(p.47) It happens when the poor get good opportunities and incentives, which requires government welfare programs that reward rather than penalize earning income. Thus, it is also likely that rates of economic growth in the future will be related to the amount of economic freedom countries choose. a growth acceleration to the set of institutions that allow growth to be maintained, and given the high number of growth-acceleration episodes which do not sustain, why do countries exhibit differential success in the transition path from one growth regime to another? Is it the nature of the technology in productive sectors—that is, the more sophisticated the technology, the more difficult it is to master that technology and consequently, the less is the incentive of ruling elites to expropriate output in the short term? A high employment level means that companies have the necessary manpower to produce, service, and sell the goods and services that the population demands. While Easterly does not offer his own new panacea for how to move countries to a higher level of per capita GDP, where the model presented in this chapter does seem to provide some explanations of why a country’s growth rate may vary over time or differ from another country’s, he does argue that creating incentives for growth in poor countries is crucial.
Secondly, an understanding of the political processes around effective state–business relations and growth coalitions allows us to understand why growth accelerations and growth collapses occur in some countries and not in other countries with very similar initial conditions. An important implication of AR’s theory is that bad political equilibrium that leads to poor economic performance may persist over time, and economic growth may stagnate in a country for many years as a consequence. In order for natural resources to be harnessed, investments must be made for exploration and drilling.
Is it the temporal characteristics of the production process—that is, the longer the timescale of production (such as the production of tree crops like coffee), the fewer The chapter concludes with a section presenting a set of research questions that can help guide future research on the politics of economic growth.
Accordingly, people venture to make investment in diverse areas of economic activity. The overarching research question then is: what determines the political transitional dynamics around growth regime traverses—that is, the move from one growth regime to another growth regime? However, the theory of AR, with its emphasis on inclusive economic and political institutions, may be more relevant for growth maintenance, while the theory of Khan, with its emphasis on informal institutions and patron–client networks, is more relevant for growth acceleration. Finally, entrepreneurs with low to moderate capability and who are politically weak are the ones who will face most constraints on accumulation, and growth occuring in this context would depend on whether a developmental ruling coalition is in place or not.
(2) set of literature on coalitions and development leadership (including the work of the Centre for the Future State). Furthermore, it is arguable how important are characteristics such as inclusive and stability of coalitions to explain economic growth—as Haber et al. However, Poteete underplays the role of institutional pre-conditions and the manner in which the structure of the economy was aligned with the incentives of political elites to invest in the productive sector at the time of independence (cattle farming), while in Zambia, with a similar economic structure, this did not occur (Robinson and Parsons 2006). An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. Therefore, anything that increases the quantity or quality of factors of production or that improves the technology available to the economy contributes to economic growth. “We have learned once and for all that there are no magical elixirs to bring a happy ending to our quest for growth. It was very interesting and I learned that foreign investment is very important. Social institutions like caste system, joint family system and laws of inheritance play an important role in economic development. By investing in new information collection and processing and making information about the relevant new industries freely available to firms, the state can play a facilitating role in the introduction of new products and the move to new industries, and as a consequence, in bringing about structural change and technological upgrading in the economy (Lin and Monga 2011). Informal institutions and patron–client networks may be crucial in igniting growth and formal institutional reform may have little growth-enhancing effect in clientelist political settlements. The third political channel to growth is the overcoming of co-ordination failures in investment decisions. Enhancements in human capital contributed to labor productivity and economic growth, but in slower growing countries such improvements were not enough to offset the impact of reduced or stagnant labor utilization. Factories, tools, roads, and transport vehicles represent capital goods used by businesses to develop and distribute products and services efficiently. Also, while AR do not directly state that the inclusive economic and political institutions they take to be correlated with sustained economic growth are formal institutions, the specific examples they provide of inclusive economic institutions, such as contract enforcement and state regulation of markets, and inclusive political institutions, such as the rule of law for all citizens, suggest that these are more likely to be formal institutions. Examples of natural resources which can have major effect on rate of economic growth include fossil fuels, valuable metals, oceans, and wild life. Panel (a) measures the 2005 to 2009 rate of responsiveness to the reform priorities given to each country in 2005. Achieving high output to input ratio is the result of efficiency. Table 8.1 Growing Disparities in Rates of Economic Growth. Human resources include both skilled and unskilled workforce. Firstly, it provides us with micro-level reasoning that is missing to a large extent in the work of AR and Khan. Natural resources (those which are available as a free gift of nature) include land, water, minerals, fossil-fuel, forest products, wind and solar energy, etc. Thus, to understand the political drivers of economic growth, we need an explanation of the political dynamics around the transition from one growth regime to another, and the political economy determinants of growth accelerations, growth maintenance, and growth declines/collapses. Pritchett (2000) points out that slow moving determinants of growth such as improvements in the quality of institutions or time-constant factors such as geography (land-lockedness, distance from the equator), resource endowments (e.g. Entrepreneurs with low to moderate capability who are politically networked can drive accumulation in the early stages, especially in low-technology industries. Published to Oxford Scholarship Online: January 2015, DOI: 10.1093/acprof:oso/9780198722564.001.0001, PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). This chapter is an analytical review of what we know about the political economy determinants of economic growth. This is for two reasons—one, in many developing
Four of these are typically grouped under supply factors which include natural resources, human resources, capital goods and technology. • What role do growth coalitions and developmental leadership play in growth accelerations and growth maintenance? Conversely, nearly all countries have experienced periods of abysmal growth.
