how to launch economic growth

Filed in archive Global Economy on August 12, 2004

Source: www.kyamk.fi




The Economist points to new paper from Edwar Glaeser who examines the roles of "good" institutions in spurring economic growth:

"OVER the past 15 years or so, economists have developed a long list of now-familiar remedies for developing countries hoping to grow their way to prosperity. This "Washington Consensus" includes the removal of trade protection and the introduction of deregulation, as well as fiscal and monetary discipline. And these are just for starters. The trouble is that many governments find it almost impossible to stick to these prescriptions. Meanwhile, other economists have suggested that development depends not on specific policies but on "institutional" factors, such as a respect for property rights, which constrain the powers of the state. This can sound like a counsel of despair, because such institutions and Customs can take many years, even centuries, to become established."

What's even more interesting is how the authors have researched the role initial trigers of grwoth in economies that lack major economic development and believe it or not things are much simpler as often thought according to their findings:

"What struck the authors was the humble nature of the initial triggers of growth. These usually consist of nothing more than relaxing specific constraints on private activity. In South Korea in 1964, devaluation and an increase in interest rates overseen by the dictatorship of General Park Chung Hee brought the returns to private investment closer into line with those to the economy as a whole. In 1983, General Augusto Pinochet pulled the same trick in Chile. In China in 1978, the ruling party introduced market-oriented incentives. In India in 1980, Indira Gandhi removed shackles from enterprises and began sending pro-business signals, a decade before more formal reforms (although there is a hot debate about which set of policies mattered most). Policymakers, say the authors, have merely to identify the relevant constraints."