Abstract
This chapter explains which political and economic developments led to the emergence of a new generation of development economists. Their principal economic philosophy is described, followed by a brief analysis of Washington Consensus policies, as applied by international financial institutions and donor countries in helping Latin American and sub-Saharan African nations to overcome financial crises. A succinct overview of successive growth theories, including dissenting views, is presented. This chapter’s final section contains an analysis of East Asia’s spectacular economic growth, reflective of first and second generation policy advice.
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Notes
- 1.
Hausmann, R., Pritchett, L., Rodrik, D. Growth Accelerations. Cambridge: NBER Working Paper 10566, June 2004, 14.
- 2.
Justin Lin argues that many state-sponsored enterprises are not viable because they are in the wrong sectors, in which the country has absolutely no comparative advantage. ‘But most economists working in the developed countries, with the implicit assumption of enterprise viability, only see the distortions in the market and government’s interventions in resource allocation and firm management—and assume these distortions are the main reasons for the poor performance in the socialist and transition economies’. Source: Lin, J. (2012) Demystifying the Chinese Economy. Cambridge: Cambridge University Press, 270.
- 3.
Meier , G. (2001) The Old Generation of Development Economists and the New. In Frontiers of Development Economics. Ed: Meier, G. and Stiglitz, J. New York: Oxford University Press, 23.
- 4.
Krueger, A. (1981) Loans to Assist the Transition to Outward-Looking Policies. In World Economy, vol. 4, no. 3, September, 280.
- 5.
The Old Generation of Development Economists and the New, 22.
- 6.
Ibid., 18.
- 7.
Bliss, C. (1989) Trade and Development. In Hollis Chenery and T. Srinivasan, eds. Handbook of Development Economics, Vol.2. Amsterdam: North Holland, 1188.
- 8.
Thirlwall, A. and Pacheco-López, P. (2017) Economics of Development, Tenth Edition. London: Palgrave Macmillan, 8.
- 9.
Little , I. (1982) Economic Development; Theory, Policy, and International Relations. New York: Basic Books, 16.
- 10.
Krueger, A. (1986) Aid in the Development Process. In World Bank Research Observer 1 (1), 62.
- 11.
Naqvi , S. (1996) The Significance of Development Economics. In World Development, 24 (6), 975–987.
- 12.
The Old Generation of Development Economists and the New, 39.
- 13.
Williamson, J. (1990) What Washington Means by Policy Reform. In Latin American Adjustment: How Much Has Happened? Ed. J. Williamson. Washington: Institute for International Economics.
- 14.
Ibid., 182–183.
- 15.
Ibid., 22.
- 16.
This is so because a higher savings or investment ratio is offset by a higher capital-output ratio or lower productivity of capital, because of the neoclassical assumption of diminishing returns to capital.
- 17.
Economics of Development, 109. On the same page, the authors conclude that the model is designed to show that an economy will tend towards a long-run equilibrium capital-labour ratio at which output (or income) per head is also in equilibrium, so that output, capital and labour all grow at the same rate. The model therefore predicts long-term equilibrium at the natural rate.
- 18.
Myrdal, G. (1957) Economic Theory and Underdeveloped Regions. London: Methuen.
- 19.
The Economist’s Free Exchange column of 14 April 2018 quoted Moses Abramovitz’s quip about this residual factor: it was ‘a measure of our ignorance’. Abramovitz (1912–2000) added that that it was also ‘some sort of indication where we need to concentrate our attention’. He had discovered that in the first half of the twentieth century between 80% and 90% of the growth of output per head in the American economy could not be accounted for by capital increase. So, something unidentified should explain this growth.
- 20.
Harberger, A. (1983) The Cost-Benefit Approach to Development Economics. In World Development, Vol. 11, No. 10, 864.
- 21.
Easterly, W. (2002) The Elusive Quest for Growth; Economists’ Adventures and Misadventures in the Tropics. Cambridge: The MIT Press, 56.
- 22.
