Transcript Growth accelerations and collapses

Growth accelerations and
collapses
Highlights
1.
Igniting growth requires a relatively narrow range of reforms, targeted
at relaxing the “binding constraint”
–
2.
Rapid growth is possible even in the midst of severe institutional or policy
failings
Growth-promoting reforms often take unconventional or heterodox
forms
–
3.
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
Every region has had a good decade
… even Africa
High growth in Africa since the late 1990s as well. Will return to it.
Growth accelerations are very common
Growth accelerations occur everywhere
Note: accelerations during the period from mid-1950s to early 1990s only.
Almost every country converges during some
period (or diverges…)
Source: Jones and Olken (2005)
How predictable are accelerations?
Table 4.4: Predictability of growth accelerations
(a) All growth episodes
Proportion of growth accelerations that are preceded or accompanied by:
Economic liberalization
14.5%
Political regime change
21.7%
External shock
27.5%
Proportion of occurrences of column variable that is accompanied or followed by growth accelerations:
Economic liberalization
18.2%
Political regime change
13.8%
External shock
5.1%
(b) Sustained growth episodes only
Proportion of growth accelerations that are preceded or accompanied by:
Economic liberalization
16.2%
Political regime change
18.8%
External shock
23.5%
Proportion of occurrences of column variable that is accompanied or followed by growth accelerations:
Economic liberalization
9.1%
Political regime change
4.6%
External shock
1.4%
Notes: As in the probits, we allow for a five-year lag between a change in the underlying determinant
and a growth acceleration. The timing of the growth acceleration is the three year window centered
on the initiation dates shown in Table 2.1.
Source: Hausmann, Pritchett, and Rodrik (2005), and Jong-A-Pin and de
Haan (2008)
Types of changes in growth regimes
Growth collapses and decelerations
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
A theory of growth collapses
Δgrowth  externalshocks
•
•
•
Proxies for latent social conflict:
inequality (income and land)
ethnic and linguistic differentiation
•
social trust”
latentsocial conflict
institutions of conflictmanagement
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
Determinants of post-1975 growth collapses
Source: Rodrik (1999)
Africa’s recent growth acceleration: how
sustainable is it? how would we know?
Source: Arbache and Page (2009)
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
–
•
Institutions that maintain productive dynamism and prevent growth from fizzling
out
–
•
democracy, “rule of law,” social insurance,..
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