to endogenous-growth models. These models are characterized by the assumption of non-decreasing returns to the set of reproducible factors of production...Among the implications of this assumption are that countries that save more grow faster indefinitely and that countries need not converge in income per capita, even if they have the same preferences and technology" (421).

They then explore the concept of convergence, and respond to critics, specifically Barro, who argues that the Solow model emphasizes a convergence of income per capita, and that this does not relate directly to the evidence. These authors claim that the Solow model does not, in fact, predict convergence, but is explicit in its analysis that different countries will reach different steady-states.

"We have suggested that international differences in income per capita are best understood using an augmented Solow growth model" (432).