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Growth accelerations and collapses

Growth accelerations and collapses. Highlights. Igniting growth requires a relatively narrow range of reforms, targeted at relaxing the “binding constraint” Rapid growth is possible even in the midst of severe institutional or policy failings

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Growth accelerations and collapses

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  1. Growth accelerations and collapses

  2. Highlights • Igniting growth requires a relatively narrow range of reforms, targeted at relaxing the “binding constraint” • Rapid growth is possible even in the midst of severe institutional or policy failings • Growth-promoting reforms often take unconventional or heterodox forms • Heterodox policies help overcome specific second-best complications or political constraints • Sustaining growth is different from igniting growth, and requires deeper institutional changes • Institutions of conflict management • Institutions to maintain productive dynamism

  3. Every region has had a good decade

  4. … even Africa High growth in Africa since the late 1990s as well. Will return to it.

  5. Growth accelerations are very common

  6. Growth accelerations occur everywhere Note: accelerations during the period from mid-1950s to early 1990s only.

  7. Almost every country converges during some period (or diverges…) Source: Jones and Olken (2005)

  8. How predictable are accelerations? Source: Hausmann, Pritchett, and Rodrik (2005), and Jong-A-Pin and de Haan (2008)

  9. Types of changes in growth regimes

  10. Growth collapses and decelerations

  11. What causes growth collapses • External shocks? • Terms of trade; sudden stops in capital flows • But magnitude of income decline too large to be explained by size of shock alone • Magnified by macroeconomic mismanagement • Poor currency and fiscal policies • High inflation, hyper-inflation, debt traps • Exacerbated by low quality of institutions of conflict management

  12. A theory of growth collapses • Proxies for latent social conflict: • inequality (income and land) • ethnic and linguistic differentiation • social trust” Proxies for institutions of conflict management: civil liberties and political rights (democratic institutions) quality of governmental institutions rule of law bureaucratic efficiency and absence of corruption public spending on social safety nets

  13. Determinants of post-1975 growth collapses Source: Rodrik (1999)

  14. Africa’s recent growth acceleration: how sustainable is it? how would we know? Source: Arbache and Page (2009)

  15. Concluding remarks • Sustaining growth is hard, and requires ongoing institutional reforms • Institutional prerequisites for sustaining growth are of two types in particular • Institutions of conflict management to maintain resilience to shocks and prevent growth collapses • democracy, “rule of law,” social insurance,.. • Institutions that maintain productive dynamism and prevent growth from fizzling out • Need for a framework of public policies that foster structural change • So in the long-run, institutions do rule! • But don’t confuse what is required to instigate growth with what is required to sustain it

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