Growth analysis in developing countries: empirical issues and a small dynamic model

Ruben Mercado () and Martín Cicowiez

MPRA Paper from University Library of Munich, Germany

Abstract: Most developing countries are small open economies; they have quite limited absorptive capacity for new physical and human capital; face credit constraints in international financial markets; and, last but not least, they are usually far from the steady state. Thus, transitional dynamics starting from actual initial conditions matters, and matters a lot. To account for these features in the simplest way, we develop a small intertemporal model suitable for growth analysis in developing countries. We discuss each model equation, variable and parameter from an empirical point of view; we analyze the model’s main dynamic features; and we present illustrative simulations for a “typical” developing economy. We find a rich transitional dynamics induced by the existence of absorptive capacity functions and a foreign debt constraint. We also find that for many relevant variables and parameters there are still problems of lack of data and estimates. Thus, a good deal of empirical work on these issues is needed to make growth analysis in developing countries operational for applied policy analysis.

Keywords: economic growth modeling; developing countries (search for similar items in EconPapers)
JEL-codes: O11 O41 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-gro
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