Productive investment and growth: testing the validity of the AK model from a panel perspective

Abstract

In this paper, we analyse the relationship between productive physical investment and economic growth from a panel perspective for a sample of 61 countries spanning the period 1950-1992. The analysis can be thought of as two-fold. First, we test the empirical validity of AK models following the logic by Jones (1995). For that purpose, we determine the degree of persistence of physical investment rates and growth by employing recently developed panel unit roots tests which enable us to make more reliable inferences about the existence of stochastic trends in the series. Second, we estimate the long-run effect of physical investment on growth by using panel data techniques rather than cross-section regressions. Overall, our findings cast doubts on the rejection of the empirical validity of the AK model as suggested by Jones’ analysis.