In Search of a Growth Policy Package

Abstract

This chapter captures the essence of what I learned about growth policy on the job at the World Bank. Drawing from the country stories in the book, I present a canonical growth policy package. This package consists of three interconnected elements: ensuring a sound government intertemporal budget constraint; implementing the micropolicy trio of hard budgets, product market competition, and competitive real exchange rates; and managing volatility. This is the minimum that developing country governments need to do to spur catch-up growth. The package’s validity is reinforced by the cumulative emerging market experience since the 1980s. It is not easy to implement, inevitably getting into the rocky terrain of vested interests and political economy; and, unfortunately, there are no shortcuts.