Growth models to growth strategy: a consensus view

Growth models to growth strategy: a consensus view

From growth models/empirics to growth strategy Darryl McLeod Economic Growth & Development Econ 6470 Spring 2017

Beta convergence happens when poor countries grow faster than rich ctys Solow-Swan model predicts beta convergence. even in closed economies with no trade or capital flows, why? Augmented Solow model adds H Absolute convergence tests failed until about 2000 then LDC growth sped up and OECD slowed see next

slide Globalization (labor, trade & capital flows) should speed convergence but had serious side effects Convergence slowed by poverty traps. But we have medicine for this (effective aid, FDI) Does growth help the poor, (shared

prosperity, MDGs, SDGs) (see GMR, 2016) World Bank Policy Research Note No.3: Ending Extreme Poverty and Sharing Prosperity: Progress and Policies ECON 6470 Lecture Notes Darryl McLeod

6 Figure 10: Global Poverty falls to less than 10% sources https://ourworldindata.org/world-poverty/ interactive version https://ourworldindata.org/grapher/declining-global-poverty-share-1820-2015

ECON 6470 Lecture Notes Darryl McLeod 7 World Bank Policy Research Note No.3: Ending Extreme Poverty and Sharing Prosperity: Progress and Policies

ECON 6470 Lecture Notes Darryl McLeod 8 World Bank Policy Research Note No.3: Ending Extreme Poverty and Sharing Prosperity: Progress and Policies

ECON 6470 Lecture Notes Darryl McLeod 9 Figure 3: A decade of faster growth shrinks gap between rich and poor countries 7.5 6.0

3.9 4.4 4.5 4.1

4.8 3.3 1.4 -1.7

-2.1 All developing economies -3.8 Advanced economies

-6.8 -4.3 Sub-Saharan Africa 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Source: Per capita GDP growth from IMF, WEO, September 2011 (2011 forecast) In 2015 WB predicts converge led by SSA WB predicts beta converge led by SSA Commodity Prices may slow growth in SSA

Ethiopia is a wonderful agricultureal growth case study with flying geese too U.S. growth has been remarkably constant for the last 16 years at just under 2%, using the rule of 70, this income per person doubles every 35 years. Since 1950, other nations have begun to catch up.

Wynne (2011) Will China become as rich as the U.S.? Wynne (2011) Will China become as rich as the U.S.? Wynne (2011) Will China become as rich as the U.S.?

Barriers to growth, levers for growth Poor institutions, property rights, credit markets etc. (corruption, misuse of aid) Resource curse.. Nigeria, Venezuelas Capital and trade flows: handmaidens Debt crises many debt crises In Africa especially: poverty traps, low savings,

low public investment, poor health rapid population growth Theories of growth Poor institutions, property rights, credit markets etc. (corruption, misuse of aid) Geography: Resource curse.. Nigeria, Venezuela, ethnic

conflict (South Sudan). Integration: Capital and trade flows: handmaidens? EPZs and weak RER levers for growth, exploit global markets to boost growth temporarily Poverty traps: Africa in particular, conflict, low savings, low public investment, poor health rapid population growth Aid and Debt: HIPC initiative, Glenn eagle surge in foreign

Aid. Justin Lin: slaying the dragons, becoming a dragon

Absolute convergence 2007-2008 Reversal of fortune (China and India) Capital and trade flows: working in reverse Debt crises odious debt

In Africa especially: poverty traps, low savings, low public investment, poor health rapid population growth Justin Lins on the Akamatsu model: garments first, then.

Geese still flying (Akamatsu) Geese still flying (Akamatsu) Geese flying: the case of

Japan ( Akamatsu) Geese flying: the case of Japan (Akamatsu

model ) see page 203 Schrppel, Christian, and Mariko Nakajima (2002) "The changing interpretation of the flying geese model of economic development."

