Growing, Shrinking, and Long-Run Economic Performance: Historical Perspectives on Economic Development

Although long-run economic performance has improved primarily through a decline in the rate and frequency of shrinking rather than through an increase in the rate of growing, most analysis of economic development has focused on increasing the rate of growing. We examine the forces making for a reduction in the rate of shrinking. The main proximate factors considered are (1) structural change, (2) technological change, (3) demographic change, and (4) stabilization policy. We conclude by considering institutions and institutional change as the key ultimate factors behind the reduction in shrinking, showing how they operate through political stability.