The Finance and Economics section of the April 8, 2017 edition of the Economist Magazine featured the work of Professor John Wallis and his colleague Stephen Broadberry (Oxford) on economic performance over the long term.  The article "Shrink Wrap: The history of growth should be all about recessions: Faster growth is not due to bigger booms but less shrinking" summarizes the main findings of their research into the sources of long run economic growth.  Rather than growing faster when they grow, Broadberry and Wallis show that when economies begin to sustain modern economic growth it is because the rate and frequency with which they shrink declines.  The growing rate, that is the average rate at which economies grow when they are growing, actually declines as economies began the process of modern growth.  A decrease in the rate and frequency with which economies shrink explains almost all of the increase in the long run rate of economic performance in the developed countries, measured by per captia GDP in their study.  Using data for the modern post 1950 period for the entire world, for Europe and its New World colonies from 1820 to the present, and for England, Spain, Italy, and the Netherlands back to the 14th century, they document and quantify the contributions of growing and shrinking to economic performance.  All three data samples show the same results with respect to shrinking and growing.  Countries in the developed world experience low growing rates, but even lower shrinking rates and shrinking frequencies (the share of years that their economies shrink).  They also show that traditional explanations for long run economic performance do not fit well with the long term data.  Structural change in the share of the economy in agriculture and industry, technological change, population fluctuations and Malthusian dynamics, and the frequency of warfare do not explain the long term patterns.  They suggest that the ultimate factor in the ability of some societies to reduce the rate and frequency of shrinking is related to institutions and institutional change.  The paper will be available as an NBER Working Paper, w23343, sometime in the week of April 24. Here is a link to the Economist piece:….

John Wallis, Professor of Economics, University of Maryland