Growth Strategies and Dynamics

This is a consolidated summary of select papers from the Commission on Growth and Development

The Nature of the Growth Challenge

Since 1950, the growth experience of countries across the world has been diverse. Thirteen countries have had successful growth experiences, defined here as achieving at least a 7 percent rate of growth over 25 years or more. These countries are Botswana, Brazil, China, Hong Kong (China), Indonesia, Japan, the Republic of Korea, Malaysia, Malta, Oman, Singapore, Taiwan (China), and Thailand. Figure 1 below illustrates the success stories of these countries.

Figure 1: Success Stories of Sustained High Growth
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Source: Commission on Growth and Development (2008). “The Growth Report: Strategies for Sustained Growth and Inclusive Development”

Two other countries, India and Vietnam, may be on their way to join this successful group of 13. For most of the other developing countries, their growth spurts have been for short periods, faltered and picked up again. Many developing countries, however, have yet to jump in on the growth bandwagon. Studying the growth patterns across these countries, the Commission on Growth and Development, chaired by Nobel Laureate Michael Spence, in collaboration with leading academics and practitioners, have worked to identify the forces that drive rapid and sustained growth in a globalizing world. They have identified six common features in the growth strategies of successful countries that include:

1) Maturation and deepening of the market institutions and reliance of the market system for resource allocation (price signals, incentives, decentralization, and clarity on the definition of property rights to facilitate transactions and investment) 2) Functional investment environment: i) A commitment to sustained growth by the government and the ability to make mid-course adjustments; ii) Effective governance and consensus building; iii) Effective macro economic management to control inflation while promoting domestic and foreign investment 3) High levels of savings and investment, by both the private and public sector, particularly in physical and social infrastructure (education and health) 4) Resource mobility. High labor mobility and increases in productive capacity led to rapid movement of people from rural to urban areas, leading to structural transformation of the economy. 5) Engagement with the global economy by encouraging inward transfer of knowledge and technology and promoting exports. However, the challenge is in the speed and sequencing of the opening up process which will vary significantly across countries 6) Fast-growing urban areas. There is a strong link between urbanization and increases in productivity in developing countries through specialization, complementarities in production and diffusion of knowledge and mimicry. The challenge is to find potential new centers for economic activity to spread the growth effects of increasing urbanization.

Growth strategies involve formulating responsive and sustainable policy approaches in the context of significant challenges. The experience of many developing countries indicates that there are number of complex issues that have undermined growth strategies and related reform efforts. These challenges include

a. Disconnect between theoretical predictions of simplistic growth models and the reality of their applications in the context of growth in developing countries b. Lack of knowledge of the binding constraints to growth c. Lack of coherence in the design of policies so that different strategies work at cross purposes d. Lack of capacity in building and deepening market structures and supportive institutions in the economic, political, and regulatory space e. The derivation and maintenance of national consensus f. The impact of an uncertain external environment, and the need to