Other determinants of GDP

Long-run economic growth is a highly complex phenomenon. Therefore, the measures discussed so far cannot provide a comprehensive picture of all the relevant factors. However, expanding the list of variables beyond those presented generates a variety of problems. Either data are not available or the theoretical link is not clear or the empirical link is not strong enough.

One very important candidate for help with modeling the progress of technology is spending on research and development (R&D). However, the ratio of R&D spending to GDP shows no correlation with the growth rates of GDP: countries with high rates of R&D spending do not grow systematically faster, a point made clearly by Klenow and Rodriguez-Clare (2005). While this lack of correlation does not imply that there is no partial effect of R&D, it suggests the need for very detailed analysis. On the other hand, countries with high R&D shares tend to have high levels of income. Given my focus on growth rates of GDP, this would suggest the use of changes in R&D shares to explain growth rates of GDP. However, R&D shares barely changed over the past decades, so they may not be too helpful in explaining long-term GDP growth.