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Toward a microeconomics of growth

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  • Burgess, Robin
  • Venables, Anthony J.

Abstract

What drives growth at the microeconomic level? The authors divide the factors that determine a location's growth performance into two groups,"1st advantage"and"2nd advantage."The term 1st advantage refers to the conditions that provide the environment in which new activities can be profitably developed, including most of the factors on which traditional theory has focused, such as access to inputs (labor and capital), access to markets, provision of basic infrastructure, and the institutional environment. The term 2nd advantage refers to factors that increase returns to scale and can lead to cumulative causation processes. They may be acquired by learning, through technological spillovers, or by the development of thick markets of suppliers and local skills. The authors'analysis suggests that empirical investigation of the drivers of growth must shift down to a more microeconomic level. Such an analysis has become more feasible as data at the subnational level have become more available. By viewing recent empirical evidence on drivers of growth through their analytical framework, the authors are able to begin to sketch out a microeconomic agenda for growth. They emphasize that it is the manner in which 1st and 2nd advantages interact that shapes the pattern of development. The authors then turn to the example of how policy has affected manufacturing growth performance in India. They analyze links between the direction of state-level labor regulation and growth in the organized manufacturing sector, how state-led expansion of bank branches into rural areas has affected unregistered or informal manufacturing, and how the pre-reform technological capability of industries affected their response to liberalization in 1991. The analysis suggests that policy choices at the local level affect growth. Both theory and empirics need to downshift to the microeconomic level if we are to make advances in identifying specific means of encouraging innovation and growth.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3257.

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Date of creation: 01 Apr 2004
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Handle: RePEc:wbk:wbrwps:3257

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Keywords: Environmental Economics&Policies; Health Economics&Finance; Economic Theory&Research; Labor Policies; Decentralization; Environmental Economics&Policies; Economic Theory&Research; Health Economics&Finance; Governance Indicators; Achieving Shared Growth;

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References

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  1. Burgess, Robin & Pande, Rohini, 2004. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4211, C.E.P.R. Discussion Papers.
  2. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  3. Timothy Besley & Robin Burgess, 1998. "Land Reform, Poverty Reduction and Growth: Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers, Suntory and Toyota International Centres for Economics 13, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  4. Datt, Gaurav & Ravallion, Martin, 2002. "Is India's economic growth leaving the poor behind?," Policy Research Working Paper Series 2846, The World Bank.
  5. Sylvie Demurger & Jeffrey D. Sachs & Wing Thye Woo & Shuming Bao & Gene Chang & Andrew Mellinger, 2002. "Geography, Economic Policy and Regional Development in China," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1950, Harvard - Institute of Economic Research.
  6. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1285-1320, November.
  7. Chang-Tai Hsieh & Miguel Urquiola, 2003. "When Schools Compete, How Do They Compete? An Assessment of Chile's Nationwide School Voucher Program," NBER Working Papers 10008, National Bureau of Economic Research, Inc.
  8. Chiquiar, Daniel, 2005. "Why Mexico's regional income convergence broke down," Journal of Development Economics, Elsevier, Elsevier, vol. 77(1), pages 257-275, June.
  9. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
  10. F. Zilibotti & P. Aghion & R. Burgess, 2004. "The Unequal Effects of Trade Liberalization: Theory and Evidence from India," 2004 Meeting Papers, Society for Economic Dynamics 40, Society for Economic Dynamics.
  11. Henderson, J Vernon & Kuncoro, Ari, 1996. "Industrial Centralization in Indonesia," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(3), pages 513-40, September.
  12. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(1), pages 91-134, February.
  13. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 34-51, March.
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Cited by:
  1. Esther K. Ishengoma & Robert Kappel, 2008. "Business Constraints and Growth Potential of Micro and Small Manufacturing Enterprises in Uganda," GIGA Working Paper Series 78, GIGA German Institute of Global and Area Studies.
  2. Dani Rodrik & Arvind Subramanian, 2004. "From "Hindu Growth" to Productivity Surge," IMF Working Papers 04/77, International Monetary Fund.

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