Learning from double-digit growth experiences

A paper which tries to balance the B-S debate.

It is by Eric D. Werker of HBS. He compares double digit growth experiences with 6-7% ones and shows latter is actually better on many counts. This research is with respect to Liberian economy which is expected to grow in double digits (well India is not the only one as we are made to believe). So should it aspire to grow in double digits? What is the experience of other double-digit growers?

Double-digit growth in real GDP is defined as a compound annual growth rate of 10 percent or more over a period of eight years or longer. This paper was written as a policy memorandum for the Government of Liberia, which seeks rapid growth in order to reach middle-income status by 2030. For Liberia, current IMF forecasts predict growth in real GDP on the order of 6 to 7 percent per year.

The comparative analysis of this paper asks: In what ways do countries growing real GDP at double-digit rates differ from countries growing real GDP at rates of 6-7 percent? Overall, the findings suggest that Liberia is reasonably well positioned to become another country with double-digit growth. Yet as the analysis shows, countries that have attained double-digit growth are not unequivocally a group that one should strive to join. The ultra-rapid growers whose growth has been driven by resources, aid, or remittances have not generally conducted the sorts of reforms to the legal, regulatory, and governance environment that could have generated high growth without such unearned income. They have also not generally invested their rents well in infrastructure or human capital. Moreover, post-conflict double-digit growers have found it difficult to reform or invest well. 

More specifically:

  • Despite double-digit growth, the correlates of such growth generally leave question marks as to the broad impact on the population of many episodes of economic performance.
  • Although their macroeconomic numbers look better than the slower growers, the double-digit group looks precarious in other respects-notably governance and the regulatory environment.
  • On average, the double-digit growers exhibited a worse performance on every indicator of the quality of the business environment compared to the 6-7 percent growers. For example, legal rights were weaker, it took more time to register property, more money to start a business, and there were higher corporate taxes and informal payments to government officials.
  • Many members of the double-digit group have failed, even after the high-growth episode, to reduce corruption, invest in education, and raise human development indices.
  • Liberia is actively working to improve a number of indicators-physical infrastructure, internet connectivity, governance, and health measures-that appeared in this study as being weaker than those of the double-digit-growth countries.

Interestingly India features in the 6-7% category. We haven;t done too well in things like corruption, infrastructure etc. as well.

Such studies point to interesting differences but becomes difficult to generalise. ..

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