The Long Term Growth Model

Abstract

The Long-Term Growth Model (LTGM) and its extensions are a suite of models and spreadsheet-based toolkits for analyzing future growth paths in developing countries, based on the Solow-Swan growth model. This volume, The Long-Term Growth Model: Fundamentals, Extensions, and Applications, is a collection of ten chapters that summarize the development of the LTGM over the last decade, and how it has been applied in practice. The volume starts with a description of the Standard LTGM, the simplest and easiest-to-use component of the LTGM suite. It then outlines several extensions to the basic model in important areas such as the implications of growth for poverty (built into the Standard LTGM), the effects of public capital, the determinants of total factor productivity (TFP) growth, and how growth drivers differ in natural resource rich economies. The final part of the book covers six case studies which apply the LTGM in a diverse range of countries: Malaysia, South Korea, Bangladesh, Syria, Egypt, and Sri Lanka. Although growth performances, constraints, and opportunities vary across country contexts, the LTGM framework outlined in this volume, analyzing future growth in terms of TFP, human capital, physical capital, and labor, is universally relevant. The chapters in the volume typically find that popular investment-led growth strategies are unsustainable in the long-run (including those growth strategies relying solely on high rates of public investment). This is mostly due to a declining marginal productivity of capital, though financing high investment rates without high savings rates is also a practical concern. Instead, they find that the most important driver of sustainable rapid long-run growth is productivity (TFP) growth.