Consider the following simple exercise. An economist living in the year 1929 (who has miraculous access to historical per capita GDP data) fits a simple linear trend to the natural log of per capita GDP for the United States from 1880 to 1929 in an attempt to forecast per capita GDP today, say in 1987. How far off would the prediction be? We can use the prediction error from this constant growth rate path as a rough indicator of the importance of the positive permanent movements in growth rates.
Figure I displays the somewhat surprising result of this exercise in light of the discussion of endogenous growth theory in the Introduction: the prediction is off by only about 5 percent of GDP!
Chad Jones, “Time Series Tests of Endogenous Growth Models” (1995):