Friday, July 24, 2009

Can Governments Promote Long Run Growth?

Looking back to the 2009-10 Federal Budget, much was made of the "infrastructure measures that represent a critical investment in the drivers of Australia's long run economic growth".

A recent paper suggests, however, that promoting long-run sustained growth is much trickier than boosting short-run growth. The paper concludes that "Except for the decades around WWII, there is no evidence of country specific effects on long run growth rates…Growth rates are determined by international factors, and are insensitive to national policies, especially for small countries. This implies severe restrictions on the ability of most governments to increase national long run growth rates". (HT: Stumbling and Mumbling).

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