Japanstudien: Jahrbuch des Deutschen Instituts Fur Japanstudien. IUDICIUM Verlag (2002): 203-234. Alternatives models of

development: Akamatsu & Kojima see page 222 Schrppel, Christian, and Mariko Nakajima (2002) "The changing interpretation of the

flying geese model of economic development." Japanstudien: Jahrbuch des Deutschen Instituts Fur Japanstudien. IUDICIUM Verlag (2002): 203-234.

Summary: China has done it (two reversals) who will be the next? Justin Lin says golden Geese are flying from China, wages are rising, productivity in increasing, where will they go next? 85 million new jobs?? Who are the Dragons (not just Mario Draghi, head of the ECB) From tigers to lions: boom spreads to Africa

Does what you export matter? ( if yes industrial policy (EPZs) or just a weak RER (check: or all of the above?) An African/Latin growth miracle? Latin America & Africa are growing faster, will it last? Can they replicate Chinas EPZ strategy? Or a new model? Latin

America is bit spread out but its forest of industries is a little denser than

Africas Africa vs Latin America the later mainly middle income, SSA mainly low income Low incomes and wages in Africa, but Latin America has better institutions, education, etc. LatAms poorer countries HND, SLV, NIC, GTM,

Bolivia can opt export led growth, but will they? What about the DR and Haiti? Some remain hopeful of trade can be expand (are Haitis OTEXA agreements working?) Which LatAm countries are doing best with the leading goose, garment trade? see otexa data

Ghana is on track to achieve MDG 1: a goal few thought was in reach for Africa Compare Sachs et al. (2004) to Africas Pulse September 2011 (world bank) Compare Sachs et al. (2004) to Africas Pulse

September 2011 (world bank) Compare Sachs et al. (2004) to Africas Pulse September 2011 Food prices rise, but not everywhere Today

Conditional vs. Absolute convergence Three growth models Poverty traps Trade vs. industrial policy Rapid growth despite resources boom New issues: Migration, microfinance and climate change

Generic poverty trap from Banerjee and Duflo (2011) Poor Economics Chapter 1 Development imperatives 1. Climate change: adaptation vs. mitigation, migration vs. development

2. Food and commodity price increases (landless poor) slowing growth in yields per hectare. 3. High fertility rates: world population now 7 billion 4. Migration and remittances works (Kerala) but driven by 1-3 could be politically destabilizing.

Development outcomes Arab Spring: convergence in education and health (life span) governance Food and commodity price increases (landless poor) High fertility rates: world population now 7 billion

Migration and remittances Kerala China and India: commodity prices Consensus on growth strategies: post East Asian miracle (institutions?) Early Washington Consensus Trade liberalization

Open capital account?? Macroeconomic stability Privatization Sachs-Warner Index: Tariffs < 10%, quotas <40% BMP < 20% Non-socialist government

No export monopoly Post EA miracle consensus Weak RER Macro stability Exports and FDI EPZ + socialism works too

Africa w/poverty traps: Levers for growth Macro stability, weak RER Aid OK, resource rents? Aid can break poverty trap Debt relief?

What about institutions? Institutions fundamental but, Country specific (Rodrik) hard to change May be endogenous (Resource curse- Collier) Correlated with Geography

(Sachs- malaria, landlocked) Some work-arounds: (Collier ISA, military, EPZs) Asset redistribution shocks Not essential as there are other levers for growth (Johnson et al.below)

Trade- EPZs Competition, open capital markets FDI- new technologies Education Political coalitions (Marshal

plan) Black and white cats both hunt mice (China, HRS, etc.) Rodrik and Subara Rodrik and Subramanian (2003) F&D

Levers for growth in Africa Competitive RER Figure 1 SSA Per capita GDP Growth rate 4.1%

4.4% 3.5% 2.1% 2.6%

2.2% 1.7% 0.8% Average 1996-08 2.4%

-3.3% Average 1982-95 -1.4% -5.0% Source: IMF WEO April 2010 Database (population weight average GDP per capita) not including Liberia, Eriteria,

Hybrid models: See page 66-67 Barro & Sali-i-Martin old Sobelo model Hybrid models: See page 66-67 Barro & Sali-i-Martin old Sobelo model Hybrid models: See page 66-67 Barro & Sali-i-Martin old Sobelo model

Demand side poverty traps. References References: Acemoglu, Daron, and Simon Johnson, 2005, "Unbundling Institutions," Journal of Political Economy, Vol. 113 (October), pp. 94995.

