Trillions gained and lost: Estimating the magnitude of growth episodes

- We propose and implement a new technique for measuring the total magnitude of the impact of a growth episode.
- We also calculate the net present value (NPV) at the start of an episode of the gain or loss in output as a result of the episode.
- The top 20 growth accelerations have a NPV magnitude of 30 trillion dollars-twice the US GDP.
- The top 20 growth decelerations account for 35 trillion dollars less in NPV of output.
- What explains such staggering income gains and losses is crucial to understanding economic growth.

An increasingly large literature in the empirics of growth has viewed economic growth as an 'episodic phenomena'. We propose a new technique for measuring the total magnitude of a growth episode: the change in output per capita resulting from one structural break in the trend growth of output (acceleration or deceleration) to the next. Our method allows us to quantify the amount of income gain and loss during growth accelerations and growth decelerations. We show that the income gains and losses are staggering in magnitude, often multiples of the level of income at the start of the growth episode. The top 20 growth accelerations have a net present value (NPV) magnitude of 30 trillion dollars-twice the US GDP. The top 20 growth decelerations account for 35 trillion dollars less in NPV of output. What explains such 'staggering' gains and losses in income over relatively short periods is the key question that future research on economic growth should try and address.