Tuesday, September 15, 2015

Inclusive Growth

Just read a very interesting article on '...the need to expand participation in the benefits of economic growth.'

Maybe geography is very important for growth but institutions do matter on how the benefits of growth are shared.
There is a growing recognition of the importance of institutions – particularly legal frameworks and public agencies that administer rules and incentives – in the development process.'
After mentioning the findings of the 1993 WB study 'The East Asian Miracle', the authors continue..
'...The lesson is also apparent in the economic history of the twentieth century, when – especially in the decades following the Great Depression – most of today’s advanced industrialized countries underwent a sustained process of institutional deepening that broadened the base and strengthened the resilience of their economies. Reforms targeting labor policy, the investment climate, social insurance, competition, education, and infrastructure created a more inclusive and more sustainable growth model by spreading purchasing power, which supported aggregate demand and reduced vulnerability to investment-driven booms and busts.'
The following paragraph is perhaps the most important for IB Economics students to comprehend.  It clearly goes beyond the typical 'recipe' most candidates offer in related essays and forces them to focus more on the importance of 'inclusive' growth (remember the Acemoglu / Robertson book 'Why Nations Fail'; see older post):
Our research has identified 15 domains that are important for promoting social inclusion. These include educational opportunity and performance, the relationship between productivity and wage growth, the concentration of economic rents, the effectiveness of the financial system’s intermediation of investment in the real economy, physical and digital infrastructure, and the coverage and adequacy of basic social protections. They also include areas not traditionally considered equality-enhancing – such as facilitating asset-building through small-business and home ownership and combating corruption – but that are just as important as education or redistribution for improving living standards.
The full article was read at Project Syndicate and the link is here.