Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-07T23:08:37.409Z Has data issue: false hasContentIssue false

AK growth models: new evidence based on fractional integration and breaking trends

Published online by Cambridge University Press:  17 August 2016

J. Cunado
Affiliation:
Universidad de Navarra, Faculty of Economics, Edificio Biblioteca, Entrada Este, E-S1080 Pamplona, SPAIN, Phone: 00 34 948 425 625, Fax: 00 34 948 425 626, E-mail: [email protected]
L.A. Gil-Alana
Affiliation:
Universidad de Navarra, Faculty of Economics, Edificio Biblioteca, Entrada Este, E-S1080 Pamplona, SPAIN, Phone: 00 34 948 425 625, Fax: 00 34 948 425 626, E-mail: [email protected]
F. Pérez de Gracia
Affiliation:
Universidad de Navarra, Faculty of Economics, Edificio Biblioteca, Entrada Este, E-S1080 Pamplona, SPAIN, Phone: 00 34 948 425 625, Fax: 00 34 948 425 626, E-mail: [email protected]
Get access

Summary

According to AK growth models, permanent changes in investment rates have permanent effects on a country's rate of economic growth. Jones (Quarterly Journal of Economics, 1995, 110, 495-525) finds strong evidence against this prediction studying the time series properties of GDP growth rates and investment output ratios in fifteen OECD countries for the period 1950-1988. In this paper, we test the same hypothesis in four OECD countries using a longer span of data (1870-2002 for Canada, the UK and the US, and 1885-2002 for Japan). Moreover, instead of using classic approaches, which are based on stationary I(0) or unit roots I(1) processes, we use methodologies based on fractional integration. After examining the order of integration of GDP growth rates and non-residential investment ratios for these countries, we do not find much evidence against the “growth effects” prediction of AK models. In fact, we only find clear evidence against this theory for the UK case.

Résumé

Résumé

D'après les modèles de croissance de type AK, un changement permanent du taux d'investissement a des effets permanents sur le taux de croissance d'un pays. Jones (Quarterly Journal of Economies, 1995, 110, 495-525) confirme cette prédiction en analysant les propriétés des séries temporelles des taux de croissance du PIB et des taux d'investissement pour quinze pays de l'OCDE pour la période 1950-1988. Dans ce papier, nous testons la même hypothèse pour quatre pays de l'OCDE pour un plus longue période (1870-2002 pour le Canada, le Royaume-Uni et les Etats-Unis, et de 1885-2002 pour le Japon). Aussi, au lieu d'utiliser une approche classique basée sur des processus 1(0) ou des processus de racine unitaire 1(1), nous utilisons une méthodologie basée sur l'intégration fractionnelle. Après avoir examiné l'ordre d'intégration des taux de croissance du PIB et des ratios d'investissement pour les pays mentionnés auparavant, nous ne pouvons pas rejeter la prédiction concernant les « effets de croissance » des modèles de croissance de type AK. En fait, nous ne pouvons rejeter cette prédiction que pour le cas du Royaume-Uni.

Type
Research Article
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2009 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We would like to thank the Editor and two anonymous referees for improving this paper through their comments and suggestions. Juncal Cunado and Luis A. Gil-Alana gratefully acknowledge financial support from the Spanish Ministry of Science and Technology (SEJ2005-07657/ECON). Fernando Perez de Gracia acknowledges research support from the Spanish Ministry of Science and Technology and FEDER through grant SEJ2005-06302/ECON and from the Plan Especial de Investigacion de la Universidad de Navarra.

