What Makes Poor Economies Grow?

Development economists have long debated whether there is a canonical playbook to guide countries up the income ladder, or whether it is better for policymakers to focus on local problems and solutions. But the two approaches need not be mutually exclusive. 

In this Big Picture, Yao Yang of Peking University argues that the basic ingredients for sustained growth are long-established, but have been forgotten in an age of shifting economic paradigms. And, as Harvard’s Arvind Subramanian and Dani Rodrik show, the countries that followed the paradigm of capital-account liberalization in recent decades have fared worse than those – like China – that did not. 

At a time when the neoliberal paradigm has come under fire, Kaushik Basu, Francois Bourguignon, Justin Yifu Lin, and Joseph E. Stiglitz offer eight principles that should guide development policies. But policies are only as good as their implementation, and Nobel laureate economist Angus Deaton argues that a Western obsession with foreign aid has distracted from the need to improve state capacity in poorer countries. Similarly, in a commentary from the archives, the late Mancur Olson reminds us that institutions and the arrangement of incentives at all levels of the economy matter more than whether a system realizes any particular state- or market-oriented ideology.