Accelerating Economic Growth: The Science beneath the Art

Abstract

Rapid and sustained accelerations in economic growth can have huge implications for poverty alleviation and people's wellbeing, but does the economic profession have the knowledge to engineer them? Conspicuously disappointing outcomes for countries scrupulously following mainstream growth policy recipes have sown some doubt. This paper deploys a novel statistical approach to show that 80% of 135 successful growth acceleration episodes – occurring between 1962 and 2002 worldwide – were preceded by major improvements in standard growth determinants, and particularly orthodox policies such as economic liberalisations. However, a set of counterfactual analyses suggest that such major improvements in growth determinants are a necessary but hardly sufficient condition for success, failing to accelerate growth in 9 out of 10 instances. Our overall results indicate that to increase their effectiveness, acceleration strategies should remain focussed on mainstream growth recipes, but abandon off-the-shelf approaches or all-encompassing “shock therapy” solutions, favouring improved tailoring to local economic conditions.