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Economic Growth: Some Reflections

What leads to sustained growth in output and livelihoods? How important is the role of public policies as distinct from the endowments of geography and the historical legacy of institutions? Which public policies are most growth-friendly in different country contexts? This article attempts to grapple with these questions.

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Economic Growth: Some Reflections

What leads to sustained growth in output and livelihoods? How important is the role of public policies as distinct from the endowments of geography and the historical legacy of institutions? Which public policies are most growth-friendly in different country contexts? This article attempts to grapple with these questions.

SHANKAR ACHARYA

M
ore than 60 years have elapsed since the end of the second world war. During these six decades a very large number of nations have achieved independence from colonial rule and embarked on the journey of purposive economic development to enhance the livelihood and well-being of their citizens. What do we know about economic growth? What are some of the basic facts? What leads to sustained growth in output and livelihoods? How important is the role of public policies as distinct from the endowments of geography and the historical legacy of institutions? Which public policies are most growth-friendly in different country contexts?

This brief paper is a personal attempt to grapple with these large questions. Section I outlines some of the “stylised facts” of the growth experience so far. Section II reviews (in a very summary way) the evolution of ideas regarding what leads to growth. Section III presents a view from south Asia (the region of the world I know best). Section IV outlines the present state of knowledge (as I have gleaned it) of the links between economic growth, equity, employment and poverty. Section V outlines some thoughts on how the international environment is likely to evolve in the medium term and how it can be made more supportive of the economic progress of developing nations. The final section summarises some tentative conclusions.

Some Facts about Growth

What are some of the “brute” facts of the growth experience? Here are some:

  • In the long sweep of world history, modern economic growth is a fairly recent phenomenon. Between 1000 AD and 1800 AD there was not much change in world GDP per capita. With the spread of the industrial revolution in the 19th century, average world income increased by over 200 per cent. In the recently concluded 20th century, global GDP per capita went up by nearly 900 per cent! [see Figure 1 from DeLong 2002].
  • Of course, as we all know, for the first 150 years (1800-1950), this unprecedented economic growth was concentrated largely in the industrialising (and colonising) countries of Europe and north America. Thus, around 1820 most of the income inequality across the world’s population was due to inequality within countries, with only about 10 per cent of the inequality attributable to differences in average incomes across countries. By 1950, 60 per cent of global inequality was attributable to the massive disparities in average incomes across countries [Bourguignon and Morrison 2002].
  • The growth (per capita) of the economically advanced countries was steady and sustained (except during the world wars and the occasional boom, as in 1950-70) at a little under 2 per cent per annum. Their enormous gain in living standards came from prolonged and sustained economic growth, not from occasional bursts of very rapid growth [Maddison 1995].
  • In contrast, the post-1950 growth experience of developing countries has been much more varied. Persistence of good growth over decades has been rare [Easterly et al 1993]. Individual countries have experienced big changes in growth [Hausmann et al 2005a]. There has been
  • enormous variability in growth rates across countries, upwards of 5 per cent a year between fast and slow growers in any given decade [World Bank 2005].

    – Very few developing countries have sustained decent per capita growth for two decades or more. Specifically, out of 117 developing countries with population over half a million, only 12 countries achieved per capita growth of more than 3 per cent per year in 1980-2002, with at least 2 per cent growth in each decade of the 1980s and 1990s. These 12 countries were: China (8.2), Vietnam (4.6), South Korea (6.1), Chile (3.3), Mauritius (4.4), Malaysia (3.4), India (3.6), Thailand (4.6), Bhutan (4.3), Sri Lanka (3.1), Botswana (4.7) and Indonesia (3.5). (The number falls to nine if we specify a minimum population of 3 million.) Nine of these 12 countries are in Asia and, fortunately, they include the three most populous: China, India and Indonesia (Table 1 for details).

    II What Causes Growth? A Capsule Summary

    (A) From Roy Harrod to the Washington Consensus: Right from the times of Adam Smith and Karl Marx, capital (and its accumulation) has occupied a central place in the explanations of growth and economic development. Back in the 1940s, Roy Harrod gave us the simple but powerful little equations linking capital and output in an economy.1 Even today, economists look at incremental capital output ratios (ICORs) of countries and

    Table 1: Good Growth Performers of Recent Decades

    Average Annual Per Capita Growth (Per cent)

    Country 1980-1990s 1980s Population 2002 in 2000 (Millions)

    1 China 8.2 8.6 7.7 1262 2 Vietnam 4.6 5.7 1.9 78 3 South Korea 6.1 5.0 7.4 47 4 Chile 3.3 4.3 2.1 15 5 Mauritius 4.4 4.1 4.9 1 6 Malaysia 3.4 3.7 3.1 23 7 India 3.6 3.6 3.6 1016 8 Thailand 4.6 3.4 6.0 61 9 Bhutan 4.3 3.4 5.4 1 10 Sri Lanka 3.1 3.1 3.1 18 11 Botswana 4.7 2.7 7.2 2 12 Indonesia 3.5 2.6 4.4 206

    Source:World Bank (2005).

