Diversity in Economic Growth

Diversity in Economic Growth

Global Insights and Explanations

Global Development Network series

Edited by Gary McMahon, Hadi Salehi Esfahani and Lyn Squire

Economists have long relied on cross-country regression analysis to identify the determinants of continued growth, but with only limited success. This book demonstrates the value of a different approach.

Chapter 9: Diversity in Growth Experiences: The Role of Substitutes for the Fundamentals

Hadi Salehi Esfahani, Gary McMahon and Lyn Squire

Subjects: development studies, development economics, economics and finance, development economics, international economics


Hadi Salehi Esfahani, Gary McMahon and Lyn Squire The economics literature has come to view good governance as fundamental for long-term economic growth. Yet, many countries which have been escaping poverty through rapid growth over the past few decades are deficient in some or all key elements of good governance – rule of law, impartial courts, representative government, effective bureaucracy and open markets with minimum necessary regulation. These observations have prompted a host of questions about the process of economic growth and which policies may enhance its pace. Do low-income countries grow faster when they focus on building their fundamentals? How did countries which grew with weak fundamentals compensate for their deficiencies? Is their growth sustainable? What can slow growing countries learn from the experience of fast growers relying on substitutes for the fundamentals? Do developing countries have a choice between reliance on fundamentals and their substitutes? If so, what are the tradeoffs? In addressing these questions, this chapter summarizes the insights emerging from the case studies. We begin by discussing similarities and differences in the growth performances across the developing countries included in the case studies as background for the substance of the chapter. In particular, we characterize the growth experiences of the sample countries over the past five decades, distinguishing between growth spurts and sustained growth. We also highlight the diversity of performance and the broad similarities and differences of the policy paths across those countries. Next, using analysis of the case studies and a technique called qualitative comparative...

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