GOOD POLICY OR GOOD LUCK - COUNTRY GROWTH-PERFORMANCE AND TEMPORARY SHOCKS

Much of the new growth literature stresses country characteristics, su ch as education levels or political stability, as the dominant determi nant of growth. However, growth rates are highly unstable over time, w ith a correlation across decades of 0.1 to 0.3, while country characte ristics are stable, with cross-decade correlations of 0.6 to 0.9. Shoc ks, especially those to terms of trade, play a large role in explainin g variance in growth. These findings suggest either that shocks are im portant relative to country characteristics in determining long-run gr owth, or that worldwide technological change determines long-run growt h while country characteristics determine relative income levels.