    Figure 1: Growth in Real World GDP Per Capita, 11th-20th Century

    1000

    900

    800

    700

    600

    500

    400

    300

    200

    100

    0

    -100

    Source: DeLong (2002).

    sectors. From these underpinnings stemmed the enormous focus on raising savings (resource mobilisation) and investment in the newly independent developing countries in the 1950s and 1960s. Much of early development planning (and allocation of foreign aid) was driven by this central idea.

    In the 1950s, Robert Solow (1956) of MIT generalised the relationship between capital, labour, technology and output in the neat little “neoclassical production function”, which still lies at the heart of contemporary growth accounting exercises. Other theorists (as well as planners and policy-makers) also emphasised the importance of education (human capital) and technological development in spurring sustained growth.2 Most of these ideas (as well as notions of scale economies and “Big Push”) favoured a central role for the freshly empowered governments of developing countries in boosting savings and investment, building infrastructure and expanding education and health facilities. Most governments eagerly accepted these responsibilities and some went further than others in adopting detailed investment planning, according important roles for public enterprises (new or nationalised) and pushing import-substituting industrialisation). The Bretton Woods institutions and the international development community also broadly supported this investment-raising, government-led, import-substituting industrialisation approach to accelerating economic development, not just in developing countries but also in war-ravaged Europe and Japan.

    Importantly, growth did accelerate in most developing nations. For example, in India, the so-called “Hindu growth rate” of 3.5 per cent for GDP in the “slow growth decades” of 1950-80 was more than four times greater than the 0.8 per cent per year

    11th 12th 13th 14th 15th 16th 17th 18th 19th 20th

    Century

    Per Cent

    estimated for the final half century of British rule [Sivasubramonian 2000]. Latin America enjoyed some of its fastest growth during the 1950s, 1960s and 1970s. But, over time, the problems and disappointments mounted. South Asian growth was below expectations and constantly plagued by foreign exchange scarcities. Latin American development ground to halt with the early 1980s debt crisis and the “lost decade”. Africa (which mostly became independent in the 1960s) never really took off. Only some east Asian countries enjoyed “miracle growth” by following much more outward-looking (though usually state-supported) foreign trade policies, backed by strong programmes for human capital development and agrarian reform. Just as disillusionment was rising with the increasing incidence of “government failures” in the majority of developing nations, the “New Growth Theory” evolved in academia, imparting much more emphasis to “getting the policies right” and the Reagan-Thatcher leadership of the G-7 espoused much greater market orientation.

    To cut a long story short, the 1980s saw the evolution of the “Washington Consensus” (henceforth, WC), which was thus labelled in 1990 [Williamson 1990]. It comprised 10 broad policy prescriptions for sound development and management of an economy (Table 2). Originally articulated in the context of Latin America, its applicability was universal. Its content was sometimes summarised by the rubric “stabilisation, deregulation, liberalisation and privatisation”. With time, as the juggernaut of policy reform gathered momentum (at least in IFIs and OECD aid ministries), additional policy desiderata accumulated, dubbed as the “augmented Washington Consensus” by Rodrik (forthcoming) (Table 3).

    (B) Cracks in the consensus: In the years since 1990, two major developments have seriously weakened (if not shattered) this consensus. First, the development experience of the 1990s has left observers wondering about the potency of good policies in yielding robust economic growth. By some accounts, Latin American (and even some African) countries undertook fairly serious policy reforms along the lines of the WC but they earned relatively modest growth dividends for the countries concerned [World Bank 2005].3 In the “transition economies” of Russia and east Europe the passage to market economy institutions and pursuit of WC policies was associated with much greater and more prolonged declines in output and incomes than had been originally expected. In contrast, the big Asian economies of China and India grew rapidly in the 1990s by following significantly more heterodox (compared to WC) policies. This interpretation of the 1990s experience questions the efficacy of WC policies.

