Saturday, December 13, 2008

Podcast of the Day

The Growth Report: Strategies for Sustained Growth and Inclusive Development
The panel discussion featured two members of the Commission, Robert Solow, Nobel Laureate and MIT Professor Emeritus, and Danny Leipziger, Vice-President of the World Bank. Columbia professors Jagdish Bhagwati and Guillermo Calvo hosted the guests and provided comments and discussion.

The Catch-Up Game;
F&D: The Growth Report says that "sustainable high growth is catch-up growth and the global economy is the essential resource." What do you mean by that?

Spence: We called it catch-up growth because of the global economy's contribution to growth—which we found was an essential element after looking at the dynamics of the successful high-growth cases. It is pretty well understood from trade theory and modern growth theory that global markets are big and a country can grow pretty fast without expanding its market share much—and if it has the terms of trade. But the other part, which is emphasized by Paul Romer and other distinguished leaders in the area of growth theory, is that catch-up growth is really about learning. It's about knowledge transfer. It's expanding your potential output based on what the economy—both the private and public sector sides—comes to have expertise in doing, and that is the catch phrase, no pun intended, for catch-up growth. This is what, we believe, more than anything else enables countries to grow at rates in the 7–10 percent range, and nobody else can do that. You can't do it in isolation and you can't do it as an advanced country with no counterexamples because you have to invent all the technology that moves the production possibility out, whereas developing economies can, at least for a period of time, import it. You have to import it and adapt it so it takes a considerable amount of ingenuity, innovation, and adaptation.

Mohieldin: The 13 successful cases [in The Growth Report] of sustained high growth since the Second World War used their integration with the world in a very successful way through the vehicles of knowledge—obtaining it either directly by sending people to get educated abroad, or getting them through training programs—or even through foreign direct investment.

I am from a generation that was taught that the three pillars of any economic activity were land, labor, and capital, and when you added them together with an entrepreneur, you would see the marvels of economic activity. Today those three pillars have been replaced. In an interesting piece of work, Professor Romer discusses endogenous growth, and—according to him—the three new aspects of development are, first, learning, innovation, and the transfer of ideas. Second, labor has been replaced by "people," not just those who are in the workplace but those who could be in the workplace as well as those who are communicating with them. Third, to be safe, they added "other things," which could be anything such as capital, additional resources, etc. So today the three pillars are ideas, people, and other things.

The success stories of Singapore, Malaysia, Korea, China, and, more recently, India and Vietnam are based on these new pillars, rather than the traditional ones. And further integration with the rest of the world can benefit countries even more. This means globalization is going to remain relevant, even though I'm saying so at a time when people might be questioning the very merits of globalization.

The Ingredients of Sustained High Growth

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