I repeat here Easterly’s observation, included in Chap. 1. Easterly provides the following developments: ‘For the period 1960–1999, the poorest countries did significantly worse than the rich countries, with the poorest two-fifths barely mastering positive growth. The poorest four-fifth of countries in 1960 … roughly correspond to what later became known as the Third World. Seventy percent of these Third World countries grew more slowly over the whole period than the median growth of 2.4 percent per capita for the richest countries. They were falling behind, not catching up.’ Source: The Elusive Quest for Growth, 60.
- 23.
Ibid., 146.
- 24.
Lucas , R. (1988) On the Mechanics of Economic Development. In Journal of Monetary Economics, 22(1): 3–42. Romer, P. (1986) Increasing Returns and Long-Run Growth. In Journal of Political Economy, 94(5): 1002–1037. Romer, P. (1990) Endogenous Technical Change. In Journal of Political Economy, 98(5): 71–102.
Romer, P. (1994) The Origins of Endogenous Growth. In Journal of Economic Perspectives, (Winter), 3–22.
Rebelo, S. (1991) Long-run Policy Analysis and Long-run Growth. In Journal of Political Economy, 99(3): 500–521.
- 25.
Romer, P. Increasing Returns and long-Run Growth. In Journal of Political Economy, 1986, Vol. 94, no.5, 1003.
- 26.
Ibid., 1003.
- 27.
Lal, D. and Myint, H. (1996) The Political Economy of Poverty, Equity, and Growth. Oxford: Oxford University Press, 76.
- 28.
Ibid., 77.
- 29.
Ibid., 77, 78.
- 30.
Barro, R, Sala-i-Martin, X. (1992) Convergence. Journal of Political Economy, 100 (2).
- 31.
Barro, R. and Sala-i-Martin, X. Technological Diffusion, Convergence, and Growth. Cambridge: NBER Working Paper No. 5151, June 1995.
- 32.
Ibid., 131. Rodrik, D. (2013) Unconditional Convergence in Manufacturing. In Journal of Economic Perspectives, 128(8), 165–204.
- 33.
Maddison, A. (1995) Monitoring the World Economy 1880–1992. Paris: OECD, 49.
- 34.
Milanovic, B. (2016) Global Inequality, a New Approach for the Age of Globalization. Cambridge: The Belknap Press, 5.
- 35.
Senhadji, A. (2000) Sources of Economic Growth: An Extensive Growth Accounting Exercise. In IMF Staff Papers, 47(1), 129–157.
- 36.
Economics of Development, 123.
- 37.
Ibid., 131.
- 38.
Berendsen , B., Dietz, T., Schulte Nordholt, H., van der Veen, R., Eds: (2013) Asian Tigers, African Lions; Comparing the Development Performance of Southeast Asia and Africa. Leiden: Koninklijke Brill.
- 39.
Cambodia, Indonesia, Malaysia, Vietnam, Kenya, Nigeria, Tanzania, and Uganda.
- 40.
Thirlwall and Pacheco-López observe: ‘If there is an overriding factor that explains why some countries developed before others, and why some countries are still backward without a significant industrial sector, it lies in the condition of agriculture, which, in the early stages of development, is the sector that must release factors of production for other activities and provide the purchasing power over industrial goods.’ Source: Economics of Development, 22.
- 41.
The attention given to the role of the state, in combination with political realities on the ground, is reflective of the approach taken by new political economy which attempts to endogenise the decisions of politicians, bureaucrats, and administrators.
- 42.
Asian Tigers, African Lions, 30.
- 43.
Economics of Development, 22.
- 44.
Stiglitz, J. (1989). Markets, Market Failures, and Development. In American Economic Review, 79 (2, May), 197–203.
- 45.
Ha-Joon Chang (Ed.) (2004) Rethinking Development Economics. London: Anthem Press, 6.
- 46.
Ibid., 6.
- 47.
The Elusive Quest for Growth, 150.
- 48.
Krugman, P. (1992) Toward a Counter-Counterrevolution in Development Theory. In Proceedings of the World Bank Annual Conference on Development Economics. Washington: World Bank, 29.
- 49.
Krugman makes interesting observations in comparing the new growth theory with high development theory: ‘New growth theory has been preoccupied with a different question than high development theory: how to explain the persistence of growth rather than how to get it started. And it is notable that new growth models tend to assume that the economy has only one sector, or that all sectors are symmetric. By contrast, high development theory had a core preoccupation with the difference between modern sectors that were presumed to be characterized by economies of scale and traditional sectors that were not.’ Source: Ibid., 31.
