Institutional innovations, growth performance and policy

The aggregate picture of world economic growth shows a remarkable diversity in growth performance, both geographically and across time. We find high growth countries and low growth countries; countries that have grown rapidly throughout time, and countries that have experienced growth spurts for a decade or two; countries that took off around 1980, and countries whose growth collapsed around 1980. What is the role of policy in this diversity? How can policy help transform this picture? This paper tries to answer these questions, analysing the performance of the high growth developing countries and the way they developed institutional innovations. Analysis of the success story of China, with an astonishing annual growth rate of 8.0 percent since the late 1970s, together with other well-known East Asian experiences that have taken place in countries such as South Korea and Taiwan, provide the basis to build some stylised facts about the take-off and the process of sustaining economic growth. On the other hand, the experience of liberalisation, deregulation and privatisation in countries such as Mexico, Argentina, Brazil, Colombia, Bolivia, and Peru have offered substantial evidence that allows us to question the standard formulae used to propel and maintain economic growth. The paper puts forth three main conclusions that could be extensive to the growth of sub-national regions: a) Successful reforms are those that put together sound economic principles and local capabilities, constraints and opportunities; b) Economic growth is not the natural order of things, and setting up a fair and levelled ground may not be enough to stimulate productive dynamism; c) Institutional innovation requires a not be enough to stimulate productive dynamism; pragmatic approach that avoids ideological lock-in. Keywords: Economic growth, development policy, market/government failure, institutions, spillovers, stylised facts.