The Hausmann-Rodrik-Velasco Growth Diagnostics Framework;1. Specialization – specifics beyond comparative advantage, i.e. labor-intensive activities is hardly enough. The idea behind “self-discovery” --- figuring out what the impediments to growth are .
3. Growth Diagnostics (GD)– once efficient investment & entrepreneurship are accepted for economic growth & development, there is need for country-specific binding constraints. GD is a decision tree for identifying the most binding constraints for each country currently and in future.
1. Focus on a country’s most binding constraints on economic growth & alleviating pressing constraints.
2. Suppose a country is constrained by low level of private investment & entrepreneurship. The decision tree identifies the-how-to-solve the problem. The initial causes could be (a) low return to economic activity and (b) high cost of finance.
3. Not that the solution to these binding constraints are so many and multi-dimensional. This shows that No “one size fits all” in development policy, i.e. GD is a much more broader approach to development policy that complements econometric modelling.
Problem of “arriving late” for public events
Illustrates the idea of multiple equilibria --- moving from one inferior equilibrium to a superior one