Additive Growth

Growth theory is based on the assumption of exponential total factor productivity (TFP) growth. Across countries and time periods I find that TFP growth is actually linear. The additive growth model, unlike the exponential one, provides useful long-term forecasts for TFP. For the distant past the model suggests piecewise linear evolutions where the size of TFP increments changes in the late 1600’s, the early 1800’s, and around 1930. For the distant future the model predicts ever increasing increments in standards of living but with falling real interest rates and growth rates that converge to zero. The model suggests stable TFP growth in the US, but a TFP slowdown in the Euro area since the late 1990s.