- 50.
Krugman , referring to Rosenstein-Rodan’s 1943 paper Problems of Industrialization of Eastern and South-Eastern Europe, argues: ‘We begin with Rosenstein-Rodan (1943). In his seminal paper he illustrated his argument for coordinated investment by imagining a country in which 20,000 (!) ‘unemployed workers … are taken from the land and put into a large new shoe factory. They receive wages substantially higher than their previous income in natura.’ Rosenstein-Rodan then goes on to argue that this investment is likely to be unprofitable in isolation but profitable if accompanied by similar investments in many other industries. Both crucial assumptions are clearly present: the assumption of economies of scale, embodied in the assertion that the factory must be established at such a large scale, and the assumption that these workers can be drawn elastically from among the unemployed or poorly paid agricultural workers.’ Source: Ibid., 21.
- 51.
The East Asian Miracle; Economic Growth and Public Policy. New York: Oxford University Press (1993).
- 52.
Berger, P. (1987) The Capitalist Revolution: Fifty Propositions about Poverty, Equality and Liberty. Aldershot: Gower.
- 53.
The role of institutions in the development process is elaborated by the next generation of development economists, presented in Chap. 6.
- 54.
Regarding Japan’s funding role, Rodrik observes that Japan felt that World Bank advice given to developing countries relied too much on the American preference for a free market model and under-played the role of the state in promoting industrialization and development. Source: Rodrik, D. (2011) The Globalization Paradox. New York: W.W. Norton, 144.
- 55.
Nonetheless, Botswana, Egypt, Gabon, and Lesotho also performed very well. In fact, Botswana’s GDP per capita growth was fastest of all, thus outperforming all HPAEs.
- 56.
The East Asian Miracle, 5. Alwyn Young confirms that there was not really a ‘miracle’ involved. He applied the production function model to demonstrate that no miraculous development had taken place in the Asian countries as studied. His paper shows that, indeed, their economic growth had been spectacular between 1966 and 1990, but most of it can be explained by the rapid growth of factor accumulation. Young adds that there was nothing abnormal about the growth of total factor productivity as they are closely approximated by the historical performance of many OECD and Latin American economies. Source: Young, A. The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience. In The Quarterly Journal of Economics, August 1995.
- 57.
Ibid., 6.
- 58.
Amsden , A. Why Isn’t the Whole World Experimenting with the East Asian Model to Develop?: Review of The East Asian Miracle. In World Development, Vol. 22, No. 4, 627–633, 1994. Amsden argues on p. 630 that the genesis of The East Asian Miracle study started with the Japan World Bank Delegation’s frustration with what it saw as the Bank’s obsessive emphasis on free market policies despite contrary East Asian evidence.
- 59.
Ibid., 628.
- 60.
Krugman, P. The Myth of Asia’s Miracle. In Foreign Affairs, 73 (6), 62–78; 1994.
- 61.
Demystifying the Chinese Economy. Cambridge: Cambridge University Press, 145.
- 62.
Griffin, K. and Enos, J. (1970) Foreign Assistance: Objectives and Consequences. In Economic Development and Cultural Change, Vol. 18, No.3, April, 313. By the way, Sheridan was an eighteenth century Irish satirist.
References
Amsden, A. (1994). Why Isn’t the Whole World Experimenting with the East Asian Model to Develop? Review of the East Asian Miracle. World Development, 22(4), 627–633.
Barro, R., & Sala-i-Martin, X. (1992). Convergence. Journal of Political Economy, 100(2), 223–251.
Barro, R., & Sala-i-Martin, X. (1995). Technological Diffusion, Convergence, and Growth. NBER Working Paper No. 5151. Cambridge: National Bureau of Economic Research.
Berendsen, B., Dietz, T., Schulte Nordholt, H., & van der Veen, R. (Eds.). (2013). Asian Tigers, African Lions; Comparing the Development Performance of Southeast Asia and Africa. Leiden: Koninklijke Brill.
