Economic Shrinking

This paper examines the role of economic shrinking in the process of long term economic growth over the last millennia, the last two centuries, and the last 70 years. The paper's main conclusion is that economic shrinking, both the rate at which economies shrink when they shrink and the frequency that they shrink (i.e., real per capita GDP declines) is a more important determinant of economic growth over the long term than the rate of growth when economies grow. In fact, economies in the developed world actually grow more slowly when they grow than poorer economies.Several possible reasons for the decline in shrinking and the associated increase in economic stability are considered and found wanting as explanations: structural change, demography, technological change, and stabilization policy. The paper concludes that the ultimate source of the reduction in shrinking is institutions.