kmguru
12-30-07, 09:49 PM
Is this valid today?
The Quest for Growth
How we wandered the tropics trying to figure out how to make poor countries rich.
November 16, 1998
by William Easterly
We economists have been on a quest for the secret to economic growth. In the mythology of the quest, a person and some companions set out on a dangerous journey in search of some magical object such as the Holy Grail or Golden Fleece. But they discover in the course of the journey that the solution they are seeking lies not with the magical object but within themselves.
A modern version of the quest story is the movie The Wizard of Oz. A tornado blows Dorothy into the land of Oz. She is desperate to get back home, and the inhabitants inform her that the Wizard of Oz can help her. She embarks on a dangerous journey to meet the Wizard of Oz. The Wizard tells her to fetch the magical broomstick of the Wicked Witch of the West. Alas, the Wizard turns out to be a fraud and the broomstick is worth no more than your standard K-mart broom. However Glinda, the Good Witch of the North, tells Dorothy that she has had the power within her to return home all along. All she has to do is click her heels together 3 times and repeat, "There’s no place like home. There’s no place like home. There’s no place like home."
We development economists have tried different broomsticks that turned out not to be the answer after all. Then we remembered the principle of economics that we had in ourselves all along, "People respond to incentives, people respond to incentives, people respond to incentives." The story of our quest for growth is one of discarding false panaceas and instead applying the principle that "people respond to incentives."
Among the false panaceas we have had to discard as incompatible with "people respond to incentives" are Filling the Financing Gap, Reliance on Human and Physical Capital Accumulation Alone, and Structural Adjustment without adjustment.
Instead we have realized that people in the private sector and public sector both respond to incentives. New theories of growth stress that private agents choose the quantity and quality of most inputs into production, and that the return to those inputs may vary depending on what other private agents are doing. Political economy theories describe how government officials respond to incentives when they choose economic policies. If incentives for the private and public sector to invest in the future are good, then growth will happen; if incentives are poor, growth will not happen. Empirical evidence on growth and policy bears out this prediction. People respond to incentives, people respond to incentives, people respond to incentives.
Read More (http://www.her.itesm.mx/home/ppenia/questforgrowth.html)
The Quest for Growth
How we wandered the tropics trying to figure out how to make poor countries rich.
November 16, 1998
by William Easterly
We economists have been on a quest for the secret to economic growth. In the mythology of the quest, a person and some companions set out on a dangerous journey in search of some magical object such as the Holy Grail or Golden Fleece. But they discover in the course of the journey that the solution they are seeking lies not with the magical object but within themselves.
A modern version of the quest story is the movie The Wizard of Oz. A tornado blows Dorothy into the land of Oz. She is desperate to get back home, and the inhabitants inform her that the Wizard of Oz can help her. She embarks on a dangerous journey to meet the Wizard of Oz. The Wizard tells her to fetch the magical broomstick of the Wicked Witch of the West. Alas, the Wizard turns out to be a fraud and the broomstick is worth no more than your standard K-mart broom. However Glinda, the Good Witch of the North, tells Dorothy that she has had the power within her to return home all along. All she has to do is click her heels together 3 times and repeat, "There’s no place like home. There’s no place like home. There’s no place like home."
We development economists have tried different broomsticks that turned out not to be the answer after all. Then we remembered the principle of economics that we had in ourselves all along, "People respond to incentives, people respond to incentives, people respond to incentives." The story of our quest for growth is one of discarding false panaceas and instead applying the principle that "people respond to incentives."
Among the false panaceas we have had to discard as incompatible with "people respond to incentives" are Filling the Financing Gap, Reliance on Human and Physical Capital Accumulation Alone, and Structural Adjustment without adjustment.
Instead we have realized that people in the private sector and public sector both respond to incentives. New theories of growth stress that private agents choose the quantity and quality of most inputs into production, and that the return to those inputs may vary depending on what other private agents are doing. Political economy theories describe how government officials respond to incentives when they choose economic policies. If incentives for the private and public sector to invest in the future are good, then growth will happen; if incentives are poor, growth will not happen. Empirical evidence on growth and policy bears out this prediction. People respond to incentives, people respond to incentives, people respond to incentives.
Read More (http://www.her.itesm.mx/home/ppenia/questforgrowth.html)