the past and future of economic growth

The Past and Future of Economic Growth

Dani RodrikSW31/PED-233/Law School 2390

Spring 2013

The (changing) global distribution of income

0.1

.2.3

kern

el d

istri

butio

n

2 4 6 8 10 12ln income (2005 PPP dollars)

1988 2005

Source: Rodrik (2012), via data from Milanovic (2011)

Where are individual countries in the global distribution of income?

Would you rather be rich in Nigeria or poor in the U.S.?

0.2

.4.6

4 6 8 10 12ln income (2005 PPP dollars)

Nigeria

China

U.S.A.

Accounting for the rise in global inequality over the long term

1820 1929 20050

0.2

0.4

0.6

0.8

1

1.2

within-country inequalitybetween-country inequality

log

mea

n de

viat

ion

The Great Divergence

100

1,000

10,000

100,000

1700 1820 1870 1900 1913 1950 1975 1990 2008

per-

capi

ta G

DP, l

ogar

ithm

ic ax

isGrowth over the long term

Western Europe

Western Offshoots

Latin America

East Asia

Africa

The origins of the Great Divergence: industrialization and de-industrialization

Table III.1: Industrialization before the First World WarPer-capita levels of industrialization (U.K = 100 in 1900)

1750 1800 1830 1860 1880 1900 1913Developed countries 8 8 11 16 24 35 55U.K. 10 16 25 64 87 100 115U.S. 4 9 14 21 38 69 126Germany 8 8 9 15 25 52 85Japan 7 7 7 7 9 12 20

Developing countries 7 6 6 4 3 2 2China 8 6 6 4 4 3 3India 7 6 6 3 2 1 2Brazil n.a. n.a. n.a. 4 4 5 7Mexico n.a. n.a. n.a. 5 4 5 7

Source: Bairoch (1982)

income level(labor productivity)

institutionstrade, global integration

geographyWhich are the most important links, how do they differ across contexts, and why?

culture

The “deep determinants” of development



geographyGeographical determinism: resource supplies, public health environment, access to trade routes, state formation…

culture




geographyCultural determinism: the “protestant ethic”, Confucianism, innate proclivity to entrepreneurship, thrift, etc.

culture




geographyTrade fundamentalism: globalization, imperialism…

culture




geographyInstitutions fundamentalism: property rights and contract enforcement

culture


What about agency? Ideas, institutional innovations, political strategies… Exogenous background conditions that change slowly are

obviously important, but can they fully explain: The successive shifts in economic (and political power) from

Spain/Portugal to Britain to U.S.? Japan after Meiji restoration (1868)? South Korea and Taiwan since the early 1960s? China after 1978? Latin America and Africa’s repeated growth-stagnation cycles since

19th century? The diversity of institutional patterns among “successful” societies? The divergence in economic performance among poorer nations

despite intensification of globalization?

A constant cannot explain a change. Future may be less pre-determined than many of the established

theories would suggest

The two imperatives of economic growth1. “Fundamentals”: building broad capabilities in the forms

of human capital and effective public institutions Takes time, requires broad-based complementary

investments, and produces steady but moderate growth2. “Structural transformation”: emergence and expansion

of modern industries Requires narrower range of reforms (that are often sectoral)

to remove/compensate for costs modern industries face, and produces rapid growth until dualism eliminated

The set of policies required to foster these two dynamics overlap, but are not sameIn particular, role of unconventional policies to stimulate new industries (as in East Asia)

A typology of growth outcomes

Structural transformation slow rapid

Investment in fundamentals

low

(1) no growth (2) episodic growth

high

(3) slow growth

(4) rapid, sustained growth

A typology of post-war growth outcomes

Structural transformation slow rapid

Investment in fundamentals

low

(1) Sub-Saharan Africa (2) Many countries under ISI, China?

high

(3) post-1990 Latin

America

(4) South Korea, Taiwan

the past and future of economic growth

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