Long-term economic growth is a key driver of poverty reduction and higher living standards. Boosting growth continues to be one of the top priorities of policymakers in developing countries. But what economic growth rates can be expected in developing countries over the next few decades? And what role are different drivers of growth likely to play in individual countries? These questions are as challenging as they are important because of the difficulties in making projections over long time horizons, the heterogeneity in country contexts, and the controversies regarding the empirical determinants of economic growth.
In this Policy Research Talk, World Bank economist Steven Pennings will present the Long-Term Growth Model (LTGM), which is a suite of papers and toolkits that try to answer these questions in a simple and transparent way. The basic LTGM and its extensions analyze future long-term growth scenarios with sufficiently low data requirements so that they can be readily applied to almost every country. The tools build on the celebrated neoclassical Solow-Swan Growth Model by taking assumptions about the future path of growth fundamentals – such as, total factor productivity (TFP) growth, investment rates, demographic trends, and schooling rates – to produce future paths for GDP growth, GDP per capita levels, and poverty rates over the next three decades. The LTGM suite (available at www.worldbank.org/LTGM) has been applied in World Bank policy reports (including Country Economic Memorandums and Systematic Country Diagnostics) in more than 40 countries in every region, and many government officials have been trained to use the tools. This Policy Research Talk will present the fundamentals of the Long-Term Growth Model, its various extensions, as well as examples of its applications in different countries around the world.
The monthly Policy Research Talks showcase the latest findings of the World Bank’s research department, challenge and contribute to the institution’s intellectual climate, and re-examine conventional wisdom in current development theories and practice. These talks facilitate a dialogue between researchers and operational staff and inform World Bank operations both globally and within partner countries. Read More »