Report card

Written by The Financial Express | Updated: Jun 30 2010, 02:59am hrs
This paper* reassesses the evolution of knowledge on growth and suggests a new structural approach to the analysis:

Despite progress, policymakers around the worldespecially in developing countries, still face difficulty in identifying actionable specific policy levers that can help ignite and sustain the type of dynamic growth rates that are necessary to reduce poverty. In recent years, growth researchers have responded to their concerns by trying to address various new challenges: the lack of convergence among countries; the identification of robust determinants of economic performance; the design of the supporting institutions for innovation and technological change, which are widely acknowledged to be the foundations for structural change and prosperity; and the identification of binding constraints to growth, the evaluation of successful development programmes through randomised control trials, with the goal of scaling them up whenever possible. By adopting a radically different approach to growth analysis, the Growth Report has made an important contribution to knowledge. It has identified five stylized facts (openness, macroeconomic stability, high rates of saving and investment, market mechanism, committed, credible and capable government) that can guide policymaking in developing countries. But in doing so, the report has not disentangled causes and consequences. The new structural economics framework proposed in Lin (2010) helps explain the endogeneity and exogeneity issues surrounding these five stylised facts. A central proposition that runs through this paper is that, developing countries that implement economic policies in contradiction with their comparative advantage tend to perform poorly and suffer macroeconomic instability. They do not exploit the benefits of globalisation to the fullest.

* Justin Yifu Lin and Clestin Monga, The Growth Report and New Structural Economics, Policy Research Working Paper 5,336, The World Bank, June 2010