The local Solow growth model

This paper generalizes the empirical analysis of the Solow growth model to account for country-specific heterogeneity. This generalization relaxes the assumption made in bulk of empirical growth studies that all countries pos sess identical aggregate production functions. Our empirical results indica te that there is substantial country-specific heterogeneity in the Solow pa rameters-heterogeneity that is associated with differences in initial incom e. We therefore conclude that the explanatory value of the Solow growth mod el is substantially enhanced by allowing for country-specific, i.e. local, production functions. (C) 2001 Elsevier Science B.V. All rights reserved.