Commission on Growth and Development
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The Growth Commission’s reports identify the ingredients that, if used in the right country-specific recipe, can deliver growth and help lift populations out of poverty. The Commission, consisting of 19 experienced leaders and 2 Nobel prize-winning economists, has released several commission reports, thematic volumes, and background working papers. The spring 2010 volume is the final book from the Commission. The Commission is succeeded by The Growth Dialogue.
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Publication
Leadership and Growth : Commission on Growth and Development
(World Bank, 2010)In May 2008, the commission on growth and development (the growth commission) issued its report entitled 'the growth report'. In it the commission attempted to distill what had been learned in the past two decades, from experience and academic and policy research, about strategies and policies that produced sustained high growth in developing countries. It became clear in the course of the work that politics, leadership, and political economy (the interaction of economic and political forces and choices) were centrally important ingredients in the story. Dealing with the politics and the interaction of political and economic forces is a work in progress in research, an important one. Given this breadth, one of the editors' roles is to focus the reader's attention on what they take to be common issues across these chapters. These common problems are fourfold: (1) promoting national unity; (2) building good, solid institutions; (3) choosing innovative and localized policies; and (4) creating political consensus for long-run policy implementation. This report represent an excellent first step toward understanding the role of leadership in generating economic growth, and the author hope that they generate ideas and lead to new research on the problem of leadership in economic growth. -
Publication
Chile's Growth and Development: Leadership, Policy-Making Process, Policies, and Results
(World Bank, Washington, DC, 2009)This paper analyzes the relations between leadership, the policy making process, policies and institutions, and development results in Chile. It starts with a stylized model for the dynamics of development that derives a Kuznets type relation between growth and distribution of income, determined by the quality of leadership, the policy making process, institutions, and policies. This framework is applied to Chile, identifying the features of the policy making process and leadership that allowed for continuation of growth enhancing reform, with a stronger focus on equity goals, since the transition to democracy. As a result of three decades of reforms, Chile has recorded a quantum leap in economic growth, which is traced down to specific reforms. Yet Chile's equity experience is much more mixed: poverty has declined massively but income remains highly concentrated, a likely result of shortcomings in the quality of education and in labor markets. The paper reviews the major risks to the country's future development pace and points out the main reform challenges faced by policy makers. -
Publication
Public Finance and Economic Development: Reflections Based on the Experience in China
(World Bank, Washington, DC, 2009)Low tax revenue and slow economic growth are two central concerns in developing countries. However, policies that raise tax revenue also harm economic growth. With tax revenue coming mainly from large capital-intensive firms, and with a large informal sector, policies that aid large firms and policies that discourage entry of new firms both help increase tax revenue. Entrepreneurial activity as a result is discouraged, lowering growth. There is a basic tension in policy design between current tax revenue and economic growth. In fact, a loss in tax revenue can itself reduce growth, due to less spending on education and infrastructure. It can also undermine political support for the reforms from the poor and from government bureaucrats, both of whom are key beneficiaries of government expenditures. What policies encourage growth without undue loss of current expenditures? One is debt finance, but this creates the risk of a financial crisis if tax revenue rises too slowly to repay this debt. A second is user fees, but such fees still undermine political support from the poor. A third is partial reform, maintaining both higher taxes on and some protection for easily taxed firms, even while barriers to entry are eased. -
Publication
Growth after the Crisis
(World Bank, Washington, DC, 2009)How hospitable will the global environment be for economic growth in the developing world as we come out of the present financial crisis? The answer depends on how well the author manage the following tension. On the one hand, global macro stability requires that we prevent external imbalances from getting too large. On the other hand, growth in poor nations requires that the world economy be able to absorb a rapid increase in the supply of tradable produced in the developing world. It is possible to render these two requirements compatible, but doing so requires greater use of explicit industrial policies in developing countries, which have the potential of encouraging of modern tradable activities without spilling over into trade surpluses. The 'price' to be paid for greater discipline on real exchange rates and external imbalances is greater use (and permissiveness) towards industrial polices. -
Publication
Investment Efficiency and the Distribution of Wealth
(World Bank, Washington, DC, 2009)The point of departure of this paper is that in the absence of effectively functioning asset markets the distribution of wealth matters for efficiency. Inefficient asset markets depress total factor productivity (TFP) in two ways: first, by not allowing efficient firms to grow to the size that they should achieve (this could include many great firms that are never started); and second, by allowing inefficient firms to survive by depressing the demand for factors (good firms are too small) and hence factor prices. Both of these effects are dampened when the wealth of the economy is in the hands of the most productive people, again, for two reasons: first, because they do not rely as much on asset markets to get outside resources into the firm; and second, because wealth allows them to self insure and therefore they are more willing to take the right amount of risk. None of this, however, tells us that efficiency enhancing redistributions must always be targeted to the poorest. There is some reason to believe that a lot of the inefficiency lies in the fact that many medium size firms are too small. -