Download preview PDF. levels of income (such as in the report of the Commission for Growth and Development, 2008) is not compatible with the ‘stylized facts’ of economic growth (Pritchett 2000).
A second political channel to economic growth is the provision of public goods. There we learned that the main sources of growth for the United States from 1960 to 2007 were divided between increases in the quantities of labor and of physical capital (about 65%) and in improvements in the qualities of the factors of production and technology (about 35%). The inaugural edition identified five priority structural policy areas specific to each OECD country.
Therefore, patrons in the network offer local enforcement and dispute resolution activities to their clients—the investors—in return for political support and the rents that accrue from the production process. With respect to growth accelerations, Hausmann et al. High efficiency increases growth rate when it is coupled with full employment.
An early tradition in the very large literature that exists on the determinants of economic growth mostly focused on understanding the proximate determinants of economic growth, and in particular, the role of human and physical capital accumulation, technological change, and productivity growth in explaining economic growth. The divergence of the private and social returns to investment may be particularly evident in more modern manufacturing activities or in knowledge-based services as compared to unskilled labour-intensive manufacturing or primary commodity production. the effective delivery of these goods. Easterly points out that between 1960 and 1985, the capital stock per worker in both Gambia and Japan rose by over 500%. Growth-enhancing policy reforms across countries varied widely during this period. Over 10 million scientific documents at your fingertips. We also examine the reasons for the widening disparities in economic growth rates among countries in recent years. AR argue that while bad political equilibrium tends to persist, change is possible. We noted that the focus in much of the literature on rates of average growth of per capita income has obscured the fact that most countries observe dramatic fluctuations in growth of per capita income—most developing countries tend to observe stop–go growth episodes, with growth accelerations followed by growth decelerations or collapses. 2010). Risk-averse entrepreneurs with low wealth endowments may not be willing to invest in such investments that have high sunk costs and prefer to invest in activities with a high short-term possibility of profits but which offer fewer possibilities for technological upgrading.
Investors also need to commit to share a part of their rents to the state (or its constituents, such as politicians) and when states raise revenues from taxes, to pay the state the necessary taxes.
Panel (a) shows a responsiveness rate, which measures significant actions taken, and Panel (b) shows a follow-through rate, which measures whether priorities could be dropped due to reform implementation. In economics, economic growth refers to a long-term expansion in the productive potential of the economy to satisfy the wants of individuals in the society. they may revolt, use arms, co-opt the military, or undertake protests). Part III The Politics of Social and Legal Citizenship: Promoting and Protecting the Rights of the Poor? Finally, it is worth noting that while the cross-country econometric literature on the institutional determinants of economic growth have gone beyond the earlier focus on proximate determinants of growth such as macroeconomic stability, trade openness, and human-capital formation, and have been able to bring in an emphasis on economic and political institutions as the fundamental cause of economic growth, they still leave open the question: what is the underlying political equilibrium/settlement that generates growth-enhancing institutions, and are there specific characteristics of settlements within which growth-enhancing institutions emerge? To what extent is the transition exogenously determined? This observation was confirmed in a major study by the Organisation for Economic Co-operation and Development (OECD),[1] whose members are listed in Table 8.1 “Growing Disparities in Rates of Economic Growth”.
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