The endogeneity of the natural rate of growth for a selection of Asian countries

Abstract

This paper questions the assumption in all of mainstream growth theory that the Harrod natural rate of growth is exogenously determined and independent of the pressure of demand in an economy. We first present a simple statistical technique for estimating the natural rate of growth, and then show how it is possible to test for its endogeneity. The model is applied to ten Asian countries, and the results support the conclusions from previous studies of Organisation for Economic Co-operation and Development and Latin American countries that the natural rate of growth is elastic to the actual rate of growth working through induced labor supply and productivity growth. Demand matters for economic growth.

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