The motivation behind this book is that hardy perennial among the questions of economic research: “What are the forces of economic growth and how can public policy enhance them?” (p. xiii). The authors adopt a time-series approach, investigating the growth experience of several developed countries (mainly the United States and Germany, with the occasional addition of France, Great Britain, and Japan) over the past half century. Then they compare the results with the theoretical predictions of the leading models of economic growth today.

Who is the winner? Which model offers the best fit? Generally speaking, the answer is “it depends” but the authors strive to go further than that. They defend their choice of the time-series approach over cross-sectional analysis by pointing out that the latter inevitably presupposes some underlying similarity between countries—a “one-size-fits-all” assumption that may be too strong. Instead, at any point in time, different countries find themselves at different stages of development that are dominated by different forces of growth. In this light, the authors argue that different stages require different models to explain them.

Chapters 1 and 2 serve as overviews of the relevant theoretical literature on growth and of the main empirical observations such as the Kaldor facts. The next four chapters are each devoted to a single growth model. These models include: P. M. Romer's externalities-driven growth (“Increasing Returns and Long-Run Growth.” Journal of Political Economy 94 [1986]: 1002–37); the human capital growth model developed by H. Uzawa and R. E. Lucas (Uzawa, “Optimum Technical Change in an Aggregative Model of Economic Growth.” International Economic Review 6 [1965]: 16–31; and Lucas, “On the Mechanics of Economic Development.” Journal of Monetary Economics 22 [1988]: 3–22); the Romer model of growth based on R&D investment (“Endogenous Technological Change.” Journal of Political Economy 98 [1990]: S71–S102); and, finally, models where growth is driven by a government's investment in productive public capital (such as R. J. Barro, “Government Spending in a Simple Model of Endogenous Growth.” Journal of Political Economy 98 [1990]: S103–S125).

With the exception of the first of these models, their performance is tested against the American and German experiences only. The authors stress that their aim is not to obtain fresh new estimates of structural parameters but rather to use such parameters (such as the share of labor in the aggregate production function) as indicators of whether the models are realistic and thus consistent with the data. The last chapter is devoted to the analysis of the interaction between growth and inequality. Throughout the book, the theoretical exposition is adequate to the task at hand. In describing the empirical strategy, the authors limit themselves to noting that they mostly rely on generalized method of moments and the nonlinear least squares, in combination with some numerical optimization algorithm.

Some interesting conclusions do emerge. In chapter 3, the externality in the Romer (1986)-type model is formulated so that growth in the technological knowledge becomes a by-product of investment in physical capital. Thus countries with a low stock of physical capital but with a high stock of existing knowledge have high marginal products of physical capital, high rates of accumulation, and therefore strong external effects. Hence their growth rates are high. As it turns out, such a specification fits well with the postwar data on growth in Germany, Japan, and France, which suffered much destruction during World War Two, but it does not fit well with the U.S. and U.K. experience, where damage was more limited. As for the Uzawa-Lucas and Romer (1990) models, the authors argue that these are typical one-stage-of-growth models, and that they lead to the theoretical prediction that education (or R&D) has a scale effect on the growth rate. Empirically, this has not been true in the long term, and only when such a scale effect is eliminated do these two models fit the postwar experience of the two countries.

The chapter on public capital and growth (chapter 6) is perhaps the most interesting. It offers intriguing interactions between the positive effect of public capital, the negative effect of taxation (crowding out), and the dynamic aspect of debt sustainability. The authors specify several distinct budget regimes and evaluate them in terms of “strictness” and effect on growth (strictness consists in defining what may or may not be financed by debt). The general conclusion seems to be that stricter budget discipline improves growth. Further, in their analysis of the long-term sustainability of debt financing (i.e., basically seeing whether the transversality condition holds in reality), the authors conclude that the U.S. debt is sustainable but that “the intertemporal budget constraint of the government has not been met for Germany” because of the debt incurred following German reunification (p. 125). This sounds puzzling: does that mean that the market in German bonds is about to unravel? The empirical conclusion implies that the German government owes more than it can ever repay. It must be said, though, that this model exhibits perhaps the worst fit of those estimated in the book.

Thus, although there are no clear, absolute winners, the analysis sheds some light on how far each model can go and what one can expect from it. One pitfall of the timeseries strategy is that whereas it may provide a good clue as to what the forces of economic growth are, it is not very useful in shedding light on the growth-enhancing policies. If one accepts the notion that each country is a special case, taking its own specific path to development, then international advice and learning from other countries' experience is likely to be of limited use. Moreover, if the authors press the argument that different stages of growth require different explanations, why test the models on a set of countries that are largely similar in terms of development? Data availability may be a constraint here, but I think it should be possible to find at least one, say, Latin American country, or one Asian country (other than Japan) to add more robustness to the book's findings.

The book is easy to read and the exposition of main ideas is easy to follow. Ultimately, it comprises more theory and econometrics than it does economic history. Nonetheless, economic historians will appreciate the careful evaluation of several current theories of economic growth in a concise and rigorous manner.