    The second, and perhaps deeper, attack on the WC comes from new (or resurrected) interpretations (and theories) of long-term growth experience, which downplay the role of policies in promoting growth and accord much greater importance to other dimensions, such as institutions and geography. In the “institutions” view, the massive differences in current average incomes across countries (arising from differences in long-term economic growth performance) is mainly due to historical (and lasting) differences in the quality of institutions prevailing across countries. For example, Acemoglu et al (2001) have argued that the “settler colonies” of north America and Australasia nurtured institutions which promoted property rights, investment and development, while in the “extractive colonies” of Africa, Latin America and Asia the colonial institutions focused on “transferring the resources of the colony to the coloniser” and did little to encourage indigenous economic development.4

    An alternative approach stresses the primacy of geography in explaining

    Table 2: The Washington Consensus

    1 Fiscal discipline 2 Reordering public expenditure in favour of education, health and economic infrastructure 3 Tax reform (towards broader bases with

    moderate rates) 4 Financial liberalisation 5 Competitive exchange rate 6 Trade liberalisation 7 Liberalisation of foreign direct investment 8 Privatisation (of public enterprises) 9 Deregulation (of barriers to entry and exit)

    10 Property rights

    Source: Williamson (1990).

    Table 3: The ‘Augmented’ WashingtonConsensus

    1 Corporate governance 2 Anti-corruption 3 Flexible labour market 4 WTO agreements 5 Financial codes and standards 6 “Prudent” capital-account opening 7 Non-intermediate exchange rate regimes 8 Independent central banks/inflation targeting 9 Social safety nets

    10 Targeted poverty reduction

    Source: Rodrik (forthcoming).

    Economic and Political Weekly November 4, 2006

    Figure 2: The ‘Deep Determinants’ of Income

    (3 ) (4 ) (1 ) (2 ) (5 ) (6 ) (7 ) (8 ) (9 ) Income Level Cross-border Integration Geography Institutions

    Endogenous

    Exogenous

    Source:Rodrik, Subramonian and Trebbi (2004).

    cross-country differences in long-term economic development.5 In this view, countries in tropical regions suffer very serious handicaps of much worse disease vectors, poor crop yields, climates favouring low labour productivity and so forth. As Jeffrey Sachs points out, of the 30 countries classified as “high income” by the World Bank, only the two city states of Hong Kong and Singapore are in the tropics. And to be a landlocked country in the tropics (such as Chad, Niger, Bolivia, Burundi or Laos) is to suffer a double jeopardy. Of course, the tropics may also exert their negative influence on economic development through the institutions they “encourage” (for example, Engerman and Solokoff argue that tropics are suited to large plantation crops, which “invite” politico-legal institutions that protect a few landowners to the detriment of broad-based development).

    The directions of causality between these “deep determinants of income” and longterm development need not be simple and linear (see, for example, Figure 2). The main point is that these alternative views of long-term growth potential and performance tend to diminish the role of policies in promoting economic growth.

    (C) A revisionist approach to policy reforms: If we believe in the significance of these “deep determinants” of income, does it mean that there is no role for policies in promoting economic growth? Surely, this is not the case, for several reasons. First, the“deep determinant” theories tend to look at the problem in a very long-run context (when we are all dead, as Keynes famously said) and not in the short- or medium-run perspective of usual policy-making. Second, the empirical “testing” of these theories (usually through cross-country regressions) leaves plenty of “unexplained” variation, which could be due to policies and other factors. It is one thing to say that the endowment of geography and the legacy of institutions matter in determining economic performance; it is quite another to say only they matter.

    To take the example of geography, it is surely interesting that near-tropical southeast China is today one of the most dynamic regions of the world, not to mention the tropical dynamos of Malaysia, Thailand and Vietnam. Within India the southern (tropical) states have done better in the last 25 years than most of the sub-tropical states. Third, the distinction between institutions and policies is not as clear cut as some would believe.6 Fourth, and perhaps most importantly, no serious policy-maker is likely to abdicate his/her prerogatives on the basis of a handful of cross-country statistical regressions!

    Not surprisingly, even committed “institutionalists”, like Rodrik (forthcoming), see a major role for policies in accelerating the economic growth of developing countries. However, they tend to be sceptical of the WC policies. In their revisionist view, the WC prescriptions do not take adequate account of institutional and other differences across countries and are too universalist (“one size fits all”) and “scattershot” in their approach. In their recommended approach it is vitally important to be thoroughly country-specific in identifying “the binding constraints” to growth, and diagnosing likely policy remedies, which take appropriate account of the institutional context of each country [Hausmann et al 2005b and Rodrik forthcoming]. Rather interestingly (and importantly), this “new view” accepts that “there are of course some general, abstract principles – such as property rights, rule of law, market-oriented incentives, sound money, and sustainable public finances – which are desirable everywhere”.

