Growth strategies
Download
1 / 20

Growth Strategies - PowerPoint PPT Presentation


  • 314 Views
  • Updated On :

Growth Strategies. Dani Rodrik October 2005. “Augmented” Washington Consensus the previous 10 items, plus:. 1. Fiscal discipline 2. Reorientation of public expenditures 3. Tax reform 4. Financial liberalization 5. Unified and competitive exchange rates 6. Trade liberalization

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Growth Strategies' - salena


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Growth strategies l.jpg

Growth Strategies

Dani Rodrik

October 2005


Slide2 l.jpg

“Augmented” Washington Consensus

the previous 10 items, plus:

1. Fiscal discipline

2. Reorientation of public expenditures

3. Tax reform

4. Financial liberalization

5. Unified and competitive exchange rates

6. Trade liberalization

7. Openness to DFI

8. Privatization

9. Deregulation

10.Secure Property Rights

There was once a Washington Consensus ….

Original Washington Consensus

11. Corporate governance

12. Anti-corruption

13. Flexible labor markets

14. WTO agreements

15. Financial codes and standards

16. “Prudent” capital-account opening

17. Non-intermediate exchange rate regimes

18. Independent central banks/inflation targeting

19. Social safety nets

20. Targeted poverty reduction



Slide4 l.jpg

… reaped very small benefits:

6%

LAC-7

Emerging Asia

OECD

5%

4%

3%

2%

1%

0%

-1%

1961-1970

1971-1980

1981-1990

1991-2003

Notes: Regional GDP per capita. Asia includes Indonesia, Korea, Malaysia, Philippines and Thailand.


Slide5 l.jpg

Country

Growth rate in the 1990s

Trade policies in the 1990s

China

7.1

Average tariff rate 31.2%, NTBs; not a WTO member

Vietnam

5.6

Tariffs range between 30-50%, NTBs and state trading, not a WTO member

India

3.3

Tariffs average 50.5% (the highest but one in the world)

… while those that prospered played by different rules:

World Bank’s “star globalizers”*

*According to World Bank, Globalization, Growth, and Poverty, 2001, p. 6.


Hence the wc is fast being replaced by a new emergent consensus l.jpg
Hence the WC is fast being replaced by a new emergent consensus:

  • Economists have limited ability to recommend appropriate growth policies

  • It’s not policies, but institutions that matter

  • Appropriate policies (and institutions?) depend on local circumstances

  • Experimentation is inevitable


The changing conventional wisdom l.jpg
The changing conventional wisdom: consensus:

“there is no unique universal set of rules… we need to get away from formulae and the search for elusive “best practices” …. rely on deeper economic analysis to identify the binding constraints on growth…”

From the introduction by Gobind Nankani to the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform


Slide8 l.jpg

“whatever the policy area, there is no single formula applicable to all circumstances; policies’ effectiveness depends on the manner in which they are discussed, approved, and implemented…. A strictly technocratic approach toward policymaking shortchanges these steps ….”

From the introduction to the forthcoming IPES Report of the IDB.


But some change less than others l.jpg
But some change less than others… applicable to all circumstances; policies’ effectiveness depends on the manner in which they are discussed, approved, and implemented…. A strictly technocratic approach toward policymaking shortchanges these steps ….”

“reforms were uneven and remained incomplete…. More progress was made with measures that had low up-front costs, such as privatization, relative to reforms that promised greater long-term benefits, such as improving macroeconomic and labor market institutions, and strengthening legal and judicial systems”

-- IMF (2005)

“Meant Well, Tried Little, Failed Much”

-- Anne Krueger (2004)


All agree on the need to l.jpg
All agree on the need to: applicable to all circumstances; policies’ effectiveness depends on the manner in which they are discussed, approved, and implemented…. A strictly technocratic approach toward policymaking shortchanges these steps ….”

  • replace “quick fixes” with “deep fixes”

  • use different strokes for different folks


Towards a more operational agenda designing growth strategies l.jpg
Towards a more operational agenda: applicable to all circumstances; policies’ effectiveness depends on the manner in which they are discussed, approved, and implemented…. A strictly technocratic approach toward policymaking shortchanges these steps ….” Designing growth strategies

  • Growth diagnostics: what are the most binding constraints on growth?

  • Policy design: how do we best alleviate the relevant constraints?

  • Institutionalization: how do we institutionalize the diagnostic/policy design process in view of the fact that the nature of binding constraints will change over time?


Slide12 l.jpg

Step 1: Growth diagnostics applicable to all circumstances; policies’ effectiveness depends on the manner in which they are discussed, approved, and implemented…. A strictly technocratic approach toward policymaking shortchanges these steps ….”