Berger, P. (1987). The Capitalist Revolution: Fifty Propositions About Poverty, Equality and Liberty. Aldershot: Gower.
Bliss, C. (1989). Trade and Development. In H. Chenery & T. Srinivasan (Eds.), Handbook of Development Economics, Vol. 2. New York: North Holland.
Chang, H.-J. (Ed.). (2004). Rethinking Development Economics. London: Anthem Press.
Easterly, W. (2002). The Elusive Quest for Growth; Economists’ Adventures and Misadventures in the Tropics. Cambridge: The MIT Press.
Free Exchange. (2018, April 14). The Economist.
Griffin, K., & Enos, J. (1970). Foreign Assistance: Objectives and Consequences. Economic Development and Cultural Change, 18(3), 313–327.
Harberger, A. (1983). The Cost-Benefit Approach to Development Economics. World Development, 11(10), 863–873.
Hausmann, R., Pritchett, L., & Rodrik, D. (2004). Growth Accelerations. NBER Working Paper 10566. Cambridge: National Bureau of Economic Research.
Krueger, A. (1981). Loans to Assist the Transition to Outward-Looking Policies. World Economy, 4(3), 271–282.
Krueger, A. (1986). Aid in the Development Process. World Bank Research Observer, 1(1), 57–78.
Krugman, P. (1992). Toward a Counter-Counterrevolution in Development Theory. In Proceedings of the World Bank Annual Conference on Development Economics. Washington: World Bank.
Krugman, P. (1994). The Myth of Asia’s Miracle. Foreign Affairs, 73(6), 62–78.
Lal, D., & Myint, H. (1996). The Political Economy of Poverty, Equity, and Growth. Oxford: Oxford University Press.
Lin, J. (2012). Demystifying the Chinese Economy. Cambridge: Cambridge University Press.
Little, I. (1982). Economic Development; Theory, Policy, and International Relations. New York: Basic Books.
Lucas, R. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3–42.
Maddison, A. (1995). Monitoring the World Economy 1880–1992. Paris: OECD.
Meier, G. (2001). The Old Generation of Development Economists and the New. In G. Meier & J. Stiglitz (Eds.), Frontiers of Development Economics. New York: Oxford University Press.
Milanovic, B. (2016). Global Inequality, a New Approach for the Age of Globalization. Cambridge: The Belknap Press.
Myrdal, G. (1957). Economic Theory and Underdeveloped Regions. London: Methuen.
Naqvi, S. (1996). The Significance of Development Economics. World Development, 24(6), 975–987.
Rebelo, S. (1991). Long-run Policy Analysis and Long-run Growth. Journal of Political Economy, 99(3), 500–521.
Rodrik, D. (2007). One Economics, Many Recipes; Globalization, Institutions, and Economic Growth. Princeton: Princeton University Press.
Rodrik, D. (2011). The Globalization Paradox. New York: W.W. Norton.
Rodrik, D. (2013). Unconditional Convergence in Manufacturing. Journal of Economic Perspectives, 128(8), 165–204.
Romer, P. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002–1037.
Romer, P. (1990). Endogenous Technical Change. Journal of Political Economy, 98(5), 71–102.
Romer, P. (1994). The Origins of Endogenous Growth. Journal of Economic Perspectives, 8(1), 3–22.
Senhadji, A. (2000). Sources of Economic Growth: An Extensive Growth Accounting Exercise. In: IMF Staff Papers, 47(1), 129–157.
Stiglitz, J. (1989). Markets, Market Failures, and Development. American Economic Review, 79(2), 197–203.
The East Asian Miracle; Economic Growth and Public Policy. (1993). New York: Oxford University Press.
Thirlwall, A., & Pacheco-López, P. (2017). Economics of Development (10th ed.). London: Palgrave Macmillan.
Williamson, J. (1990). What Washington Means by Policy Reform. In J. Williamson (Ed.), Latin American Adjustment: How Much Has Happened? Washington: Institute for International Economics.
Young, A. (1995). The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience. The Quarterly Journal of Economics, 110(442), 641–680.
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de Haan, P. (2020). The Second Generation of Development Economists. In: Whatever Happened to the Third World?. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-39613-8_5
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