Publication
Explaining China's Development and Reforms
(World Bank, Washington, DC, 2009)China's remarkable economic performance over the last 30 years resulted from reforms that met the specific conditions of China at any point in time. Starting with a heavily distorted and extremely poor economy, China gradually reformed by improving incentives in agriculture, phasing out the planned economy and allowing non-state enterprise entry, opening up to the outside world, reforming state enterprises and the financial sector, and ultimately by starting to establish the modern tools of macroeconomic management. The way China went about its reforms was marked by gradualism, experimentation, and decentralization, which allowed the most appropriate institutions to emerge that delivered high growth that by and large benefited all. Strong incentives for local governments to deliver growth, competition among jurisdictions, and strong control of corruption limited rent seeking in the semi reformed system, whereas investment in human capital and the organizations that were to design reforms continued to provide impetus for the reform process. Learning from other countries' experience was important, but more important was China's adaptation of that experience to its own particular circumstances and needs. -
Publication
Africa's Growth Turnaround: From Fewer Mistakes to Sustained Growth
(World Bank, Washington, DC, 2009)After stagnating for much of its postcolonial history, economic performance in Sub?Saharan Africa has markedly improved. Since 1995, average economic growth has been close to 5 percent per year. Has Africa finally turned the corner? This paper analyzes growth accelerations and decelerations-that is, country level deviations from long?run trend growth. Seen from this perspective, Africa's record of slow and volatile growth reflects a pattern of offsetting accelerations and declines, and much of the improvement in economic performance in Africa post 1995 turns out to be due to a substantial reduction in the frequency and severity of growth decelerations. The fall in economic declines since 1995 is largely due to better macroeconomic policies, but changes in such 'growth determinants' as investment, export diversification, and productivity have not accompanied the growth boom. Lack of change in these variables and the significant role played by natural resources in sparking growth accelerations suggest that Africa's growth recovery was fragile, even before the recent global economic crisis. The paper concludes by setting out four elements of a strategy that can help move Africa from fewer mistakes to sustained growth: managing natural resources better, pushing nontraditional exports, building the African private sector, and creating new skills. -
Publication
Africa's Growth Turnaround: From Fewer Mistakes to Sustained Growth
(World Bank, Washington, DC, 2009)After stagnating for much of its postcolonial history, economic performance in Sub?Saharan Africa has markedly improved. Since 1995, average economic growth has been close to 5 percent per year. Has Africa finally turned the corner? This paper analyzes growth accelerations and decelerations-that is, country level deviations from long?run trend growth. Seen from this perspective, Africa's record of slow and volatile growth reflects a pattern of offsetting accelerations and declines, and much of the improvement in economic performance in Africa post 1995 turns out to be due to a substantial reduction in the frequency and severity of growth decelerations. The fall in economic declines since 1995 is largely due to better macroeconomic policies, but changes in such 'growth determinants' as investment, export diversification, and productivity have not accompanied the growth boom. Lack of change in these variables and the significant role played by natural resources in sparking growth accelerations suggest that Africa's growth recovery was fragile, even before the recent global economic crisis. The paper concludes by setting out four elements of a strategy that can help move Africa from fewer mistakes to sustained growth: managing natural resources better, pushing nontraditional exports, building the African private sector, and creating new skills. -
Publication
Avenues for Export Diversification: Issues for Low-Income Countries
(World Bank, Washington, DC, 2009)While diversification of exports is often a desirable trade objective, it is far from clear how best to tap into new opportunities. This paper discusses the range of avenues of diversification, including (i) expanding the range of markets into which existing products are sold (geographic diversification); (ii) upgrading the value of existing products, including agricultural exports (quality diversification); and (iii) taking advantage of opportunities to expand non-merchandise exports (services diversification), in addition to introducing entirely new export products. All offer opportunities for cost?effective positive policies relating to the incentive regime, backbone services, and export support institutions. -
Publication
Making Difficult Choices: Vietnam in Transition
(World Bank, Washington, DC, 2008)After decades of war, with a dilapidated infrastructure and millions of people dead, wounded or displaced, Vietnam could have been considered a hopeless case in economic development. Yet, it is now about to enter the ranks of middle-income countries. The obvious question is: How did this happen? This paper goes one step further, asking not which policies were adopted, but rather why they were adopted. This question is all the more intriguing because the process did not involve one group of individuals displacing another within the structure of power. To answer this question, the paper relies on the insights of those who were actually involved in the economic experiments, conceptual discussions, and political maneuvering that led to the adoption of key reforms. Especially, it builds on a series of long and regular conversations with H. E. the late Vo Van Kiet, one of Vietnam's leading figures. In doing so, it brings into the open the inside story of Doi Moi, a process that is not known by outsiders and remains opaque to most Vietnamese. The relevance of this exercise is not merely historical. Understanding how reforms were engineered may yield valuable lessons for other developing countries. It is also relevant for Vietnam, as two decades of rapid economic growth have resulted in dramatic changes in its economy and society. While praising the decision-making processes that allowed Vietnam to successfully emerge from poverty, the paper also explores the adjustments that could be needed for it to become an industrial country.