Arnold Kling  

Growth and Development

Labor Market Dynamics... The Joy of the Switch...

Lant Pritchett writes,

While the contribution of the new growth models to the internal logic of the economics discipline has been lasting, the bloom came off the rose of the explicit use of new growth models for policy purposes in developing countries relatively quickly. Nearly everything about the first-generation growth models was at odds with the needs of developing country policymakers. The new growth literature focused on the very long run and on incentives for expanding the technological frontier—not particularly useful for most developing countries, whose primary interest was in restoring short- to medium-term growth and accelerating technological catchup by adopting known innovations.

Perhaps Romer is not such a favorite for the Nobel, after all.

Read Pritchett's whole article, for the quality of writing. Thanks to Timothy Taylor in the Journal of Economic Perspectives for the pointer.

Comments and Sharing

COMMENTS (1 to date)
RogerM writes:

It's truely amazing to me that 200 years after Adam Smith, we still don't have a better explanation for growth than Smith's!

The problem has been that the theorists and the empericists have worked mostly at the macro level. They can't see the trees for the forest. Working at the micro level, it's clear that entrepreneur's create growth, not governments. Entrepreneurs want to make a profit. Anything that hinders them in that pursuit will hinder growth. What hinders them? Taxes, theft, and corruption. What helps? Freedom and protection of property rights, in other words, sound institutions.

Pritchett's idea that economies occupy different states and that the criteria are different for each state is very similar to the institutional theories of growth. A country in a state of communism will have a very difficult time growing. Pritchett's "states" could be the equivalent of different institutions.

Pritchett's pessimism about growth under the institutional explanation is warranted, for as research shows, culture determines institutions. But giving up on the institutional explanation of growth and searching for an easier path reminds me of the drunk who searched for his car keys under the street light, not because that was where he dropped his keys, but because that was where he had light!

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