Can we have growth when population is stagnant? Testing linear growth rate formulas of non-scale endogenous growth models

Endogenous growth theory has produced formulas for steady-state growth rates of income per capita, which are linear in the growth rate of the population. Depending on the details of the models, slopes and intercepts are positive, zero or negative. Empirical tests have taken over the assumption of exogenous population growth from the theoretical models and have mostly not distinguished steady-state results from transitional growth. In contrast, (i) we assume that there is the possibility of two-way causality as in unified growth theory, and (ii) we capture the steady-state property by a long-term relation in a series of vector-error-correction models, allowing (iii) successively for more heterogeneity. The average slope and intercepts of the growth equations are positive in this setting but less significant or even negative when allowing for heterogeneity. Intercepts are then positive for a majority of countries, zero for five or six countries, and perhaps negative for at most two countries. Results therefore favour fully- over semi-endogenous growth with and without slope homogeneity. The more frequent case is that long-run growth can remain positive if population stops growing.

JEL Classification: C33, O47 Keywords: Endogenous growth, population growth, panel times series estimation