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WHAT HAVE WE LEARNED FROM RECENT EMPIRICAL GROWTH RESEARCH?t
ROBERT E. HALL AND CHARLES I. JONES *
In the title of his 1989 Richard T. Ely lecture to the American Economic Association, David Landes asked, "Why are we so rich and they so poor?" (Landes, 1990). It is an odd fact that the subsequent explosion of empirical work on economic growth has rarely returned to this question, choosing instead to focus on explaining differences in average growth rates across countries, computed over several decades. In this essay and in recent research (Hall and Jones, 1996), we examine economic levels instead of economic growth.
Levels of economic performance vary considerably across countries, and the differences are typically persistent over time. For example, the ratio of GDP per worker in the fifthrichest country to that in the fifth-poorest country in 1988 was 29. In 1960, this ratio was 26. The correlation between the log of GDP per worker in 1960 and 1988 is 0.91. Why are some countries so much richer and more productive than others? This is one of the fundamental questions in economics.
Our study of economic levels builds on a large body of work by economic historians, development economists, and theorists. Our contribution is to focus this often disparate work sharply on levels of output per worker and to exploit the substantial data-collection efforts of the contributors to the empirical growth literature. We conclude that differences in levels of economic success across countries are driven primarily by the institutions and government policies (or infrastructure ) that frame the economic environment in which people produce and transact. Societies with secure physical and intellectual property rights that encourage production are successful. Societies in which the economic environment encourages the diversion of output instead of its production produce much less output per worker. Diversion encompasses a wide range of activities, including theft, corruption, litigation, and expropriation.
I. Recent Empirical Growth Research
One of the original motivations for the empirical growth literature was the observation that average annual growth rates over several decades vary substantially across countries (see, e.g., Robert E. Lucas, 1988) . Simple calculations reveal that even small differences in such growth rates can add up over time to enormous differences in levels of...