    III A South Asian Perspective

    As both a practitioner and analyst of India’s economic policies over the last 25 years, what do I make of all this? First, and foremost, there is no doubt in my mind that policies matter for spurring growth and they matter a great deal [Acharya 2006]. India’s per capita growth tripled from 1.5 per cent in 1950-80 to 4.5 per cent in 19912006 in large part due to the policy reforms carried out in the 1980s (slowly) and the 1990s (more comprehensively). Second, if I compare the list of key reforms with the WC list in Table 2, I would have to say that most elements of the WC list of policies were important to India’s success in accelerating growth and countering macro instability. Some were more important than others. Of the 10 policies listed in the WC, I would say deregulation (of industry and trade), trade liberalisation, a competitive exchange rate policy, financial liberalisation and tax reform were probably the most important. Contrary to some accounts [Devarajan 2005], India’s partial and temporary success in reducing the aggregate fiscal deficit in the first-half of the 1990s was important in signalling commitment to fiscal discipline and accommodating the mid-1990s investment boom. Opening up to foreign investment was also important, though in India’s case the principal response came from foreign institutional investors in the country’s reformed equity markets. In this context, I must emphasise the very important institutional innovations and legal reforms (not on the WC list) of India’s capital markets carried out in the 1990s; they were central to the growth and success of a large number of strong Indian companies, including the IT icons like Infosys and Wipro.

    Looking ahead, the priorities for reform (for sustaining strong growth of output and employment) look significantly different. They would include:

    (i) Reversing recent slippage in fiscal discipline;

    (ii) Reorienting public expenditures away from large, non-merit subsidies and towards education, health and infrastructure;

    (iii) Regulatory, organisational, ownership and pricing reforms in the key infrastructure sectors of electric power, hydrocarbons, transport and water/sanitation;

  • (iv) Reform of labour laws to provide “jobful” growth for the burgeoning labour force;
  • (v) Wide-ranging reforms to re-energise the very important agricultural sector;
  • (vi) Major overhaul of the delivery systems for education, health and rural water supply to make them more “inclusive”, efficient and accountable;
  • (vii) Deeper financial sector reforms, including privatisation of some of the public sector banks, which today dominate the banking sector.

    Of these seven sets of reforms, (i), (ii) and (vii) belong to the original WC list,

    (iv) is the only item from Rodrik’s “augmented WC” list and the other three are important India-specific priorities.

    The importance of WC policies in explaining the good performance of other south Asian economies in the last two decades is also attested by the recent monograph by Ahmed (2006). As he sums up (p 79),

    Thus the south Asian countries have maintained good macroeconomic environments; opened up their economies to greater domestic and international competition; and reduced the role of corrupt and inefficient enterprises...These policies have improved investors’ incentives and supported increases in private investment, exports and incomes. At the same time attention has been paid to improving human development through public spending.

    In recent years I have had the occasion to study the economies of Sri Lanka and Bangladesh and can readily agree with Ahmed’s assessment. Anyone doubting the potency of policy reforms in improving economic performance has only to acquaint himself with the economic transformation wrought by Sri Lanka’s foreign trade and investment reforms of the late 1970s [Athukorala and Rajapatirana 2000 and World Bank 2004]. Similarly, Bangladesh’s strong economic performance since 1990 has deep roots in economic policy reforms and poses something of a puzzle for “Institutionalists”, given the country’s very low ranking on governance indices (like those by Transparency International) for many years.

    IV Growth, Poverty, Employmentand Equity

    The linkages between economic growth, poverty reduction, employment and equity are both complex and critically important. The academic and policy literature on these issues is huge, quite beyond the scope of this note to survey.7 Perhaps the best way to approach the subject is by attempting to distil a set of propositions-cum-issues from this literature:

  • (i) The evidence across countries indicates that rapid and sustained economic growth is the quickest and most effective way of reducing poverty. This is because, on average, growth of incomes of the poor has been found to be very similar to growth of mean incomes.
  • (ii) However, there is substantial variation around the average, indicating that the same growth in mean incomes has had (and can have) more or less yield in terms of poverty reduction. This simply means that growth can be more or less pro-poor.
  • (iii) Broadly speaking, east Asian countries have been among the most successful in achieving sustained pro-poor growth through a combination of outwardlooking, labour-intensive industrialisation, initially egalitarian income distributions, fiscal prudence, broad-based and effective human development policies and flexible labour markets.

