Abstract
This is an attempt to derive broad, strategic lessons from the diverse experience with economic growth in last fifty years. The paper revolves around two key arguments. One is that neoclassical economic analysis is a lot more flexible than its practitioners in the policy domain have generally given it credit.
In particular, first-order economic principles - protection of property rights, market-based competition, appropriate incentives, sound money, and so on - do not map into unique policy packages. Reformers have substantial room for creatively packaging these principles into institutional designs that are sensitive to local opportunities and constraints. Successful countries are those that have used this room wisely. The second argument is that igniting economic growth and sustaining it are somewhat different enterprises. The former generally requires a limited range of (often unconventional) reforms that need not overly tax the institutional capacity of the economy. The latter challenge is in many ways harder, as it requires constructing over the longer term a sound institutional underpinning to endow the economy with resilience to shocks and maintain productive dynamism. Ignoring the distinction between these two tasks leaves reformers saddled with impossibly ambitious, undifferentiated, and impractical policy agendas.Keywords
economic development, institutions, policy reform
JEL classification: 01, 04
[A]s far as the LDCs are concerned, it is probably fair to say that at least a crude sort of ‘justice’ prevails in the economic policy realm. Countries that have run their economies following the policy tenets of the professionals have on the whole reaped good fruit from the effort; likewise, those that have flown in the face of these tenets have had to pay the price.
Arnold C. Harberger (1985, p. 42)
When you get right down to business, there aren’t too many policies that we can say with certainty deeply and positively affect growth.
Arnold C. Harberger (2003, p. 215)
1.