The Anatomy of a ‘Growth Miracle’

Abstract

Many economists (e.g. Lucas 1993) have argued that ‘growth miracles’ in less developed regions can easily arise out of increased innovation based upon inflows of foreign direct investment (FDI) from the technologically most advanced regions. As pleasing as this thought is to most Western observers, empirical studies (e.g. Kim and Lau 1992; Young 1992, 1995; and numerous country-specific studies) have systematically found that total input expansion rather than technological change explains virtually all of the growth in most recent high-growth experiences. In view of these studies, several economists (e.g. Ventura 1997; Radelet and Sachs 1998) have argued that the ‘growth booms’ from the mid-late 1980s through the mid-late 1990s (although subsequently largely aborted) can be theoretically and empirically explained by sudden increases in the profits from investments within the country.