Problem: Low levels of private investment and entrepreneurship

Low return to economic activity

High cost of finance

bad international finance

bad local finance

Low social returns

Low appropriability

government failures

market failures

information externalities: “self-discovery”

coordination externalities

poor geography

bad infra-structure

micro risks: property rights, corruption, taxes

macro risks: financial, monetary, fiscal instability

low domestic saving

poor inter-mediation

low human capital


Illustrations l.jpg
Illustrations applicable to all circumstances; policies’ effectiveness depends on the manner in which they are discussed, approved, and implemented…. A strictly technocratic approach toward policymaking shortchanges these steps ….”

  • El Salvador: low investment demand due to low incentives for “self-discovery”

    • Need to find new high-return investment opportunities

    • Solution: industrial policy?

    • What will not work: Improving “institutional environment” will not be very effective when constraint is low appropriability due to “cost discovery” and coordination externalities

  • Brazil: low investment due to high cost of capital

    • Need to increase domestic savings and enhance access to foreign savings

    • Solution: adjust fiscal policy?

    • What will not work: improving “business climate” not very effective when problem does not lie with low investment demand


Slide14 l.jpg
The growth diagnostics approach is based on the view that small changes, if appropriately targeted, can unleash growth

  • Growth accelerations are frequent

    • More than 80 cases since the mid-1980s

    • Including in SSA

  • And they are rarely triggered by comprehensive economic reforms

    • Key is well-targeted effort to remove most severely binding constraints

    • China in 1978; India in 1980; Chile in 1984-85


Step 2 policy design l.jpg
Step 2: Policy design small changes, if appropriately targeted, can unleash growth

  • First-best logic: target policy on relevant distortion

    • but hardly works due to second-best interactions and political-economy/administrative constraints

  • Multiplicity of institutional solutions

    • the functions that good institutional arrangements perform (protect property rights, ensure macro stability, internalize externalities, etc.) do not map into unique institutional forms

    • local contingencies require local solutions

      • TVEs versus privatization as property reform

  • Experimentation and learning are necessary components of reform

  • Implication for government-business relations

    • government needs to be close enough to business to elicit information, far enough not to be captured

… hardly the Washington Consensus!


Chinese shortcuts l.jpg
Chinese shortcuts small changes, if appropriately targeted, can unleash growth

  • Two-track pricing insulates public finance from the provision of supply incentives

  • Household responsibility system and township and village enterprises obviate the need for ownership reforms

  • Special economic zones provide export incentives without removing protection for state firms

  • Federalism, “Chinese-style” generates incentives for policy competition and institutional innovation


East asian anomalies l.jpg

Institutional domain small changes, if appropriately targeted, can unleash growth

Standard ideal

“East Asian” pattern

Property rights

Private, enforced by the rule of law

Private, but govt authority occasionally overrides the law (esp. in Korea).

Corporate governance

Shareholder (“outsider”) control, protection of shareholder rights

Insider control

Business-government relations

Arms’ length, rule based

Close interactions

Industrial organization

Decentralized, competitive markets, with tough anti-trust enforcement

Horizontal and vertical integration in production (chaebol); government-mandated “cartels”

Financial system

Deregulated, securities based, with free entry. Prudential supervision through regulatory oversight.

Bank based, restricted entry, heavily controlled by government, directed lending, weak formal regulation.

Labor markets

Decentralized, de-institutionalized, “flexible” labor markets

Lifetime employment in core enterprises (Japan)

International capital flows

“prudently” free

Restricted (until the 1990s)

Public ownership

None in productive sectors

Plenty in upstream industries.

East Asian anomalies


Step 3 institutionalizing the diagnostic process l.jpg
Step 3: Institutionalizing the diagnostic process small changes, if appropriately targeted, can unleash growth

  • Nature of binding constraints change over time

  • Growth will slow down if diagnostic process not ongoing

    • Dominican Republic, Indonesia, Cote d’Ivoire,..

    • China’s future challenges

  • Sustaining growth requires ongoing institutional reform to

    • Maintain productive dynamism

    • Increase resilience of economy to external shocks


Why none of this is heterodox l.jpg
Why none of this is “heterodox” small changes, if appropriately targeted, can unleash growth

  • Approach outlined above is based on empirical evidence and standard economic theory

    • Policy recommendations in economics are always state-contingent

      • policy A is desirable if …

    • This is how economists think in the seminar room

  • Approaches based on “rules of thumb” are not

    • Washington Consensus and later variants are based on implicit theorizing about market structure, political economy, institutional capacity


Some implications l.jpg
Some implications small changes, if appropriately targeted, can unleash growth

  • Successful growth strategies require policy experimentation

    • willingness to try unconventional solutions

  • Successful growth strategies result in higher trade and investment flows

  • Implications for WTO, WB, IMF:

    • de-emphasize “best practice” approach

    • policy space

    • selective approach instead of laundry list


ad