How much long-run economic growth happens at the country level?

DRI Working Paper
By Diego Anzoategui, William Easterly, and Steven Pennings

Policy and academic discussions of economic growth usually focus on country-level outcomes and determinants. But how much of the variation in long-run growth really happens at the country level? To answer this question, we collect data on growth at the national level (from standard sources), or at the provincial level (from Gennaioli et al.  (2014 )), and decompose it into variation due to province, country-level or supra-national factors. Using national growth rates, we find that 2/3 of long run growth is due to country effects and the remaining 1/3 is explained by supra-national factors. In our dataset of provincial growth rates, 1/2 of long run growth is national, 1/5 is provincial and the rest is supra-national. Moreover, year dummies show significant variation, suggesting important non-national effects coming from global cycles or global secular shifts in growth. Consistent with a growing literature, our results suggest that many of the deep determinants of growth (for example institutions, geography or culture) may vary at sub-national or supra-national levels, and the importance of the nation-state for economic growth has been overstated.