Definitions

stylized

Stylized fact

In social sciences, especially economics, a stylized fact is a simplified presentation of an empirical finding. A stylized fact is often a broad generalization that summarizes some complicated statistical calculations, which although essentially true may have inaccuracies in the detail.

A prominent example of a stylized fact is: "Education significantly raises lifetime income." Another stylized fact in economics is: "In advanced economies, real GDP growth fluctuates in a recurrent but irregular fashion, with an average cycle length of five to eight years".

As noted above, scrutiny to detail will often produce counterexamples. In the case given above, holding a PhD may lower lifetime income, because of the years of lost earnings it implies and because many PhD holders enter academics instead of higher-paid fields. Nonetheless, broadly speaking, people with more education tend to earn more, so the above example is true in the sense of a stylized fact.

Kaldor's stylized facts of economic growth

Nicholas Kaldor summarized the statistical properties of long-term economic growth in an influential 1957 paper. He pointed out the following 'remarkable historical constancies revealed by recent empirical investigations':

  1. The shares of national income received by labor and capital are roughly constant over long periods of time
  2. The rate of growth of the capital stock, and the rate of growth of output per worker, are roughly constant over long periods of time, and are roughly equal
  3. The capital/output ratio is roughly constant over long periods of time
  4. The rate of return on investment is roughly constant over long periods of time

Kaldor did not claim that any of these quantities would be constant at all times; on the contrary, growth rates and income shares fluctuate strongly over the business cycle. Instead, his claim was that these quantities tend to be constant when averaging the data over long periods of time. His broad generalizations, which were initially derived from U.S. and U.K. data, but were later found to be true for many other countries as well, came to be known as 'stylized facts'.

References

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