Some final thoughts on growth

Before we leave the issues of the drivers of growth behind and start on competitivenss, there are two interesting blog posts for you to take note of:

The first is at The Economist’s Free Exchange blog. It explains that modern supply chains may make it easier for countries to industrialise. It draws on the paper by Richard Baldwin and what he calls trade and industrialisation after globalisation’s second unbundling. This is an interesting background against which to thinking about the South Africa government’s recent industrial policy proposals, IPAP etc.

The second links to this. Rani Rodrik writes at the Project Syndicate blog that these very changes in the way production takes place may mean the end of catch-up growth. He writes:

Successful long-term development therefore requires a two-pronged push. It requires an industrialization drive, accompanied by the steady accumulation of human capital and institutional capabilities to sustain services-driven growth once industrialization reaches its limits. Without the industrialization drive, economic takeoff becomes quite difficult. Without sustained investments in human capital and institution-building, growth is condemned to peter out.

But this time-tested recipe has become a lot less effective these days, owing to changes in manufacturing technologies and the global context.

And then he explains why, and ends with this conclusion:

Manufacturing industries will remain poor countries’ “escalator industries,” but the escalator will neither move as rapidly, nor go as high. Growth will need to rely to a much greater extent on sustained improvements in human capital, institutions, and governance. And that means that growth will remain slow and difficult at best.

It is worth having a look at the whole thing.

And here is an update: Ryan Avent responds on the Free Exchange blog, challenging some of Rodrik’s conclusions.

And the story continues (16 Aug): Ryan Avent put this question to The Economist‘s “By invitation” forum:

Is the age of the growth miracle at an end, or should we expect the emerging world to continue to close the gap with the rich world?

Have a look at the replies here.


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