Modeling Economic Growth through Geographical and Genetic Distance
Determining the reasons for different rates of economic growth across countries has always been an important area of research. Earlier models of economic growth that included the neoclassical and endogenous growth model explained per capita growth rates across countries by focusing on the stock of human and physical capital along with distance from steady state as implied by the standard production function. On the empirical front, these growth comparisons failed to incorporate the spatial growth factors that result from the spillover effects and linkages between different nations. The reason that these spatial growth factors are important is because of the interdependence of nations as well as the recent phenomenon of globalization linking different countries. Spillovers that are generated from the integration between nations vary from knowledge spillovers, technological spillovers, and neighborhood, regional, political, economic to social spillovers. The effect of the spillovers can vary with geographic distances between the economies, as geographically closer economies are likely to be more integrated in terms of trade and production. It can also vary with genetic or cultural distances as countries sharing similar norms, beliefs, conventions and traditions may act in similar way in the formulation of their economic policies, introducing new strategies and adapting new reforms. Since the kinship of being alike genetically will make the entire learning process much easier for a country, nations can easily benefit from other nations in terms of transfer of technology, knowledge, and superior economic policies regarding development of social sectors. Also, culturally similar countries can increase trust between inhabitants, thus promoting trade and investment and reducing the cost of doing business. Using a cross-country empirical framework, this research will estimate the relative importance geographic and genetic (or cultural) distances between economies on growth spillovers.