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Economic Growth: Shared Beliefs, Shared Disappointments?

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  • Hausmann, Ricardo

    (Harvard U)

Abstract

There are two widely-held views on economic growth: 1) it is a natural outcome of getting ‘the basics’ right-- international integration, macroeconomic stability, and contract enforcement; and 2) it is hard, requiring a complete set of first, second, and third generation reforms that have little payoff until they are all implemented. Yet the evidence shows that growth accelerations do not naturally arise from the Washington Consensus basics, nor do they require extensive reform. Instead, accelerations are triggered by a more effective focus on identifying and removing the binding constraints to growth as they arise. This shifts the focus from creating a laundry list of reforms to using diagnostic signals to identify what particular constraints are holding back growth in a particular country at a particular time. Furthermore, growth involves not only coping with government failures, but also eliminating market failures. Therefore it is not just government sins of commission that drive down growth, it is also sins of omission: things that governments are not doing to overcome market failures. In many instances, there are ad hoc solutions that get the job done. Identifying and implementing such solutions requires a dynamic policy process where problems are identified and addressed, overcoming market failures while containing government failures. [Jointly published as Center for International Development Working Paper No. 125 and KSG Faculty Research Working Paper Series RWP06-030.]

Suggested Citation

  • Hausmann, Ricardo, 2006. "Economic Growth: Shared Beliefs, Shared Disappointments?," Working Paper Series rwp06-030, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp06-030
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    Cited by:

    1. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    2. Alex Bowen & Sarah Cochrane & Samuel Fankhauser, 2012. "Climate change, adaptation and economic growth," Climatic Change, Springer, vol. 113(2), pages 95-106, July.
    3. repec:wsi:jicepx:v:02:y:2011:i:02:n:s1793993311000300 is not listed on IDEAS
    4. Dragan TEVDOVSKI & Vladimir FILIPOVSKI & Igor IVANOVSKI, 2014. "A Diagnostics Approach To Economic Growth In Small Open Economies: The Case Of The Republic Of Macedonia," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 13, pages 47-68, June.
    5. Bowen, Alex & Cochrane, Sarah & Fankhauser, Samuel, 2012. "Climate change, adaptation and economic growth," LSE Research Online Documents on Economics 39939, London School of Economics and Political Science, LSE Library.

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