by Andrew Ellson
In today's budget Gordon Brown trumpeted the country's economic record under his guidance and extolled the virtues of economic stability. Andrew Ellson looks at recent ESRC research into economic growth and asks whether the Chancellor should be taking the credit for Britain's economic rejuvenation?
Gordon Brown opened his ninth, and what many commentators believe will be his last budget speech, by praising his record as Chancellor of the Exchequer.
"Britain is today experiencing the longest period of sustained economic growth since records began in the year 1701," Mr Brown told a packed commons chamber. "And the foundation of this Budget is our determination to maintain British stability and growth."
The UK has now experienced 50 consecutive quarters of economic growth but ESRC-funded research by Dr Denise Osborn of the University of Manchester, highlights the importance of monetary rather than political policy, to this macroeconomic success story.
By studying economic data on interest rates, inflation and growth in the US, the UK and Germany over the last 30 years, Dr Osborn has established the pre-eminent influence of monetary policy on inflation and output.
For example, Dr Osborn found that the introduction of inflation targeting in the UK in 1992 led to inflation declining, becoming less persistent and responding more quickly to changes in other variables. She also found that US and German monetary policy was an important influence on business cycles in other European countries including the UK.
"Britain is today experiencing the longest period of sustained economic growth since records began"
Mr Brown has certainly made the tough political decisions that created the conditions for Britain's sustained run of economic growth. In 1997 he granted independence to the Bank of England giving it the power to conduct monetary policy and set interest rates without political interference but whether he can take full credit for the subsequent low inflation, low interest rate economy remains open to question.
Another, more controversial finding from Dr Osborn's research suggests that it might be wrong for Mr Brown to pursue policies that "lock in stability" at all costs.
The research shows that policies designed to ensure steady economic growth do not necessarily lead to higher growth on average. In fact Dr Osborn says that growth and volatility can be positively or negatively related implying that there may be a trade off between short-term stabilisation and long-term economic growth.
Using data from the G7 countries Dr Osborn shows that uncertainty about growth does not affect growth itself although she does find that unanticipated shocks to the economy can have a significant negative impact on growth.
But the international aspect of Dr Osborn's research into economic growth does suggest Mr Brown is right to want to link economic aid to good governance.
The research shows that corruption has adverse implications for growth in developing countries. Dr Osborn's theoretical analysis demonstrates that there is a steady-state of low development/high corruption.
But the research also shows that the level of development produces threshold effects in life expectancy so that it may not be feasible for a country to move between low development /low life expectancy and high development/high life expectancy.
So if Tony Blair wants to remove Mr Brown from the Treasury to give him a fresh challenge he could do worse than to make him International Development secretary.