Does cultural economics affect country’s competitiveness?

Abstract

This paper examines the determinants of economic growth in Peru over the post-liberalisation period 1990–2020 within an extended Mankiw–Romer–Weil (MRW) neoclassical framework augmented with foreign direct investment (FDI), trade openness, innovation proxied by resident patent applications, and disaggregated public expenditure on education and health per capita. The optimal model, ARDL (1,1,0,1,1,1,1,0), is selected from 64 candidate specifications via the Akaike Information Criterion, achieving an R² of 0.952 and an F-statistic of 12.56. Results reveal a negative first-lag auto-effect on GDP per capita (β = −0.443), indicative of structural growth inertia. Trade openness emerges as the single most robust and statistically significant growth driver (β = 0.318, p < 0.05), while public expenditure on education per capita contributes positively and significantly (β = 0.263, p < 0.05). FDI exerts a positive but marginally significant contemporaneous effect (β = 0.209, p = 0.062). Innovation proxied by resident patent applications exhibits a consistently negative and insignificant association with output growth (β = −0.032), revealing a structural disconnect between formal innovation activity and productive transformation. Bounds cointegration is confirmed (F-statistic = 5.623), and CUSUM/CUSUM-squared tests confirm full parametric stability across the estimation window. These findings carry direct comparative implications for resource-dependent developing economies in Asia, demonstrating that trade-led openness and targeted human capital investment—rather than innovation proxies alone—represent the most reliable near-term drivers of per capita income growth at an intermediate stage of development.

Keyword : Human Capital; Economic Growth; ARDL; MRW Model; Foreign Direct Investmen; Developing Economies