Explaining economic growth

Abstract

The article analyses the methodological issues which arise in explaining European economic growth in the 1950s. The main concern is with Edward Denison’s Why Growth Rates Differ - which is the outstanding empirical contribution to growth literature. While his growth analysis is a major extension of the national accounting framework, it is argued that that he seriously underestimates the role of capital formation and trade liberalisation in the acceleration of Europe’s postwar growth. The author presents alternative estimates within the framework of Denison’s model which provide a better explanation of the growth experience of the 1950s. Denison’s implicit model and its historical origins are first described before his treatment of output, capital gains, labour inputs and other components of growth are analysed.

JEL: O47, O52, N14