Operationalizing growth models

Abstract

AbstractWe introduce a novel approach to operationalizing growth models. Drawing on the most recent release of OECD Input–Output Tables, we compute the import-adjusted growth contributions of consumption, investment, government expenditures, and exports for sixty-six countries in the years 1995–2007 and 2009–2018, covering not only advanced Western economies but also Central and Eastern European, South-East Asian, and Latin American countries. We find that most are export-led or domestic demand-led and other forms of growth are rare. Our results differ from other classifications in that they reveal important geographical variation as well as temporal change. In a subsequent step, we illustrate the utility of the methodology by investigating the link between real exchange rate devaluation and export-led growth, a contentious issue in the existing literature. For pre-crisis advanced Western economies, we find an association between the two variables, which is statistically significant only when our new indicator is used.