  • (iv) In these countries (more than in most other developing countries), rapid employment growth in manufacturing (typically export-led) has been a powerful transmission mechanism between economic growth and poverty alleviation.
  • (v) In comparison, the employmentintensity and poverty-reducing potency of economic growth has been weaker in south Asia and Latin America. It is striking that by 2000, average PPP$ income in Latin America was almost double that in east Asia; yet the proportion of people in absolute poverty was slightly lower in East Asia. This reflects both a less pro-poor pattern of past growth in Latin America and a more unequal distribution of income.
  • V The International Economic Environment

    Looking ahead, there are six key aspects of the international economic environment, which are likely to influence significantly the growth prospects of developing countries: trade, OECD growth, private capital flows, oil prices, migration and external assistance. A few words on each follow.

    The rapid expansion of global trade has been one of the most remarkable features of the post-second world war period. It has been driven by a combination of factors, including: continued (and reasonably) steady growth of most industrial countries; successive rounds of multilateral trade liberalisation; large, technologically-driven declines in transport and communication costs; good growth (on average) of developing countries and unilateral trade liberalisation by many developing countries. This sustained, strong expansion in world trade has underpinned some of the major development successes of the last 60 years, including southern Europe, many east Asian nations and (more recently) south Asian countries. With the recent stalling of the Doha round of the WTO and the continued proliferation of regional/ bilateral trading arrangements, the medium term outlook for global trade is perhaps more uncertain today than and at any time in recent memory. True, most of world trade today is free of significant restrictions (barring the well known exception of agriculture). But the absence of forward movement in multilateral negotiations enhances the vulnerability of the world trading system to protectionist pressures, especially if there is a global downturn. The solution lies in resuming and concluding successfully the Doha round (easier said than done, I appreciate).

    The growth of OECD economies continues to be dominated by the largest member country, the United States. The cyclical recovery of the last four years has been exceptionally strong. But there are some clear signs of slowing in the US. Fortunately, the economic performance of both EU and Japan appear to be improving and China continues on her uniquely dynamic trajectory. The three substantial downside risks in the medium-term are: rising oil prices, a “hard landing” on the problem of unprecedented global imbalances and a sharper-than-expected deceleration of the US economy. None of these can be ruled out. While all are amenable to moderation through policy actions, there seems to be little appetite for the necessary measures.

    Private capital flows to developing countries have recovered from the nadirs of the 1997-98 “Asian Financial Crisis” and constitute important sources of supplemental capital and technology in a growing

    Economic and Political Weekly November 4, 2006

    number of developing economies. While flows of direct foreign investment are likely to remain robust in the medium-term, portfolio flows are vulnerable to rising interest rates in the US and other industrial countries and a possible reassessment of risks arising from high and rising oil prices.

    Very high (and possibly higher) oil prices constitute a real threat to growth prospects of oil-importing developing countries in both the short and medium run. Against the background of strong and rising demand for oil and slow expansion of extraction and refining capacities, the recent ratcheting up of west Asian hostilities does not augur at all well for the future trajectory of prices. Thus far, the adverse impact on developing country growth has been less than expected, but that could easily change for the worse.

    External migration and remittances play an important role in the development of a substantial number of developing countries, including those of south Asia. As many analysts have pointed out, higher levels of migration of low-skilled emigrants from poor to rich countries could be a direct and powerful mechanism for reducing global poverty.8 However, the social and political impediments to this are well known. The most promising options may lie with managed programmes that combine temporary migration with incentives for return. And these too have their problems.

    Foreign aid (or development cooperation as it is now called) is subject to cyclical bouts of criticism [Birdsall et al 2005 is a recent example]. True, it can never be a panacea for development. There are also plenty of cases of misallocated and misused external assistance. Equally, there are many cases where foreign aid has contributed significantly to specific projects and programmes and sometimes even to overall development momentum in individual countries at particular times. Generally, external assistance is of greatest potential value to smaller, low income countries with negligible access to private capital markets. Even in such countries, the primary thrust for sustained development has to come from domestic sources. As always, the global outlook for foreign assistance is mixed.

