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BRIEF

The Long Term Growth Model

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About the Model

The Long Term Growth Model (LTGM) is an Excel-based tool to analyze long-term growth scenarios building on the celebrated Solow-Swan Growth Model. The tool can also be used to assess the implications of growth (and changes in inequality) for poverty rates. The focus of the tool is on simplicity, transparency and ease-of-use: there are no macros, and the very low data requirements mean the tool can be applied in almost any country. The tool is useful for planning/vision documents and country reports, but is not designed for short-term forecasting. The building blocks of growth are savings, investment and productivity, but the model also analyzes human capital, demographics, the external sector (external debt, FDI, CAB) and labor force participation by gender.

Policy Research Talk on Long-Term Growth in Developing Countries (December 14, 2021)

This Policy Research Talk presents the fundamentals of the LTGM, its various extensions, as well as examples of its applications in different countries around the world.

Presentation |  Video

LTGM Files

Latest version: LTGM v5.0 (Excel file)

Model description (PDF)

Technical Slides (2019) - Model Overview and How to Use the Spreadsheet (PDF)

Instructions and Worked Example Simulations (PDF) [Training version of LTGM (Excel file)]

Note that example simulations are purely illustrative and do not necessarily reflect the views of the World Bank.

The LTGM is regularly updated so check back for new versions. Last updated: December 2021 

Public Capital Extension (LTGM-PC)

The LTGM-PC is an extension of the standard LTGM (above) which separates the total capital stock into public and private portions, and adjusts the public component for quality. The LTGM-PC spreadsheet allows users to analyze the effect of an increase in public or private investment or the quality of public investment on economic growth. The LTGM-PC spreadsheet is similar to the standard LTGM: transparent (no macros) and easy-to-use, and with all relevant data preloaded for almost all countries. The LTGM-PC also includes a new cardinal Infrastructure Efficiency Index (IEI), which measures the quality of public capital. In the model, public investment generates a larger boost to growth if existing stocks of public capital are low, or if public capital is particularly important in the production function. The LTGM-PC is described in the working paper “Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model” by Devadas and Pennings. The Excel tool, working paper, and an appendix to the working paper are downloadable:

LTGM-PC latest version: LTGM-PC v5.0 (Excel file)

LTGM-PC Working paper | Appendix (PDF) | Infrastructure Efficiency Index (Excel file)

Total Factor Productivity Extension (LTGM-TFP)

The LTGM-TFP is an Excel-based companion to the standard LTGM that helps users assess a country’s potential for improving its TFP growth rate over the next few decades. The LTGM-TFP toolkit combines a country’s scores for innovation, education, market efficiency, infrastructure, and institutions—which have been shown in the literature to affect TFP growth—into a new “TFP determinant index”. Based on a fixed-effects regression model, the “TFP determinant index” then quantifies the future path for TFP growth in the LTGM-TFP toolkit for each country. That TFP growth path can be fed into the standard LTGM or LTGM-PC spreadsheets to determine paths for GDP growth or poverty reduction. The methodology is described in the companion working paper (please cite when using the toolkit):

Kim, Young Eun; Loayza, Norman V.. 2019. “Productivity Growth: Patterns and Determinants across the World.” Policy Research Working Paper, No. WPS 8852. Washington, D.C.: World Bank Group.

The Excel-based tool and working paper are downloadable:

LTGM-TFP latest version: LTGM-TFP v1 (Excel file)

LTGM-TFP Working paper (PDF)

Natural Resource Extension (LTGM-NR)

The LTGM-NR is an extension of the standard LTGM which adds natural resource sector to analyze (i) how long-run growth evolves in commodity exporting countries, (ii) the long-run growth impacts of commodity price shocks and (iii) the long-run growth impacts resource discoveries. The LTGM-NR spreadsheet is similar to the standard LTGM: transparent (no macros) and easy to use, with relevant data preloaded data for 56 resource-rich countries. The LTGM-NR also allows the analysis of how different fiscal rules – such as a Hartwick rule, structural surplus rule, or balanced budget rule – affect long run growth. In the default version of the model, (i) fiscal rules that prioritize public investment generally lead to the largest increases in long-term growth and (ii) we differentiate between different output measures such as real Gross Domestic Income (GDI) (which is directly affected by commodity price shocks) and real GDP (which is only affected indirectly). The LTGM-NR also captures the effect of other (non-resource) growth fundamentals in resource-rich economies, and it is better suited to general growth analysis in these countries than the standard LTGM. However, the LTGM-NR is a long-run supply-side model, and so does not capture the short-run effects of commodity price and discovery shocks that operate through aggregate demand. The LTGM-NR is described in the working paper “Assessing the Effects of Natural Resources on Long-Term Growth: An Extension of the World Bank Long Term Growth Model” by Loayza, Mendes, Mendes Ramos and Pennings (please cite when using the tool). The working paper, spreadsheet-based toolkit, and instructions on how to use it (including a worked example) are downloadable:

LTGM-NR latest version: LTGM-NR v1.0 (Excel file)

LTGM-NR Working paper (PDF) |  Instructions and worked example (PDF)


Examples

Some examples of publicly available reports or working papers that used the LTGM (including early variants):

The LTGM is the product of a collaboration between the Development Research Group’s Macroeconomics and Growth Team and the Macroeconomics, Trade and Investment Global Practice.


Experts

Steven Pennings

Economist

Norman Loayza

Director, Global Indicators Group