Abstract
This paper hypothesizes that the structure of macroeconomic governance with its financial and non-financial dynamics is, among other things, a key determinant of economic performance, taking the case of the United States from 1952Q1 to 2018Q4. The paper tests its hypothesis by developing three modes of macroeconomic governance based on complementarities and a time-series model to be used for the empirical analysis of these modes and by using a linear and nonlinear Autoregressive Distributed Lag cointegration model. In so doing, the paper compares five periods between 1952Q1 and 2018Q4 using the same time-series model to illustrate how the changing structure of macroeconomic governance affects long-term economic performance over time. The paper reaches three conclusions. First, higher economic performance in 1952Q1–1968Q3 originates in, among other things, a systemic mode of macroeconomic governance. Second, lower economic performance in the three sub-periods between 1968Q4 and 2008Q2 is due to a fragmented mode of macroeconomic governance. Third, the sharp decline in economic performance in 2008Q3–2018Q4 originates in the outbreak and deepening of a structural trap due to long-run structural fragmentation.
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Source: Authors’ own elaboration based on the results of ARDL and VECM estimates for the period
Source: Authors' elaboration based on the results of ARDL and VECM estimates for the period
Source: Authors’ own elaboration based on the results of ARDL and VECM estimates for the period
Source: Authors’ own elaboration based on the results of ARDL and VECM estimates for the period
Source: Authors’ own elaboration based on the results of ARDL and VECM estimates for the period
Source: Authors’ own elaboration based on the results of ARDL estimates for the period
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As a multivariate technique, PCA analyzes a data table or matrix in which observations are described by several inter-related quantitative variables. Combining these variables in a single variable, PCA aims mainly to represent the data table as a set of new orthogonal variables called principal components. The central idea of PCA is to reduce the dimensionality of a data set consisting of a large number of interrelated variables while retaining as much as possible of the variation present in the data set. This is achieved by transforming the principal components into a new set of variables so that the first few retain most of the variation present in all of the original variables (Jolliffe 1986).
By neoclassical governance, we refer to the applied governance of an equilibrium price and market theory of economic systems drawn upon the coordinating power of markets and the efficiency of market-determined resource allocation. The term 'neoclassical' was first used by Veblen [1900] to describe the [dis]continuity of classical political economy. As Veblen (1900: 247) put it, the essence of neoclassical governance is "a self-directing, and selective attention in meeting the complex of forces that make up its human [emphasis added] environment." We prefer to use the term neoclassical rather than neoliberal, not only because our focus is on economic governance but also because it is the economic, as opposed to political, organization of capitalism that underlies its contemporary conduct.
Keynes theorized that discretionary economic policy could bring the economy from underemployment to full employment by creating a (positive) multiplier effect. He also explicitly noted that prices would rise endlessly when the economy is above full employment (“…after full employment has been reached, a further rise of prices will…mean that the rate of interest will have to rise somewhat to prevent prices from rising indefinitely”(Keynes 1964 [1936]: 290).
As there was a break in the Model 3.A., demonstrated by CUSUM of squares test, we added a dummy to the model for the break years.
We added a break dummy to Model 5.1.S. as there was a break in the model, illustrated by CUSUM test.
The structural trap differs from the middle-income trap in two main ways: it can occur in developing as well as developed countries; and it arises out of the interlocking of political, economic, and cultural dynamics in a structure that generates inefficiency, inequality, and industrial leisure, as opposed to the mere inability of a country to increase its GDP per capita above a certain threshold.
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Acknowledgements
The authors would like to thank the anonymous reviewers and the commissioning editor, Bart Verspagen, for their insightful, detailed, and instructive remarks on the paper.
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Taner Akan has developed and written the analytical framework, written the analytical sections and empirical methodology, and applied the empirical tests. Seref Bozoklu has written the empirical methodology, contributed to the drafting and interpretation of econometric results, and edited the manuscript. Aycan Hepsag has contributed to the application of empirical tests.
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Akan, T., Hepsağ, A. & Bozoklu, Ş. Explaining U.S. economic growth performance by macroeconomic governance, 1952–2018. J Evol Econ 32, 1437–1465 (2022). https://doi.org/10.1007/s00191-022-00800-8
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DOI: https://doi.org/10.1007/s00191-022-00800-8