Exploring the driving factors of economic growth in the world's largest economies

Abstract

This study explores the main factors of economic growth in a panel of the world's 20 biggest economies considering the data period of 39 years (1980–2018). In particular, the roles of international trade, energy use, human capital, and foreign direct investment (FDI) are examined in addition to the roles of capital and labour. To estimate the results the panel autoregressive distributed lag (ARDL) method of Pool Mean Group (PMG) estimator and heterogeneous panel causality test are used with due consideration of cross sectional dependence test, cointegration test and other necessary diagnostic tests. The obtained results ratify the cointegration among the variables used. Energy use, trade, capital, labour, human capital development and foreign direct investment have positive and significant impacts on the economic growth of these countries in the long run. In the short run energy use, trade and capital also have positive and significant effects, but human capital has negative effect on economic growth. A bidirectional causal relationship between economic growth and trade, capital, labour and human capital, and a unidirectional causal link from economic growth to energy use and foreign direct investment are also found. The obtained results are theoretically consistent, and therefore have important policy implications.

Keywords

• Economic growth
• Trade
• Energy
• Human capital
• FDI
• ARDL