and Calderon (2005); namely, drivers of growth that capture transitional convergence and other structural policies (education, governance, financial depth, government burden).<sup>5</sup> Transitional convergence is one of the main implications of the neoclassical growth model. This factor depends on the initial positions of the economy, and states that, all things equal, poor countries would tend to grow faster than those in favorable conditions because of the decreasing marginal returns to factors of production. To account for this effect, we use the initial level of GDP per capita in the set of explanatory variables.

The group of structural factors that drive growth per worker mostly relates to economic policies or institutions. The first area is education. It proxies for human capital and it is usually measured by gross secondary school enrollment as estimated by Barro and Lee (2013). Sachs and Warner find that natural resources are linked to human capital – as the stock of human capital rises, the marginal effect of the stock of natural resources on income growth rises and becomes positive – they act as compliments. This factor plays a direct role on the endogenous growth literature and compliments other factors such as physical capital and natural resources (see Bravo-Ortega and De Gregorio 2002).

According to the literature, financial development is an important driver of growth at the country-, industry-, and firm-level. It is proxied by the ratio of private credit provided by financial institutions to GDP and it is the second indicator in our set of structural factors. Financial depth is supposed to facilitate risk diversification, help identify profitable investment and mobilize savings.<sup>6</sup> Next, we look at the distortions that the government may impose on private sector activity, also known as government burden. To account for such, we use the ratio of government consumption to GDP. If government burden is high, taxes will be affected and thus will also be the private sector. Finally, the last structural factor considered in our analysis relates to governance. Institutional discipline and their effectiveness can also have an important effect on growth. For this variable we proxy by the principal component analysis of 4 measures from _International Country Risk Guide_ (ICRG): prevalence of law and order, quality of bureaucracy, absence of corruption, and accountability of public officials.

As an indicator of stabilization policy, we include cyclical volatility in our set of growth determinants. It is proxied by the standard deviation of output. The expected effect on growth is negative when associated with economic uncertainty, whether this comes from political insecurity (Alesina et al 1996), macroeconomic instability (Judson & Orphanides 1996) or institutional weaknesses (Serven 2003; Rodrik 1991). Volatility increases in countries that are poor, institutionally underdeveloped, undergoing intermediate stages of financial development, or unable to conduct

> 5 The descriptive statistics for the variables in our analysis are presented in Annex Table A.1.

> 6 Manzano and Rigobón (2001) find that the negative effect of natural resources disappears when the growth regression includes the initial ratio of foreign debt to GDP.

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