References

Barro, R. (1990), “Government spending in a simple model of endogenous growth”, Journal of Political Economy, vol. 98, pp. 103125.Google Scholar
Barro, R. (1991), “Economic growth in a cross section of countries”, Quarterly Journal of Economics, vol. 106, pp. 407443.Google Scholar
Barro, R. and Sala-i-Martin, X. (1995), Economic Growth, McGraw Hill, New York.Google Scholar
Beran, J., (1995), “Maximum likelihood estimation of the differencing parameter for invertible short and long memory ARIMA models”, Journal of the Royal Statistical Society, Series B, vol. 57, pp. 659672.Google Scholar
Beran, J. and Terrin, N., (1996), “Testing for a change of the long memory parameter”, Biometrika, vol. 83, pp. 627638.Google Scholar
Binder, M. and Pesaran, M.H., (1999), “Stochastic growth models and their econometric implications”, Journal of Economic Growth, vol. 4, pp. 139183.Google Scholar
Bloomfield, P., (1973), “An exponential model in the spectrum of a scalar time series”, Biometrika, vol. 60, pp. 217226.Google Scholar
Bos, C.S., Franses, P.H. and Ooms, M., (1999), “Long memory and level shifts: reanalyzing inflation rates”, Empirical Economics, vol. 24, pp. 427449.Google Scholar
Bos, C.S., Franses, P.H. and Ooms, M., (2002), “Inflation, forecast intervals and long memory regression models”, International Journal of Forecasting, vol. 18, pp. 243264.Google Scholar
Dickey, D.A. and Fuller, W.A., (1979), “Distribution of the estimators for autoregressive time series with a unit root”, Journal of the American Statistical Association, vol. 74, pp. 427431.Google Scholar
Diebold, F.S. and Rudebusch, G.D., (1991), “On the power of Dickey-Fuller tests against fractional alternatives”, Economic Letters, vol. 35, pp. 155160.Google Scholar
Diebold, F.S. and Inoue, A., (2001), “Long memory and regime switching”, Journal of Econometrics, vol. 105, pp. 131159.Google Scholar
Dufour, J.M. and King, M., (1991), “Optimal invariant tests for the autocorrelation coefficient in linear regressions with stationary or nonsta-tionary errors”, Journal of Econometrics, vol. 47, pp. 115143.Google Scholar
Elliott, G., Rothemberg, T. and Stock, J.H., (1996), “Efficient tests for an autoregressive unit root”, Econometrica, vol. 64, pp. 813839.Google Scholar
Engle, R.F. and Smith, A.D.,(1999), “Stochastic permanent breaks”, Review of Economics and Statistics, vol. 81, pp. 553574.Google Scholar
Fuller, W.A., (1976), Introduction to statistical time series, Wiley, New York, NY.Google Scholar
Geweke, J. and Porter-Hudak, S., (1983), “The estimation and application of long memory time series models”, Journal of Time Series Analysis, vol. 4, pp. 221238.Google Scholar
Gil-Alana, L.A., (2000), “Mean reversion in the real exchange rates”, Economics Letters, vol. 16, pp. 285288.Google Scholar
Gil-Alana, L.A., (2007), “Fractional integration and structural breaks at unknown periods of time”, forthcoming in Journal of Time Series Analysis.Google Scholar
Gil-Alana, L.A. and Hualde, J., (2008), “Fractional integration and cointegration. An overview and an empirical application”, In Palgrave Handbook of Econometrics, Vol. 2, forthcoming.Google Scholar
Gil-Alana, L.A. and Robinson, P.M., (1997), “Testing of unit roots and other nonstationary hypotheses in macroeconomic time series”, Journal of Econometrics, vol. 80, pp. 241268.Google Scholar
Granger, C.W.J., (1980), “Long memory relationships and the aggregation of dynamic models”, Journal of Econometrics, vol. 14, pp. 227238.Google Scholar
Granger, C.W.J, and Hyung, N., (2004), “Occasional structural breaks and long memory with an application to the S&P 500 absolute stock returns”, Journal of Empirical Finance, vol. 11, pp. 399421.Google Scholar
Hassler, U. and Wolters, J., (1994), “On the power of unit root tests againts fractional alternatives”, Economic Letters, vol. 45, pp. 15.Google Scholar
