1
$\begingroup$

Suppose a reform makes potential GDP higher, at what speed does actual GDP close the gap? I'm looking preferentially for empirical estimates, but anything that allows me to narrow it down will be helpful.

Dietz Vollrath says (https://growthecon.wordpress.com/2014/12/03/insert-policy-here-wont-boost-growth-rates/) that there's copious empirical evidence saying that the rate is about 2% (2% of the gap is closed each year); he doesn't provide sources and it seems awfully slow, but he is very confident on that. I've tried to find such an estimate, and failed.

Thanks!

$\endgroup$
1
$\begingroup$

First of all the speed is not constant, it declines as one gets closer (at least according to the text book predictions).

A classic paper on among others this issue is the one by Mankiw, Romer and Weil in the 1992 QJE "A Contribution to the Empirics of Economic Growth" They find convergence rates of about 1 to 2%. The paper is cited 16,000 times in Google scholar, so no doubt you'll find some material there too. I'm no macro-economist, but it seems an area of active research.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.