Growth Accelerations: the Role of Official Development Assistance and Foreign Direct Investment

Following the seminal paper by Hausmann, Pritchett and Rodrik (2005; henceforth HPR, 2005) on the identification of growth acceleration episodes and exploration of possible triggers, research on the predictability of such episodes has grown in recent years. Unlike most papers in the literature, my research focuses on the magnitude of growth acceleration episodes. In this paper, I apply the filter of identifying growth acceleration episodes, proposed by HPR (2005), using updated versions of widely used datasets: the Penn World Table 8.0, 7.1 and the Maddison Dataset. 349 growth acceleration episodes are identified in PWT 8.0 for 167 economies over the time horizon 1950-2011, 280 growth acceleration episodes are identified in PWT 7.1 for 187 economies over 1950-2010, and 221 episodes emanating from the Maddison Dataset in a comparable panel dataset of 146 economies over the 1950-2008 period. Consistent with HPR (2005), I find that growth accelerations are “a fairly common occurrence”. In addition, my results show that 221 out of 349 growth accelerations identified in PWT 8.0 can find their counterparts in PWT 7.1. And, approximately 70% of the identified growth accelerations in PWT 7.1 can also be found in the Maddison dataset. I consider these to be robust growth acceleration episodes. When investigating the effects of foreign direct investment (FDI) and official development assistance (ODA) on the magnitude of growth acceleration episodes, I find that ODA tends to have positive, statistically significant and more sizable effects on accelerating economies than on non-accelerating economies for the least developed and low income countries. For the lower middle and upper middle income countries, FDI plays a positive, significant and more sizable role in promoting the magnitude of growth acceleration episodes.