Jones, C.L, (1995), “Time series tests of endogenous growth models”, Quarterly Journal of Economics, vol. 110, pp. 495525.Google Scholar
Kocherlakota, N.R. and Yi, K.M., (1997), “Is there endogenous long-run growth? Evidence from the United States and the United Kingdom”, Journal of Money, Credit and Banking, vol. 29, pp. 235262.Google Scholar
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P., and Shin, Y., (1992), “Testing the null hypothesis of stationarity against the alternative of a unit root”, Journal of Econometrics, vol. 54, pp. 159178.Google Scholar
Lau, S.-H.P., (1999), “1(0) In, integration and cointegration out: time series properties of endogenous growth models”, Journal of Econometrics, vol. 93, pp. 124.Google Scholar
Lee, D. and Schmidt, P., (1996), On the power of the KPSS test of stationarity against fractionally-integrated alternatives, Journal of Econometrics 73, 285302.Google Scholar
Lobato, I.M. and Savin, N.E., (1998), “Real and spurious long memory properties of stock market data”, Journal of Business and Economics Statistics, vol. 16, pp. 261268.Google Scholar
Lucas, R., 1988, “On the mechanics of economic development”, Journal of Monetary Economics, vol. 22, pp. 341.Google Scholar
Maddison, A., (1992), “A long run perspective on saving”, Scandinavian Journal of Economics, vol. 94, pp. 181196.Google Scholar
Maddison, A., (2001), The world economy: A millennial perspective, Paris, OECD.Google Scholar
Mankiw, G., Romer, P., and Weil, D.N., “1992, A contribution to the empirics of economic growth”, Quarterly Journal of Economics, vol. 107, pp. 407437.Google Scholar
Marinucci, D. and Robinson, P.M., (1999), “Alternative forms of fractional Brownian motion”, Journal of Statistical Planning and Inference, vol. 80, pp. 111122.Google Scholar
Michelacci, C. and Zaffaroni, P, (2000), “(Fractional) beta convergence”, Journal of Monetary Economics, vol. 45, pp. 129153.Google Scholar
McGrattan, E.R., (1998), “A defense of AK growth models”, Federal Reserve Bank of Minneapolis Quarterly Review, vol. 22, pp. 1327.Google Scholar
Miiller, U., (2005), “Size and power of tests for stationarity in highly auto-correlated time series”, Journal of Econometrics, vol. 128, pp. 195213.Google Scholar
Ng., S. and Perron, P., (2001), “Lag length selection and the construction of unit root tests with good size and power”, Econometrica, pp. 69, pp. 15291554.Google Scholar
Phillips, P.C.B. and Perron, P., (1988), “Testing for a unit root in a time series regression”, Biometrika, vol. 75, pp. 335346.Google Scholar
Rebelo, S., (1991), “Long-run policy analysis and long-run growth”, Economic Journal, vol. 38, pp. 543 559.Google Scholar
Robinson, P.M., (1978), “Statistical inference for a random coefficient autoregressive model”, Scandinavian Journal of Statistics, vol. 5, pp. 163168.Google Scholar
Robinson, P.M., (1994), “Efficient tests of nonstationary hypotheses”, Journal of the American Statistical Association, vol. 89, pp. 14201437.Google Scholar
Robinson, P.M., (1995a), “Log-periodogram regression of time series with long range dependence”, Annals of Statistic vol. 23, pp. 10481072.Google Scholar
Robinson, P.M., (1995b), “Gaussian semiparametric estimation of long range dependence”, Annals of Statistics, vol. 23, pp. 16301661.Google Scholar
Romer, P., (1986), “Increasing returns and long-run growth”, Journal of Political Economy, vol. 94, pp. 10021037.Google Scholar
Solow, R.M., (1956), “A contribution to the theory of economic growth”, Quarterly Journal of Economics, vol. 70, pp. 6594.Google Scholar
Sowell, F. (1992), “Maximum likelihood estimation of stationary univariate fractionally integrated time series models”, Journal of Econometrics, vol. 53, pp. 165188.Google Scholar