    Some Conclusions

    So what are some of the conclusions that this discussion of the agenda for growth for developing countries points towards? I would suggest the following:

  • (1) Economic policies matter (and matter a great deal) for spurring and sustaining economic growth;
  • (2) The endowments of geography and the historical legacies of institutions also matter but not to the exclusion of economic policies. Development-friendly institutions, governance and the like tend to support good economic policies and the latter, in turn, tend to strengthen good institutions.
  • (3) The so-called “Washington Consensus” list of policies was framed in a particular period of time (late 1980s). Contrary to revisionist wisdom, the WC policies (especially those relating to fiscal prudence and greater openness to foreign trade and investment) played a substantial role in the growth successes of the last 15 years, especially in Asia.
  • (4) Looking ahead, the agenda for growth has to be articulated in specific country contexts. Even “institutionalists” agree on the broad desiderata of property rights, sound money, market-oriented incentives and sustainable public finances. The specific priorities for reform (the mirror image of identified “binding constraints” in the new jargon) will naturally depend on particular country contexts. These lists of priority reforms may look different from the old WC but that is hardly surprising. (After all, if a country has already completed, substantially, trade liberalisation, then that particular policy is unlikely to figure prominently in a priority list.) The case of India today is illustrative: the current list of policy priorities is very different from the WC list (which worked well in the 1990s) but that is what one should expect.
  • (5) Very probably, improvements in institutions and economic governance matter a lot over long periods, especially in sustaining growth. The weak economic record of a number of African countries is quite clearly attributable to bouts of civil conflict and misgovernance. Within India, one has only to compare the poor record of weakly governed Bihar and Uttar Pradesh with some other Indian states. But the enterprise of designing and nurturing improvements in institutions and governance is likely to be even more countryspecific (than economic policies), more difficult and highly “political”.
  • (6) Sustained and rapid economic growth is the most effective route to poverty reduction. Growth is most likely to be propoor when it is employment-intensive, as
  • it has been in a number of fast-growing east Asian economies. Their success has been based on a combination of outwardlooking, labour-intensive industrialisation, initially egalitarian income distributions, fiscal prudence, broad-based and effective human development policies and flexible labour markets.

  • (7) The best way that industrial countries can support sustained economic growth of developing nations is through a combination of policies, which include: strengthening the liberal global trading order (including through successful conclusion of the Doha round); pursuing growthsupporting policies in their own countries; following sensible energy policies which promote conservation of hydrocarbons and promote development of alternatives; reinforcing the international financial system; ensuring the most (politically feasible) liberal policy frame for immigration of low-skilled migrants; and implementing generous, well-targeted programmes of external assistance.
  • (8) Successful long-term economic development is a hugely complex phenomenon, with good doses of luck and uncertainty thrown in. It is perhaps both unrealistic and misconceived to search for an unique agenda to suit almost 150 developing countries with their diverse histories, geographies and politics.
  • m��

    Email: acharya.shankar@gmail.com

    Notes

    [Revised version of the theme paper, ‘Agenda for Growth and Livelihood’, presented at the Commonwealth finance ministers conference in Colombo on September 13, 2006. I am grateful to the Commonwealth secretariat, especially Indrajit Coomaraswamy, for encouragement and support and for permission to publish this paper in this journal. The views expressed are personal.]

    1 See Harrod (1948). As an undergraduate at Oxford in the mid-1960s, I still remember Sir Roy putting up these equations on the blackboard.

    2 See, for example, Easterly (2001) for an entertaining account of changing fashions in growth theory.

    3 Singh et al (2005) present an alternative view in which they attribute Latin America’s modest growth performance in the 1990s to half-hearted implementation of WC policies.

    4 Other notable proponents of some version of the Institutions view are North (1990), Hall and Jones (1999), Engerman and Sokoloff (1997) and Rodrik et al (2004).

    5 Early proponents of this view were Lee (1957) and Kamarck (1976). More recent proponents include Diamond (1997) and Sachs (2001). I had also stressed the role of unfavourable geographic endowments in an early review of African development experience [Acharya 1981].

    6 The empirical efforts to isolate the role of policies from institutions, such as by Easterly and Levine (2003), can be challenged on both conceptual and empirical grounds.

    7 Good recent surveys are World Bank (2006a), Khan (2001) and Islam (2004).

    8 Recent references include World Bank (2006b) and Birdsall et al (2005).

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  • (2005): Economic Growth in the 1990s: Learning from a Decade of Reform, World Bank, Washington DC,
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  • (2006b): Global Economic Prospects 2006: Economic Implications of Remittances and Migration, World Bank, Washington DC.
  • Economic and Political Weekly November 4, 2006

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