What is Growth Diagnostics?

The working paper, Growth Diagnostics by Ricardo Hausmann, Dani Rodrik, and Andres Velasco begins with the idea that the impact of reforms, such as the Washington Consensus is dependent on circumstances. The argument in this paper calls for an approach to reform that is more specific for the economic environment. To do this, the authors show a way to develop a plan for analyzing and formulating growth strategies. In order for this plan to succeed, there must be a better understanding of the constraints on economic activity and how they differ between settings or countries. The approach made by the authors includes three considerations. The first is that increasing economic growth rates is the main challenge that developing nations face and creating higher levels of living standards is the most direct route to achieving improvements. The second consideration is that growth strategies are likely to differ between countries because of the specific domestic opportunities and constraints. Third, the growth strategies need to be prioritized. Governments face limitations and policy making is not accomplished successfully when going after too many targets at once. This paper has a main goal of developing a framework for growth diagnostics that propose a strategy for discovering the policy priorities. To do this, the most binding constraints on economic activity must be identified. The authors start by asking the question of what keeps growth low, and then discuss the kind of evidence is needed that would help answer the question. It is important that reform priorities are organized according to the magnitude of the direct effects. The authors also apply their approach to Brazil, El Salvador, and the Dominican Republic. These three countries all have had different growth experiences. The growth rates in these three countries and some basic facts are