The Mystery of Growth

• Author: Laura Wallace
• Position: Editor-in-Chief

For policymakers around the world, finding ways to promote faster growth is a top priority. Economists tend to advise them that disciplined macroeconomic policies, structural policies that promote competition and flexibility, and strong institutions (given particular emphasis nowadays) provide a framework in which entrepreneurship and growth should flourish. But fleshing out this general prescription and gathering detailed evidence to support it has been extremely difficult. What exactly do economists know and not know about growth? What direction should future research and policymaking take? The March issue of F&D checked in with prominent players in this field to try to demystify growth.

Our collection of articles begins with the World Bank's recent major growth study, which concludes that there is no unique, universal set of rules to guide policymakers, as most development economists believed in the 1950s and 1960s but doubted in the late 1980s and early 1990s. The study urges less reliance on simple formulas and the elusive search for "best practices," and greater reliance on deeper economic analysis to identify each country's binding constraint(s) on growth. This is an idea that Harvard University's Ricardo Hausmann, Dani Rodrik, and Andrés Velasco have been pushing in recent years. They insist it's vital to separate out those reforms that are essential for growth from those that are merely desirable because of efficiency gains. F&D looks at their proposed growth diagnostics framework and how it fared in a recent Bank pilot study. We also spotlight two IMF studies that draw on new analytical methods to help developing country policymakers-who are counting on higher growth rates to help them dramatically reduce poverty-decide how to sustain and...