Berg, Andrew, Carlos Leite, Jonathan D. Ostry, and Jeromin Zettelmeyer, 2006, "What Makes Growth Sustained?" manuscript (January) (IMF). Hausmann, Ricardo, Lant Pritchett, and Dani Rodrik, 2004, "Growth Accelerations," NBER Working Paper 10566 (Cambridge, Massachusetts: National Bureau of Economic Research). International Monetary Fund, 2003, World Economic Outlook, September (Washington). Rodrik, Dani, Arvind Subramanian, and Francesco Trebbi, 2004, "Institutions Rule: The

Primacy of Institutions over Geography and Integration in Economic Development," Journal of Economic Growth, Vol. 9 (June), pp. 13165. Sachs, Jeffrey, and Andrew Warner, 1995, "Economic Reform and the Process of Global Integration," Brooking Papers on Economic Activity, Vol. 1, pp. 1118. World Bank, 1993, The East Asian Miracle: Economic Growth and Public Policy (Washington).

Falling severe $1.25 a day poverty now to $2.00/day makes see See Chandy & Gertz (Brookings, Jan 2011)

Recently Viewed Presentations

  • ISB corrections and GT matrix elements within NCCI model ...

    ISB corrections and GT matrix elements within NCCI model ...

    Both superallowed beta decay and Gamow-Teller matrix elements give a unique opportunity to explore the electroweak sector of the Standard model. Namely, the unitarity condition of CKM matrix and the quenching effect of the coupling constant of the weak axial...
  • Who are you?

    Who are you?

    the brain (entrainment occurs between people, you and your pets and the earth) ... Yoga, meditation, music, hypnosis, holosync. Creative expression. Prioritising being over doing, love over fear. Getting in the 'flow' changes your brain waves to slow alpha .....
  • Your Agency D A O R E G

    Your Agency D A O R E G

    The Blazer sped away and the driver has not been identified. ROAD RAGE Brian Jenkins, 35, of Tampa, told police he became irate when he was cut off in traffic at Henderson and Nebraska Avenue at 3:45 P.M. by an...
  • What a Wonderful World - musicbulletinboards.net

    What a Wonderful World - musicbulletinboards.net

    What a Wonderful World by Louis Armstrong ENJOY! I see trees of green, red roses too I see them bloom for me and you And I think to myself, what a wonderful world I see skies of blue and clouds...
  • Lifecycle of Integrated Marketing Marquette University 2002-2006

    Lifecycle of Integrated Marketing Marquette University 2002-2006

    Arial MS Pゴシック Symbol Default Design 1_Default Design PowerPoint Presentation Myth vs. Fact PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation Do's and Don'ts of College Essay Writing PowerPoint Presentation PowerPoint Presentation
  • Noções básicas de hereditariedade

    Noções básicas de hereditariedade

    * Experiência Joachim Hammerling (1930) Rizóide ou base onde se localiza o núcleo permite a fixação da alga às rochas Caulóide - prolongamento citoplasmático Chapéu - onde se encontram a maioria dos cloroplastos. O núcleo deve ser a estrutura da...
  • Correlations ?  Children with high self-esteem also tend

    Correlations ? Children with high self-esteem also tend

    3. Why do nations that have added fluoride to their water have a higher cancer rate? (nations able to afford such for the majority have healthier people which live longer- long enough to develop cancer, largely a disease of old...
  • Volitional Arguments for Religious Belief: William James ...

    Volitional Arguments for Religious Belief: William James ...

    If God exists William James: Will to Believe Belief in God does not and should not depend on dispassionate reason Knowing God Without Arguments Alvin Plantinga: Belief in God is a foundational belief on which other beliefs are based (or...